TaxTMI 
TaxTMI 
2024 (7) TMI 1126
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA No. 1218/MUM/2021 relating to Assessment Year 2016-17 as a lead case for adjudication. ITA No. 1218/MUM/2021 (A.Y. 2016-17) 3. Assessee has raised following grounds in its appeal: - "1. Transfer Pricing adjustment for adding the notional interest of INR 81,21,14,830 on receivables on account of issuance of NCCRPS (Ground 1.1. to Ground 1.8): On the facts and in the circumstances of the case, and in law, the Learned Assessing Officer (Ld. AO), following the directions of Hon'ble Dispute Resolution Panel (Hon. DRP), erred in confirming the transfer pricing addition of interest of Rs 81,21,14,830 on deemed receivables which is overdue for the difference in the face value of Non-convertible Cumulative Redeemable Preference Shares (NCCRPS) issued vis-à-vis the market price of the equity share as on the date of issuance (hereby referred as alleged transaction') 1.1 On the facts and circumstances of the case and in law, the Hon'b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of NCCRPS which were redeemable at par thereby considering the alleged shortfall arising on account of alleged transaction as a nature of debt/receivable in the hands of the Appellant, thus creating a notional transaction. 1.7 On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in making secondary adjustment that is not permitted under the Indian regulations for the year under consideration i.e. AY 2016-17. 1.8. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in adopting an adhoc and arbitrary approach in determining the interest rate to be imputed on the deemed receivable determined by the Hon. DRP/Ld. AO/ Ld. TPO without undertaking a benchmarking analysis. An interest rate of 9.945 percent was determined based on the stray interest rates on redeemable NCDs issued by the Appellant 1.9. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in not following DRP's own direction in the Appellant's case for AY 2015-16 wherein reliance was placed on the decision of the Hon'ble Bombay High Court in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut prejudice to the above, the Ld. AO and Hon'ble DRP erred in not considering the contention of the Appellant while computing the disallowance under section 14A readwith Rule 8D disregarding the fact that no interest expenditure has been incurred to earn exempt income and sufficient owned funds are available to make the investment 4.4 Without prejudice to the above, the Ld. AO and Hon'ble DRP erred in not considering the contention of the Appellant that only investment from which exempt income is earned during the year should be considered while computing disallowance under section 14A of the Act read with rule 8D of the Rules. 4.5 On the facts and in the circumstances of the case, and in law, the Ld. AO and Hon'ble DRP. erred in disallowing Rs. 5,78.21.490 under section 14A of the Act read with Rule 8D of the Rules while computing the MAT on the book profits in accordance with section 115JB of the Act. 5. Adjustment on Dividend Distribution Tax 5.1 On the facts and in the circumstances of the case and in law, the Hon'ble DRP and the learned AO: (a) erred in not granting excess Dividend Distribution Tax (DDT) paid errone....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reaty will not be applicable and hence, erred in subjecting the Appellant to additional income tax in terms of section 115-0 of the Act. (g) erred in observing that tax as per Section 115-0 of the Act is a tax on net distributed profit of the company and not a tax on dividend income of shareholder. The AO failed to appreciate that the dividend income was that of the non-resident recipient who was governed by the provisions of relevant DTAA (h) erred in observing that DDT is a secondary tax on corporate profit distributed and not akin to withholding of tax. 6. Short grant of credit of tax deducted at source 6.1 The Ld. AO erred in not granting credit of tax deducted at source as claimed in the return of income amounting to Rs..14,28,61,602 7. Penalty under section 271 (1)(c) 7.1 The Ld. AO erred in proposing to levy penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income 8. Levy of interest under section 234B of the Act 8.1. The Ld. AO erred in levying interest under section 234B of the Act. The Appellant craves leave to add, alter, amend, substitute or withdraw all or....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 92CA(1) of the Act was issued to Transfer Pricing Officer - 4(2)(1), Mumbai. The background of the assessee is, assessee is the leading integrated travel and travel related financial services company offering a broad spectrum of services that include Foreign Exchange, Corporate Travel, MICE, Leisure Travel, Insurance, Visa & Passport services and E-Business. During this AY, Assessee has issued 12,50,00,000 Cumulative Redeemable Non-Convertible Preference Shares (NCCRPS) @Rs..10/- per share to its AE Hamblin Watsa Investment Counsel Limited. 9. The TPO observed from the Form 3CEB that the assessee has not bench marked the above transaction of issue of NCCRPS. With regard to above, transactions, assessee contended that no income arises to it from issue of Non-Convertible Preference shares to its associated enterprise. Therefore, assessee believes that it should not be liable to comply with the requirements embodied in the Transfer Pricing provisions contained in sections 92 to 92F of the Act r.w. Rules 10A to 10E of the I.T. Rules. Assessee heavily relied on the decision of Hon'ble Bombay High Court in the case of Vodafone India Services Private Limited [WP No. 871 of 2014. (2014....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yment of dividend shall be on Cumulative basis. 1. The conversion of preference shares in equity shares. The said preference Shares shall be Non- Convertible 1. The voting rights, The voting rights of the persons holding the said Preference Shares shall be in accordance with the provisions of Section 47 of the Act (including any statutory modifications or re-enactment thereof for the time being in force) 1. The redemption of preference shares. At the option of the issuer, at any time within a period not exceeding seven years from the date of allotment as per the provisions of the Act. 11. Based on the above table, TPO is of the opinion that the transaction entered by the assessee is in the form of capital with debt- like properties and equity-like functionality and he observed that this transaction is in the form of financing with flexibility and value. The capital listed is less expensive than straight equity, yet provides virtually the same level of value add as a straight equity investment. According to him, it can be mezzanine debt, venture debt or convertible debt, structured equity or preferred equity. It can be used for anything as the company need....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he company and objected of re-characterization of Non-convertible Cumulative Redeemable Preference Shares and creation of Notional transaction by the Transfer Pricing Officer and also objected to the secondary adjustments. For the sake of clarity, from the issue of recharacterization of transaction of Non-Convertible Cumulative Redeemable Preference Shares as equity are reproduced below: - "IV. Recharacterizing transaction of Non-Convertible Cumulative Redeemable Preference Shares (NCCRPS) as quasi equity: During the year 2015-16, the assessee and allotted 8.5% 125000000 NCCRPS of Rs 10 each to Hamblin Watsa Investment Counsel Limited amounting to INR 1,250,000,000. From the following extract of Financial Statement of the Company for FY 2015-16(refer paper book page no. 504to 528) wherein it is evident that Cumulative redeemable non-convertible preference shares were issued on 1 December 2015 at par "NCRPS 125,000,000 NCRPS of Rs. 10 each were allotted on December 1, 2015 (Due for redemption on December 1, 2022 at par) to Hamblin Watsa Investment Counsel Limited, a wholly owned subsidiary of Fairfax Financial Holdings Limited at face value in order to par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to Rs. 1250 Mn on private placement basis. The Company in accordance with the terms of the Information Memorandum of NCCRPS and applicable provisions of the Companies Act, 2013, Securities and Exchange Board of India (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013, and other applicable laws, rules and regulations. has successfully redeemed NCCRPS at par on December 28, 2017." Based on the above documentation, it is clear from that regulate