AI OCR 
TaxTMI 
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2023 (10) TMI 1051
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....de. Grounds relating to transfer pricing adjustment: 2. The Ld.AO/Hon'ble DRP erred in law and on facts in rejecting the Transfer Pricing ("TP") Documentation of the Assessee in relation to the international transaction involving payment of interest on non-convertible debentures to DB International (Asia) Ltd, without considering the fact that the Assessee's TP Documentation was in accordance with the Indian Transfer Pricing Regulations. 3. The Ld. AO/Hon'ble DRP erred in law and on facts by not appreciating the complete facts of the Assessee's international transaction Involving issuance of secured, rated, listed and Rupee denominated Non-convertible debentures (NCDs") to DB International (Asia) Limited which was, at the time of entering into, an uncontrolled transaction between independent entities. 4. The Ld. AO/Hon'ble DRP erred in law and on facts by alleging that the Assessee has resorted to profit shifting by paying higher rate of Interest on NCDs to DB International (Asia) Limited. 5. The Hon'ble DRP has erred in rejecting the following comparable companies selected by the Assessee: (i) Shree Sukhakarta Developers Pvt Ltd (14%) (ii) ....
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....ut prejudice to above, the Ld. AO/Hon'ble DRP has erred in law and on facts in making further addition of INR 57,92,15,385/- u/s 56(2)(viia) of the Act on account of acquisition of equity shares of Takshila Tech Parks & Incubators (India) Private Limited ("TTPL") by determining the Fair Market Value ("FMV") of the shares under Rule 11UA(1)(c)(b) of the Income-tax Rules, 1962 ("IT Rules"), adopting the valuation date as 31 March, 2016. 15. The Hon'ble DRP has erred on facts in holding that the Assessee has requested to rely on unaudited financials of TTPL as on 31 August, 2016 for computing the FMV of shares of TTPL. The Hon'ble DRP has erred in not appreciating that the Assessee has requested to consider the audited balance sheet as on the valuation date i.e., 30 September, 2016 for computing the FMV of shares of TTPL. 16. The Hon'ble DRP has erred on facts by denying the impairment loss of INR 64,74,02,716/- in computation of FMV of shares of TTPL, on the premise that the impairment pertains to land parcels, whereas the impairment pertains to buildings. 17. The Ld. AO/ Hon'ble DRP has erred in law and on facts in making a disallowance of INR 37,86,302/....
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....mited at SBI base rate plus 50 basis points, on an adhoc basis. 7. The Ld. AO/Hon'ble DRP erred in law and on facts in making an upward transfer pricing adjustment of INR 3,04,48,912/- by determining the ALP of the interest on NCDs paid to DB International (Asia) Limited without identifying any comparable. Grounds relating to addition under section 14A of the Income-tax Act, 1961 ("the Act") 8. The Ld. Assessing Officer/Hon'ble DRP has erred in law and on facts in making a disallowance of INR 37,75,415/- u/s 14A of the Act r/w Rule 8D of the IT Rules without appreciating the fact that in the absence of exempt income, disallowance u/s 14A of the Act based on the notional income is not warranted and is unjustifiable under the law. 9. The Hon'ble DRP has erred in confirming the disallowance under section 14A without appreciating that the disallowance has been made without satisfying the pre-conditions under section 14A(2) of the Act. Grounds relating to Tax Deducted at Source ("TDS") Credit: 10. The Ld. AO has erred in law and on facts in not granting TDS credit of INR 3,11,17,286/-, without verifying the facts and providing an opportunity of being heard.....
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....cation, the total income of the taxpayer was enhanced by Rs.68,79,81,398/- in the draft assessment order. However, it is noticed that the TPO vide order dated 05.01.2022 redetermined the adjustment u/s 92CA of the Act at Rs.93,99,39,083/- in view of the excess adjustment in determination of purchase of shares to the tune of Rs. 1,76,99,752/-. With regard to deemed international transactions, DRP in its order held that since the payment made to the overseas entity is less than the ALP determined, no transfer Pricing adjustment needs to be made in respect of this international transaction. However, the DRP is of the view that provisions of Sec. 56(2)(viia) are applicable in this case and hence, directed the Assessing Officer to apply the provisions of Sec 56(2)(viia). 6.3 Upon DRP directions, the TPO re-determined total adjustment u/s 92CA(3) at Rs. 6,22,79,799/- (interest on NCDs Rs. 2,85,70,424/- plus debenture issue expenses Rs. 3,37,09,375/-). In view of the same, the total income of the tax payer was enhanced by Rs. 6,22,79,799/-. The DRP directed the AO to add an amount of Rs. 89,12,84,761/- to the income of the of the assessee being the difference between the Fair Market Valu....
