TaxTMI 
TaxTMI 
2025 (8) TMI 291
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....INR 9,06,55,341 towards interest paid on Compulsory Convertible Debentures (CCD) by the Appellant and the Hon'ble DRP has further erred in upholding the said action of the Ld. TPO/AO. 1.1 That on the farts and in the circumstances of the case and in law, the Ld. TPO/Ld. AO has erred in not appreciating that the CCDs' issued by the Appellant is denominated in INR and not in foreign currency and that such CCDs are nut repayable in any foreign currency but are compulsorily convertible in equity shares of the issuing company in the Appellant and the Hon'ble DRP has further erred in upholding the action of Ld. TPO/AO. 1.2 That on the facts and in the circumstances of the case and in law, the Ld. TPO/LA. AO erred in not considering/analysing the economic analysis undertaken by the Appellant in accordance with the provisions of The Income-tax Act, 1961 ('Act") read with the Income-tax Rules, 1962 (Rules) and arbitrarily disregarding the search process furnished by the Appellant without providing any reasoning and the Hon'ble DRP has further erred in upholding the action of Ld. TPO/AO. 1.3 That on the farts and circumstances of the case and in....
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.... (iii) Computing interest on invoice-to-invoice basis without computing weighted average receivable in days for all the invoices raised during the year under consideration and after considering receivables received in advance and the Hon'ble DRP further erred in upholding the said action of the Ld. TPO/AO 3. That on the facts and in the circumstances of the case and in law, the Ld. AO erred and the Hon'ble DRP further erred in upholding the action of the Ld. AO in disallowing depreciation of INR 35,30,75,403 under section 32 of the Act in respect of goodwill arising on amalgamation and recognized in the books as per the Hon'ble NCLT order sanctioning the amalgamation. 4. That on the facts and in the circumstances of the case and in law, the Ld. AO erred in disallowing INR 42.97.430 under section 14A of the Act and the hon'ble DRP further erred in upholding the said action of the Ld. AO. 4.1. That on the facts and in the circumstances of the case and in law, the Ld. AD erred in invoking Rule 8D for determining the disallowance under section 14A without analyzing the correctness of the disallowance offered by the Appellant in its return....
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....given to grant all such relief arising from the Grounds of Appeal mentioned supra and all consequential relief thereto." 3. Briefly stated facts of the case are that, the appellant-company viz., Invesco (India) Private Limited is part of Invesco India Group Companies, a leading independent global investment management company. The Company undertakes the business of providing I T Enabled Services [in short "ITES"], along with disaster recovery solutions, real-time data protection, and business continuity planning and offsite data storage solutions to it's group companies. The appellant-company filed it's return of income for the assessment year 2017-2018 on 30.11.2018 declaring Rs. NIL income and current year loss was claimed at Rs. 5,31,39,096/-. The appellant-company has filed Form- 3CEB report along with return of income and reported international transactions entered into with it's Associated Enterprises [in short "AEs"] which included ITES, issue of Compulsory Convertible Debentures [in short "CCDs"], on which, interest was paid by the appellant-company. The case was selected for scrutiny. During the course of assessment proceedings, a Reference u/sec. 92CA(3) of the Income ....
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....ed that, coupon rate interest paid by the assessee on CCDs is less than the SBI-PLR rate applicable for the assessment year in question and, therefore, the transactions with its AE is at ALP. The TPO benchmarked the interest paid on CCDs by applying LIBOR plus 200 basis points and has worked-out interest ALP of Rs. 4,09,27,562/-. Since, the assessee has paid interest of Rs. 13,16,12,903/-, the excess interest over and above the interest ALP of Rs. 9,06,85,341/- has been treated as excess interest paid on CCDs and made adjustment under section 92CA of the Act. The learned DRP, in it's Directions dated 10.01.2022 has upheld the TP adjustment made by the TPO for benchmarking of interest paid on CCDs. 8. CA Shri Sriram Seshadri, Learned Counsel for the Assessee submitted that, this issue is squarely covered in favour of the assessee by the decision of Special Bench of ITAT, Hyderabad in appellant's own case, where the Tribunal after considering relevant facts held that, the compulsory CCDs issued and denominated in Indian currency should be benchmarked by applying SBI PLR rate as against the LIBOR + 200 basis points adopted by the TPO. Therefore, he submitted that, the issue is squa....