only, the NCCRPS did not enjoy equity upside comparing NCCRPS with equity shares is incorrect approach. In this regard we would further like to rely on the decision of J.P. Morgan Advisors India Pvt. Ltd. [TS-724-ITAT-2019(Mum)-TP] wherein the tribunal held that As could be seen from the material on record, while deciding the disputed addition in the appeal preferred by the assessee in the assessment year 2008-09 vide ITA no.7573/Mum /2012, /etc., dated 25th March 2015, the Tribunal following the decision of the Hon'ble Jurisdictional High Court in Vodafone India Service Pvt. Ltd. (supra) held that the difference between the market price of equity shares and the face value cannot be trea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m's length price in case of a "transaction actually undertaken by the assessee with associated enterprises. In this regard, we submit as under. Section 92(1) of the Act provides as under: 92. (1) Any income arising from an international transaction shall be computed having regard to the arm's length price. Further, section 92F(v) of the Act defines transaction v) transaction" includes an arrangement understanding or action in concert- TAX DEPARTMENT arrangement, understanding or action is formal or in writing, or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.] * In the instant case, we submit that since, there is no overdue receivable from AE, so there is no question of "Transaction" as defined under Section 92F of the Act or "International Transaction" as defined under Section 92B of the Act being entered into by the assessee. * As such, the action of the TPO of treating the alleged transfer pricing adjustment as a deemed receivable is patently erroneous in law. If this approach is followed, then every transfer pricing adjustment would result in a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gs of Authority for Advance Ruling in the case of Dana Corporation Vs. Director of Income-tax A.A.R. No.788 of 2008 (2010 321 ITR 178) wherein it was held that notional figures or hypothetical figures cannot be used for calculation profit or gain or full value for consideration. "The profit or gain or the full value of the consideration, cannot be arrived at onnotional or hypothetical basis. The profit or gain to the transferor must be adistinctly and clearly identifiable component of the transaction." * Further, in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521, Honourable Supreme Court has said (page 530): .................. Evonik Degussa India P Ltd [ITA no. 7653/Mum./2011] .............. Honourable Supreme Court ruling in the case of Bombay Steam Navigation Co P Ltd vs CIT [1953] 56 ITR 52 (SC) ............. Nimbus Communications Ltd vs ACIT [2011] 43 SOT 695 (Mum) ................... Patni Computer System vs DCIT [ITA No 426 & 1131/PN/06 (Assessment Year 2002-03 & 2003-04)] ............ The assessee also wishes to draw your attention towards OECD Guidelines. wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the above, it is submitted that re-characterization of a transaction cannot be done on an arbitrary basis unless and until the transaction is regarded as a sham. VI. Secondary Adjustments - Not permitted under Indian Regulations for the year under consideration We further wish to draw your attention to the fact that by imputing interest on alleged overdue the TPO has proposed to make a secondary adjustment for which there is no provision in the Act. As per OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines'), secondary adjustment is an adjustment that arises from imposing tax on a constructive transaction that some countries will assert under their domestic legislation after having proposed a primary adjustment in order to make the actual allocation of profits consistent with the primary adjustment. Secondary transactions may take the form of constructive dividends, constructive equity contributions, or constructive loans In this regard, we wish to submit the following extracts of the OECD Guidelines: 4.69 The Commentary on paragraph 2 of Article 9 of the OECD Model Tax Convention notes that the Ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction. Thus, the arbitrary approach adopted by the TPO of comparing NCCRPS with NCDs is likely to be rejected or set aside. VIII. Initiating Penalty Proceeding In the absence of a show cause notice, the assessee could not furnish the required information. Thus, assessee request your Honors to instruct the AO/TPO to drop the penalty proceedings initiated under Section 271G of the Act for allegedly furnishing inaccurate particulars, concealing the taxable income and failure to maintain documents relating to alleged Transactions as per Section 92D of the Act The Assessee craves leave to add and submit such further facts, statements, documents and papers as may be considered necessary either before or during the hearing of the objections." 15. After considering the submissions of the assessee, Ld.DRP discussed the issue in detail and rejected the objections raised by the assessee with regard to provision of section 92 of the Act, which do not apply to capital account transaction. Ld. DRP sustained the observation of the Assessing Officer/Transfer Pricing Officer that the current transaction under consideration is covered by Explanation (i)(c) to section 92....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learly held by the Hon'ble Punjab and Haryana High Court in the case of Coca Cola India Inc v. Assistant Commissioner of Income-tax, Gurgaon [2009] 309 ITR 194, [2009] 221 CTR 225. [2009] 177 Taxman 103 (Punjab & Haryana). This was subsequently reiterated by the Hon'ble ITAT Delhi in Perot Systems TSI (India) Ltd. v Deputy Commissioner of Income-tax [2010] 5 ITR (T) 106, [2010] 37 SOT 358, [2010] 130 TTJ 685 (Delhi). Thus, the substance of the transaction has to be judged under the transfer pricing regulations. In this regard, compliance to Companies Act and SEBI regulations does not put a seal of approval on the true character of the transaction from the perspective of transfer pricing regulations. e) The very essence of transfer pricing is to be seen in the backdrop of this vital question: Whether unrelated enterprises under uncontrolled conditions wouldenter into such transaction? The answer would be a clear 'no'. No company would park such huge money in another unrelated company for no return. Then, it is essential for the transfer pricing machinery of the country to set it right. This very essence of transfer pricing is embedded in section 92F(ii) of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtain rate of return of any receivable from AE. As the assessee has not received any return on the deemed advance which are basically in the nature of loan, the transaction has not happened at arm's length. As the assessee has failed to substantiate that a proper benchmarking has been done, the same is to be benchmarked as a loan transaction. l. The assessee has taken a stand that the investment cannot be re- characterized as loan. This objection of the assessee is not acceptable under the facts and circumstances of the assessee in view of the judgment pronounced by Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. EKL Appliances Ltd. (2012) 345 ITR 241. [2012] 250 CTR 264, [2012] 209 Taxman 200 (Delhi) in which para 1.36 of the OECD Transfer Pricing Guidelines was referred to This para clearly mentions that, "in other than exceptional case, the tax determination should not disregard the actual price. Further the issue has been discussed at length by the Hon'ble Delhi High Court (at para 18) in this decision as under. 18 Two exceptions have been allowed to the aforesaid principle and they are (1) where the economic substance of a tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me under the Act and must find its home in one of the above heads i.e. charging provisions. This the revenue has not been able to show". Further, they observed that the machinery Section of the Act cannot be read de-hors charging Section and in the ratio of the decision they held that in the present facts issue of shares at a premium by the Petitioner to its non-resident holding company does not give rise to any income from an admitted International Transaction. 