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....D NOS. 2 TO 8 8.1. The first argument of the ld.AR for the assessee was that the assessee and M/s. DB International (Asia) Limited are not the associated enterprises and, therefore, are independent entities. It was submitted that assessee and M/s. DB International (Asia) Limited are not the AE and, therefore, the transfer pricing adjustment done by the TPO/DRP are without any merit. It was the contention of the assessee that the assessee had reported the investment made by M/s. DB International (Asia) Limited in form 3CEB. However, mere reporting of international transaction in form 3CEB will not automatically lead to determination of the character of M/s. DB International (Asia) Limited as associated entity of the assessee. It was the contention of the AR that M/s. DB International (Asia) Limited is a foreign bank and is in the business of financing, innovative ventures, providing loans etc., to its clients. The said M/s. DB International (Asia) Limited had made investment in various companies including the assessee in the equity/loan however, the said company being the financial institution cannot be termed as the 'AE' within the meaning of section 92A of the Act. 8.2. It was ....
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....ed to cherry picking of comparables; (i) Credit rating filter applied by the Assessee is subjective and has to be seen on a case to case basis; (ii) Industry filter applied by the Assessee is subjective and has to be seen on a case to case basis; (iii) Taxpayer has chosen functionally dissimilar companies; (iv) Taxpayer did not exclude instruments not classified as NCDs. 9.1. The ld.AR had submitted that when the assessee assailed the order of the TPO before the DRP, the DRP had not concurred with the reasoning of the assessee and given the finding with respect to the TP study in paragraph Nos. 2.11.3 to 2.11.4 and had wrongly concluded that - (i) Appellant is incorrect in applying disputable credit rating filter. (ii) Appellant has not used industrial filter of real estate sector in the benchmarking process. (iii) Tenor of the NCDs of corn parables selected by the Appellant are different. 9.2. It is the contention of the ld.AR that the TPO/DRP, both erred in concluding that the credit rating filter is not the appropriate filter. 9.3. In support of the credit rating filter, the ld.AR submitted that the assessee was having credit rating in the range of BB-(S....
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....oses to engage in real estate business, construction of farmhouses and trading in transferable development rights (TDRs). "Real estate business" means dealing in land and immovable property with a view to earning profit there from and does not include development of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business." (emphasis supplied) 1.16. It is discernible from above that leasing of the property is not regarded as real estate business by the Government of India. The Appellant had also secured foreign direct investment in from of NCDs. If the Appellant was engaged in the real estate business, the Government / RBI would not have permitted investment by DB International in its NCDs. Thus, it is submitted that the DRP erred in stating that the Appellant should have applied real estate business filter while benchmarking the interest on NCDs." 11. The fourth argument raised by the ld.AR for the assessee was that the authoritie....
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....e Appellant's credit rating is IND BB-(SO) by India Ratings and Research Limited. The rating has not been disputed by the lower authorities. In the following decisions, it has been held that the credit rating is an important factor for quantifying the spread and benchmarking the interest on loan from AE's: (i) DCIT v JSW Energy Ltd 180 ITD 598 (Mum) (ii) India Debt Management Pvt ltd v DCIT 69 taxmann.com 125 (Mum) [Affirmed by the Bombay High Court in 69 taxmann.com 125] 1.40. In fact, in Tega Industries Ltd v DCIT (2016) TaxCorp (AT.) 53503 (ITAT- KOLKATA) and UFO Movies India Ltd v ACIT (2016) 66 taxmann.com 120 (Delhi - Trib), the transfer pricing officer has argued that credit rating of borrower is to be considered for benchmarking the interest and quantifying the spread. 1.41. Considering the credit rating of the Appellant and other factors such as currency risk, the Appellant submits that a minimum of 300 basis points should be added to the SBI base rate as provided in Rule 10TD(2) to benchmark the interest on NCDs issue to DB International. If so, the rate at which the Appellant has paid interest to DB International [viz., 13.13%] would be at arm's l....
