TaxTMI 
TaxTMI 
2025 (8) TMI 1506
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....deposits and commercial paper. For the year under consideration, the assessee filed its return of income on 15.03.2022, declaring a total income of Rs. 301,29,64,840/-. The return filed by the assessee was selected for complete scrutiny through CASS, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the AO under section 92CA(1) of the Act, the Transfer Pricing Officer ("TPO") vide order dated 29.10.2023 passed under section 92CA(3) of the Act made a total transfer pricing adjustment of Rs. 11,38,42,717/- on account of interest on Compulsory Convertible Debentures ("CCDs"). The AO vide draft assessment order dated 13.12.2023 passed under section 144C(1) of the Act computed the total income of the assessee at Rs. 306,69,55,510/-, inter alia, after taking into consideration the transfer pricing adjustment made by the TPO. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order dated 25.10.2004 assessing the total income of the assessee at Rs. 440,41,38,683/-. Being aggrieved, the assessee is in appeal before us. 3. In this appeal, the as....
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....ned AY, GSIFPL had claimed deduction of the same while computing income under the head business and profession for captioned AY. However, the said amounts have been inadvertently disallowed in the intimation issued under section 143(1)(a) of the Act. 4. Ground No. 4: Reduction in amount of carried forward interest on Compulsory Convertible Debentures ('CCDs') under section 94B(4) of the Act Based on the facts and circumstances of the case, the learned AO/ TPO have erred, in law and on facts, in re-computing the arm's length price ('ALP') under the 'Other Method" for the international transaction relating to interest paid on CCDs and making an inadvertent downward adjustment of INR 133,71,83,173 thereby, restricting the amount of carried forward interest under section 94B(4) of the Act to INR 106,99,90,216. In relation to the above, the learned AO/TO erred, inter-alia, on the following grounds: 4.1 Rejecting the transfer pricing documentation maintained by the Appellant in accordance with provisions of the Act read with the Income-tax Rules, 1962 (Rules'), wherein, the learned AO/ TPO has erred in: 4.1.1 Reject....
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....der section 36 read with section 37 of the Act which lacks basis and is contrary to law. 6. Ground No. 6: Short-grant of TDS credit in the assessment order amounting to INR 12,14,349 The learned AO, erred in law and facts, in granting TDS credit of INR 12,14,349, which was rightly claimed by the appellant while filing return of income. 7. Ground No. 7: Incorrect levy of interest under section 234A of the Act The learned AO, erred in law and facts, in levying consequential interest under section 234A amounting to INR 1,23,32,732. 8. Ground No. 8: Incorrect levy of interest under section 234B of the Act The learned AO, erred in law and facts, in levying consequential interest under section 234B amounting to INR 13,25,76,869. 9. Ground No. 9: Initiation of penalty proceedings under section 270A of the Act. On the facts and circumstances of the case and in law, the learned AO has erred in proposing to initiate penalty proceedings under section 270A of the Act for under-reporting of income. The Appellant craves leave to add, alter, vary, omit, substitute or amend any or all of the above grounds of appeal, a....
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....mber of employees of the assessee, common space usage, etc. The assessee submitted that the amount of reimbursement towards depreciation amount of Rs. 5,03,462/- is not in the nature of depreciation as defined under section 32 of the Act, instead the same partakes the nature of reimbursement of expenses and since such expenses were incurred wholly for the purpose of the business of the assessee, the same should be allowed under section 37(1) of the Act. The assessee also submitted that the amount paid to GSISPL is also offered as income by GSISPL, and accordingly, GSISPL has reduced the reimbursed amount obtained from the group company from the total cost, and accordingly, claimed a lesser expenditure, thereby increasing the profit. 6. The AO, vide draft assessment order passed under section 144C of the Act, disagreed with the submissions of the assessee and held that for availing the benefit of depreciation under section 32(1) of the Act, the primary condition is the ownership of the asset which the assessee has failed to comply, and therefore, it is not eligible to claim the depreciation. The AO further held that the present case also does not fall within the ambit of the prov....