18. Ld.AR of the assessee brought to our notice Page No. 11 of the Paper Book to submit that even in the above case the revenue has added the value of shares issued by the assessee to its holding company. This deemed loan was sought to be charged with interest @13.5% per annum and he submitted that similar issue was raised in the present case also. 19. Further, he brought to our notice Page No. 64 of the Paper Book on the decision of the J.P. Morgan Advisors India Pvt. Ltd., v. DCIT in ITA No. 990, 1754/MUM/2014 dated 19.06.2019 wherein similar facts were involved. He brought to our notice facts of the case wherein assessee has issued equity shares to its holding company and even in this case the Transfer Pricing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 22. Assessee has made elaborate submissions before tax authorities as well as before us by relying on the decision of Vodafone India Services Private Limited (supra) to submit that this transaction is not out of the international transaction considering the fact that it does not generate any income or loss. After careful evaluation of submissions of both the parties we observe that as such the issue of preference shares perse will not fall under category of transaction involving generation of income or loss. However, it has to be evaluated whether it falls within the definition of International Transaction. The transaction involving issue of shares/debentures/debt funds will certainly fall within the category of capital financing. It is not necessary that the transaction itself should generate the profit or loss but the impact of such transaction is relevant. In this case, there is involvement of cost of borrowing, it could be in any form. However, the assessee has relied heavily on the decision of Vodafone India Services Private Limited (supra) wherein the Hon'ble Bombay High Court has dealt with the issue of shares with premium and held that such premium will not fall under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd. The reliance of Vodafone case (supra) by the assessee is not applicable in this case as discussed above. 23. Ld. Transfer Pricing Officer however, treated the transaction of issue of NCCRPS as quasi equity, in our view, it is not proper but it can be treated as quasi capital, to that extent we are in agreement that the above transactions fall under capital financing as per section 92B of the Act. However, TPO cannot adopt the value of the preference shares on the basis of equity shares. The equity shares are valued considering the fact that they are the real owners of the company and whereas the preference shares are no doubt liability and treated as distinct shareholders as far as liability is concern on the company and as far as the cost to the above liability is on the shareholder funds (profit after tax) of the company which is available to distribute among the shareholders. To the extent of treating the above transactions as capital financing we are in agreement with the Transfer Pricing Officer, however, treating the value of the above preference shares which was issued at par with the value of equity shares, in our view, is not proper and at the outset we reject the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal transaction u/s 92B, we are inclined to accept partial finding of the Transfer Pricing Officer that it is a quasi-capital and its cost has to be benchmarked in the international market. In the given case, the Transfer Pricing Officer has already observed that the cost of capital of the assessee is at 9.945% based on the Balance Sheet submitted by the assessee. Since it is an international transaction we cannot benchmark the same at the Indian market rate and as held in the various judicial pronouncements, the international transactions have to be benchmarked at the cost of capital based on the respective Libor rate. In this case, the preference shares are issued for a period of 7 years, however, it is redeemed within 3 years. Therefore, the bench-marking has to be undertaken by adopting the 3 years LIBOR rate. It is normal on the part of the various banks to charge the interest on the basis of Libor rate plus certain basis points considering the risk factors involved in financing the same. However, in the given case assessee has taken financing from its own AE. Therefore, the benchmark has to be done based on the Libor rate i.e., LIBOR + basis points + adjustment of risk factor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent, the payment made by the Appellant is in effect a lease rental payment for assets acquired by the Appellant under a lease arrangement. The lease rentals paid during the tenure of lease is an expenditure incurred wholly and exclusively for the purpose of business of the Appellant and is revenue in nature. While the Ld. AO allowed deduction for the interest component of the lease payment, he disallowed the principal component of such lease payment. 2.3 The Appellant places reliance on the decision of the Hon'ble Supreme Court in the case of I.C.D.S Limited v. CIT [2013] 350 ITR 527 (SC) wherein the Apex Court listed the following broad principles to reach to the conclusion that the ownership of the leased assets remains with the lessor: * The lessor is the exclusive owner of the asset at all points of time; * If the lessee committed a default, the lessor is empowered to re-possess the asset (and not merely recover money from the lessee); * At the conclusion of the lease period, the lessee is obligated to the return the asset to the lessor; * The lessor will have the right of inspection of the asset at all times. 2.4 In the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ital and interest portion separately. He submitted that till the end of period of lease, assessee owns the vehicle and at the end of terms assessee will buy the vehicle at 20% of the cost. He strongly supported the findings of the tax authorities. 27. Considered the rival submissions and material placed on record, we observe that assessee has claimed deduction of Rs..3,69,29,423/- under the head "any other amount liable as deduction" in schedule BP of the returned income, which included principle lease payment of finance of Rs..73,02,481/-. From the records, we observe that Assessing Officer has disallowed the portion of expenses related to principal repayment of lease for assets taken on Finance Lease. Before Assessing Officer, assessee submitted that assessee did not have any ownership right over the assets and the amount paid was not for acquiring any lease hold rights by way of annual lease rent. The lessor is exclusive owner of the asset at all point of time and assessee is obligated to return the assets at the end of the period to the lessor. Therefore, the claim of the assessee that the payments are revenue in nature and incurred wholly and exclusively for the purpose of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Further, as per the agreement assessee has the option to buy back the vehicle at the end of the terms of lease or at the cancellation of the above said lease prematurely. Therefore, from the above terms of lease it is clear that the lease taken by the assessee is purely a Finance Lease. 30. As per the Accounting Standard, the initial recognition of Finance Lease, the lessee (i.e., Assessee) should recognize Finance Lease as assets and liabilities in their Balance Sheet at amounts equal to the fair value of the leased property, both assets and liabilities are determined and recorded at the inception of the lease. The discount rate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. Although the legal form of a lease agreement is that the Lessee i.e., assessee may acquire no legal title to the lease asset, in the case of Finance Lease the substantial and financial reality are that the assessee acquires the economic benefits of the use of the lease asset for the major part of its economic life in return for entering into an obligation to pay for that right an amount approximating at the inception of the lease, the fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... constant periodic rate of interest on the remaining balance of the ability for each year." Accounting standard declared by the assessee in its notes forming part of accounts clearly indicate that the assessee has declared the method of recording of operating lease and finance lease separately. 33. From the above, assessee has rightly disclosed the accounting method of leases, which has two types and method to record the same. However, while recording the transactions of finance lease, they have recorded the discounted value of assets in their Balance Sheet and claimed the depreciation as per Companies Act as well as Income tax Act as far as Finance Leases are concerned. The lease payments has two portions, first is finance cost and other is repayment of principal. Strictly speaking assessee has followed the AS-19 issued by ICAI. However, assessee preferred to treat the assets acquired by it on Finance Lease and charged the same to its profit and loss account in two parts, as finance charges to the extent of interest relating to the current AY and depreciation for the actual value of assets, as per the method suggested in the AS 19 of ICAI. For the sake of clarity, the releva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is ground of appeal is allowed for statistical purpose. 