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....itted that the interest rate on NCDs should be benchmarked with SBI base rate plus a spread in excess of 300 basis points. 1.45. As stated above, the ECB Framework provides that the interest cost on INR denominated borrowings [including debentures] should not exceed benchmark rate plus spread of 450 basis points. The Framework states that prevailing yield of the Government of India securities of corresponding maturity should be adopted as the benchmark rate qua INR denominated borrowings (including debentures) [Para 1.5 of the Annex to ECB Framework]. The debentures in the present case was issued for a period of 5 years. The corresponding yield of the Government of India Bond as on the date of finalisation of terms of NCDs [viz., 16 August 2016] was 7.051 [https://in.investinq.com/rates-bonds/india-5-year- bond-vield-historical-datal. The Appellant submits that the benchmark rate of 7.051 plus 450 basis points should be further increased on account of poor credit rating of (BB-) the Appellant. Once the same is factored, the rate of interest on NCDs paid to DB International Ltd [13.13%] would be less than the benchmark rate of 7.051 plus 450 basis points plus additional basis poi....
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....the above RBI Master Directions to hold that no transfer pricing adjustment is warranted if the interest rate on rupee denominated NCDs is less than the SBI PLR rate. The Bangalore Tribunal decision was concerning the ALP of interest grid on NCD's which is also the security under consideration in the Appellant's case. In Bennett Coleman & Co. Ltd. (as successor to times infotainment media limited) v DCIT (2021) Taxcorp (AT) 91749 (ITAT-Mumbai), the Tribunal noted that the DRP has taken a view that SBI PLR rate is the rate at which persons other than banks can lend/borrow in India. 1.49. The SBI PLR rate during financial years 2016-17 and 2017-18 are as under [https://sbi.co.in/web/interest-rates/interest-rates/benchmark-prime- lending-rate historical-data]: Date PLR 01.01.2017 14% 01.04.2017 13.85% 01.07.2017 13.75% 01.10.2017 13.70% 01.01.2018 13.40% 01.04.2018 13.45% 1.50. The effective rate of interest paid by the Appellant on NCDs issued to DB International is 13.13%. The rate of interest paid by the Appellant is less than the SBI PLR rate prevailing during the FY 201617 and 2017-18. It is thus submitted that the interest rate on NCDs issued to....
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....one-per cent of the book value of the total assets of the other enterprise. Provides investment banking services Deutsche Bank AG A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise. Provides banking services 16. In our opinion, once the assessee itself declared the international transaction of loan/advances received from M/s. DB International (Asia) Limited by it being more than 51% of the book value of the assets, then the DRP had committed no error in deciding the above said issue against the assessee. The argument of the assessee is that the threshold point for determining the AE would be prior to the point of time when the investment was made. In the present case, the negotiations for NCD were concluded between the Deutsche Bank and LC Core on 16th August, 2016 and thereafter, a formal agreement incorporating the terms of NCD were drawn. After conclusion of the above, a Debenture Trust Deed was executed on 27th September, 2016. Thereafter the investment was made by M/s. DB International (Asia) Limited in the NCDs of the assessee. Though a cursory look of the t....
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....usiness or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or (h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced90a by such other enterprise; or (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is contr....
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....conditions of the transfer of assets were held between LC Core and Alexandria group. Pursuant to above, LC Core set-up MN Takshila Industries Private Limited "MN Takshila") to act as a SPV for the acquisition of assets held by Alexandria group in India. MN Takshila was incorporated in July, 2016 and the funds required by MN Takshila to acquire the assets of Alexandria Group in India, were infused by LC Core through equity of INR 4,87,500,000 and Compulsorily Convertible Debentures ("CCDs") of 14,50,50,000. The CCDs carried a coupon rate of 10% p.a., with a moratorium on interest for first 2 years. Further, MN Takshila also raised funds of INR 167,50,00,000 by issuing Non-Convertible Debentures ("NCDs") to M/s. DB International (Asia) Limited, and independent investment firm based out of Singapore." 16.3. Further, at page No. 26 of paper book 2A under the heading "executive summary" under 1.1.4 it is mentioned as under: "MN Takshila is held by LC Cerestra Core Opportunities Fund Pte. Ltd ('LC Fund'). The company incorporated in 9 July, 2016, is engaged in the business of developing, building and leasing of life-sciences and bio-technology parks in India. Further, it provides ....
