TMI Blog2014 (12) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in view that subsequent to the judgment of the Hon'ble Supreme Court, there is an amendment to section 2(47) which raises several important question of fact and law and accordingly, the effect of the amendment would have to be considered and it cannot be brushed aside. International transaction or not - Held that:- The entire transaction under SPA and other supplementary/ancillary agreements is one package/composite transaction of transfer of share of CGP and rights attached to the share - during the year under consideration both HTIL and VIH BV are the associated enterprises of the assessee as per section 92A(2) - SPA and FWAs constitute an arrangement, understanding or action in concert among the assessee, HTIL and VIH BV for grant of Call Option by Asim Ghosh and Analjit Singh to assessee against the agreed consideration paid by the VIHBV - This mutual understanding and arrangement as well as action in concert between the assessee and its AEs for securing the Option Rights against the consideration paid by VIH BV to HTIL and AG & AS certainly having a bearing on the profits, income, losses or asset of the associated enterprises. Whether the transaction is at arm’s leng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counter party to the FWA and shareholder’s agreement dated 05/07/2007 was not brought by the assessee either before the authorities below or before Hon'ble High Court. Even before this tribunal the assessee did not disclose these facts and developments taken place subsequent to FWAs of 2007 and only on the query from the bench as well as from the additional evidence filed by the revenue it came to the notice of the Tribunal. Therefore, the assessee, in our view, is guilty of not disclosing before the assessing authorities the material fact relevant for adjudicating the issue of assignment of option rights. Sale of call centre business - Whether the transfer of call centre business is an international transaction as per the provisions of section 92B (1) and (2) - Held that:- HTIL was under obligation to procure and deliver the call center business transfer agreement duly entered into between the assessee and an affiliate of HTIL at the time of completion of SPA on 8/5/2007 - the language of SPA and BTA manifest without any ambiguity that the BTA was signed between the assessee being downstream subsidiary of HTIL and, therefore, the BTA is preceded the SPA - Both SPA and BTA was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esidential status, domestic or nonresident- It is only for the purpose of international transaction, a transaction must be between two or more associated enterprise either or both of whom are nonresident - The condition of nonresident of associated enterprises is only for bringing a transaction between two associated enterprises under the ambit of international transaction - an associated enterprise can be a resident or nonresident- HWP (India) is an associated enterprise of the assessee for the year under consideration, therefore, the provisions of sub-section 2 of section 92B are not attracted. Valuation of call centre business - Computation of Arm’s Length Price – Held that:- the valuation of Call Centre business should be based on the most appropriate method as agreed by both the parties, being DCF Method – thus, the issue of valuation of Call Centre business for the purpose of determination of ALP is remitted back to the AO/TPO for consideration of valuation filed by the assessee. Addition of adjustment made as a result of arm's length price of provision of ITES services – Held that:- having regard to the fact and circumstances and availability of the comparables to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be convenient here to reproduce the ownership structure chart set out in the judgment of the Supreme Court in (Vodafone International Holdings B.V. v. Union of India Anr., (2012) 341 ITR 1 as under: 3. Since April, 2003, the assessee, inter-alia, provided call centre services captive to entities within the Hutchison Group viz. Hutchison 3G Australia Pty. Ltd. and Hutchison 3G UK Ltd. in terms of a Managed Services Agreement for contact centre services between Hutchison Call Centre Holdings Limited, British Virgin Islands (HCCH) and the assessee dated 1st January, 2006. 5. A Framework agreement dated 1st March, 2006, was entered into between the assessee on the one hand and one Asim Ghosh and three companies controlled by him on the other. An identical agreement also dated 1st March, 2006, was entered into between the assessee on the one hand and one Analjit Singh and his group of companies on the other. Analjit Singh and Asim Ghosh acquired shares in Telecom Investments India (TII) Private Limited, an Indian company with credit support provided by HTIL. TII, in turn, held shares in Hutchison Essar Limited (earlier known as Hutchison Max Telecom L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... options under the new Framework agreements dated 5th July, 2007. The TPO stated that both the transactions were international transactions. He also disputed the valuation reports submitted by the assessee. The assessee, after some initial hesitation, furnished the documents, including the SPA, the BTA and the Framework agreements at different stages. The assessee contended that the same did not constitute international transactions. 9. The TPO issued notices calling upon the assessee to show cause why it had not disclosed the said unreported international transactions. 10. The assessee submitted a detailed reply to the show cause notice. The assessee dealt with all the issues raised in the show cause notice on merits. It did contend that the Framework agreements were not international transactions and that there was, therefore, no question of proving any arm's length nature of a transaction and/or any valuation of the rights as no rights were conferred as alleged by the TPO or at all. The assessee, in fact, went a step further and construed the agreements contending that there was no change between the 1st March, 2006 and the 5th July, 2007 Framework agreements. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion filed by the assessee was disposed off by the Hon'ble High Court vide judgment dated 6.09.2013 reported in 359 ITR 133. The Hon'ble Jurisdictional High Court has rejected the contention of the assessee that the TPO had no jurisdiction to consider the transaction relating to the sale of call centre/business transfer agreement. The Hon ble High Court has observed that there are several issues of fact and of law on every material aspect which must be considered by the authorities under the Act. Thus it was held that this is not a fit case for invoking extra ordinary jurisdiction Article 226 of Constitution of India. On merits the Hon'ble High Court has observed that the matter is required to be determined by this Tribunal. The assessee then filed the present appeal on 23.12.2013 and raised the following concise grounds;- CONCISE GROUNDS OF APPEAL 1. That in the facts and circumstances of the case, the Assessing Officer ( AO ), the Transfer Pricing Officer ( TPO ), and the Dispute Resolution Panel ( DRP ) (collectively referred to as Lower Authorities ) erred in law in assessing/confirming the total income of the Assessee at ₹ 7547,75,44,610/- as against in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, the provisions of the Act or the transfer pricing Provisions contained in Chapter X of the Act do not apply for the want of any transaction. 5. That the Lower Authorities knowing that the finding of the Hon'ble Supreme Court of India is binding, has erroneously tried to shift its stand by treating all subsidiaries of Vodafone Group Plc as the transferee of the alleged assignment of call options, which is perverse, vague, ambiguous and untenable as it has failed to identify the specific transferee of the alleged Assignment of Call Options. 6. That in the facts and circumstances of the case, the DRP failed to appreciate the findings in the Hon'ble Supreme Court would remain entirely unaffected by the clarificatory amendment in Section 2(14) and/or Section 2(47) of the Act for the Hon'ble Supreme Court has considered the term 'transfer' and 'capital asset' as per its true ambit, as always intended by the Parliament. 