TaxTMI 
TaxTMI 
2024 (4) TMI 451
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.... residential houses and apartments. It filed the return of income on 28.09.2016 declaring loss of Rs. 1,65,90,818/- which was subsequently revised on 30.11.2016 at a loss of Rs. 90,47,202/-. The case was taken up for scrutiny and in view of reported international transactions and "specified domestic transactions" with the AEs, and the case was referred to the Transfer Pricing Officer (TPO) for determination of arm's length price of such transactions. The Ld.TPO passed the order u/s 92CA (3) of the Act on 31.10.2019 wherein adjustment u/s 92CA of the Income Tax Act, of Rs. 3,28,72,48,398/- was proposed which included adjustment to purchase cost of land development rights of Rs. 3,22,42,75,788/- and adjustment of interest paid to AEs on CCD / OCD of Rs. 6,29,72,610/-. 2.1 The Ld.AO passed the Draft Order u/s 143(3) r.w.s. 144C of the Act, on 25.12.2019 wherein the income of the appellant company was proposed to be assessed at a total income of Rs. 3,28,59,57,780/- as against returned loss of Rs. 90,47,202/-, thereby proposing an addition of Rs. 3,28,59,57,780/-. The appellant informed the AO that it was not filing objection against the draft order before the Dispute Resolution pan....
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....the case, Ld. CIT(A) erred in holding that Circle Rates serves as the most appropriate benchmark to determine arm's length price of the transaction. 4. That in any case, the Ld. CIT(A) was not justified in upholding 10% reduction in the arm's length price determined on the basis of circle rate without assigning any valid basis or justification. 5. That on the facts and circumstances of the case, Ld. CIT(A) erred in not allowing the benefit of tolerance/ Safe Harbour Limit of 5%/10% as per the amended provisions of section 92C which is of clarificatory and retrospective nature and duly supported from various judicial precedents. B. Disallowance of Business Expenditure 6.1 That on the facts and circumstances of the case, Ld. CIT(A) erred in upholding the disallowance of business expenditure amounting to Rs 75,48,006 on the alleged ground that these expenses have not been incurred wholly and exclusively for the purpose of business of the appellant company. 6.2 That the expenses were incurred wholly and exclusively for the purpose of business and same being fully supported from relevant bills and vouchers, the disallowance is without pro....
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....red a controlling stake of 51% in the appellant company based on a valuation report by Cushman & Wakefield, an internationally recognized real estate company. The appellant company entered into an Agreement with DLF Home Developers Ltd. on 21.12.2015 for purchase of irrevocable, absolute and unfettered rights in respect of land parcel measuring 19.06 acres (77,133.0754 square meters) situated at Shivaji Marg, Moti Nagar, New Delhi for development of planned residential project at Shivaji Marg. On the basis of Valuation Report dated 28.08.2015 of M/s Cushman Wakefield (C&W) (here in after refered as 'Valuer' ) for valuing the project, the land of the project was valued at Rs. 27831 Million rupees. The valuation was made on two methods:- (a) Sales Comparable Method = 27803 Million Rupees (b) Discounted Cashflow Method = 27859 Million Rupees Average of (a) & (b) = 27831 Million Rupees" 3.2 The total consideration Rs. 925 Cr. is agreed / paid for Purchase of Development Rights of land as under:- Particulars Consideration (Rs. in crores) Remarks Fixed monetary consideration 462.50 Paid Variable consideration based on % o....
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....mitted by the Finance Act, 2017, Transfer Pricing reference and impugned proceedings and order will lapse and will become invalid in law even for the earlier assessment years. Apart from the Delhi ITAT decision (supra), ld. AR has also relied upon following judicial decisions wherein also it has been held that since clause (i) of section 92BA has been omitted by Finance Act, 2017 with effect from 01-04-2017 without any saving clause of General Clauses Act thereby meaning that the said clause never existed in the statute book and thus Transfer Pricing reference and impugned proceedings become invalid in law even for the earlier assessment years. * Cauvery Aqua Private vs. DCIT (ITA No.2021/Bang/2019) (ITAT Bangalore) * Sobha City us ACIT (IT AppealNo.2936 (Bangalore) of 2018) * Ammann India (P.) Ltd us ACIT, ITA No. 2262 of 2018 (ITAT, Ahmedabad) * Raipur Steel Casting India Ltd. vs. PCIT (ITA Nos.895, 1035 (Kol) of 2019) (ITAT Kolkata) * Bhartia-SMSIL (JV) vs ITO (ITA No. 117/Gau/2019 7. However, the Ld. CIT(A) was not satisfied with the plea and dismissed this additional ground with following relevant findings; "9.4 Law is v....