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....ying SBI short term deposit rate for the relevant financial year. It is the argument of the Counsel for the Assessee CA Sriram Seshadri that, receivables is denominated in foreign currency and the appropriate rate of interest for benchmarking the said receivable is LIBOR plus appropriate basis points. In this regard, he has relied upon the decision of Hon'ble Bombay High Court in the case of PCIT-13, Mumbai vs., Tecnimont (P.) Ltd., [2018] 96 taxmsnn.com 223 [Bombay] and also decision of ITAT, Chennai Bench in the case of M/s. Serviont Global Solutions Ltd., vs., The ACIT, Corporate Circle-6(1), Chennai 2021 (1) TMI 124- ITAT, Chennai. Learned Counsel for the Assessee further submitted that, the TPO has benchmarked interest on invoice by invoice, even-though, the appropriate method for working-out the credit period is weighted average credit period. If the average credit period is computed, then, the actual credit period works out to 29 days which is less than the credit period allowed by the TPO and, therefore, the question of imputation of interest does not arise. 13. Shri B Bala Krishna, learned CIT-DR on the other hand supporting the order of the TPO/DRP submitted that, inte....
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.... so far as the argument of the Learned Counsel for the Assessee on the issue of weighted average credit period, in our view, when the TPO is able to compute the exact number of days credit period, then, aggregating the invoices for the purpose of computing credit period is contrary to the procedure provided u/sec. 92CA of the Income Tax Act, 1961. Thus, we reject the arguments of Counsel for the Assessee on the issue of computing the weighted average credit period. 15. The next issue that came-up for consideration through ground no.3 of assessee's appeal is, addition towards disallowance of depreciation on goodwill arising on amalgamation of Rs. 35,30,75,402/-. 16. During the financial year relevant to assessment year 2017-2018, the assessee has introduced goodwill of Rs. 141,23,01,606/- and claimed depreciation of Rs. 35,30,75,402/-. The Assessing Officer called upon the assessee to explain the nature of goodwill and depreciation claimed on such goodwill. In response, the assessee submitted that, the wholly owned subsidiary of assessee company is M/s. Invesco Hyderabad Private Limited is amalgamated with the assessee-company under the scheme of amalgamation which was approve....
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....e of the amalgamating company becomes goodwill in the books of accounts of the assessee company and on which, the assessee has rightly claimed depreciation in terms of section 32(1)(ii) of the Act. In this regard, the assessee relied upon various judicial precedents including the decision of Hon'ble Supreme court in the case of CIT vs., Smifs Securities Limited (supra). 17.1. The DRP after considering the relevant submissions of the assessee and also taken note of various judicial precedents, upheld the reasons given by the Assessing Officer to disallow the depreciation claimed on goodwill arising on account of amalgamation on the ground that, as per 6th proviso to section 32(1) and Explanation-7 to section 43(1) of the Act, the depreciation to the amalgamated company is allowable only to the extent, as if such succession or amalgamation has not taken place. The DRP has discussed the issue at length in light of provisions of section 32(1), 43(1) and 43(6)(c) of the Act and held that, as per 6th provision to section 32(1) of the Act, the aggregate deduction in respect of depreciation on tangible and intangible assets allowable to the predecessor and the successor, in the case of ....
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....w Method [in short "DCF"] and fair value of the share of the amalgamating company as on 31.03.2016. Further, the appellant-company amalgamated with the subsidiary by an order of National Company Law Tribunal [in short "NCLT"] dated 15.05.2017 with appointed date for amalgamation on 01.04.2016 and as per the valuation report dated 11.03.2017, the net assets value of the amalgamated company as on 01.04.2016 was at Rs. 102,86,02,342/-. Since the value of investment in the shares of subsidiary was at Rs. 244,09,03,945/-, the excess of net value of tangible assets was determined as value of goodwill on account of amalgamation, on which, the assessee has claimed depreciation in terms of section 32(1)(ii) of the Act. Learned Counsel for the Assessee further referring to the decision of Hon'ble Supreme Court in the case of CIT vs., Smifs Securities Limited (supra), submitted that, depreciation on goodwill on account of amalgamation is allowable in terms of section 32(1)(ii) of the Act and the same has been upheld by the Hon'ble Supreme Court. Further, in the case before the Hon'ble Supreme Court, the assessee claimed depreciation on goodwill arising on account of amalgamation. Lear....
