TaxTMI 
TaxTMI 
2023 (7) TMI 1574
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....es of the AE Ground Nos. 2 to 10 Ground Nos. 2 to 6 Disallowance of depreciation on intangibles representing acquisition of business contract Ground No. 11 Ground No. 7 Disallowance under section 14A Ground No. 12 Ground No. 8 Disallowance under section 36(1)(va) Ground No. 13 Ground No. 9 Disallowance under section 43B Ground No. 14 Ground No. 10 Short credit for Advance Tax - Ground No. 11 Denial of Foreign Tax Credit - Ground No. 12 Short credit of TDS Ground No. 15 Ground No. 13 Interest under section 234C & 234D Ground No. 16 Ground No. 14 Initiating penalty proceedings Ground No. 17 Ground No. 15 ITA 2451/Mum/2022 - A.Y. 2017-18) 3. The assessee is an IT enabled service (ITeS) provider engaged in delivering a wide portfolio of outsourcing services to its customers around the world. The assessee provides ITeS such as back-office administration, data management and contract centre management primarily to travel, banking, financial services and insurance industries. For the assessment year 2017-18 the assessee filed the return of income on 29.03.2019 declaring an income of Rs. 4,38,93,95....
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....produced hereunder:- "7.2 Method for valuation of shares by the Assessee: 7.2.1 It is seen from form 3CEB as well as TPSR that during the year under consideration assessee has acquired 74,000 shares of WNS Global Services UK Limited from WNS (Holdings) Limited for an aggregate consideration of USD 6,55,87,500 and its equivalent value in Indian Rupees is Rs. 2,24,02,09,481. The assessee has submitted that this share purchase transaction was based on a valuation report obtained from merchant banker. As per the valuation report, the assessee has purchased share at the rate of USD 471 equivalent to Rs. 30273/- per share." 7.2.2 The assessee was therefore, asked to furnish the valuation report in this regard. The valuation report furnished by the assessee showed the calculation of value of shares which are being reproduced as under: Particulars Weights Fair Value USD Mn Income Approach:Discounted Cash Flow Method 50.0% 233.0 Market Approach: Comparable Companies Method 50.0% 236.0 Concluded Business Enterprise Value 234.5 Less:Borrowings 0.0 Less: Derivative Financial Instruments liability ....
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....ed that he alleged excessive consideration for purchase of shares cannot be characterized as loan. 7. The TPO rejected the contentions of the assessee and proceeded to treat the excess amount on account of share transfer, i.e. the difference between Rs. 32,741/- and Rs. 19,612/- as loan during the year under consideration and the TPO imputed interest by applying the rate at 2.74%. Accordingly, the TPO arrived at an adjustment of Rs. 4,72,31,854/-. The TPO also imputed interest for the similar treatment of excess premium as loan pertaining to A.Y. 2016-17 to the tune of Rs. 1,80,70,872/-. The DRP gave partial relief to the assessee by applying interest rate at 6 months LIBOR (+) 100 basis points and accordingly the TP adjustment was reduced to Rs. 2,41,20,209/- for A.Y. 2017-18 and Rs. 1,43,77,555/- for share purchased in A.Y. 2016-17. 8. Before us, the Ld.AR reiterated the submissions made before the lower authorities. The Ld.AR submitted that the TPO has adopted actual against the projections while applying DCF method, which is not correct. The Ld.AR further submitted that the transaction is a capital account transaction with no income element and, therefore, there cannot be....
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....ssee that Projections can't be substituted by actual and hindsight ought not to effect a valuation report, without prejudice to this even if it is assumed otherwise for the time being in force, if projections are to be relied up on, all events that have occurred till that date should be considered. 13. Moreover, reference to TPO on this issue is un-warranted hence, bad in law. As transaction of purchase of equity shares is a capital transaction and the same is not falling in the category of International Transaction as defined in section 92 of the Act, as there is no income arising on account of such transactions. In the light of these observations, we set aside the action of authorities below and allow ground No. 7 to 17 raised by the assessee. 11. During the course of hearing the ld AR submitted that the impugned transaction of sale of shares took place in tranches spread over 3 assessment years i.e. during AY 2016-17 9% of shares were sold, during AY 2017-18 26% and during AY 2018-19 14% were sold. Considering this fact, we are of the view that the above decision of coordinate bench in assessee's own case for AY 2016-17 is applicable for the year under considerat....