7. Without prejudice, the Lower Authorities erred in facts and in law in computing the arm's length price ( ALP ) in respect of the aforesaid transaction on a completely arbitrary basis and in complete disregard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material placed on record. 9.5 While doing so, the Lower Authorities further erred in holding that HWP (India) was interposed only to evade tax by avoiding transfer pricing compliance without appreciating that HWP India was used to acquire the Call Centre business for legal, commercial and practical reasons and not to evade tax. 10. That in the facts and circumstance of the present case, the Lower Authorities grossly erred in not correctly applying section 50B of the Act by substituting the actual sale consideration of ₹ 64 crores with the alleged ALP, since the sale of Call Centre business is a domestic transaction and therefore not subject to transfer pricing provisions. 11. Without prejudice, the Lower Authorities erred in facts and in law in computing the ALP in respect of the aforesaid transaction on a completely arbitrary basis and in complete disregard to the statutory provisions and settled principles of law. 12. That the DRP erred in confirming the action of the TPO in rejecting the actual sale consideration i.e. ₹ 64 crores and valuation reports (of independent expert valuers) determining ALP in respect of the sale of Call Centre business on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of ITeS Services - Addition of ₹ 28,74,34,828/- 15. That in the facts and circumstances of the case, the Lower Authorities erred in law in making an addition of ₹ 28,74,34,828/- to the income of the Assessee on account of provision of ITeS services to Hutchison Call Centre Holdings Limited ( HCCH ) [hereinafter referred to Provision ofITeS Services ]. 15.1 That in the facts and circumstances of the case, Lower Authorities erred in law and in facts in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case. 15.2 That in holding as aforesaid, the DRP erred in confirming the action of the TPO in arbitrarily rejecting the set of comparable companies selected by the Assessee, based on contemporaneous data available at the time of preparation of the Transfer Pricing Reporting. 15.3 That the comparables confirmed by the DRP are actually not comparable in terms of Rule 10B(2) of the Rules. 15.4 That in holding as aforesaid, the DRP erred in excluding certain companies on arbitrary/frivolous grounds even though they are comparable to the Assessee in terms of functions performed, assets employed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Analjit Singh and Asim Ghosh to the Assessee for exercise of put options. b) Letters from Assessee to its affiliate, viz, CGP India Investments ltd ( CGP nominating CGP to discharge the obligation arising from exercise of put options by Analjit Singh and Asim Ghosh. c) Letters from the Assessee to Analjit Singh and Asim Ghosh indicating the nomination of CGP d) Written Submissions filed by the Revenue bfore the Hon'ble Supreme Court. e) Order dated 22.10.2010 passed by the revenue in the case of VIH BV. f) Interim Application No. 6 of 2010 filed by VIH BV before the Hon ble Supreme Court and order passed by the Hon ble Court allowing the said interim application g) Disclosure letter dated 11.2.2007 along with all annexures. 17. Though in the respective replies filed by the parties, various objection was raised regarding the maintainability of the applications for seeking the permission to file the additional evidence, however, during the arguments, both Ld. Sr. Counsel for the assessee and Ld. ASG fairly conceded to the admission of additional evidences of each other and not raised any serious objection against the maintainability and admissibility of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case, we admit the additional evidence filed by both the parties. Ground no. 1 is general in nature and does not required any specific finding. 20. Ground No. 2 to 6 is regarding assignment of call options: 21. Brief facts relevant to this issue emerged from record are as under:- 22. The Hutchison Group, Hong Kong (HK) first invested into the telecom business in India in 1992 when the said Group invested in an Indian joint venture vehicle by the name Hutchison Max Telecom Limited (HMTL) - later renamed as Hutchison Essar Ltd (HEL). On 12.01.1998, CGP stood incorporated in Cayman Islands, with limited liability, as an exempted company , its sole shareholder being Hutchison Telecommunications Limited, Hong Kong [ HTL for short], which in September, 2004 stood transferred to HTI (BVI) Holdings Limited [ HTIHL (BVI) for short] vide Board Resolution dated 17.09.2004. HTIHL (BVI) was the buyer of the CGP Share. HTIHL (BVI) was a wholly owned subsidiary (indirect) of Hutchison Telecommunications International Limited (CI) [ HTIL for short]. In February, 2005, consolidation of HMTL (later on HEL) got effected. Consequently, all operating companies below HEL got ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed in the month of June and July 2007 between assessee and Indian Partners holding 15% indirect interest in HEL. These new FWAs were entered into because of change of holding group companies from HTIL to Vodafone. Certain changes in terms and conditions of 2007 FWAs were made which has led to the controversy in question as the Assessing Officer has treated these changes being transfer/assignment of Option rights held by the assessee in 2006 agreement in favour of its holding company VIH (BV) by virtue of 2007 framework agreements. Thus as per the revenue, the assessee has transferred the right to acquire 15% shares holding of HEL in the 2006 framework agreements in favour of its holding company (AE) by execution of 2007 FWAs. 24. The transaction of transfer of share holding of CGP by HTIL to VIHBV through share transfer agreement (STA) and in consequence the framework agreements of 2006 were re-written as framework agreement 2007 under which the assessee was holding option rights indirectly of 12.25% equity interest in HEL/Vodafone India Ltd. (VIL) through Asim Ghosh and Analjit Singh Group companies under the identical framework agreements. 25. We will first deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view. Needless to say it would be necessary to consider the judgment even in the present proceedings. That, however, can and in the facts of this case ought to be done by the authorities under the Act. It could have been done even by the TPO and the AO. Their orders were, however, passed prior to the judgment of the Supreme Court and the occasion for them to consider this judgment does not arise at this stage. It will, however, be necessary for the ITAT to do so. We see no reason to short-circuit the proceedings in this regard as there are or are likely to be other aspects including facts which will also require consideration. 210. The matter regarding the assessee's assessment, however, does not end there. It does not end there although the judgment in Vodafone's case assists it to a considerable degree. There are other additional aspects which require consideration. 211. We observed earlier that we are not entitled to restrict the ambit of the observations of the Supreme Court in paragraph 88 of the judgment and in particular the words or any other document whatsoever . That would not, however, prevent the respondents in proceedings pertaining to the assessee who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation 2.-For the removal of doubts, it is hereby clarified that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. Explanation 2 was introduced with retrospective effect from 1st April, 1962. 213. The amendment to section 2(47) raises several important questions of fact and of law. Whether or not it affects the proceedings which were the subject matter before the Supreme Court is not relevant for the purpose of this Writ Petition. But, whether it is relevant or not for the purpose of the assessment proceedings in respect of the assessee which are the subject matter of this Writ Petition, is relevant. The effect of the amendment would have to be considered. It ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a lot more must now be seen and considered than before while arriving at a conclusion whether the terms and conditions of the Framework agreement constituted a transfer or assignment of the call options by one party to another. 