37. With regard to Ground No. 3 which is relating to Employees Share Option Scheme [ESOP], brief facts of the case are, during the course of assessment proceedings Assessing Officer observed that assessee has debited an amount of Rs..7,01,54,021/- towards Employees Share Option Scheme when the details were called from assessee, assessee vide letter dated 31.12.2019 submitted that ESOP options are given to whole-time Directors, officers or employees of the company, the benefit of or right to purchase or subscribe to the securities offered by the assessee at a future date and at a predetermined prices. During the assessment year assessee has claimed ESOP of Rs..7,01,54,021/- and the same was disclosed at Note - 34 and Note - 35 of the financial statements. In order to claim the ESOP benefits the employee obliged to render services to the company from the vesting period and on completion of the vesting period, the options vest with the assessee. The ESOP cost represents discount given to the employee being the difference between market price at the time of grant of options to employees and exercises prices of the ESOP is recog....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing retained with the company for at least a near Future time period (iv) Employees get a very good opportunity to become partners in wealth creation in a twofold manner wherein on one side they are issued shares at a discounted price when compared to market price or sometimes even at free of cost and on the other side they become eligible for all the future shareholder payouts whether be it dividends or buyback/ redemption of capital. 9.8 An employer who wishes to issue ESOP proposes a plan to the employees on certain date i.e. grant date with certain conditions attached to it which inter-alia includes a minimum period of employment with the company i.e. vesting period. There is a certain time period within which the employee after the ESOP getting vest gets an opportunity to exercise the option i.e. Exercise period. The value at which the hares are issued to employees is technically called exercise price some companies also keep a lock in period for the exercised ESOP within which an employee cannot sell those shares in the market. 9.9 Accounting treatment of ESOP:- As per the Guidance Note issued by Institute of Chartered Accounts of India (ICAI) and S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any expenditure debited during the vesting period remains contingent in nature. * The ESOP expense even if treated as expenditure is a capital expenditure since securities premium being a capital item. 9.12 It is also submitted that the Hon'ble Delhi ITAT in the case of ACIT Vs Ranbaxy Laboratories ITA No 2613 & 3871 has held that the ESOP expense debited to P&L is notional in nature, since the assessee has neither laid out or expended any amount while choosing to receive no lesser securities premium. The alternative argument that this ITAT has supported is since the receipt of securities premium is not chargeable to tax being a capital receipt any short collection of securities premium should also so be considered as capital outlay and cannot be allowed as expenditure. 9.13 The Delhi ITAT in the case of Ranbaxy (Supra) has relied on the following court rulings which have held that shares issued against assets/technical know-how contributed by shareholders cannot be claimed as revenue expenditure: * Eimco K.C.P Ltd Vs CIT 159 CTR 137 (Supreme Court) * CIT Vs ReinzTalbros Pvt Ltd 252 ITR 637 (Delhi) COME TAX DEPARTENT 9.14 F....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the assessee and he prayed that this issue of additional claim may also be remitted back to the file of the Assessing Officer for verification. 43. On the other hand, Ld. DR relied on the orders of the lower authorities. 44. Considered the rival submissions and material placed on record, we observe that assessee has claimed ESOP expenses before Assessing Officer which the Assessing Officer has rejected and also assessee claimed additional claim of ESOP expenses before Assessing Officer which was rejected by the Assessing Officer. Ld.DRP has also rejected the claim of the assessee in order to keep the issue alive since the case was pending before Hon'ble Karnataka High Court in the case of CIT v. Biocon Ltd., (21 taxmann.com 351). However, the Hon'ble Karnataka High Court has decided the issue in favour of assessee and respectfully following the above decision the Coordinate Bench of this Tribunal in assessee's own case for the A.Y. 2015-16 has decided the issue in favour of assessee. For the sake of clarity, the relevant portion of the order is reproduced below: - "14. We have heard rival submission of the parties on the issue in dispute and perused the relevant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... service of the company, the option vest with the employees. 9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a quantification of place at a future date. The tribunal has therefore, rightly placed reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P Ltd., supra and has recorded a finding that discount on issue of ESOPS is not a contingent liability but is an ascertained liability. 10. From perusal of Section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred The expression 'expenditure' will a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en in PVP Ventures Ltd. And Lemon Tree Hotels Ltd Supra. 13. It is also pertinent to mention here that for Assessment Year 2009-10 onwards the Assessing Officer has permitted the deduction of ESOP expenses and in view of law laid down by Supreme Court in RadhasoamiSatsang vs. CIT, (1992) 193 ITR 321 (SC)the revenue cannot be permitted to take a different stand with regard to the Assessment Year in question. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assesseeIn the result, we do not find any merit in this appeal, the same fails and is hereby dismissed 14.1 Respectfully following the finding of the Hon'ble Karnataka High Court(supra), the Ld. Assessing Officer is directed to delete the addition. The ground of appeal of the assessee is accordingly allowed." 45. Respectfully following the above decision in assessee's own case for the A.Y. 2015-16, we are inclined to allow the Ground No. 3.1 raised by the assessee. 46. With regard to additional claim on ESOP raised by the assessee the similar issue was considered by the Coordinate Bench in A.Y. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lled from the assessee, assessee filed its response vide letter dated 06.12.2019, for the sake of clarity it is reproduced below: - "During the year under consideration, our company has earned dividend income from Mutual Fund of Rs. 6,14,35,915/-. The said dividend income is claimed as exempt in computation of total income under section 10(35) of the Act. Further, the Company has earned dividend of Rs. 6,85,86,320/- from subsidiary. No disallowance in the absence of any expenditure: 1. Section 14A of the Act provides disallowance of expenditure "incurred in relation to income claimed exempt in the return of income. It is submitted that the Company has not incurred any direct or indirect expenditure in relation to earning the said exempt income 2. As per section 14A of the Act, only expenditure which has been proved to have been incurred in relation to the earning of tax- free income can be disallowed and this section cannot be extended to disallow any expenditure which is assumed to have been incurred for the purpose of earning tax-free income. 1. It has been held in the below judicial precedents that expenditure incurred refers to actua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsence of nexus between expense and earning of exempt income, disallowance under section 14A of the Act cannot be made. The same has been upheld in the following judicial precedents * CIT vs Sintex industries (93 taxmann.com 24) (SC) (2018) * CIT vHero Cycles Ltd(323 ITR 518) (P&H HC) (2010) * Justice Sam P. Bharucha v Addtl. CIT [2012] 53 SOT 192 (Mum Trib.) (URO) [AY 2008-09]; * DCIT vAllied Investments Housing P Ltd.