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....mething today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock and every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. 9.7 Thus, the Hon'ble Supreme Court has always followed the legal principle "lexprospicit non respicit" i.e. law in hand always looks forward and not towards the back. The essence of this principle is that the legislation which modified certain existing position is to be considered as of prospective nature and not of retrospective unless the legislation was clearly removing the one which was in existence from retrospective effect. 9.8 It is further observed that the issue has not become final as Hon'ble Supreme Court has admitted SLP on this issue against the Hon'ble High Court of Karnataka decision in the case of PCIT vs M/S Texport Overseas Pvt. Ltd. in its order dated 20.11.2020 in SLP No. 15296/2020. 9.9 It is pertinent to note that the appellant has taken this ground as an additional ground for the first time duri....
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....ction of purchase of development rights, the Ld. CIT(A) has dealt the aspect on the following three issues; "1. Whether due to the captalisation of payment in lieu of purchase of development rights the provisions of section 92 of the Act are not triggered? 2. Whether the valuation of the development rights as made by M/s Cushman & Wakefield is justified? 3. Whether for benchmarking of transaction of purchase of development rights in land, the Circle rates are most appropriate method of valuation?" 9. As with regard to the first issue, Ld. CIT(A) observed as follows; "10. In ground no. 2, the appellant has challenged the transfer pricing adjustment made in respect of payment for development rights on the ground that the same is shown as part of inventory i.e. capitalised in the books and not debited to the P&L account. 10.1 It has been contended that the transaction of payment in respect of development rights in land had been capitalized in the books of accounts in the relevant F.Y. and was not debited to the profit and loss account and as there is no impact on the taxable income, therefore, the provisions of section 92 of the Act are ....
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....s, 1962 which was submitted during assessment/ transfer pricing proceedings. The appellant had itself shown the transaction of purchase of development right in land as expenditure in respect of which payment has been made to any person referred to in section 40A(2)(b). Thus, the appellant was itself of the view that the transaction impacts the taxable income or expense of the appellant. Therefore, the appellant cannot take a contrary position subsequently. 10.4 The reliance of the appellant on HDFC Bank; Vodafone India and Shell India cases is misplaced as the transaction in those cases was purely of capital in nature. In HDFC Bank (supra) case, the issue involved purchase of loans of another AE which was a capital transaction. In Vodafone India (supra) and Shell India (supra) cases, the issue was raising of share capital which is always capital in nature. In these cases, the transaction was only taken to the balance sheet and was never to be debited in the P&L account. The facts of the present case are clearly distinguishable. The arguments of the appellant could be considered if the appellant had not been a real estate developer and had purchased land/rights as a capital....
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....siness which has tangibles as well as intangibles. The valuation using DCF method in this case is based on various assumptions and projections. The DCF method applied here is not on a sound basis. Therefore, DCF method is also not an appropriate method for valuation of land in this case. 11.5 The argument that the valuation made by an independent valuer of international repute should be accepted as the arm's length price is without any merit. The valuation report cannot be accepted merely because the valuer is stated to be an independent organisation of international repute. The TPO has not questioned the reputation of the valuer but the method of the valuation made. 11.6 In view of the above, it is concluded that the TPO has rightly rejected the valuation made by M/s Cushman & Wakefield. The argument is rejected. Investment made by RGPL, a Singapore Government company, based on the valuation made by Cushman & Wakefield 12. The appellant has contended that RGPL (51% partner in the JV), a Singapore Government entity, has made investment based on the valuation made by Cushman & Wakefield and therefore, the transaction of purchase of development rig....
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....t in doubt. However, the impugned addition is not an addition of any unexplained investment or unexplained transaction where identity or genuineness of the transaction has been questioned. The issue pertains to the determination of transfer price of development rights of a land. It has been discussed in earlier paragraphs that the valuation made by Cushman & Wakefield was not correct. Thus, these arguments are found to be not relevant for the purpose of this appeal." 11. Dealing with the third issue, the Ld. CIT(A) has sustained the bench marking of the alleged specified transaction on the Circle rate by following relevant observations: "13. It has been contended that the circle rate cannot be considered as market rate and cannot be adopted as arm's length price disregarding the valuation made by Cushman & Wakefield. 13.1 It has been submitted that the limited and the sole purpose of notifying minimum rate (circle rate) is to collect stamp duty by the state government which cannot be used as a benchmark to ascertain the commercial value or the market value of the immovable property; the purpose of specifying this minimum circle rate is to indicate the minimum v....