26. Thus the issue of assignment of option rights has to be adjudicated by considering and examining the framework agreements along with any other document(s) or development subsequent or prior to the Framework Agreements in light of the judgment of Hon'ble Supreme Court, the observation of the Hon'ble High Court as well as subsequent amendment in section 2(47) along with transfer pricing provisions of the Act and further by considering the new facts and records brought before us. The Ld. Senior Counsel for the assessee has contended that there is no transfer or assignment of Call Option in presenti as no Call Options were transferred under the framework agreement of 2007 and the assessee continued to hold the Call Option rights. It is the case of the assessee that clause 4.4 of the new Framework Agreements is virtually identical or at least substantially similar to the counterpart clause of 2006 Framework Agreements, though the language is differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements objectionable or culpable regarding ipso facto assignment or divestiture and consequent application of TP regulations. It is thus clear, and the DRP order dated 30.09.2012 says so explicitly that it is the change of language in the 2007 Framework Agreement which constitutes assignment and, therefore, attracts the TP regulations. For the reasons elaborated above, this is ex facie fallacious and liable to be set-aside. Even otherwise, on first principle, assignment means the transfer or relinquishment or divestiture of rights held by a person in favour of others. Assuming without conceding that there is any relevant or material difference between the two, it is impossible to assert by any distortion of language or stretch of imagination that clause 4.4 in the 2007 versions constitutes in presenti a factual or legal or a voluntary or compulsory assignment of the call option. In this connection it is ironical that the DRP impugned order itself proceeds on the fundamental assumption that the 2007 version constituted an assignment in presenti. Absent statutory compulsion, an assignment must necessarily be volitional and must involve a volitional factual act, usually involving a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, it is not necessary under the amended provisions of section 2(47) that an asset itself has to be transferred but creation of any interest or right in the asset also falls in the ambit of term transfer . Therefore, the judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings BV vs. UOI (supra) cannot be considered as a decision on the issue of assignment/transfer of Call Option by the assessee to its affiliate. 29. In rebuttal, the Ld. Senior Counsel has submitted that the Hon'ble Supreme Court has decided the jurisdictional fact and even the amended provisions of section 2(47) would not obliterate the judgment of Hon ble Supreme Court on the point of no assignment of Call Option in presenti. 30. We do not agree with the arguments of Ld. Senior Counsel of the assessee on the point that the issue stands concluded by the Hon'ble Supreme Court because the question before Hon'ble Supreme Court was whether the ownership of a company is transferred by its holding company to a third party would also amount to transfer of the asset of subsidiary company. The finding and observation of Hon'ble Supreme Court in para 88 has been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGP share gave VIH an indirect control over the tier I Mauritius companies which owned shares in HEL totalling to 42.34%; CGP India (Ms), which in turn held shares in TII and Omega and which on a pro rata basis (the FDI principle), totalled up to 9.62% in HEL and an indirect control over Hutchison Tele-Services (India) Holdings Ltd. (Ms), which in turn owned shares in GSPL, which held call and put options. Although the High Court has analysed the transactional documents in detail, it has missed out this aspect of the case. It has failed to notice that till date options have remained un-encashed with GSPL. Therefore, even if it be assumed that the options under the Framework Agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High Court was right in holding that the options constituted capital assets even then Section 9(1)(i) was not applicable as these options have not been transferred till date. Call and put options were not transferred vide SPA dated 11.02.2007 or under any other document whatsoever. Moreover, if, on principle, the High Court accepts that the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies the nature and character of the transaction test , confusion arises if a dissecting approach of examining each individual asset is adopted. As stated, CGP was treated in the Hutchison structure as an investment vehicle. As a general rule, in a case where a transaction involves transfer of shares lock, stock and barrel, such a transaction cannot be broken up into separate individual components, assets or rights such as right to vote, right to participate in company meetings, management rights, controlling rights, control premium, brand licences and so on as shares constitute a bundle of rights. [See Charanjit Lal Chowdhuri v. Union of India AIR 1951 SC 41, Venkatesh v. CIT [2000] 243ITR 367 /109 Taxman 781 (Mad.) and Smt. Maharani Ushadevi v. CIT [1981] 131 ITR 445/[1982] 8 Taxman 91 (MP)] Further, the High Court has failed to examine the nature of the following items, namely, non-compete agreement, control premium, call and put options, consultancy support, customer base, brand licences etc. On facts, we are of the view that the High Court, in the present case, ought to have examined the entire transaction holistically. VIH has rightly contended that the transaction in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the share holders of the company, therefore, the asset vested with the company would remain vested albeit the ownership is transferred. Thus the Hon'ble Supreme Court examined the question in the context of transfer of asset of the assessee by its holding company HTIL to VIH BV by virtue of share transfer agreement(STA) along with FWAs and found that despite the transfer of share held by HTIL to VIH BV, the same would not result transfer of asset of the assessee to VIHBV. This question was dealt with only in context of transfer between HTIL and VIH BV by virtue of STA and not in context of transfer of Option rights by assessee to its affiliate. Therefore, at the first place the judgment of Hon'ble Supreme Court is not based on the finding of facts as examined and investigated by any of the fact finding authority and consequently it is binding on all subordinate courts only on the point of principle laid down on the substantial question of law. The judgment rendered by Hon'ble Supreme Court under extraordinary special writ jurisdiction is based either on undisputed facts or on assumption of facts and cannot be said that the said judgment is binding even on the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to the indirect share holding to the extent of 15.03% in HEL/VIL. The issue before us, is regarding the option rights to acquire 12.25% shares of HEL/VIL through AG and AS Framework Agreements. 32. As we have already discussed the matter has been remanded by the Hon ble High Court to this tribunal for finding of fact after considering all facts, additional evidence /documents to be filed by the parties as well the amended provisions of section 2(47) and transfer pricing provisions. First we will examine the FWAs of 2006 and 2007 by comparing the relevant clauses. In order to proper appreciation of agreements in question and facts, we reproduce the relevant clauses of Framework agreement 2006 as well as 2007 side by side as under:- Framework agreement 2006 Framework agreement 2007 Parties to the agreement. ASIM GHOSH GOLDSPOT MERCANTILE COMPANY PRIVATE LIMITED PLUSTECH MERCANTILE COMPANY PRIVATE LIMITED GLOBAL SERVICES PRIVATE LIMITED CENTRINO TRADING COMPANY PRIVATE LIMITED Asim Ghosh Plustech Mercantile Company Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements to implement such directions and the Parties agree if the Put Option is exercised at any time after the Subscription Notice is issued, then GSPL shall, in its absolute discretion, have the option to withdraw the Subscription Notice or complete thereunder. (4.3) Put Option (a) AG shall have the right to require GSPL or its Nominated Person to purchase, at its sole discretion, any or all of the AG Mercantile Shares (the Put Shares ) held by AG ( Put Option ): (i) at any time, and from time to time, and to the extent GSPL or any of its Affiliates or any Person to which the Call Option is assigned pursuant to Clause 4.10(a) becomes eligible under all applicable Indian laws or Regulations to hold such Put Shares. For the avoidance of doubt, in the event that the Sectoral Cap is increased to permit an increased level of foreign ownership of HEL, AG shall, without the prior written consent of GSPL, only be permitted to exercise the Put Option under this Clause 4.3(a)(I) In respect of such number of the Put Shares that are consequently permitted to be held by foreign investors (as a result of the increase in the Sectoral Cap) as is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Can Option have been exercised in full in accordance with the terms of this Agreement (e) If the Put Option is exercised alter the demise (if any) of AG. GSPl shall have the right to purchase the Plus tech Shares held by AG Mercantile in lieu of the AG Mercantile Shares held by AG and in such event, all references to 'Put Shares' and 'AG Mercantile Shares' in this Agreement. to the extent relevant, shall be deemed to mean the Pluslech Shares and all references to 'AG' shall be deemed to be references to AG Mercantile to the extent relevant. 