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....ccount of country risk, currency risk and tenor risk. With all these factors of adjustments, it would be difficult to arrive at an appropriate arm's length range of price; therefore, in our opinion such an approach of the assessee for benchmarking the arm's length interest rate may not be correct. However, as regards the search undertaken for comparable debt issuances in BSE data, we find that the assessee has shortlisted two comparables namely; Starlight Systems Private Limited and Share Microfin Limited which have a coupon rate of 15% and 13.75%. Since these data belong to year 2013, the assessee had made minor tenor adjustment to factor the time period to arrive at interest rate of 15.97% and 14.05% giving a mean rate of 15.01%. Though the assessee was required to benchmark its transaction by taking the financial year data for year 2009-10, but, if such a data were not available then it cannot be held that such a tenor adjustment for taking into time period cannot be made under CUP, if it has been made quite accurately taking into account the material factors relating to time of the transaction affecting the price. We though agree that, a high degree of comparability is ....
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....man 401, had held and observed as under; "39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the mo....
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.... to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money." 5. Similarly, in case of CIT v. Tata Autocomp Systems Ltd. [2015] 374 ITR 516/230 Taxman 649/56 taxmann.com 206, had observed as under; "7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT (supra) and Dy. CIT v. Tech Mahindra Ltd. (supra) to reach the conclusion that ALP in the case of loans advanced to AEs would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the Revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in ....
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....find attached herewith letter showing credit rating given by ICRA to MICT Pvt Ltd. vide Annexure-3 vi. The assessee in the year under consideration has incurred losses whereas the torrent pharmaceutical Ltd has shown a profit. Moreover, the profit of torrent pharmaceutical Ltd has increased by 37% in comparison to the immediately preceding year. vii. The assessee has borrowed money from its associated enterprise whereas there is no clarity about the money borrowed by the torrent pharmaceutical company whether it was borrowed from the bank or the AE. viii. The assessee has taken a loan from its AE without any collateral whereas there is no information about torrent pharmaceutical Ltd whether it has borrowed loan on the collateral furnished to the lender. In view of the above, we are of the considered opinion that the rate of interest paid by torrent pharmaceutical Ltd cannot be compared with the rate of interest on the money borrowed with the assessee." 16.7. We find in the case DCIT v JSW Energy Ltd 180 ITD 598 (Mum) it was held that credit rating is an important factor for quantifying the spread and benchmarking the interest on loan from AE's. 16.8. In view of th....
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....t case, the base rate of the SBI is 9.275% and on that 300 basis points would make 12.275%. However, as against the 12.275%, the assessee has paid interest to M/s. DB International at 13.13% (including grossing up cost arising out of TDS). Even as per the above mentioned Safe Harbour Rule, the interest paid by the assessee was exceeding 12.275% as it was 13.13% claimed by the assessee. 18. Similarly, the assessee relied on the RBI circular dt. 01/01/2016 which provides application of PLR rate in case the borrowing is done by the Indian currencies by the Indian companies. The ld.AR had pointedly referred to paragraph No. 2.1.2 of the said circular to buttress his argument that the SBI PLR rate should be applied. The relevant portion of 2.1.2 of the circular provides as under: "2.1.2. Borrowing in INR by companies in India: A company incorporated in India may borrow in INR, on repatriation or non- repatriation basis, from NRIs/PIOs after satisfying the following terms and conditions: i. Borrowing company does not and shall not: a. Carry on agricultural/plantation/real estate business; or b. Trade in transferable development rights; or c. Act as Nidhi or Chit Fund Compa....