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....ee of a capital asset, being land or building or both, is less than the value of adopted or assessed or assessable by any authority of State Govt, for the purpose of payment of Stamp duty in respect of such transfer, the value of adopted or assessed or assessable shall be deemed to be full value of the consideration received or accruing as a result of such transfer. Therefore, if the value adopted or assessed or assessable for stamp duty purposes is more than the consideration shown by the assessee then the value adopted or assessed or assessable for stamp duty purposes will be deemed as full value of consideration. Circle rate is notified by the State Government in respect of each area and it is on this rate that the Registering Authority values the property for the purpose of levy of stamp duty. Circle rates vary from locality to locality. They are revised from time to time by the State Government, to keep the value close to the existing market value of property in a particular area. Therefore, the argument of the appellant that 'circle rate' is not recognised in the Income Tax Law is incorrect. 13.3 The case laws relied upon by the appellant are for the purpose of levy ....
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....ned. It has been submitted that the TPO has wrongly applied circle rate of category "F" whereas the property in question falls under category "E". It has also been shown that the property for the purpose of circle rate falls in "Industrial" category as against the "residential" category considered by the TPO. 15. The relevant findings of the TPO [at p. 4 of order u/s 92CA(3)] are reproduced below: "7. For the purpose of benchmarking of transaction of land, valuation as per stamp valuation authority i.e. the circle rate of land serves the most appropriate benchmark. Therefore, basis above facts, cost of purchase Of development rights 'is restricted to the value of land under consideration i.e. the circle rate as per area of land. 8. The Assessee has submitted that the area of land falls within zone / category "E" and 'F HAVING CIRCLE RATE OF Rs. 70,000/- per Sq. Mtr. And Rs. 56,640/- per Sq. Mtr. However, the assessee did not submit bifurcation that how much area fall underE & and how much falls under F category. In valuation, the assessee has applied rate of E category (higher) to the entire area; which is wrong. In absence of exact bifurcation be....
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....d off by the Ld. CIT(A) by a speaking order. He relied the Explanatory notes to Finance Act 2017 with regard to scope of section 92BA of the IT Act. It is submitted that the amendment has been made in section 92BA by Finance Act, 2017 which is applicable with effect from 01.04.2017. The explanatory notes to the amendment were relied and we find it relevant to reproduce the same here in below:- "44. Scope of section 92BA of the Income-tax Act relating to Specified Domestic Transactions (SDTs). 44.1 Before amendment by the Act, the provisions of section 92BA of the Income-tax Act provided inter alia that any expenditure in respect of which payment has been made by the assessee to certain "specified persons" under section 40A(2)(b) of the Income-tax Act were covered within the ambit of SDTs. 44.2 As a matter of compliance and reporting, taxpayers needed to obtain the chartered accountant's certificate in Form 3CEB providing the details such as list of related parties, nature and value of SDTs, method used to determine the arm's length price for SDTs, positions taken with regard to certain transactions not considered as SDTs, etc. This had considerabl....
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....nitiated and in progress even for the period prior to the date of omission of the said section gets omitted and becomes invalid. The Ld. DR has submitted that the language of the amendment itself proves the implied saving clause in the amendment because it is specifically mentioned that the amendment will take effect from 01.04.2017 and also it is clarified that it is applicable from A.Y. 2017-18 and subsequent assessment years. Thus, from wordings of the amendment itself, it is crystal clear that the legislature wanted to save all the actions initiated/pending in section 92BA(i) till the period of 31.03.2017 for A.Y. 2016-17 and all proceedings initiated will continue. Thus, as per Ld. AR there is no merit in the arguments of the assessee that there is no saving clause in the amendment made. 13.4 Rebutting the reliance by Ld. AR on the decision of Hon'ble Karnataka High Court in the case of PCIT-7 Vs. Texport Overseas Pvt. Ltd., 114 taxmann.com 568 (Karnataka), the Ld. DR has submitted that the Hon'ble High Court while relying on the judgement of the Hon'ble Apex Court in the case of Kolhapur Canesugar works ltd. vs. UOI, AIR 2000 SC 811 has held that once section has been ....