4.4 Call Option GSPL Shall, subject to the conditions set out below, have the right at any time to purchase all, but not part only, of the Plustech Shares (the Call Shares ) held by Goldspot (the Call Option ) in accordance with the procedure laid down in clause 4.5 below and at a fair market value determined in accordance with clause 4,6 below. GSPL may exercise the Call Option at any time after: (a) GSPL or its nominee exercises the Subscription Option for subscribing to such number of Subscription Shares which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with respect to Plustech Shares, all references to 'Call Shares', 'AG Mercantile Shares' and 'Default Shares' in this Agreement, to the extent relevant, shall be deemed to mean the Plustech Shares held by AG Mercantile, and all references to AG shall be deemed to be references to AG Mercantile to the extent relevant. (d) In consideration of the grant of the Call Option by AG to GSPL, GSPL or an Affiliate shall pay to AG an aggregate amount of US$6.3 million per annum accruing on a daily basis (the 'Option Payment'). GSPL's obligation to pay AG the Option Payment as aforesaid shall be deemed to be effective from 1 May 2007. The Option Payment for the period from 1 May 2007 to 30 April 2008 will be paid as soon as practicable and in any case by the 20' Business Day after the date of this Agreement and the Option Payment for each twelve (12) month period from 1 May 2008 shall be paid in four equal installments in arrears on 1 August, 1 November, 1 February and 1 May, commencing on 1 November 2008. The Option Payment shall be paid to AG until AG ceases to hold indirectly through' his interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of Centrino And/or Plustech, to comply with the provisions of this Clause 4 within the prescribed time frame (or any extension thereof necessary to obtain requisite approvals), Centrino and/or Plustech shall be deemed to have irrevocably appointed GSPL as its attorney to deal with the matter. (4.5) Transfer Procedure (a) An Option as specified in Clause 4.3 or 4.4 or a Default Option shall be exercised by a written notice ( Transfer Notice) from the Party exercising such Option or Default Option ( Offeror) to the applicable counterparty ( Offeree ) and the effective date of its exercise shall be the date of such written notice. Any Transfer of Put Shares or Call Shares or Default Shares shall be subject to the approval of any competent regulatory agencies, if required, and shall be completed within the .periods stipulated by Clause 4.5(b) or such other extended time which may be Trequired to comply with applicable laws (including the obtaining of requisite approvals). GSPL Shall notify AG of the identity of the transferee prior to the date specified in the notice for completion of the Transfer. The purchaser of Put Shares or Call Shares or Default Shares, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which represents 100% of the Transfer Price; And (ii) . where AG transfers Put Shares or Can Shares, as the case maybe, which represent less than 100% of the issued equity share capital of AG Mercantile or Plustech as relevant pursuant to exercise of the Put Option or the Call Option, as the case maybe, the price payable to AG pursuant to Clause 4.6(a) on the exercise of each Put Option or each Call Option, as the case maybe, shall be calculated as follows: A = X multiplied by [Y/Z) Where: A = the price payable pursuant to Clause 4.6(a); X= the Transfer Price; Y = number of Put Shares or Call Shares, as the case maybe, transferred by AG pursuant to exercise of the Put Option or the Call Option, as the case maybe; Z = total number of. Put Shares or Call Shares, as the case maybe, representing 100% of the issued equity share capital of AG Mercantile or Plustech as relevant. 4.7 Default Option (a) Following any Event of Default on the part of AG and/or Goldspot and/or Plustech and/or Centrino, GSPL shall have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout the prior written consent of GSPL 4.10 Assignability or transfer of rights (a) The parties agree that the Call Option set out in Clause 4.4 may be freely assigned or transferred by GSPL without the consent of AG or any other party being required. (b) In the event that the Call Option is assigned or transferred to a person that is not an affiliate of GSPL; (i) Such assignment or transfer shall be subject to the condition that the Call Option can only be exercised in respect of all, and not part, of the Call shares; and (ii) GSPL shall continue to be bound by all obligations under this agreement associated with the exercise of the Call Option by such assignee or transferee. (c) The Parties agree that the Put Option set out in Clause 4.3 may not be assigned or transferred without the prior written consent of GSPL. 5.3 Change of Control In the event of a Change of Control, each party will promptly, and in no event later than 10 days after such Change of Control has occurred and provide appropriate details as to the nature of the Change of Control. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Call Option. A question arises whether inclusion of any of the subsidiary of Vodafone PLC in the probable assignees would create a right or interest in the property/asset being Option Rights in respect of the shares held under the Call Option. The revenue has relied upon the amended provisions of section 2(47) of the Income Tax Act and contended that inclusion of any of wholly owned subsidiary of Vodafone PLC as a nominee under clause 4.4 does create a right and interest in favour of the subsidiary of Vodafone PLC to acquire the shares held in the Call Option and, therefore, it is a transfer in terms of amended provisions of section 2(47) of the Income Tax Act. For ready reference we reproduce section 2(47) along with newly inserted Explanation 2 as under:- 2.(47) transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into; or is treated by him as, stock-in-trade of a business carried on by him as, stock-in-trade of a business carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the asset in the shape of right to acquire the shares held under Call Option. Under the framework agreements of 2007, any of wholly owned subsidiary of Vodafone PLC is a prospective nominee but would get the right to acquire share only when a nomination is made by the assessee in favour of such subsidiary. Under clause 4.4 read with clause 4.10 of framework agreements, the right to acquire shares remains with the assessee till the assessee exercises its right to nominate a pre mentioned wholly owned subsidiary of Vodafone PLC failing which the right to acquire the shares remains with the assessee. It is clear from clause 4.4 (a)(i) that the assessee shall have the right to purchase or require that any wholly owned subsidiary of Vodafone Group PLC purchase the shares held under the Call Option. It is discern from the comparative study of the relevant clauses of two framework agreements that by change of prospective nominee it does not amount to transfer or creating any right in favour of the said prospective nominee until the actual nomination is made. 35. Now we will examine the Share Holder s Agreement dated 05/07/2007. Though the re-writing of the frame work agreement i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entered