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.... comparable available with which the rate of the assessee can be compared as DRP has also not relied upon TP Study of TPO as well as assessee for the reasons "in conclusive". In this scenario, we deem it appropriate to take a guidance from the Safe Harbour Rule and Section194 LD and hold that 12.275% interest rate (SBI base rate +300 basis points) would be the appropriate ALP for the purposes of benchmarking the interest paid by the assessee on NCD to M/s. DB International as against 13.13%. Thus, the ground nos. 2 to 8 of the assessee are partly allowed. GROUND NOS.9 & 10 19. With respect to ground nos. 9 and 10, the ld. AR for the assessee submitted that DB International (Asia) Limited, Singapore provides investment banking services and Deutsche Bank AG (Mumbai branch) is the Indian branch office of Deutsche Bank AG. Deutsche Bank is a leading European bank with global reach supported by a strong home base in Germany. DB International in Singapore is a subsidiary of Deutsche Bank AG and provides investment banking services in the nature of funding companies in Asia Pacific Region by way of debt or equity routes. The written submissions filed by the assessee in this regard are ....
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....xpenses. The Appellant submits that the impugned adjustment has been made without appreciating that the debenture issue expense has been paid to Deutsche Bank AG (Mumbai). Deutsche Bank AG (Mumbai) is not an associate enterprise of the Appellant. Merely because DB International Ltd constitutes a deemed AE of the Appellant, it does not lead to assumption that all DB entities ipso facto become AE's of the App Ilant. As a result, the transaction of payment of debenture issue expense does not constitute international transaction under section 92B. The learned TPO/AO/DRP have failed in understanding this aspect. 5. Without giving any cogent reasons as to why transfer pricing provisions are applicable qua debenture issue expense, the impugned adjustment even otherwise has been made on an adhoc basis. No comparable have been identified by the learned TPO. The Appellant submits that the impugned transfer pricing adjustment of Rs 3,37,09,375/- without identifying any comparable is bad in law. This submission is supported by the decisions, among others, in Luwa India Pvt Ltd TS-281-HC-2021 (Karnataka-HC), DCIT v Air Liquide Engineering India (P) Ltd ITA No 1408/Hyd/2010; CIT v SI Grou....
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....opinion that a balance is required to be drawn between the rights of the assessee and as well as the Revenue, and therefore, we restrict the determination of ALP by the TPO at 1.5% as against 2.5% paid by the assessee. Thus, the ground nos.9 and 10 are partly allowed. Ground Nos. 11 to 16 - Addition u/s 56(2)(viia) of the Act : 22. Briefly, the facts are that the assessee and the holding entity of the assessee, LC Core Opportunities Fund Pte. Ltd. ("LCCOF"), has entered into share purchase agreement ("SPA") with ARE Mauritius No 1 Ltd. and ARE Mauritius No.2 and the target entity Takshila Tech Parks & Incubators (India) Private Limited ("TTPL"). The Assessee acquired 86,54,020 shares of TTPL @ Rs. 138.16 per share. Given the involvement of the AE in negotiations (i.e LC Core), the transaction was reported as a deemed international transaction u/s 92B(2) of the Act. The FMV per share of TTPL was determined at Rs. 169.32 in accordance with Rule 11UA(1)(c)(b) r.w.r. 11U(b) of the Income-tax Rules, 1962 and the shares acquired being less than the FMV, the assessee offered addition of Rs. 26,96,57,437/- u/s 56(2)(viia) of the Act in the revised return of income. 22.1 During the asse....
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....lying upon the Rule 11U and 11UA of the Income-tax Rules, 1962 relevant for Section 56(2)(viia) of the Act. For the above purposes, the TPO did not consider the audited financial statements as on 31.08.2016 stating that huge amount of deduction of assets has been claimed towards impairment loss and for that purposes, TPO had relied upon balance sheet as on 01.04.2016. The TPO derived the FMV at INR 236.25 per share and thereafter applied Rule 11U & 11UA for computing the income u/s 56(2)(viia) of the Act. 26. Feeling aggrieved, the assessee approaches the DRP, however, the DRP had also decided the issue against the assessee. The contention of the assessee was that the DRP had wrongly issued the direction to the Assessing Officer to determine the income of the assessee under Rule 11UA(1)(c)(b) of the Income Tax Rules (Rules) by considering the balance sheet as on 31/03/2016 without including the impairment loss of Rs. 64,74,02,716/-. 27. It was the submission of the ld.AR that the valuation of shares is required to be done under Rule 11UA(1)(c)(b) of the Rules. However, the fair market value is required to be computed on the valuation date as provided by the Rules. He had drawn ou....