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....cused for the offence punishable under Rule 132-A of the DIRs could have been instituted even after the repeal of that rule." 22. It will be clear from a reading of this paragraph that a Madhya Pradesh High Court judgment was distinguished by the Constitution Bench on two grounds. One being that Section 6 of the General Clauses Act does not apply to a rule but only applies to a Central Act or Regulation, and secondly, that Section 6 itself would apply only to a "repeal" not to "an omission". This statement of law was followed by another Constitution Bench in the Kolhapur Canesugar Works Ltd. case (supra). After setting out paragraph 17 of the earlier judgment, the second constitution bench judgment states as follows: "33. In para 21 of the judgment the Full Bench has noted the decision of a Constitution Bench of this Court in Chief Inspector of Mines v. Karam Chand Thapar [AIR 1961 SC 838] and has relied upon the principles laid down therein. The Full Bench overlooked the position that that was a case under Section 24 of the General Clauses Act which makes provision for continuation of orders, notification, scheme, rule, form or bye-law, issued under the repealed ....
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....bliteration of that provision in the same way as it happens in repeal. The stress in these cases was on the question that a 'rule' not being a Central Act or Regulation, as defined in the General Clauses Act, omission or repeal of a 'rule' by another 'rule' does not attract section 6 of the Act and proceedings initiated under the omitted rule cannot continue unless the new rule contains a saving clause to that effect.... "(At pages 697 and 698) 26. In view of what has been stated hereinabove, perhaps the appropriate course in the present case would have been to refer the aforesaid judgment to a larger bench. But we do not find the need to do so in view of what is stated by us hereinbelow. 27. First and foremost, it will be noticed that two reasons were given in Rayala Corporation (P) Ltd. for distinguishing the Madhya Pradesh High Court judgment. Ordinarily, both reasons would form the ratio decidendi for the said decision and both reasons would be binding upon us. But we find that once it is held that Section 6 of the General Clauses Act would itself not apply to a rule which is subordinate legislation as it applies only to a Central Act o....
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....e the word 'repeal' is expressly used. So far as statutory construction is concerned, it is one of the cardinal principles of the law that there is no distinction or difference between an express provision and a provision which is necessarily implied, for it is only the form that differs in the two cases and there is no difference in intention or in substance. A repeal may be brought about by repugnant legislation, without even any reference to the Act intended to be repealed, for once legislative competence to effect a repeal is posited, it matters little whether this is done expressly or inferentially or by the enactment of repugnant legislation. If such is the basis upon which repeals and implied repeals are brought about it appears to us to be both logical as well as in accordance with the principles upon which the rule as to implied repeal rests to attribute to that legislature which effects a repeal by necessary implication the same intention as that which would attend the case of an express repeal. Where an intention to effect a repeal is attributed to a legislature then the same would, in our opinion, attract the incident of the saving found in Section 6 for the rul....
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....R, is reproduced below- 11. The Id. AR for the assessee while objecting the application of condonation of delay raised another objection that the appeal of revenue is not maintainable and submitted that sub-section (2A) of section 253 was inserted by Finance Act 2014 with retrospective effect from 01.06.2013, however, the same was omitted by Finance Act 2016 from 01.06.2016. It was argued that, the sub-section (2 A) was omitted from the statue by way of omission, hence, this sub-section shall be deemed as it was not on the statue book right from the beginning. The Id. AR for the assessee further submits that 'omission' and 'repeal' of provision in the statue carries different meanings and effect. Therefore, as per section 6 of General Clauses Act, the proceedings initiated under the omitted provisions cannot be continued unless there is saving clause to that effect while omitting such provisions. To buttress his submissions the Id AR for the assessee relied on the decision of Bangalore Tribunal in Textport Overseas Private Limited Vs DCIT (IT (TP) A. 1772/Bang/2017, which has been affirmed by High Court of Karnataka vide order dated 12.12.2019 reported vide....
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....repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not- (a) revive anything not in force or existing at the time at which the repeal takes effect; or (b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or (d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or (e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed. 6-A. Repeal of Act making textual amendment in Act or Regulation:- Where any [Central Act] or Regulation made after the commencement of this Act repeals any enactment by which the text of any [Central Act] or Regulat....