into between Nadal Trading Company Pvt. Ltd., ND Callus Info Services Pvt. Ltd. and CGP India Investment Ltd to confirm the understanding regarding the regulation of affairs of Telecon Investment India Ltd. (TII). As per clause 4.2 of the share holder s agreement, the right to exercise Put Options was conferred upon by ND Callus Info Services Pvt. Ltd. and Nadal Trading Company Pvt. Ltd to require CGP India Investments Ltd. who is a share holder of TII to purchase shares held by ND Callus Info Services Pvt. Ltd and Nadal Trading Company Pvt. Ltd in TII. Clause 4.3 authorizes CGP India Investments Ltd or its nominated person to Call Options to purchase the share held by ND Callus Info Services Pvt. Ltd. and Nadal Trading Company Pvt. Ltd.. Thus it has been submitted that these Options are completely different from Call Options and Put Options held by assessee, Analjit Singh and Asim Ghosh respectively, under the 2007 Framework Agreements. The Framework Agreements between Analji Singh and Asim Ghosh and assessee are completely distinct from the TII share holder s agreement as the former relate to Call Options and Put Options in respect of shares of Scorpio Beverages (P) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alyze the various clauses of TII SHA. The parties to the Share Holder s Agreement as well as the relevant clauses are as under:- This Shareholder's Agreement (this Agreement ) is entered into on 5 July 2007, among: (1) Nadal Trading Company Private Limited (formerly known as Cerntino Trading Company Private' limited). a company incorporated under the Companies Ad , 956, and having its registered office at Meher Chambers, 4 and 5th Floors. RK Marg, Ballard Estate. Mumbai 400 038 (herein after referred to as Nadal ) of the FIRST PART; (2) ND Callus Info Services Private Limited, a company incorporated under the Companies Act 1956 and having its registered office at 15. Aurangzebe Road, New Delhi 110011 (hereinafter referred to as. NDC' ) of the SECOND PART; (3) CGP India Investments Limited. a company organized under the laws 01 Mauritius and having its registered office at 608. 51 James Court, 51 Denis Street. Port Louis. Mauritius (hereinafter referred 10 as TCGP ) of the THIRD PART; (4) Telecom Investments India Private Limited, a company incorporated into the Companies Act 1956 and having its registered office at 240 Navsari Building, First Floor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 6.1; NDC Call Option has the meaning assigned to the term Call Option under the NDC Framework Agreement; NDC Framework Agreement means the Framework Agreement dated the date hereof between Analjit Singh, Mrs. Neelu Analjit Singh, Scorpios Beverages Private Limited MV Healthcare Services Private Limited, GSPL, NDC and Vodafone; NDC Put Option has the meaning assigned to the term Put Option under the NDC Framework Agreement; NDC Shares means the equity shares of the Company held by NDC, consulting 38.78% of the total issued and paid up equity share capital of the Company at the date hereof, and shall include any further shares issued under the terms hereof; Nominated Person shall mean any Person(s) whom CGP may nominate to acquire the NDC Shares or the Nadal Shares including, for the avoidance of doubt Vodafone or any Indian third party; Offeree shall have the meaning set forth in Clause 4.4(a); Offeror shall have the meaning set forth in Clause 4.4(a); Original Director shall have the meaning set forth in Clause 6.6; Option shall mean any of the Subscription Option, Put Option or Call Option; Person shall mean any natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights to purchase the shares held by the Asim Ghosh and Analjit Singh Group of Companies in TII were with the assessee under the Framework Agreements of 2006 as well as 2007. Though under FWAs the assessee was having the right to assign option rights to one of the probable persons/assignees, however, till the assignment took place the rights were remained vested with the assessee. These rights to Call Option to purchase the shares held by the Asim Ghosh and Analjit Singh including their 100% subsidiaries ND Callus Information Services Pvt. Ltd. and Nadal Trading Company in TII stand transferred and vested in CGP India Investments (Mauritius) by virtue of TII share holder s agreement as it is clear from the clause 4.2 and 4.3 of the share holders agreement in question. As per the definition clause, Call Option has the meaning assigned to the term Call Options under the Framework Agreements, therefore, all the terms have the same meaning as it was understood by the parties under the Framework Agreements. Even under the Framework Agreements of 2007 what was to be transferred under the option rights were 23.97% and 38.78% of shares in TII and thereby indirect 12.25% share holding in H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by three share holders namely CGP India, Nadal Trading and ND Callus who are the parties to the TII SHA including the TII company itself. Therefore, the SHA is binding to all the share holders and company as well. Even otherwise when the issue of assignment/transfer of Call Options right by the assessee was not before the Hon'ble Supreme Court then the said observation of the Hon'ble Supreme Court was not in the context of the issue before us. 41. Under the Framework Agreements, the parties agreed to transfer the entire share holding of Asim Ghosh and Analjit Singh Group Companies under the Option rights which means their holding to the extent of 23.97% and 38.78% in TII was to be transferred on exercise of option rights under FWAs as well as under SHA dated 05/07/2007. It is manifest from the SPA between HTIL and VIHBV, Framework Agreements and TII share holders agreement as well as surrounding facts and circumstances that the entire arrangement and exercise was targeted to acquire the 15% share holding in HEL as and when the restriction on FDI in telecom sector is relaxed by the Government. Therefore, both Framework Agreements and TII share holders agreement were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the definition of transaction u/s 92F(v), the arrangement/understanding or action in concert whether or not such arrangement and understanding is formal or in writing or whether or not , the same is intended to be enforceable by legal proceedings. The legislature has deliberately not defined the term transaction itself and has provided an inclusive definition. It is a word of widest import. Thus the term transaction not only includes a sale, purchase, lease, mortgage, pledge, rent or hire but also any other dealing between parties which may have a financial impact or any other dealing or course of dealings undertaken in the normal course. In the specific context of T.P Provisions, it includes any arrangement, understanding, or action in concert. Further, there is no necessity that such arrangement or understanding should be in writing or legally enforceable. Thus, even an oral understanding or arrangement which may or may not be enforceable at law will constitute a transaction. The term international transaction has been defined in sec.92B.Under sub section (1), international transaction has been defined as a transaction between two associated enterprises out of which at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o CGP Mauritius, it is clear that VIHBV became entitled to exercise the call options in its own name by virtue of new Framework Agreement. 