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....or sale'. The said financials of Alexandria Group were furnished to the US authorities in accordance with the USGAAP. It was the contention of the assessee that the corresponding impairment loss were carried out in the books of accounts of TTPL as per AS28. It was submitted that impairment loss has to be carried on the date of balance sheet as they were indicator from external sources/information. As the impairment was done in the books of Alexandria Group as on 31/03/2016, therefore, the said information being the external indicator for TTPL, therefore, the corresponding adjustment in the financials of TTPL was done as on 30/09/2016 as a natural corollary. 31. It was submitted that the impairment of building recorded in the audited balance sheet as on 30/09/2016 cannot be tinkered with for the purpose of determining the fair market value u/s. 56(2)(viia) of the Act. The ld.AR relied upon the following case law, in support of the case of the assessee : i. Shahrukh Khan vs. DCIT [2018] 90 taxmann.com 284 (Bombay High Court); ii. Medplus Health Services (P.) Ltd. vs. ACIT [2016] 68 taxmann.com 29 (Hyderabad Tribunal); iii. Minda S M Technocast (P.) Ltd. vs. ACIT [2018] 92 ta....
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....done to bring on the land parcels located in India to their fair value less cost to sell as required by the relevant accounting standard under US GAAP. Assessee also states that as per AS 28 issued by ICAI, an asset is said to be impaired when the carrying amount of the asset exceeds its recoverable amount. Thus, according to the assessee the impairment loss as recognised in the books of account on Takshila Tech Parks as on 31 August 2016 is in order. 2.8.3 In our view, assessee's reliance on US GAAP as a reason for recording of impairment in an Indian company cannot be accepted. Even the reliance on AS 28 no way supports the huge amount of impairment claimed as the accounting standard merely given the procedure that is to be followed where .there is a reduction in the value of assets. The assessee contends that the impairment loss was done to bring the land parcels located in India to their fair value .Such a huge amount of impairment especially in the case of a land parcel ,which traditionally only appreciates in India, is hard to accept. The assessee has not furnished the guideline value in respect of the land nor given details of instances of sale transactions in the vic....
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....le within one year. Upon classification as held for sale as of March 31, 2016, we recognized an impairment charge of $29.0 million to lower the carrying amount of the real estate to its estimated fair value less cost to sell. During the second and the third quarters of 2016, we sold these two land parcels in two separate transactions for an aggregate sales price of $12.8 million at no gain or loss. As of December 31, 2015, and March 31, 2016, all our investments in Asia were classified as held for use, except for two land parcels in India, described above, which were classified as held for sale as of March 31, 2016. As of December 31, 2015, and March 31, 2016, we concluded that all our investments that were classified as held for use were recoverable under the held for use model as the projected probability-weighted undiscounted cash flows from each operating property and land parcel exceeded our net book value, including our projected costs to complete or develop each land parcel. On April 22, 2016, we decided to monetize our remaining real estate investments located in Asia in order to invest capital into our highly leased value-creation pipeline. We determined that these inve....
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....represent a strategic shift that would have a major effect on our operations and financial results and, therefore, did not meet the criteria for classification as discontinued operations. The following is a summary of net assets as of December 31, 2016 and 2015, for our real estate investments in Asia that were classified as held for sale as of December 31, 2016 (in thousands) December 31, 2016 2015 Total assets 39,643 $ 79,588 Total liabilities (2,342) (1,631) Total accumulated other comprehensive loss (gain) 828 (1,897) Net assets classified as held for sale - Asia 38,129 $ 76,060 33.4 The auditors of the special purpose vehicle of TTPL have done the audit of the company on 31/03/2018 for the year beginning on 1st April, 2016 and ending 30th September, 2016 and mentioned the impairment loss for the period at Rs. 64,74,02,716/- . 33.5. The auditor of the assessee have determined the fair market value of the shares under rule 11UA r.w.s.56(2)(viia) vide their report dated 31/03/2018 (page 903 of paper book 2B). As per the said report, the fair market value per share was determined at Rs. 169.32. The calculation is given at page 907. In the said c....