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....ress omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal. 16. The Hon'ble Supreme Court in Bhagat Ram Sharma Vs Union of India (AIR 1988 SC 740] held that it is a matter of legislative practice to provide while enacting an amending law that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between 'repeal1 and an 'amendment'. /Is per the commentary on Principles of Statutory interpretation by Justice G.P. Singh, "the legislative practice in India shows that 'omission' of a provision is treated as 'amendment'. (page 675, Chapter; "Express Repeal"). Further Hon'ble Supreme Court in Ekambrarappa Ks EPTO (AIR 19671541), held that amending Act which limits the area of operation of existing Act by modifying the extent clause, result in partial repeal of the Act in respect of the area which....
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.... upon the decision of the coordinate bench had decided the issue that omission will also be repealed and therefore by virtue of section 6 and 6A the action taken pursuant to the valid legislation during its life time before omission will be saved and will not come to end. The decision in the case of Texport Overseas Private Ltd (supra) was rendered without considering the decisions of the Hon'ble Apex Court in the cases of (i) M/s. Fibre Boards Pvt. Ltd and (ii) M/s Shree Bhagwati Steel Rolling vs. Commissioner of Central excise & another and also the statutory provision contained in section 6A of General clauses Act and hence, lacks any binding or persuasive value. 16. The Hon'ble Apex court in the case of Fibre Boards Pvt. Ltd and M/s. Shree Bhagwati Steel Rolling has doubted and disapproved its earlier decisions rendered in the case of Rayala Corporation (P) Ltd Vs Enforcement (1969) 2 SCR 412 and Kolhapur Cane Sugar Works Ltd Vs Union of India (2000) 2SCC536 and in the case of General Finance Company Vs CIT (2002) 7 SCC 1. Further, the Hon'ble Supreme Court in the case of Fibre Boards (I) Ltd, after referring to the provisions of Section 6A of the General C....
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....and observed that even the court has not referred the matter to the larger bench. The Hon'ble Supreme Court in Fibre Board (supra) and Bhagwati Steel Rolling (supra) had also discussed the provision of law including the General Clauses Act, Section 6A and 24 and thereafter held that the repeal, omission and deletion are interchangeable and thereafter had held that 'omission' will have an effect of 'repeal' and 'repeal' will have an effect of 'omission'. The distinction carved out in Rayala Corporation (supra) was not correct and further the reference to the Constitution bench has not considered in view of a binding judgment of the Constitution bench in the matter of M.A.Tulloch & Co as well as the provisions of Section 6A of the General Clauses Act and thereafter the Court had held that the decision, in the matter of Rayala Corporation (supra) was per incurium. 19. In our humble view the Hon'ble Supreme Court in Fibre Board (supra) and Bhagwati Steel Rolling (supra) have declared that the law in Rayala Corporation is per in curium, on the basis of which General Finance Co., (supra) was passed. Thus, the later judgments in Fibre Board....
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....etc. are governed by the General Clauses Act which are applicable to all laws/regulations including Income Tax Act. He stressed that in fact, the general rules with regard to omission/repeal/amendment are common for all the laws and what is important is the basic principles which regulates the effect of such omission/repeal. In the above noted case laws, the basic principles which governs the effect of any omission/repeal has been analyzed at length by the Hon'ble Supreme Court and also laid down/clarify the law and the general clauses Act which governed any omission/repeal and its consequent effect. 14. The Ld. AR has submitted the rejoinder to the aforesaid contention of Ld. DR on the issue of legality of the domestic transfer pricing adjustment, reinforcing that on account of omission of clause (i) of section 92BA of the Act vide Finance Act, 2017, the impugned transfer pricing adjustment made post omission of the clause (i) is illegal and unsustainable in the eyes of law as post omission it will be treated as if the said clause never existed in the statute. In this regard, placing reliance on the direct decision of Hon'ble Karnataka High Court in the case of PCIT v. Texp....
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.... Clause or similar enactment, then it has to be held that Clause (i) of Section 92BA did not come into operation whenever any action has been taken especially after such omission. Accordingly, we hold that no Transfer Pricing Adjustment can be made on a domestic transaction which has been referred to by the Assessing Officer after the omission of the said clause by the Finance Act, 2017 even though transaction has undertaken in the Assessment Year 2016-17. 16. Further, our decision is equally fortified by the judgment of IT AT Kolkata Bench in the case of M/s. Raipur Steel Casting India (P) Ltd. vs. PCIT which pertained to the Assessment Year 2014-15, and catena of other judgments as relied upon by the Ld. Counsel of the assessee cited extensor in the foregoing paragraphs." 15. As with regard to the merits of case Ld. DR has relied the Entries in the Form of 3CEB. He has submitted that Form 3CEB provides for a report, from an accountant, which is to be furnished u/s 92E of the Act relating to international transactions and specified domestic transaction. This form has been attached great importance by the Government of India in Transfer Pricing analysis and it provides ....