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....SPL had incurred expenditure on the improvement of leasehold premises, which was capital in nature, such expenditure was capitalised by GSISPL, and the depreciation cost on the same was allocated to the assessee on the basis of allocation factors, such as the number of employees of the assessee, common space usage, etc. During the year under consideration, the assessee reimbursed an amount of Rs. 1,70,61,397/-, which was recharged by GSISPL from the assessee. During the assessment proceedings, it was observed that out of the aforesaid amount of Rs. 1,70,61,397/-, which was debited to the profit and loss account by the assessee under the head "occupancy expenses", an amount of Rs. 5,03,462/- pertains to depreciation which was recharged by GSISPL from the assessee. In the present case, there is no dispute amongst the parties regarding the aforesaid basic facts pertaining to this issue. 9. The AO/learned DRP, on the basis that the assessee is not the owner of the asset and also does not satisfy the other conditions in respect of the claim of depreciation in case of leasehold premises, held that such a claim is nothing but a claim of depreciation by the assessee, which is not permis....
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....ourt in CIT vs. Elecon Engineering Co. Ltd., reported in (1974) 96 ITR 672 (Guj.). The relevant observations of the Hon'ble Gujarat High Court, in the aforesaid decision, are reproduced as follows: - "However, the position is entirely different under section 32 of the Income-tax Act. The depreciation allowance thereunder is a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear and the assessee is thereunder entitled as of right to the full amount of prescribed allowance once the conditions laid down therein are satisfied irrespective of whether there has in fact been any depreciation in the value of the asset by wear and tear or otherwise." 13. Therefore, it cannot be disputed that unless and until the conditions as laid down in the provisions of section 32 of the Act are satisfied, no assessee can claim the depreciation under the Act. Section 32 of the Act requires fulfilment of two conditions for claiming the depreciation, i.e., ownership (wholly or partly) by the assessee and usage of the asset for the purpose of business or profession. As noted above, Explanation-1 to section 32 of the Act provides an exception t....
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....peal is dismissed. 16. The issue arising in Ground no.2, raised in the assessee's appeal, pertains to the disallowance of expenditure on account of Restricted Stock Unit ("RSU") granted to the employees of the assessee. 17. The brief facts of the case pertaining to this issue as emanating from the record are: During the assessment proceedings, it was noticed that the assessee had claimed an amount of Rs. 2,46,38,347/- under the head "Employees Stock Option Plan" ("ESOP") in its return of income. The assessee was asked to furnish the details and explanation of such a claim along with documentary evidence. In response, the assessee submitted that Goldman Sachs Group Inc. ("GSGI") has a Global Stock Plan wherein the benefits of such plan have been extended to the employees of the subsidiaries/associated companies. It was further submitted that under this plan, the assessee grants RSU to its employees, which is part of the compensation program of the employees of the assessee. The RSU entitled the employees of the assessee, on the fulfilment of certain conditions, to receive shares of GSGI. As per the plan, after the expiry of the period, shares of GSGI would be delivered to the ....
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....2015-16, vide order dated 12.12.2019, allowed the ESOP expenditure in respect of RSU, by observing as follows: - "7. The Ground No.1 of the appeal is in respect of ESOP Cost. Similar addition was made in asessee's own case in assessment year 2009-10. The Tribunal deleted the addition by observing as under:- "12. Ground No. 5 & 6 relate to the grievance related to ESOP cost. 12.1. The AO has considered this issue at para-6 of his order. While scrutinizing the return of income, the AO found that the employee costs include the cost of restrictive stock unit and stock option's plant under the Goldman Sachs Group Inc. amended and Restated Stock Incentive Plan, which is being charged to the profit and loss accounts over the period of vesting. The assessee was asked to submit the copies of the said agreement and the details of such expenditure. The assessee filed a detailed reply dated 18.2.2013, the contents of which are extracted at para-6.2 of the assessment order. 12.2. The submissions made by the assessee were considered but not found convincing. The AO proceeded by disallowing the net amount on account of amortization which was confirmed b....