47. The use of the words at its sole discretion in clause 4.4 of the 2007 FWA is very material. Since the appellant already had the discretion to purchase the option shares, these words can only be attributed in favour of Vodafone group Plc subsidiary. There would be no purpose to attribute these words to the appellant as the appellant already had the discretion to purchase the option shares. The effect of attributing the words at its sole discretion to Vodafone Group Plc is that the appellant now bound by an obligation to call upon the Vodafone Group Plc subsidiary to purchase the shares. Hence the new Frame Work Agreement of 2007 has effectively transferred the appellant s right to purchase the shares in favour of a Vodafone group subsidiary company. In fact, the shares have subsequently been purchased by CGP Mauritius; a Mauritius based subsidiary company of Vodafone Group Plc at the instance of VIHBV. Thus the Frame Work Agreement has provided the basis for the subsequent nomination of CGP Mauritius in whom all the shares are now vest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Call Option in the framework agreements of 2007. Therefore, the jurisdictional and threshold requirement of existence of transaction including the international transaction section 92B of the Income Tax Act is not satisfied. Hence the provisions of transfer pricing cannot be invoked when there is no transaction by recasting the framework agreements in 2007. The decision of Hon'ble Supreme Court in respect of 2007 agreement were not a mere casual observation but is ratio descending and binding law declared as per Article 141 of Constitution of India. In support of his contention he has referred the judgment of Hon'ble High Court wherein it has been held that the finding of Hon'ble Supreme Court is binding. The Ld. Senior cl. further submitted as under: (i)Under Chapter X, the jurisdictional and threshold fact for invocation of transfer pricing provisions is the existence of a transaction as defined under Section 92F(v) of the Income Tax Act, 1961 which will tantamount to an international transaction as per section 92B of the Act if the said transaction is between two associated enterprises, either or both of whom are non-residents. As per 92(1), an arm s length p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared as per Article 141 of the Constitution of India. (iii)Since the same jurisdictional fact was before the Supreme Court in the case of VIH BV and the present case, the finding of the Supreme Court that there is no assignment of any call options under the July 2007 Framework Agreements is binding on this Hon ble Tribunal and the IT Department. Accordingly, the jurisdictional and threshold requirement of existence of a transaction, which is also an international transaction under section 92B of the Act, is not satisfied. Therefore, the invocation of transfer pricing provisions is inherently without jurisdiction. 51. We have considered the rival submissions as well as various documents executed in connection with the divestment of telecom business in India by HTIL by transfer of stake in HEL through sale of shareholding of CGP. We have also analysed the relevant facts, clauses of the agreements and the provisions of the IT Act. The meaning of international transaction is provided u/s 92B which reads as under:- Meaning of international transaction. 92B. (1) For the purposes of this section and sections 92, 92C, 92D and 92E, international transaction means a transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression intangible property shall include (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how; (c) artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings; (d) data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters; (e) engineering related intangible assets, such as, industrial design, product patents, trade secrets, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase, sale, lease of tangible or intangible property or provision of services or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or asset of such enterprise. It also includes a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of or any contribution to any cost, expenses incurred or to be incurred in connection with benefit, service or facility provided or to be provided to anyone or more of such enterprises. 54. As per the definition of international transaction as contemplated u/s 92B r.w.s 92F(v), it does not necessarily require a transfer or assignment of a property or creating any right or interest in the property but even an arrangement, understanding and action in concert, whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings or not, if the said understanding shall have a bearing on the profits, income, losses or asset of the enterprises, the same would fall within the realm of international transaction. Even if it is accepted that VIH BV is only a confirming/consenting party to the framework agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsidiary of the Vendor, CGP owns, directly or indirectly, companies which control the Company Interests. (B) The Vendor has agreed to produce the sale of, and the Purchaser has agreed to purchase, the entire issued share capital of CGP on the terms and conditions set out in this agreement. The Vendor has further agreed to procure the assignment of, and the Purchaser has agreed to accept an assignment of, the Loans on the terms and conditions set out in this Agreement and the Loan Assignments. ND Callus Framework Agreement means the framework agreement dated 1 March 2006 between Analjit Singh, GSPL, ND Callus Holdco, ND Callus and ASCo; Transaction Documents means this Agreement, the Tax Deed, this Disclosure Letter, the Hutch Brand License, the Loan Assignments, the Confidentiality Agreement, the IDFC Framework Agreement and the GSPL Transfer Agreement; Wider Group means CGP, GSPL, the Holding Companies and the Group and Wider Group Company means any one of them. The Vendor s Obligations in relation to the Conduct of Business The Vendor undertakes to procure that, save insofar as otherwise agreed in writing the Purchaser (such agreement not to be unreasonably wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the VIHBV. This mutual understanding and arrangement as well as action in concert between the assessee and its AEs for securing the Option Rights against the consideration paid by VIH BV to HTIL and AG AS certainly having a bearing on the profits, income, losses or asset of the associated enterprises. 57. Now the question arises whether the transaction is at arm s length or not. Undisputedly the consideration was paid by VIH BV to HTIL as well as to AG AS but nothing was paid to the assessee for facilitating the arrangement and signing the Framework Agreements to protect the valuable interest of the Vodafone Group. Further the option rights held in the Framework Agreements stood assigned and vested in favour of CGP India Investments Ltd. vide TII share holders agreement dated 5.7.2007. A sum of US$351.8 million was retained by VIH BV from the purchase consideration as retention amount as per clause 8.10(b) of SPA for acquisition of 15.03% stake from AS AG and IDFC under FWAs. Once the transaction is held to be a international transaction the same must be at Arms Length Price. The assessee being the holder of the valuable option rights under FWAs to give proper effect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th price of assignment of Call Option under the Framework Agreements with AS and AG. The working of the ALP of assignment of Call Option is given at page 48 of the TPO as under:- 1) Analjit Singh Ors. 7.57% 2) Asim Ghosh Ors. 4.68% 12.25% Valuation of 0.1234% ₹ 62,24,27,849/- Valuation of 12.25% option 62,24,27,849X12.25% 0.1234% 0.1234% The ALP of assignment of Call Option ₹ 6178,88,26,177 Acutal price charged NIL Adjustment u/s. 92CA ₹ 6178,88,26,177/- 59. Since no price was charged by the assessee from AE against the alleged assignment of Call Option rights to the extent of 12.25% of HEL shares in the Framework Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice against the FMV of the underlying main operating company s shares iii. It is an option that does not require the payment of any money whatsoever by the option holder at the time of exercise of the option because of which it has been termed as a cashless option. (b) The call options in dispute (ASG/ AS option) (the Option ) have the following structural characteristics: i. The Option is an option to buy the shares (the Shares Underlying the Option ) of Plustech Mercantile Co. Ltd. (Asim Ghosh Group Company) and MV Healthcare Services (P) Ltd. (Analjit Singh Group Company) and not the main operating company i.e. F in the ownership chart. ii. It is an option that has no strike price, iii. It is an option that requires the payment of cash equivalent to fair market value ( FMV ) of the Shares Underlying the Option. The price, i.e. US$ 266,250,000 (AS Option) and US$ 164,510,000 (AG Option) at which the underlying shares could be purchased under the Option was the FMV of the said shares. These prices were FMV of the said shares have been certified by two leading Chartered Accountants and Valuers namely, KPMG and S.R. Dinodia relying on the report of a renowned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores on the exercise date of the option, the Option Holder only pays ₹ 50 crores and, thus, gets a benefit of ₹ 60 crores Cash