(Chennai) (Trib.) [AY 2009- 10] * Gujarat Narmada Valley Fertilizer Company Limited (ITA No 1151 of 2013) (Gujarat HC) * Aditya Birla Finance Ltd v Assistant Commissioner of Income tax-2(1) (83 taxmann.com 85) (Mumbai ITAT) (2017) 1. In the decision of the Delhi ITAT in case of Mohan Exports (P.) Ltd. [(2012) 138 ITD 108, it has been held that Rule 8D (2)(ii) would not apply in case where investments have been made from interest-free funds available with assessee. It is necessary to examine whether the interest paid during the year is directly attributable to any particular income/receipt or not. If there is a finding that the interest is not directly related to receipts by way of dividends, it follows th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut prejudice, to the above, only those investments which have incurred exempt income should be considered for the calculation disallowance as per the provisions of section 14A read with rule 8D(iii); * Provision for calculating disallowance as per section 14A read with rule 8D are not applicable for calculation of book profits as per provisions of section 115JB of the Act." 49. After considering the submissions of the assessee Assessing Officer found not acceptable, the Assessing Officer observed that assessee has not disallowed any expenditure under section 14A of the Act and the main contention of the assessee is that if no expenditure is incurred then there should not be any disallowance under section 14A and strategic investments to be excluded while computing the disallowance under Rule 8D2(i) of I.T. Rules. Assessing Officer rejected the above said submissions and by relying on CBDT Circular No. 5 of 14 dated 11.02.2014 and other case law, held that 14A disallowance are applicable in this case and accordingly, he determined the disallowance under section 14A by invoking Rule 8D2(ii) of I.T.Rules and disallowed at 1% of the annual average of the monthly average of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is allowed for statistical purpose. 54. With regard to Ground No. 4(b) of grounds of appeal, it is brought to our notice that Assessing Officer has invoked clause (f) of Explanation (ii) to section 115JB of the Act to disallow the 14A disallowance as determined by him under section 14A of the Act. This issue is settled as far as assessee is concerned that the 14A disallowance cannot be part of clause (f) of Explanation (ii) of section 115JB of the Act. We observe that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27] held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Thus respectfully following the said decision, we direct assessing officer to delete the above adjustment made in the book profit u/s 115JB of the Act. This ground is accordingly allowed. 55. With regard to Ground No. 5 which is relating to adjustment of dividend distribution tax. At the time of hearing, Ld.AR of the assessee submitted that this issue is decided by the Tribunal against the assessee. Therefore, we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in rejecting the reliance placed by the Appellant on the Hon'ble Bombay High Court's decision dated 10 October 2014 in Writ Petition No. 871 of 2014 in the case of Vodafone Services Pvt Ltd vs UOI [2015] Taxmann.com 286 (Bombay) and concluding that no income arises to it from such a transaction and accordingly transfer pricing provisions contained in Chapter X of the Act will not apply to the facts of the present case. 1.3. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPOhave erred in not recording any reasons to show that the conditions mentioned in clause (a)to (d) of section 92C(3) of the Act were satisfied, either before initiating the transfer pricing assessment or before the completion of the assessment proceedings. 1.4. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in recharacterizing a legitimate business transaction of issuance of NCCRPS as quasi equity without providing cogent reasons and thus erred in comparing the NCCRPS with equity shares in the absenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h deposit in Specified Bank Note (SBN) during demonetization period. 2.1 On the facts and circumstances of the case and in law, the Ld. AO erred in passing the final assessment order u/s 143(3) r/w 144C of the Act, without giving effect to the binding directions of the Ld. DRP wherein the DRP had directed the Ld AO to verify the cash deposits and restrict the additions only to the unverifiable deposits. Accordingly, the Ld AO issued the final assessment order identical to the draft assessment order without giving cognizance to the DRP directions and accordingly the order in this context bad and illegal in law and liable to be quashed 2.2 On the facts and circumstances of the case and in law, the Ld. AO erred in not considering the fact that in the cases referred in faceless assessment, on or after the 1st day of April, 2021, shall be non-est if such assessment is not made in accordance with the procedure laid down under this section. The Ld. AO failed to consider all the relevant material filed by the Appellant before passing of the draft assessment order. He also failed to adhere to the request made by the Appellant for virtual hearing, in case the AO proposes to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....text bad and illegal in law and liable to be quashed; 3.2 On the facts and circumstance of the case, the Ld. AO failed to appreciate that depreciation has already been suo-moto disallowed by the Appellant while computing income under the head 'profit and gains from business and profession 3.3 On the facts and circumstances, the Ld. AO erred in not considering the submission filed by the Appellant during the course of assessment proceedings explaining the fact that the depreciation on Jodhpur property has already been disallowed in the return of income. 4 Claim of Employee Stock Option Plan (ESOP) of Rs. 7,42,11,889 4.1. On the facts and in the circumstances of the case, and in law, the Hon. DRP/Ld.AO erred in not allowing the additional claim made during the course of DRP proceedings for ESOP expenses (being difference between market price at the time of exercise of options and market price at the time of grant of options) of Rs. 7,42,11,889 under section 37(1) of the Act 5. Refund of excess Dividend Distribution Tax On the facts and in the circumstances of the case and in law, the Hon. DRP and the Ld. AO: 5.1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....348 of the Act 7.1. The Ld. AO erred in levying interest under section 2348 of the Act. 61. Assessee has filed additional grounds on jurisdictional issue, for the sake of clarity it is reproduced below: - "Ground No. 9: 1. On the facts and in the circumstances of the case and in law, the final assessment order dated 20 April 2021 passed by the under section 143(3) read with section 144C(13) of the Act, having been passed beyond the limitation provided in terms of section 153(1) r.w. section 153(4) of the Act, is illegal, being barred by limitation, void-ab-initio and is therefore liable to be quashed. Ground No. 10. 2. On the facts and in the circumstances of the case and in law, the directions dated 27 January 2022, issued under section 144C(5) of the Act by the Ld. DRP, not being signed by all the members of the Hon'ble DRP, are illegal, bad in law, void-ab-initio and liable to be quashed 62. At the time of hearing, Ld.AR of the assessee submitted that assessee is not pressing the additional grounds of appeal. Accordingly, these additional grounds of appeal are dismissed as such. Therefore, we shall deal with only main ground....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tomer is done into the system by checking his transaction history using his passport number and necessary documents are required to be submitted. iii) Once screening is done, the purchase request of the customer is approved after obtaining necessary internal approvals depending on amount of foreign currency to be released. The payment in cash is accepted for currency exchange equivalent of amount not exceeding INR 50,000. iv) The system captures PAN Card, customer name, Date of birth and country of the customer. Once the transaction is saved, the Sales bordereaux is generated which is signed and stamped by the teller. The Cashier need to input manually on bordereaux, the INR denomination received by him and foreign currency sold to the customer. v) The customer signs the acknowledgement of the bordereaux copy and the copy of such acknowledgement along with hardcopies of all the documents submitted by the customers are filed in the records. NCOME TAX DEPARTMEN vi) Similar process is followed when customer approached for buying foreign currency prepaid card, Demand Draft. vii) Also, when the customer approaches to sell the foreign currency....