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....d domestic transaction with the person referred to in section 40A(2)(B). 15.2 Then Ld. DR, made reference to the transfer pricing study report (TPSR) wherein the assessee at page 102 and 103 has clearly mentioned that it has specified domestic transaction with its AE with regard to purchase of development rights in land parcel from DHDL. 15.3 Ld. DR has also pointed out that though in page 139 assessee has mentioned that as a matter of abundant caution, the assessee has adopted other method to benchmark expenditure incurred of purchase of development rights, the facts remains that it has itself shown such expenditure and it has been duly verified by the transfer pricing expert engaged by assessee itself. 16. Ld. DR has then submitted that the assessee company is indisputably a builder, who is engaged in the business of construction, development and sale of integrated townships. Accordingly, to say, as per Ld. DR, the cost of land is capitalised is of no consequence in case of assessee company because the transaction in case of builder is definitely revenue in nature. The assessee stand that no revenue is recognized in P&L a/c is because it was the initial year of the proje....
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....o income so as to make ALP adjustment therein, and then bring the ALP adjustment to tax, since the computation is of income and it is only the price at which transaction is entered into that is to be taken as an arm's length price in computation of that income. The ALP adjustments cannot be treated as income per se. However, the assessee does not derive any support from this decision since consideration for a loan, i.e interest, is inherently in the nature of income. There is no, and there cannot be any, dispute or controversy about this character of income. The point of dispute is whether zero interest, or no interest, is good enough for computing the income or whether an arm 's length interest must substitute this zero interest. The answer is obvious. As long as the transaction is an international transaction between the AEs, the computation of income has to be on the basis of arm's length interest. Therefore, in our considered view, even when no income is reported in respect of an item in the nature of income, such as interest, but the substitution of transaction price by arm's length price results in an income, it can very well be brought to tax under Section 92....
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....e by the valuer based on the objective principles and verifiable facts and evidences and not questioning or verifying the reputation and standing of the valuer but what is questioned and examined is the valuation method as well as the principle employed for valuation of the land, which are completely lacking and improper. 20. Then Ld. DR has rebutted the contention of Ld. AR, that as in the JV, 51% controlling stake is with M/s RGPL , Singapore Government Company, whose basis for investment, was the valuation report of Cushmen and Walkfield, accordingly the valuation is to be accepted by the department. He submitted that again, it is a faulty argument because department is not judging the creditworthiness or trustworthiness of the company controlled by the Singapore Government and the issue before hand is the determination of transfer price of development rights of land which is subjected to the rules and regulations as contained in the provision of the Income Tax Act/Transfer Pricing and based on the same, the valuation has been rejected. 21. As with regard to the question whether circle rate can be taken as market rate, Ld. DR has submitted that it is settled law that secti....
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....to determine the rate of land based on the government notification for the subject land. He has pointed out that before the Ld. CIT(A), the assessee produced the Delhi Govt. Notification/SDM's Reports/DDA's reports w.r.t its claim of Categorizing the land as industrial land. Ld. DR submits that all this has been duly mentioned in the order of Ld. CIT(A) from page no. 106 to 120 of his order. He has contended that the assessee vehemently made this argument before Ld. CIT(A) because the circle rate meant for industrial use needs to be multiplied by factor of 2 to arrive at the correct rate. In fact, the assessee, based on his arguments and evidences convinced the Ld. CIT(A) to treat the said land as industrial land and the rate of land was determined by multiplying by 2 in line with government notifications. Ld. DR has further contended that not only this, the assessee also submitted before the Ld. CIT(A) that the circle rate of E category is to be taken and not the F category rates. Again in its support, the assessee has relied on the circle rate notification issued by the Delhi Govt. In fact, based on the documents submitted by the assessee, the Ld. CIT(A) has not only taken th....