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.... rule 11U of the Rules, had defined balance sheet and valuation date, which is to the following effect: 11U. For the purposes of this rule and rule 11UA,- (b) "balance sheet", in relation to any company, means,- (i) for the purposes of sub-rule (2) of rule 11UA, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956)26 and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; and ii in any other case,- (A) in relation to an Indian company, the balance sheet of such company (including the notes annexed thereto and forming art of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and  ....
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....e date of filing of the revised return of income. Such accounts were audited by the statutory auditors of M/s. Takshila Tech Parks & Incubators (India) Private Limited (TTPL) appointed under section 224 of the Companies Act. Based on this audited balance sheet, another firm of Chartered Accountants arrived at the value of Rs. 169.32 per share as per Rule 11UA(1)(c)(b) [Report dated 31.03.2018 - Page 903 of Paper Book 2B]. The value determined in the said report was adopted for offering the income to tax under section 56(2)(viia) in the revised return of income. 33.9 As per law, the only requirement is drawing of Balance sheet as on the valuation date. There is no further stipulation that the audit of balance sheet should also be completed before the transaction date. The audit normally happens subsequently after the receipt of the shares. The audited balance sheet would be available for filing the return of income and offering the income under section 56(2)(viia) of the Act to tax. For the purposes of determining the fair market value, the guiding principle has been provided by the Act for the benefit of the assessing authority i.e., to adopt the valuation as per the balance sheet....
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....as done to bring the land parcels located in India to their fair value. Such a huge amount of impairment especially in the case of a land parcel ,which traditionally only appreciates in India, is hard to accept. The assessee has not furnished the guideline value in respect of the land nor given details of instances of sale transactions in the vicinity to demonstrate the fall in price. (emphasis supplied by us) 36. The conclusion of the DRP, is not acceptable as it was premised on incorrect appreciation of facts. The DRP has categorically recorded in above noted paragraph that there was impairment of the land, which is contrary to the realities in India. In our view, the above said finding of fact has been wrongly recorded as the assessee has never claimed the impairment of land whereas the assessee has only claimed the impairment of the building. At Page 897 of the Paper Book, a tabulation is provided which categorically mentioned impairment of the building and not the land. At Sl.No.2, it is mentioned against building under the depreciation and net block as under : Depreciation Net block September 30, 2016 April 1, 2016 For the period On disposals Impairment for th....
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.... amount exceeds the amount to be recovered through use of sale of the asset. If this is the case, the asset is described as impaired and this Standard requires the enterprise to recognize an impairment losses. This standard also specifies when an enterprise should reverse an impairment loss and it prescribes certain disclosures for impaired assets." Scope 1. This Standard should be applied in accounting for the impairment of all assets, other than: (a) inventories (see AS 2, Valuation of Inventories); (b) assets arising from construction contracts (see AS 7, Construction Contracts); (c) financial assets1, including investments that are included in the scope of AS 13, Accounting for Investments; and (d) deferred tax assets (see AS 22, Accounting for Taxes on Income). 2. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets or investments because existing Accounting Standards applicable to these assets already contain specific requirements for recognizing and measuring the impairment related to these assets. 3. This Standard applies to assets that are carried at cost. It also applies to assets that are car....
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....sset's cash- generating unit)." Hence, we do not find any error in following Accounting Standard - 28, by the TTPL for valuation of its assets. 40.1. In view of the above said discussion, we find force in the submissions of the assessee and accordingly, the findings of the DRP is required to be set aside and the addition made in the hands of the assessee is required to be deleted. 40.2 There is yet another reason for the assessee to consider the impairment of assets in the balance-sheet as on 30.09.2016 (Page 889 of the paper book). As per the scope of Standard of Accounting - 560, it is the auditor's responsibility to take into account the events occurring after balance-sheet date. The scope and objective of Standard of Accounting - 560 provides as under : "1. This Standard on Auditing (SA) deals with the auditor's responsibilities relating to subsequent events in an audit of financial statements. It does not deal with matters relating to the auditor's responsibilities for other information obtained after the date of the auditor's report, which are addressed in SA 720(Revised).1 However, such other information may bring to light a subsequent event that is wi....