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e increase in the deposit of cash during the demonetisation period is due to all SBN available across all the branches having deposited into the bank accounts. The assessee has stated to have submitted the details of cash deposited during the FY 2015-16 and FY 2016-17 in specified format as requested by the Ld. AO as under: Sr. No . Particulars Amount (in Rs.) i) (a) Total Cash deposit in bank in financial year 2015-16 2,38,35,88,414 (b) Total Cash deposit in bank from 01.04.2015 to 08.11.2015 1,64,77,33,772 (c) Total cash deposit in bank from 09.11.2015 To 30.12.2015 21,66,82,920 ii) (a) Total Cash deposit in bank in financial year 2016- 17 1,92,82,34,566 (b) Total Cash deposit in bank from 01.04.2016 to 08.11.2016 1,49,25,68,258 (c) Total cash deposit in bank from 09.11.2016 to 30.12.2016 22, 10,71,066 iii) (a) Percentage increase between (ii)(a) & (i)(a) Decrease by 23.61% (b) Percentage increase between (ii)(b) & (i)(b) Decrease by 10.40 (c) Percentage increase between (ii)(c) & (i)(c)  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are also governed by RBI regulations and that the assessee also keeps records of all the foreign exchange transaction on a system, that captures PAN Card, customer name, Date of birth and country of the customer etc. and once the transaction is saved, the Sales bordereaux is generated which is signed and stamped by the teller. The customer also signs the acknowledgement of the bordereaux copy and the copy of such acknowledgement along with hard copies of all the documents submitted by the customers are filed in the records as well. Therefore, assessee maintains adequate trail of information/documents to substantiate the source of INR cash generated into the system. Further, they observed that assessee had submitted the details of cash deposited during the F.Y.2015-16 and F.Y.2016-17 in the format prescribed, as required by the Assessing Officer, which apparently the Assessing Officer has not taken into account. The details submitted by the assessee shows that there is a marginal increase of 2.03% in cash deposited during the demonetization period as compared to the last year for the same period and the increase in the deposit of cash during the demonetization period is attributable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod is due to all the specified bank notes available across all the branches having deposited into the bank accounts. He further, submitted that assessee has submitted the details of cash deposits during the demonetization period vide letter dated 15.02.2021, 10.03.2021 and 12.04.2021 these letters are part of Paper Book submitted before us. 69. He also submitted that the assessee has deposited during demonetization period various specified bank notes in 39 branches which consist not only of cash deposits from customers and it also the specified bank notes available in the business as per the directions of RBI during demonetization period. Further, he brought to our notice Page No. 3 to 5 of the final assessment order and submitted that Assessing Officer has not followed the direction of Ld. DRP and as per the direction Assessing Officer should have called for the relevant information and made the verification instead he followed the findings in the draft assessment proceedings. 70. He also brought to our notice Page No. 898 of the Paper Book and prayed that the cash deposited during demonetization period is nothing but cash generated by the business and the cash in Hand av....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat assessee had sufficient cash balances in the above said specific bank notes and which assessee has deposited across the branches. Since no proper details submitted before Assessing Officer we direct assessee to submit the above said details of cash balances available across the branches during the demonetization period, which was reported in regular intervals to RBI may be submitted for verification before Assessing Officer. Accordingly, we direct the Assessing Officer to verify the documents which assessee will submit before him as per the RBI norms, after giving proper opportunity of being heard, and decide the issue in accordance with law. Accordingly, the ground raised by the assessee is, accordingly, allowed for statistical purpose. 73. With regard to Ground No. 3 which is relating to Disallowance of depreciation on Jodhpur property of Rs..72,328/-, at the time of hearing, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, this ground is dismissed as not pressed. 74. With regard to Ground No. 4 which is relating to the Claim of Employee Stock Option Plan (ESOP) of Rs..7,42,11,889/-, this ground is similar to Ground No. 3 raised by the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of existing of an income which is a pre-requisite before making a reference to Ld. TPO for proposing an addition on the capital transaction of issuance of NCCRPS. The Hon. DRP/ Ld. AO/ Ld. TPO failed to appreciate that in the absence of any income arising on account of issuance of NCCRPS, transfer pricing provisions contained in Chapter X of the Income-tax Act 1961 (the Act) do not apply to the facts of the present case. 1.2. On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in rejecting the reliance placed by the Appellant on the Hon'ble Bombay High Court's decision dated 10 October 2014 in Writ Petition No. 871 of 2014 in the case of Vodafone Services Pvt Ltd vs UOI [2015] Taxmann.com 286 (Bombay) and concluding that no income arises to it from such a transaction and accordingly transfer pricing provisions contained in Chapter X of the Act will not apply to the facts of the present case. 1.3 On the facts and circumstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPO have erred in not recording any reasons to show that the conditions mentioned in clause (a) to (d) of section 92C(3) of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mstances of the case and in law, the Hon'ble DRP/ Ld. AO/Ld. TPOhave erred in not following Hon'ble DRP's own direction in the Appellant's case forAY 2015-16, wherein reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Vodafone Services Pvt Ltd. v/s UOI (2015) 53Taxmann.com 286 (Bombay) and Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. Vs CIT [2015] 64Taxmann.com 150(Delhi), and giving a finding that an element of income accruing/ arising was a prerequisite for applicability of transfer pricing provisions since they are merely 'machinery provisions and not charging provisions' 2. Addition on account of disallowance of car lease rentals (Ground 2.1 to Ground 2.3) 2.1. On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld. AO erred in disallowing an amount of Rs. 24,86,533 in respect of principal portion of lease payment for assets taken on finance lease on the basis that the said expenditure is capital in nature and should not be allowed as deduction under section 37(1) of the Act. 2.2. Without prejudice to the above ground, on the facts and in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case and in law, the Ld. DRP/ the Ld.AO erred in not granting deduction of Rs. Rs. 46,70,22,783 in respect of the additional claim made during the course of DRP proceedings for ESOP expenses (being difference between market price at the time of exercise of options and market price at the time of grant of options) under section 37(1) of the Act. 5. Addition on account of disallowance under Section 14A of the Act: 5.1. On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld.AO erred in disallowing an amount of Rs. 11,52,88,300/- under Section 14A of the Act read with Rule BD of the Income Tax Rules, 1962 by simply following its orders for the earlier assessment years, without appreciating the fact that no direct or indirect expenditure was incurred by the Appellant for earning exempt income. 6. Addition on account of depreciation on building (Ground 6.1 & 6.2): 6.1. On the facts and in the circumstances of the case and in law, the Ld. DRP/ the Ld.AO erred in disallowing an amount of Rs. 45,64,124 in respect of depreciation on building on the grounds that the Appellant failed to produce any cogent evidence to show that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7,027 paid to its overseas shareholder le Fair bridge Capital (Mauritius) Limited ('FCML') out of total dividend of Rs. 25, 16,70,423 ought to have been paid at the rate of 5% having regard to Article 10(2) of the India-Mauritius tax treatyas against the rate of 20.358% (including surcharge and cess) specified under Section 115-0 of the Income Tax Act 1961 and inadvertently paid the Appellant. 