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....retrospective application because it is clearly mentioned in the Explanatory Notes about its prospective applicability w.e.f 01.04.2019. Findings: 26. We now take up the preliminary issue with regard to applicability of clause (i) of section 92BA of the Act, and at outset, we find no force in the contention of the ld. DR that as the assessee had prepared a transfer pricing report and had disclosed specified domestic transaction in Form 3CEB which is to be furnished u/s 92E of the Act disclosing international transactions and specified domestic transaction, therefore, the assessee cannot now escape from the liability to get this transaction benchmarked and so the TPO was justified to make the adjustments. The ld. DR has himself admitted that the assessee while filing the transfer pricing study report had mentioned that as a matter of abundant caution the transaction is being reported for the purpose of section 92E of the Act. We are of the considered view that when the law had provided for penalty in case of non-compliance of a provision of the Act and the assessee reserving a right to protest at appropriate stage, makes the compliance, the assessee cannot be estopped by own a....
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....urts that there are decisions of the Supreme appellate Tribunal which do not attract the unanimous approval of all members of the judiciary... But the judicial system only works if someone is allowed to have the last word, and that last word, once spoken, is loyally accepted" and observed that. . . "the better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system." The principle is thus unambiguous. As a rule, therefore, judicial discipline warrants that the wisdom of a lower tier in the judiciary has to make way for higher wisdom of the tiers above. Unlike the decisions of Hon'ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon'ble non-jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial propriety. In the case of CIT Vs Godavari Devi Saraf [(1979) 113 ITR 589 (Bom)], Hon'ble jurisdictional High Court took note of a non-jurisdictional High Court and held that the Tribunal, outside the jurisdiction of that Hon'ble High C....
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....he decision of one High Court is neither binding precedent for another High Court nor for the courts or the Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect". Unlike the decisions of Hon'ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon'ble non-jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial propriety-factors which are inherently subjective in nature. Quite clearly, therefore, the applicability of the non-jurisdictional High Court is never absolute, without exceptions and as a matter of course. That is the principle implicit in Hon'ble Supreme Court's judgment in the case of ACIT Vs Saurashtra Kutch Stock Exchange Ltd [(2008) 305 ITR 227 (SC)] wherein Their Lordships have upheld the plea that "non-consideration....
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....and the order of coordinate Bench of Delhi in the case of Yorkn Tech Pvt, Ltd. (supra) relied by ld. AR and there is no doubt the coordinate Bench at Delhi has distinguished the Mumbai Bench order in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) and held that even after the judgement of the Hon'ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills (supra) and Fiber Boards Pvt. Ltd. (supra) clause (i) of section 92BA which has been omitted from 01.04.2017 has to be considered to have never been part of the statute and, accordingly, no transfer pricing adjustment can be made on a domestic transaction. 31. We will also like to distinguish the Mumbai Tribunal order in Firemenich Aromatics (India) Pvt. Ltd. (supra) by observing that in that case the issue was with regard to omission of sub-section (2A) of section 253 of the Act which was initially inserted by Finance Act, 2014 with retrospective effect from 01.06.2013 and which was then omitted by Finance Act, 2016 from 01.06.2016. The said provisions related to right to file appeal and in that case, the AO had filed the appeal during the currency of section 253(2A) of the Act and for that reason, the Mumba....
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.... is rather applicable to tax, the deemed income in the hands of seller. Reliance in this regard can be placed on judgement of Hon'ble Gujarat High Court in the case of Gayatri Enterprises vs. ITO 2019 (9)TMI 777). 34. At the same time, the provisions of section 92C of the Act come into effect where a transaction, international or domestic, has to be examined for the limited purpose of computation of arm's length price of the transaction. The intention of section 92CA is to make adjustment in the consideration involved in the said transaction on the basis that while dealing with an associated enterprise an assessee had entered the transaction in a manner that the price or consideration paid towards acquisition of any tangible or intangible asset is less than the market value leading to avoidance of tax. 34.1 Thus, Section 92 of the Act provides that any income arising from an international transaction shall be computed having regard to the arm's length price. Section 92C of the Act, dealing with computation of ALP, provides through sub-section (1) that the ALP shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of....
