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2023 (3) TMI 191 - ITAT MUMBAITP Adjustment - TPO/DRP has adopted DCF Method for determining the ALP of the transaction of sale of shares of ECL to ECHL, Mauritius - HELD THAT:- TPO/DRP has adopted the actual published results of the Appellant instead of projected future cash flows as on the date of the transactions. Reliance on behalf of the Appellant was placed on the decision of the Hyderabad Bench of the Tribunal in the case of DQ (International) Ltd. [2022 (12) TMI 379 - ITAT HYDERABAD] wherein it was held by the Tribunal that while computing value of intangible asset by using DCF Method the future projections cannot be substituted with the actual figures. We accept the contention of the Appellant that for the purpose of arriving at the valuation using DCF method actual figures cannot be substituted for future projections. Fair market value of share of ECL representing the ALP - HELD THAT:- We concluded that the DCF Method could not be adopted in the facts and circumstances of the present case as the Appellant is an investment company incorporated on 30.01.2007 with unpredictable income/cash flows. This takes us to the method adopted by the Appellant for determining the value of shares of ECL. We note that the shares of ECL were sold by the Appellant on 23.06.2008. However, the valuation report is based upon the audited financial statements of ECL as on 31.03.2008. In the synopsis of arguments filed before the Tribunal, the Appellant had, without prejudice basis, stated that the value of shares determined on 23.06.2008 by following the method prescribed in Rule 11UA of the Income Tax Rules, 1962 was INR 112/- this was accompanied by unaudited financial statements as on 23.06.2008. Rule 11UA is also based on Net Asset Value Approach adopted in the valuation report relied upon by the Appellant to support the valuation of shares of ECL. Therefore, accepting the without prejudice submission of the Appellant, we adopt the value of INR 112/- as the fair market value of share of ECL representing the ALP. TP Adjustment - debt as equity (such as general/specific anti-avoidance rules) - HELD THAT:- In the case of Besix Kier Dabhol SA [2012 (10) TMI 817 - BOMBAY HIGH COURT] it was held in absence of specific provision in the Act incorporating thin capitalization rules, the TPO was not permitted to re-characterize debt as equity for making transfer pricing adjustments. It is admitted position that for the relevant assessment year there were no provisions in the Act providing for secondary transfer pricing adjustment and/or for making transfer pricing adjustment by treating debt as equity (such as general/specific anti-avoidance rules). The amount of receivable outstanding has arisen on account of transfer pricing adjustment made by the TPO/AO. In our view, the transfer pricing adjustment made by the TPO/AO (by treating the aforesaid amount as interest on outstanding receivables) is clearly in the nature of secondary adjustment and cannot be sustained in the absence of specific provision in the Act providing for the same. Disallowance u/s 14A r.w.r.8D - HELD THAT:- We note that in the case of Pr.CIT, Patiala Vs State Bank of Patiala [2018 (11) TMI 1565 - SC ORDER] had held that that amount of disallowance under Section 14A of the Act cannot exceed the amount of exempt income. It is admitted position that the Appellant had earned exempt income of INR 9,136/- only. Accordingly, following the aforesaid judgment of the Hon‟ble Supreme Court, we restrict the addition under Section 14A of the Act to INR 9,136/-. Accordingly, Additional Ground No. 1 to 3 raised by the Appellant are partly allowed.
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