9.2. I erred in not granting refund of excess DDT paid of Rs 1,41,60,832 to the appellant in respect of dividend of Rs 9,22,07,027 paid to FCML, since as per the provisions of Section 237 of the Act read with Article 265 of the Constitution of India, only legitimate tax could have been retained. 9.3. erred in adjudicating that since there was no variation of income and since there was no adjustment being made to the income of the Appellant in the assessment order, the said claim of refund of DDT could not have been raised before the DRP. 9.4. erred in observing that provisions of Section 115-0 of the Act overrides the provisions of Section 90(2) of the Act and hence, beneficial rate as per Article 10(2) of the India- Mauritius tax treaty will not be applicab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... below: - "Ground No. 9: 1. On the facts and in the circumstances of the case and in law, the final assessment order dated 31 July 2022 passed by the under section 143(3) read with section 144C(13) of the Act, having been passed beyond the limitation provided in terms of section 153(1) r.w. section 153(4) of the Act, is illegal, being barred by limitation, void-ab-initio and is therefore liable to be quashed. Ground No. 10: 2. On the facts and in the circumstances of the case and in law, the directions dated 30 June 2022, issued under section 144C(5) of the Act by the Ld. DRP, not being signed by all the members of the Hon'ble DRP, are illegal, bad in law, void-ab-initio and liable to be quashed. It is humble prayer of the Appellant that the final assessment order and DRP directions are bad in law, null and void and liable to be quashed, and the entire addition made by Ld. AO/ Ld. TPO/ Hon'ble DRP be deleted." 81. At the time of hearing, Ld.AR of the assessee submitted that assessee is not pressing the additional grounds of appeal. Accordingly, these additional grounds of appeal are dismissed as such. Therefore, we shall deal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esult assessee has actually claimed expenses of Rs..12,23,347/-. Therefore, as per the directions of Ld. DRP, if it is implemented, it amounts to double disallowance. 86. On the other hand, Ld. DR relied on the order of the lower authorities. 87. Considered the rival submissions and material placed on record, we observe that we have already remitted the issue of determining the allowability of lease rental to the Assessing Officer to determine the depreciation to be allowable instead of interest and repayment of principal amount. Once it is determined as per AS-17 of the IND-AS the controversy of allowability of lease rental will settle. Even this claim of double deduction will be addressed in that process of determining proper allowability of lease rental under Finance Lease. Accordingly, this issue also remitted back to the file of the Assessing Officer. Accordingly, this ground is allowed for statistical purpose. 88. With regard to Ground No. 3, it is submitted that assessee has taken cars on Finance Lease from Lessors and subsequently in July 2017 assessee has purchased the vehicles from the lessors. Therefore, assessee has become the owner of the cars and fulfilled th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave been provided(Pg. No. 51 to 52 of application for Additional Evidence (DRP) dated 25 April 2022); * Copy of the statement showing the employee-wise details of the foreclosure amount paid by the Assessee to the lessors (Copy enclosed at Annexure 9 of submission (AO) dated 26 May 2022): * Sample copies of statements received from the lessor indicating the amount payable by the Assessee upon foreclosure of the respective vehicles (Copy enclosed at Annexure 10 of submission (AO) dated 26 May 2022); and * Extract of Bank statement for payment towards purchase of vehicles(Copy enclosed at Annexure 8 of submission (AO) dated 26 May 2022). 4.3 The Assessee submitted that it has added the said amount of Rs. 5,19,25,798 to the block of assets, as it represents the actual amount paid by the Assessee to its lessors, and that it has claimed depreciation on the said amount in accordance with the provisions of Section 43(6) and Section 43(1) of the Act. 4.4 The claim of the Assessee has been duly considered. It is seen from the Simulation report' that the valuation of car has been done on the basis of 'Discounted Future Rentals and RV "as i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cars have only changed ownership from the lessor to the assessee. Therefore, the ground of objection no. 4 is disposed off accordingly." 90. Aggrieved assessee is in appeal before us and at the time of hearing, Ld. AR submitted that this is extension of Finance Lease controversy and because of this controversy assessee decided to acquire the vehicle which were on Finance Lease from the financial institutions and based on that assessee has revalued the cars from the date of purchase. Since assessee has become owner of the vehicles from the date of purchase and it has fulfilled the conditions and provision of section 32 of the Act, therefore, assessee should be allowed to claim the depreciation and he prayed that the valuation reports submitted by the assessee are from the independent valuer and it should be accepted for the value of acquisition and also assessee has made the payment for the above purchase of cars which were used by the assessee in its own business under Finance Lease. He submitted that it is fact on record that the finance companies i.e., lessors are not related concerns and it should be considered as independent transactions. 91. On the other hand, Ld. DR su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cordingly, we also direct the assessee to determine the value of assets in its books of accounts as per AS-17 of the IND-AS and it is needless to say that the Assessing Officer may extend opportunity of being heard to the assessee and determine the value of assets purchased by the assessee on the date of foreclosure. Accordingly, this ground of appeal is allowed for statistical purpose. 93. With regard to Ground No. 4 which is relating to Addition on account of expenditure on Employee Stock Option Plan (ESOP), this ground is similar to Ground No. 3 raised by the assessee for the A.Y.2016-17. Since the issue is exactly similar and grounds as well as the facts are also identical, the decision taken in Ground No. 3 for the A.Y. 2016-17 shall apply mutatis-mutandis to the appeal for the A.Y.2018-19 also. We order accordingly. 94. With regard to Ground No. 5 and 7 which is relating to Addition on account of disallowance under Section 14A of the Act, this ground is similar to Ground No. 4 raised by the assessee for the A.Y. 2016-17. Since the issue is exactly similar and grounds as well as the facts are also identical, the decision taken in Ground No. 4 for the A.Y. 2016-17 shall a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see and submitted as under: - "We have considered all the material placed before us. We have considered the relevant facts and circumstances attending to the issue, including the fact that the said premises was acquired at the fag end of the previous year. We note that the assessee has not submitted any cogent evidence to prove that the said premises was 'put to use' by the assessee for its business purposes, except the auditor's certificate. We note that the auditor has also not mentioned any specific cogent evidence to show reliance on the basis of which he had certified that the said premises was 'put to use' for the business purposes by the assessee. We note that even though the said premises was inhabitable it would require some expenditure or activity to bring it in the category of asset which have been put to use' by the assessee for its business purposes. In our considered opinion, an averment to the effect that the said premises was 'put to use' by the assessee for its business purposes is not sufficient and the assessee needs to corroborate the averment with some cogent evidence to show that the said premises was 'put to use....