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....iting the balance sheet as on 30.09.2016 as per SA-560. Therefore, the valuation arrived by the assessee on the basis of the working and determining the Fair Market Value cannot be faulted with. 40.5 There is yet another reason to allow the grounds raised by the assessee. As on December 12, 2017, the Hon'ble National Company Law Tribunal, Hyderabad Bench, sanctioned a scheme of demerger between Takshila Tech Parks and Incubators (India) Private Limited (Demerged Company) and MN Takshshila Industries Private Limited ("Resulting Company"). Pursuant to the scheme, all assets and liabilities pertaining to the demerged business of the Demerged company have been transferred and vested with Resultant company with retrospective effect from October 1 2016. The consideration for the demerger to the equity shareholders of the demerged company has been discharged by issuance of equity shares of the Resulting Company. Further, pursuant to the provisions of the scheme, the value of investment in the demerged company in the books of the resulting company is to be suitably adjusted considering the net assets transferred pursuant to demerger. In the said scheme of merger, the valuation of the asse....
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....n AC/T v. Williamson Financial Services Limited [in /TA Nos. 154 to 156 I Gau /2019 & /TA No.159/Gau/2019] had held that explanation to section 14A is retrospective in Victory Electricals Ltd v. DCIT [in /TA No.738/Hyd/2017] and DCIT v. Mandava Holdings (P) Ltd [in /TA No.2089/Hyd/2017]. The Jurisdictional Tribunal had rendered these decisions prior to the decision of the Delhi High Court in ERA Infrastructure (Supra). Subsequent to the decision of the ERA Infrastructure (supra}, the Jurisdictional Tribunal followed its earlier decisions in Walden Properties (P) Ltd v. DCIT /TA No. 643 & 644/Hyd/2017. However, the decision of the Delhi High Court in ERA Infrastructure was not citied before the tribunal in this case. Subsequently, the Gauhati Tribunal in ABC/ Infrastructure Private Limited v. ACIT /TA No. 43/GTY/2022, ITA No. 2 I GTY/2023, ITA Nos. 37, 38 & 39/GTY/2022 followed the decision in ERA Infrastructure (supra) and took a view that the explanation to section 14A is not retrospective and hence no disallowance under section 14A should be made in years prior to AY 2022-23 if no exempt income has been earned. 4.11. The jurisdictional ITAT decisions had been rendered in th....
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....cular assessment year. Recently, Hon'ble Delhi High Court in the case of PCIT Vs. Delhi International Airport (P.) Ltd, reported in [2022] 144 taxmann.com 80 (Delhi) had held as under : "8. In the opinion of this Court, the present case is covered by the Division Bench judgment in Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi), wherein this Court has held that the expression 'does not form part of the total income' in section 14A of the Act means that there should be an actual receipt of income which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 9. Furthermore, this Court in Pr. CIT v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384 (Delhi) has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act. The relevant portion of the said judgment is reproduced hereinbelow: "8. Consequently, this Court is of the view that the amendment of Sect....
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.... there is no exempt income for the year under consideration. Thus, this ground pertaining to section 14A of the Act is allowed in favour of the assessee. The Assessing Officer is rejected to delete the addition of Rs.37,86,302/-. 45. In the result, the appeal of the assessee in ITA No.340/Hyd/2022 for A.Y. 2018-18 is partly allowed. ITA 456/Hyd/2022 46. As far as the other appeal i.e. ITA 456/Hyd/2022 is concerned, it is the submission of both the parties that the facts in both the appeal are identical. We, therefore, for the reasons stated hereinabove while deciding the appeal in ITA 340/Hyd/2022 and for similar reasons, ground nos.1 to 7 i.e., T.P. Grounds are partly allowed in favour of the assessee, similarly, ground nos.8 and 9 relating to addition u/s 14A of the Act, is allowed in favour of the assessee. 47. Now we will come to the other grounds i.e., 10 and 11 relating to TDS Credit, which were raised by the assessee in ITA 456/Hyd/2022 for A.Y.2018-19 only. 48. With respect to the disallowance of TDS Credit, the assessee submitted that as per Section 199 of the Act, TDS deducted on the income assessed in the hands of the assessee should be considered as the taxes paid....