vs. Cashless options Under the structure of the present call Option, the Option Holder has to pay the full fair market value of the shares at the time of exercise of the option. To illustrate, if the fair market value of the underlying shares is ₹ 100 crores, the option holder has to either use cash available or finance such cost from the market. In other words, the option holder has to pay the entire FMV to get the underlying shares. Under the IDFC Option, the Option Holder does not have to pay anything at all for the purchase of the underlying HEL shares. The option holder will only exercise the option if the fair market value of HEL shares is higher than the strike price. If that is the case, then, the option holder does not have to pay anything for the purchase of the underlying shares. In fact, it will receive a net cash inflow upon the exercise of the option. (d) Based on the above, it is abundantly clear that the value of the IDFC Option is predominan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaken may be sufficiently similar Reliance in this regard is also placed upon the following observations of the Special Bench of the Tribunal in the case of Aztec Software and Technology v. ACIT: 107 ITD 141, wherein at para 119, the Special Bench held as under: 119. The various methods are now discussed hereunder: (a) Comparable uncontrolled price method (CUP): CUP is described in Rule 10B(a) as follows: (a) Comparable uncontrolled price method, by which, -- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction. Cup is applied when a price is charged for a product or service. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, since in the Assessee s case they were tendered for the first time before the DRP. However, the additional evidence tendered by the TPO before the DRP for the first time was admitted as evidence. Such exclusion of the evidence tendered by the Assessee amounts to violation of principles of natural justice and, therefore, within the specific mandate of Rule 29 of the ITAT Rules, these reports can be considered by the Hon ble Tribunal while deciding the present issue. (ii) It is settled law that an opinion of an expert cannot be brushed aside. The DRP, not being an expert in valuation, had to mandatorily consider the expert opinions, unless and until the DRP counters it with another expert opinion reports, which states otherwise or the opinion is vitiated by fraud, bias or a patent mistake. In the facts of the present case, the DRP has failed to consider the expert opinions without assigning any reason, which is not permissible in law. (Refer G.L. Sultania Vs. SEBI AIR 2007 SC 2172). c. The cost of acquisition of the Call Options is indeterminable (i.) The reasons accorded by the DRP to distinguish the judgment of the Supreme court in the case of Srinivasa Setty (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce placed by the DRP on the judgment in the case of A.R. Krishnamurthy is misplaced, since COA of leasehold rights was undisputedly determinable in that case. (v) Even though the DRP has arrived at a finding that the cost element is identifiable, it has failed to render any finding to show as to what was the monetary element of such cost. Except making a bald statement that COA is determinable in the present case, the DRP has miserably failed even to attempt determining the COA which itself shows that in the present case the COA was not determinable. 61. On the other hand, the Ld. ASG has submitted that since, the IDFC lnvestors are unrelated parties and the transaction involved is assignment of options involving the underlying shares of HEL, the TPO has used assignment of cashless option as described above as internal CUP for determining the ALP of assignment of call options to VIHBV. Schedule 1 to the 2006 IDFC FWA, provides the manner of determination of the FMV. Since, the consideration for cashless option is the difference between the FMV and the Strike Price, the Fair Market Value of 0.1234% of shares of HEL is ₹ 112,24,27,849/- (i.e.Rs.50.00,00,000 + ₹ 62, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P/AG Mercantile and HEL. e. Strike Price much lower than FMV Under the FWA with IDFC, the Strike price is ₹ 50 crorres for 0.1234% shares of HEL is ₹ 112.24 cores as per transaction agreement dated 5th June 2007. As per FWA 2007 with AS AG, VIHBV can acquire the 12.25% shares of HEL held by AS AG companies at USD 430.76 million (USD 266.25 million USD 164.51 million under FWA 2007 with AS and AG respectively.) The FMV of 12.25% shares of HEL held by AS AG companies, is much more than USD 430.76 million. Therefore there is a strike price for exercise of options under both agreements which is lower than the FMV of the stake that could have been acquired by exercise of options. f. Involvement of cash - On exercise of the cashless option under the 2006 IDFC FWA, IDFC Investors would get the difference between the FMV of 0.1234% shares of HEL and the Strike Price ( ₹ 62.24 crores). Under the transaction agreement dated 5th June 2007, the assessee got the cashless option assigned to itself after making the said payment of ₹ 62.24 crores to the IDFC Investors. Pursuant to the FWA 2007 with AS/AG, the options were divested in favour of VIH BV for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is examined, the Department is permitted to cross examine, no reliance ought to be placed on reports. Any such reliance, without the department being permitted its right of cross examination, would be breach of the principles of natural justice. 66. He further submitted that the most important evidence that holding company discount and liquidity discount are not applicable when a buyer is acquiring majority stake in a company, is available in the case when VIHBV acquired the stake in HEL from HTIL. It is an admitted fact that VIHBV acquired 66.98% interest at USD 11.076 bn which was 67% of the enterprise value. It is also an admitted fact that CGP, Cayman Island, owned directly and indirectly through its subsidiaries, an aggregate of 42.34% of the issued share capital of HEL and a further indirect interest in 9.62% of the issued share capital of HEL. (para 25 of Hon 'ble Supreme Court order). It has been further clarified in para 33 of the Hon'ble Supreme Court order that VIHBV acquired 42% direct interest .in HEL through its acquisition of 100%CGP (CI). It also acquired further 10% stake through pro-rata route by holding shares in TII and Omega through acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be seen at Annexure I. The value works out to ₹ 6889.08 crores. c. From the assessee's valuation based on KPMG and S.R. Dinodia Co valuation reports (page no. 1886 to 1945 and page no. 1946 to 1995 of Volume VI of the paper book respectively),the assessee has taken the value of HEL at USD 25 Bi11ion on the basis that the value of HEL will increase to that figure in 2-3 years time. On this enhanced value the assessee has applied holding company discount and liquidity discounts and has also reduced Capital Gains tax at TII level. If the holding company discount, liquidity discounts and tax adjustments are deleted as explained earlier, the value works out to Rs.ll066.67 crores. This calculation can be referred to at Annexure II. As observed this value is much more than the TPO's determination. d. Alternatively even if the methodology adopted by the assessee is followed and the enterprise value of HEL is considered at USD 18.80 Billion as per the SPA even then the value works out to ₹ 7262.58 crores. 