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....see, further referring to the observation of the Assessing Officer with regard to valuation report submitted for acquiring shares of subsidiary company from another related party on 01.08.2016 and subsequent valuation report dated 11.03.2017 for the purpose of amalgamation submitted that, although, there are two different valuation reports determined different values, but the fact remains that, when it comes to acquiring shares, it is always the valuation, on the basis of Discounted Cash Flow [in short "DCF"] method. However, when it comes to accounting treatment for amalgamation of two companies, it is Net Asset Value [in short "NAV"] method. Therefore, the observation of the Assessing Officer in light of valuation reports that, the assessee has designed tax evasion plan with the creation of an artificial intangible asset, is only on the basis of surmises and conjectures and not backed by any evidences. Learned Counsel for the Assessee further referring to TP report submitted by the assessee and various provisions of Companies Act, 2013 and RBI Circular submitted that, the appellant-company has reported purchase of shares from related party in the TP study report and it was subjec....
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....ng relevant facts, has rightly treated the accounting on 'goodwill' arising on account of amalgamation is not genuine and created only for the purpose of reducing the profit is backed by evidences. Therefore, he submitted that, there is no merit in the arguments of the Learned Counsel for the Assessee and the same needs to be rejected. 20. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that, Invesco Hyderabad Private Limited is a wholly owned subsidiary of the assessee-company. It is also an undisputed fact that, IVZ Mauritius Services Private Limited from whom shares were acquired by the assessee-company, is also a fellow subsidiary of the assessee-company. Therefore, it is necessary for us to examine the issue of 'goodwill' on account of amalgamation of assessee-company and subsidiary, in light of intra group transactions. Admittedly, Invesco Hyderabad Private Limited amalgamated with the assessee-company under the Scheme of Amalgamation approved by the NCLT vide order dated 15.05.2017 and the appointed date for amalgamation was w.e.f. 01.04.2016. As per the Scheme....
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....lowed by the assessee to arrive the intrinsic value of shares as on 31.03.2016. As per the Assessing Officer, the Valuer has considered DCF method for the financial year 2016-2017 to financial year 2020-2021, even though, it was fully aware the fact that Company had already been amalgamated w.e.f. 01.04.2016 and, therefore, in our considered view, the method adopted for arriving at fair market value of shares as on 31.03.2016 under DCF method last it's sanctity and it is not acceptable. Another important factor to be considered at this juncture is that, the assessee-company has made investment of Rs. 244,09,03,345/- on 01.08.2016 and the Board of Directors adopted resolution for acquisition of these subsidiary company on 02.08.2016. This fact clearly shows that, affairs of amalgamation were created with a view to create goodwill by adopting different valuation methods for investment and recording the value of assets for amalgamation. Further, the amalgamating company was fully owned subsidiary of the assessee-company and IVZ Mauritius Private Limited from whom shares were acquired, is also a subsidiary of parent company of the assessee. These are intra-group transactions. Although,....
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....ee-company at a different enterprise value. Going by the transactions between the parties and the location of the selected entity situated at Mauritius, in our considered view, the Mauritius based entity is not liable to pay capital gains tax in India on account of DTAA benefit and, therefore, the assessee has designed a plan to transfer the funds to the parent company through the structured transactions via Mauritius based company. Since the appellant-company is unable to explain as to how a company can be valued on very same day for different purposes, in our considered view, the argument of the assessee that, DCF method is the recognised method for the purpose of valuation of shares and the assessee has acquired shares as per DCF method is devoid of merits and cannot be accepted. In our considered view, whether assessee follows DCF method or NAV method, an enterprise value of any entity cannot be so much difference as explained by the assessee, which is evident from the fact that, although, the enterprise value of amalgamated company was at Rs. 102,86,02,342/-, but, the assessee has paid an amount of Rs. 244,09,03,945/- for acquiring 12,600 equity shares at Rs. 1,93,725/- per sh....