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.... acquisition of any tangible or intangible asset is less than the market value leading to avoidance of tax, the provisions of Section 92CA of the Act should be invoked. The only should select the most appropriate method for the ALP determination, that is befitting its nature etc. The point to be thus noted is the selection of actual most appropriate method in the facts of the case is essential and not the perception of the assessee or the TPO to this effect. 34.3. Thus we move to consider and determine the three issues, by first taking up controversy, as to what should be the most appropriate method for benchmarking the transaction in issue. Assessee has claimed that it has chosen the `Other method' being average of Sales Comparable Method and Discounted Cash Flow Method. Ld. TPO has discarded the two methods applied for arriving the average for valuation of transaction and instead the Ld. TPO adopted Circle rate as most appropriate method of valuation. We are of the view that the same also amounts to adopting 'other method' as MAM. In this context, after considering all the aspects, we like to conclude that assessee was justified to adopt the 'other method' as most appropriate ....
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....ing development, frontage, accessibility & road width, large size of subject property, FSI available and negotiation, the premium or discount has been assigned to the subject property. 36.1 However, the Ld. CIT(A) has not approved this method and held that, "It is observed that 'sales comparable method' is akin to comparable uncontrolled price (CUP) method where the criteria for selection of comparables is very strict. However, in this case land has been compared to the sale transaction of flats/apartments. Thus, the comparables selected for the valuation in this case are totally different and do not at all meet the strict comparability criteria. Therefore, the sales comparable method applied in the particular manner is not an appropriate method for valuation of land in this case." 36.2 We do not agree with the observation of Ld. CIT(A) to hold 'sales comparable method is akin to comparable uncontrolled price (CUP)'. The sales comparison method is a real estate centric approach that compares one property to comparables or other recently sold properties in the area with similar characteristics. This method accounts for the effect that individual features of parties or property....
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....otification Under Section 4(1) or otherwise, other sale instances as well as other evidences have to be considered. (20) The amount of compensation cannot be ascertained with mathematical accuracy. A comparable instance has to be identified having regard to the proximity from time angle as well as proximity from situation angle. For determining the market value of the land under acquisition, suitable adjustment has to be made having regard to various positive and negative factors vis-a-vis the land under acquisition by placing the two in juxtaposition...." 36.4 Here we will like to consider the argument of Ld. DR that in several cases for transfer pricing analysis, various courts have taken the prices /rates taken by the custom authority/Govt. agency for benchmarking /determining ALP in Income Tax. We are of considered view that the levy of rates of excise or customs, is generic for the class of product, to earn Revenu. The purpose is to have uniformity of levy. However, circle rates are not fixed to levy uniform stamp duty, but to ensure there is no undervaluation of particular property. The principles and methods of arriving at the rates or prices of merchantable prod....
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....ermine the profitability, but to atleast ensure the viability, of an investment, DCF method is often used in real estate sector. DCF method is not only applicable where the assets-based approach is applied and the value of a business is derived from the FMV of the assets (tangible and intangible) less the liabilities. But in case of real estate development projects the income-based approach of the DCF method, is more appropriate method, as rightly applied by the valuer. Thus absence of tangibles could not have been basis to discard the DCF method. 38. Now coming to the wisdom of TPO to apply circle rates to make adjustment we are in agreement with Ld. AR that certainly the circle rates never are correct reflection of the market rates. Circle rates are merely fair market value of the land for fiscal purposes but cannot be considered to be market value. When a transaction involving land is to be benchmarked, then the market value is more realistic parameter for making the adjustment and not the circle rates. Thus at one end, the Ld. CIT(A) and Ld. TPO have fallen in error in invoking the provisions of Section 92CA of the Act and on the other hand in discarding the valuation report....
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....the company are not similar to the assessee's company. The Ld. C1T(A) also mentioned that the TPO did not apply the correct industry filter. Ld. DR submitted that the action of the Ld. CIT(A) is clearly erroneous as he has accepted the 47 comparables selected by assessee company without examining/analysing the functional profile and other terms and conditions including nature of the financial products/debentures etc. 42.1 The Ld. AR of the assessee however relied the order of Ld. CIT(A) and contended that the Ld. TPO arbitrarily rejected the 47 comparables selected by the assessee company and substituting the same with 2 comparables. 42.2 Giving our thoughtful consideration to the issue, regarding transfer pricing adjustment u/s 92CA of Rs. 6,29,72,610/- in respect of interest paid to AE on CCD/OCD. It comes up that the assessee company has benchmarked the transaction based on CUP method and the ALP of interest was determined at 15% based on 47 comparables. The Ld. TPO rejected the comparables so selected by the assessee company and coupon rate of 10.25% was treated as ALP based on 2 separate comparables thus resulting in the transfer pricing adjustment. The Ld. CIT(A) has de....