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....21) 129 taxmann.com 55 (Madras) where the depreciation on noncompete fee has been allowed. The Assessing Officer did not accept the contention of the assessee that the customer contracts and non-compete fee falls within the definition of 'intangible assets' as enumerated in section 32(1)(ii) and therefore, disallowed the depreciation on the same. The DRP gave relief to the assessee with respect to the depreciation on customer contract with WNS UK - Town & Country to the tune of Rs. 10,88,199 by relying on the decision of the Hon'ble Tribunal in assessee's own case for AY 2006-07 and AY 2008-09. The DRP relied on its own order for AY 2012-13 to uphold the disallowance of depreciation claimed on customer contract with WCIL. With respect to depreciation claimed on customer contract and non-compete fee acquired from Value Edge and Denali DRP upheld the disallowance by relying on the decision of the Hon'ble Delhi High Court in the case of Sharp Business Systems vs CIT (2012) 27 taxmann.com 50 (Del) 15. The Ld.AR during the course of hearing submitted that the customer contracts acquired from WCIL is covered by the decision of co-ordinate bench in assessee's own case f....
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....Explanation 3(b) of the Act. Hence, depreciation claimed by the assessee is allowable. The decisions relied upon by the learned Sr. Counsel for the assessee also supports our aforesaid view. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the grounds raised." 17. The ratio laid down by the Hon'ble Tribunal in the above order is that the contractual rights is a valuable commercial right and comes within the meaning of intangible asset as per section 32(l)(ii) r/w Explanation 3(b) of the Act. Applying the same ratio we hold that the depreciation claimed by the assessee on customer contracts acquired from WCIL, Value Edge and Denali are allowable. 18. With regard to the depreciation claimed on capitalization of non-compete fee, we notice that the Pune Bench of the Tribunal in the case of Serum Institute of India Ltd (supra) has held that - 13. Therefore, the limited disputed for adjudication before us relates to if the capital expenditure by way of 'non compete fee' in question is an 'intangible asset' and if the same is depreciable asset for the benefits u/s 32 of the Act. There is no dispute on the capital na....
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....ight obtained by way of non-compete commercial rights of similar nature" because after obtaining non-compete right, the assessee can develop and run his business without bothering about the competition. The right acquired by payment of non-compete fee is definitely intangible asset. Moreover, this right (asset) will evaporate over a period of time of five years in this case because after that the protection of non-competition will not be available to the assessee. This means, this right is subject to wear and tear by the passage of time, in the sense, that after the lapse of a definite period of five years, this asset will not be available to the assessee and, therefore, this asset must be held to be subject to depreciation. Assessee would be entitled to depreciation in respect of non-compete fee which is in the nature of intangible asset. 14. From the above, it is vivid that the, by payment of non compete fee to another person to reduce the business or commercial competition for a period, the assessee acquires a right and it is a capital asset, which is a business or a commercial right as held by the above said decision of the Tribunal-Chennai Bench. Such rights are intan....
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....by following its own order for AY 2016-17. 21. The Ld.AR submitted that the assessee is having sufficient own funds and, therefore, no disallowance under section 14A read with rule 8D is warranted. The Ld.AR further submitted that the Assessing Officer, while rejecting the suo moto disallowance made by the assessee, has not recorded any satisfaction and has also not stated why the suo moto disallowance is rejected. The Ld.AR also submitted that the DRP while confirming the disallowance has simply followed the order of assessment year 2016-17 and has not considered any of the submissions of the assessee. The Ld.AR brought to our attention that the co-ordinate bench of the Tribunal for A.Y. 2016-17 has deleted the disallowance made under section 14A read with rule 8D which has been relied by the DRP while confirming the AOs decision. 22. The Ld.DR relied on the order of the lower authorities. 23. We heard the parties and perused the material on record. The assessee against the exempt income earned has disallowed a sum of Rs. 12,52,224/- on its own in computation of income. The assessing officer did not accept this disallowance stating that the same is not commensurate with t....
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....ught anything on record to factually state that the computation of disallowance made by the assessee is not correct but has elaborated only the provisions of section 14A and Rule 8D before recomputing the disallowance. Further the AO has also not called for any details from the assessee or analysed the workings of the disallowance. In this regard we notice that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 91 taxmann.com 154 (SC) has held as follows:- "41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO." 25. In....
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....ver, due to peculiar format of the online form 3CD, the auditor could fill in the details regarding deduction under section 43B of the Act of only the amounts that are actually paid and not the amount reversed. The Ld.AR submitted that provisions reversed had to be allowed as a deduction since the same is disallowed in the assessment year 2016-17. The Ld.AR also drew our attention to the directions given by the DRP (page 91 para 16.3.1 of DRP order) where the DRP gave a direction for the Assessing Officer to verify and allow claim if the same has already been disallowed in the earlier year. It was submitted that the Assessing Officer while passing the final assessment order did not give effect to the said direction of the DRP. 29. We heard the parties and perused the material available on record. It is noticed that the Assessing Officer in the final order of assessment has retained the same disallowance made towards reversal of provisions claimed by the assessee based on the disallowance made in the earlier assessment year. It is also noticed that the DRP has given a direction to the Assessing Officer to verify the facts and the consider the return of income filed by the assesse....