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....also in light of Zydus Wellness Limited (supra). In our considered view, although, the Hon'ble Supreme Court has decided the issue of goodwill as an intangible asset and eligible for depreciation under section 32 (1)(ii) of the Act, in light of accounting of 'goodwill' on account of amalgamation of two companies, but, in our considered view, the proposition canvased by the assessee becomes infructuous, in view of the fact that, the 'goodwill' created by the assessee on account of amalgation as held to be not genuine and assessee is not entitled for claiming depreciation on the said goodwill. Further, although, the assessee has relied upon decision of Coordinate Benches of ITAT, Hyderabad in the cases of DCIT, Circle-8(1) vs., East India Petroleum Ltd., (supra); S & P Capital IQ (India) (P.) Ltd., ACIT (supra), decision of ITAT, Mumbai in the case of Disney Broadcasting (India) (P.) Ltd., vs., PCIT (supra) and ITAT, Ahmedabad Bench decision in the case of Urmin Marketing (P.) Ltd., vs., DCIT, Circle- 4(1)(1), Ahmedabad (supra), in our considered view, in all the cases the Co-ordinate Benches of the Tribunal has considered the issue of 'goodwill' in light of decision of Hon'ble Supre....
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....ing the relevant facts, has simply computed 1% on average of the opening and closing balance of value of such investment which does not form part of total income. Therefore, he submitted that, addition made by the Assessing Officer towards disallowance of expenditure u/sec. 14A should be deleted. 24. Shri B Bala Krishna, learned CIT-DR, on the other hand supporting the Final Assessment Order of the Assessing Officer submitted that, assessee has made an adhoc disallowance of expenditure relatable to exempt income, even though, it has not maintained separate books of accounts for business activity and investment activity. In absence of relevant details, the Assessing Officer has rightly computed disallowance u/sec. 14A by applying Rule 8D of I.T. Rules, 1962 and, therefore, addition made by the Assessing Officer should be upheld. 25. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. Learned Counsel for the Assessee contested the disallowance made by the Assessing Officer u/sec. 14A of the Act in light of satisfaction as required to be recorded in terms of sec.14A(2) of the Act. We find that, the Assessing Office....
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....e Assessing Officer was at Rs. 42,97,430/-, in our considered view, out of said disallowance, the expenditure already disallowed by the assessee was at Rs. 11,59,197/- should be deducted. Therefore, we direct the Assessing Officer to allow deduction of suo motu disallowance of expenditure of Rs. 11,59,197/- made by the assessee out of total disallowance computed in terms of Rule 8D of I.T. Rules, 1962 and make balance addition of Rs. 31,38,233/- u/sec. 14A read with Rule 8D of I.T. Rules, 1962. Accordingly, ground no.4 of assessee's appeal is partly allowed. 26. The next issue that came-up for consideration through ground no.5 of assessee's appeal is deduction u/sec. 10AA of the Income Tax Act, 1961. 27. CA, Sriram Seshadri, Learned Counsel for the Assessee submitted that, the assessee has made an alternative claim that in case the disallowance towards depreciation is upheld, then, the enhanced profit should be considered for the purpose of deduction u/sec. 10AA of the Act because, the assessee is an eligible assessee for claiming deduction u/sec. 10AA of the Act. 28. Shri B. Bala Krishna, learned CIT-DR on the other hand, submitted that, the alternate claim of assessee is....
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....eaded that the order of the DRP should be upheld. 33. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The issue of disallowance of deduction claimed u/sec. 80G is not made by the Assessing Officer in the assessment order. Further, the assessee has made claim for the first time before the DRP as an alternative claim. The DRP rejected the claim of the assessee on the ground that, donation paid by the assessee is out of CSR expenditure. It was the argument of the assessee that, donations paid to an eligible assessee is not out of CSR fund, but, it is a normal donations eligible for deduction u/sec. 80G of the Act. In our considered view, if the donations claimed by the assessee for the purpose of deduction u/sec. 80G of the Act is out of CSR expenditure, then, the assessee is not entitled for deduction because CSR expenditure is as per the mandate of sec.135 of the Companies Act, 2013 and it is not a voluntary donation. Further, donations paid out of CSR fund, is not eligible for deduction u/sec. 80G of the Act. Therefore, we are of the considered view that, if the assessee claimed deduction u/sec. 80G of the Act ....