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....sment proceedings. Thus, this issue does not arise from the scrutiny assessment proceedings resulting in the present appeal. We find that the learned DRP, while rejecting the assessee's objections on this issue, also noted this aspect and refused to render any findings on the impugned addition, as it does not emanate from the draft assessment order. The learned DRP further observed that the assessee is not left without any remedy and is free to pursue the matter under section 154 of the Act before the AO. During the hearing, the learned Authorised Representative ("learned AR") submitted that the assessee has filed a rectification application under section 154 of the Act on this issue, which is pending consideration. Accordingly, in view of the aforesaid observations, we are not expressing any findings on the merits of the addition as the same does not emanate from the orders in appeal before us. However, we direct the AO to decide the rectification application filed by the assessee at the earliest in accordance with the law. As a result, Ground no.3 raised in assessee's appeal is allowed for statistical purposes. 24. Grounds no. 4 and 5, raised in assessee's appeal, pertain ....
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....saction by adopting the Comparable Uncontrolled Price ("CUP") Method as the most appropriate method and considered the information published by Bombay Stock Exchange ("BSE"), National Stock Exchange ("NSE"), and National Securities Depository Ltd. ("NSDL") for corporate debt instruments for the financial year. As per the assessee, in order to identify a comparable debt instrument, various criteria were adopted, such as date of issue, credit rating, etc. As the interest rates and CCDs issued to the associated enterprises were within the arm's length range, the assessee considered the international transaction to be at arm's length price ("ALP"). 27. During the transfer pricing assessment proceedings, pursuant to the reference by the AO under section 92CA(1) of the Act to the TPO for the determination of the arm's length price of the international transactions entered into by the assessee, it was observed that the credit ratings have been wrongly considered while selecting the comparables by the assessee. Further, it was observed that the instruments selected by the assessee for comparability analysis are non-convertible debentures, and the tenure of the same is different from the....
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....marking the international transaction on payment of interest on CCDs, the TPO adopted "Other Method" to benchmark this international transaction. By considering the debt and equity component of the CCDs, as declared by the assessee in its financials, the interest rate on debt component of CCDs was considered to be at ALP by the TPO. However, the TPO held that the interest on equity component would not have been paid by any non-associated enterprises in an uncontrolled transaction. Accordingly, the TPO made the downward adjustment to the price of interest transaction on equity component of CCDs as follows: - Amounts in INR Sr. No. Name of the AE Interest rate Issue Year Equity Component Downward TP Adjustment on interest (in Rs. ) 1 Goldman Sachs (Mauritius) NBFC L.L.C 9.75% FY 2019-20 26,81,61,538 2,61,45,749,92. 2 Goldman Sachs (Mauritius) NBFC L.L.C 10.75% FY 2018-19 45,06,45,389 4,84,44,379.29 3 Goldman Sachs Strategic Holdings Pte. 13.25% FY 2017- 18 29,62,45,947 3,92,52,587.98 Total 1,01,50,52,873 11,38,42,717.19 ....
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....-18 to 2019-20. The TPO, vide order passed under section 92CA(3) of the Act, considered the CCDs to be a hybrid instrument and bifurcated the same into debt and equity. Accordingly, the TPO considering the ALP of the interest rate in respect of equity component of CCD to be Nil, made an adjustment of Rs. 11,38,42,717/-, while the interest rate on debt component of the CCDs was accepted to be at ALP. It is pertinent to note that out of the total interest payment of Rs. 133,71,83,173/- on CCDs, the assessee suo motu disallowed an amount of Rs. 94,39,15,202/- under section 94B of the Act, while filing its return of income. Therefore, the TPO directed that the transfer pricing adjustment of Rs. 11,38,42,717/- not be allowed to be carried forward to the following assessment years under section 94B(4) of the Act and further directed that no further addition would be warranted to the total income. In subsequent proceedings, the learned DRP not only upheld the findings of the TPO but also directed that the entire interest payment on CCDs be disallowed under section 36/section 37 of the Act. Accordingly, vide impugned final assessment order, the AO made the disallowance of the entire intere....