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Ld.DRP. However, the Ld. DRP was of the view that the premises was inhabitable and it would require some expenditure or activity to bring it in the category of asset which have been put to use by the assessee in its business, hence they rejected that the said premises was put to use by the assessee for its business purposes and assessee has not brought on record any corroborative evidences to show that the said premises was put to use by it for its own business purposes. However, we noticed from the record that assessee is owner of the whole building and it has let out the portion of the building and after surrender of the tenancy rights the assessee became the owner of the total building and assessee also paid compensation for surrender of rights to the ex-tenant which was capitalized by the assessee, not just the capitalization but it also spent some expenditure on renovation of the building which was certified by the auditor. It shows that assessee has spent considerable amount and in order to claim the depreciation assessee has to fulfill the conditions laid down in section 32 of the Act, i.e., assessee should be the owner and should have the control of the assets and also it....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of listed entity amounting to Rs. 5,35,36,03.045- Such capital gains are exempt as per the provisions of section 10(38) of the Income tax Act, 1961 (the Act) for computing tax under normal provisions of the Act. 2. Under MAT, However, such exempt income is taxable for computation of book profit as per the provisions of section 115JB of the Act 3. Clause (1) of Explanation 1 of section 115JB(2) of the Act requires that cost pertaining to any income' exempt from tax should be added back to the book profit 4. Clause (i) to Explanation to section 115/3 lays down that the amount of income to which provisions Of section 10, Other than provisions Of sub-section (38) Of section 10 or sections and 12 if any such amount is credited to profit and loss account shall be reduced from the book profits for the purpose of computing tax liability 6. However, clause (0) as well as clause (0) keeps expenditure and income pertaining to capital gains exempt under section 10(38) out of its purview Consequently, any income' considered exempt under section 10(38) under the normal tax provisions is regarded as taxable for the purpose of section 115JB of the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under MAT 3. The profit on sale of listed shares considered in the books of accounts without giving effect to indexation is Rs. Accordingly, the differential amount of Rs. 21.98, 18,240/- has been reduced from the book profits to give effect to the indexation benefit. Your good self will appreciate that the above position i.e. negating profits on sale (without indexation) from books profits and offering capital gains (with indexation benefit) under MAT is based on the provisions of the law and the position laid down under high court decisions. Accordingly, the reduction Of Rs. 21,98,18,240/- ought not to be added back in computing book profits under MAT." 103. The Assessing Officer / Transfer Pricing Officer rejected the submissions of the assessee by observing that the provisions of section 115JB of the Act empowers the Assessing Officer to add or reduce only such items which are mentioned in section 115JB of the Act and restricts the Assessing Officer from making any addition / reduction in any other items which is not covered under section 115JB of the Act. Accordingly, rejected the claim of the assessee. Therefore, they added back of Rs..21,98,18,240/- by s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the (statement of profit and loss);" 108. In view of the aforesaid, the Assessee submits that firstly, the whole of the amount of capital gains as credited in the profit and loss account i.e. without indexation is the amount of income to which the provision of section 10 is applicable, and then what is to be excluded is the what is covered in section 10(38) which refers to capital gains which is computed after considering indexation. It is therefore, submitted that the intention of the legislature is clear to only tax capital gains which is exempt in section 10(38) i.e. after allowing indexation. 109. On the other hand, Ld. DR relied on the order of the lower authorities. 110. Considered the rival submissions and material placed on record, we observe from the record that the assessee has reduced the indexation cost acquisition of transfer of shares while calculating the book profit u/s 115JB of the Act. While claiming the benefit, the assessee acknowledged that this transfer of shares is exempt from tax u/s 10(38) of the Act and relied on the decision of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....04 comes into force. (b) such transaction is chargeable to securities transaction tax under that Chapter: Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB. Explanation : For the purposes of this clause, "equity oriented fund" means a fund - (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 65% of the total proceeds of such fund; and (ii) which has been set up under a scheme of a Mutual Fund specified under clauses (23D); Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures." Therefore, the issue revolves around interpretation of the term 'any income' as used in sub-section (38) of section 10 of the Act from the transfer of long-term capital asset. Provisions of section 48 provide for method of computation of income chargeable under long-term capital gains. It was provided that long-term capital gain shal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with the provisions of Section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to Section 115JB. We find no merit in this argument. If the dichotomy between ''eligibility" of profit and "deductibility" of profit is not kept in mind then Section 115JB will cease to be a self-contained code. In Section 115JB, as in Section 115J A, it has been clearly stated that the relief will be computed under Section 80HHC(3)/(3A), subject to the conditions under sub-clauses (4) and (4A) of that Section. The conditions are only that the relief should be certified by the Chartered Accountant Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to Section 115JB (subject to the conditions specified in sub-clauses (4) and (4A) of that Section) to obliterate the difference http://www.itatonline.org between "eligibility" and "deductibility" of profits as contended on behalf of the Department. ' Therefore following the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n its account and he prayed that this issue may be directed to Assessing Officer so that the proper credit may be granted after proper verification and Ld DR has not made any objection, therefore, we are also inclined to remit this issue back to the file of AO to verify the claim of the assessee as per law and after due verification, the same may be allowed. Accordingly, this ground is allowed for statistical purpose. 116. With regard to Ground Nos. 13, 14 and 15 which are relating to levy of interest under section 234B, 234C and 234D of the Act, since these grounds are consequential in nature, accordingly, the same are dismissed. 117. In the result, appeal filed by the assessee is partly allowed. 118. To sum-up, all the Appeals filed by the assessee are partly allowed. Order pronounced in the open court on 24th November, 2023. ============= Document 1 37 Leases (A) Finance Leases @ . Minimum Lease Payments payable Not later than one year Later than c an one year but not later than five years Year ended March 31, 2016 1,14,32,697 2,86,07,721 Amount in Year ended March 31, 2015 1,00,36,117 1,55,29,730 4,00,40,418....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6,61,64,005 1,29,03,62,129 19,65,21,11 3 Leasehold 8,94,97,054 2,09,89,019 37,48,000 10,67,37,673 4,20,71,805 81,07,413 13,27,700 4,88,51,518 5,78,86,155 4,74,25,249 improvements Furniture and 24,89,01,691 9,57,79,649 63,75,806 33,83,05,534 10,92,19,448 3,95,19,126 96,04,896 59,37,065 15,10,70,743 18,72,34,791 13,96,82,24 Fixtures 3 Computers Office 19,20,89,253 14,95,48,937 5,61,60,142 1,57,68,550 5,33,01,234 85,70,140 23,24,80,845 19,42,80,031 14,37,85,462 3,15,96,856 1,57,53,892 6,56,40,237 2,52,34,771 82,94,176 23,09,662 16,19,38,088 4,92,93,18 13,18,74,021 7,05,42,757 4,83,03,791 6,24,06,010 8,39,08,700 Equipment 9 Vehicles 35,73,155 Plant and Machinery 33,16,953 3,52,172 35,73,155 36,69,125 33,62,063 5,99,719 38,453 2,52,984 34,00,516 8,52,703 1,72,639 2,11,092 28,16,422 27,17,234 Leased Computers 30,53,425 2,17,09,312 1,23,00,750 Vehicles 97,96,84,000 3,44,27,990 1,34,95,42,113 1,34,95,42,113 30,53,425 4,67,63,646 4,38,36,552 4,67,63,646 2,28,24,62,474 30,53,425 1,12,....