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....see might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter." 33. Therefore, we are of the considered view that the TPO as well as the learned DRP erred in placing reliance upon the financial statement of the assessee, which was drawn as per the mandate of Ind AS-32, for arriving at the conclusion that the CCDs issued by the assessee include an equity component. 34. During the hearing, the learned AR placed reliance upon various decisions, wherein it has been held that CCDs are in the nature of debt until the date of conversion. We find that the Hon'ble Rajasthan High Court in CIT vs. Secure Meters Ltd., reported in (2010) 321 ITR 611 (Raj.), held that a debenture when issued, is a loan, and therefore, whether it is convertible or non-convertible, thus the same does not militate against the nature of the debenture being the loan. Accordingly, the Hon'ble Rajasthan High Court, following the decision of the Hon'ble Supreme Court in India Cements Ltd. Vs. CIT, reported in (1996) 60 ITR 52 (SC), allowed the expenditure incurred on the issuance of a debenture. We find that the Hon'ble Jurisdictional High ....
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.... approved as equity under the financial package for the Concession Agreement dated 25th March, 2010 executed between ICTL/Corporate Debtor and National Highways Authority of India ("NHAI"). b. The CCDs were part of equity in the project cost approved by NHAI and debt equity ratio is required to be maintained by IVRCL Limited. There was no recategorization of the CCDs from equity to debt and as stated in your email of 19th May, 2022, no approval was sought from NHAI in this respect. The DSA recognizes that any act in contravention of the Concession Agreement is void. c. Lenders' consortium had approved the treatment of CCDs as equity and no approval for conversion to debt was sought from NHAI. d. The concessionaire agreement entered into with NHAI defined equity as under: - ""Equity" means the sum expressed in Indian Rupees representing the paid up equity share capital of the Concessionaire for meeting the equity component of the Total Project Cost, and shall for the purposes of this Agreement include 'ENT instruments or other similar forms of capital, compulsorily convert into equity share capital of the company, and any interest free funds a....
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.... a shareholder and thus, does not benefit as none of the shareholders i.e. original investors and the Appellant get any benefit under the scheme which has been approved. The debt assigned was of a lower rate, repurchased by a third party. However, these are commercial decisions of the respective parties. The obligations were of the sponsoring company and IVRCL in terms of Clause 2.4. 24. A reading of the impugned judgment, specifically the rationale from para 19 onwards shows that the issue has been correctly crystallized as to whether CCDs could be treated as a debt instead of an equity instrument. In that sense, it was observed that treating them as a debt would tantamount to breach of the concessional agreement and the common loan agreement. The investment was clearly in the nature of debentures which were compulsorily convertible into equity and nowhere is it stipulated that these CCDs would partake the character of financial debt on the happening of a particular event." 37. Having carefully analysed the aforesaid decision of the Hon'ble Supreme Court, we are of the considered view that the same has been rendered in a different factual matrix, wherein by the express....
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....een non-associated under similar circumstances, considering all the relevant facts." 40. Thus, as per the provisions of the aforesaid Rule, the "Other Method" shall be the method which takes into account the price which has been or would have been charged or paid for the same or similar uncontrolled transaction between non-associated enterprises. However, in the present case, the TPO, without searching for similar uncontrolled transactions between non-associated enterprises, proceeded to benchmark the international transaction. As we have arrived at the conclusion that the CCDs issued by the assessee are in the nature of debt, we are of the considered view that the interest paid on the same should be benchmarked as per the applicable transfer pricing provision after applying the most appropriate method considering the availability of data and other prerequisite factors. Therefore, for determining the ALP of this international transaction, we restore the issue to the file of the TPO/AO for de novo benchmarking, after providing an appropriate opportunity of hearing to the assessee. As this issue is restored for fresh consideration, the assessee shall be at liberty to justify the a....