68. The Assessee argued that the conclusions arrived at in the presentation made by Goldman Sachs before the FIPB cannot be challenged by the Department be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. It is submitted that the Goldman Sachs presentation was never furnished by the Assessee before any of the lower authorities including the Tribunal in the present proceedings against the Assessee (refer para no.19 and 20 of the submission of the respondent on determination of ALP of call options). The presentation was only before the FIPB from where the Department obtained the copy around February, 2014 and filed before the ITAT. 71. We have considered the rival submissions and relevant material on record. As regards the valuation and benchmarking the transaction the TPO applied CUP method and adopted the price paid by the assessee for purchase of cashless option from IDFC investors regarding 0.1234% shares held by Omega Telecom Holdings Pvt. Ltd. in VIL/HEL. The TPO computed the STCG by considering the cost of acquisition of call options the amount paid to AG and AS being annual payment for keeping the options alive. The DRP held that no cost has been borne by the assessee and accordingly recomputed the Short term Capital Gain by taking the cost of acquisition at Nil. Consequently the DRP enhanced the assessment. We may clarify that it is nobody s case that there is no co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten notice to the GSPL or its nominee the Investors Option for the Third Party consideration less the strike price ( Cashless Assignment Price ). Any such notice issued by GSPL shall supersede the Cashless Notice which shall immediately cease to be of any effect. Completion of the assignment and novation and payment of the Cashless Assignment Price shall take place within 14 days of GSPL s notice. Upon such assignment and novation. ITNL also agrees that the Investors Option shall be amended so as to allow the Investors Option to be exercised at any time by GSPL or its nominee and shall lapse 10 years after such assignment and novation. The Cashless Option is deemed to be fulfilled upon payment of the Cashless Assignment Price to the Investors. 73. There is no doubt that the option right held by the assessee under Framework Agreements with AS and AG as well as Framework Agreements with Investors of IDFC are for acquisition of HEL shares. The only difference in the rights of the assessee under IDFC Framework Agreements is that the investors were also having the cash less option to purchase the shares of HEL held by Omega Telecom Holding Pvt. Ltd. Therefore, there was a deficiency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of right in these two set of Framework Agreements are in any way different so far as to purchase the shares of HEL. We make it clear that the cost of option rights under the Framework Agreements was borne by the AE of the assessee and, therefore, while computing the ALP and income to be assessed in the hands of the assessee, the said cost is to be reduced from the ALP. Further we do not find any merit or substance in the contention of the assessee that valuation presented before the FIPB and accepted by the authorities cannot be denied by the department. It is pertinent to note that the valuation produced before the FIPB cannot be regarded as acceptance of the correctness of the said valuation by taxing authorities under the assessment proceedings. We have discussed this point while dealing with the issue of suppression of material facts. Therefore, when the reports were not produced before the Assessing Officer then it cannot be said that the valuation were accepted by the assessing authority merely because these were presented before the FIPB. In view of the above discussion, we do not find any reason to interfere with the orders of authorities below except the re-computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a matter of fact, these options ensure that AS/AG who are the owners of the underlying shares get their value. The underlying shares under both the options are property vested with AS/AG. These options ensure that As/AG get their desired FMV either from VISPL or any other third party. Thus the Ld. Sr. Counsel submitted that it is not in dispute that Call options gives the option holder the right to buy an underlying asset at a fixed price during a certain period. Further, it is also not in dispute that, conversely, a put option gives the option holder the right to sell a stock at a fixed price. Therefore, in a normal call option, the option writer is in possession of the underlying stock as he has to deliver the shares when the option holder exercises the right to buy, similarly, under a put option, it will be option holder (not the option writer who will be in the possession of the underlying stock as he has right to sell the stock on a specified dated. This position is clearly explained in the book Financial Management, Theory Practice, 4th edition written by Prassana Chandra on pages 639 to 642. He further submitted that the observation of Hon'ble Supreme Court in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, both Asim Ghosh and Analjit Singh have been restricted for making any change in any down stream interest through which they hold 15% stake in VIL. Both Put Option and Call Option are to be exercised in respect of the same shares and for transfer of the shares at a same price as defined in clause 4.6 of the framework agreements. The Hon'ble Supreme Court has extracted the definition of Standard Call Option and Put Option whereas as per the clauses of framework agreements, there is no difference in the rights and obligations of the parties under Call Option and Put Option in both the cases. The same set of shares were to be transferred by Asim Ghosh and Analjit Singh to the nominated person of assessee. Therefore, there is no difference in the rights exist under Call Option and Put Option as per the framework agreements in question. The term Option has been defined to mean Put Option or Call Option. Thus, even as per the appellant s FWA, both options are included in the term Options . 76. It is further submitted that as per clause 3.1 of the FWA 2007, AS / AG have to ensure that the entire issued and paid up capital of the Group companies are held by them respectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VIH BV (supra) has held that call options are different from the put options as former is a right and later is an obligation. The Hon'ble Supreme Court while discussing the Call Option and Put Option has noted in para 158 as under:- 158. SHA also provides for matters such as restriction of transfer of shares i.e. Right of First Refusal (ROFR). Right of First Offer (ROFO). Drag-Along Rights (DARs) and Tag-Along Rights (TARs). Pre-emption Rights. Call option. Put option. Subscription option etc. SHA in a characteristic Joint Venture Enterprise may regulate its affairs on the basis of various provisions enumerated above, because Joint Venture enterprise may deal with matters regulating the ownership and voting rights of shares in the company, control and manage the affairs of the company, and also may make provisions for resolution of disputes between the shareholders. Many of the above mentioned provisions find a place in SHAs, FWAs, Term Sheet Agreement etc. in the present case, hence, we may refer to some of those provisions. (a) Right of First Refusal (ROFR): ROFR permits its holders to claim the transfer of the subject of the right with a unilateral declaration of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to compel a counterparty to transfer his shares at a pre-determined or price fixed in accordance with the pre-determined maxim or even fair market value which results in a simple transfer of shares. (e) Put Option: A put option represents the right, but not the requirement to sell a set number of shares of stock, which one do not yet own, at a pre-determined strike price, before the option reaches the expiration date. A put option is purchased with the belief that the underlying stock price will drop well before the strike price, at which point one may choose to exercise the option. (f) Cash and Cashless Options: Cash and Cashless options are related arrangement to call and put options creating a route by which the investors could carry out their investment, in the event of an appreciation in the value of shares. 77 . The Ld. Senior Counsel of the assessee also made a reference to the Explanation of Call Option and Put Option in the book Financial Management Theory and Practice 4th Edition by Prassana Chandra. There is no quarrel on the standard meaning of Call Option and Put Option whereby the Call Option gives the option holder a right to buy an asset (share) at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assign or transfer the share held under the Option except prior written consent of the assessee. It is pertinent to note that both under Put Option as well as Call Option what flows from the clauses of Put Option and Call Option is the mandatory acquisition by the assessee or its nominee, 12.25% share holding indirectly held by Asim Ghosh and Analjit Singh. Irrespective of whosoever execise the option right the consequences of exercise of Put Option or Call Option is same as transfer of shares to the assessee or its nominee at the same pre determined price having no discretion with the counter party to transfer or sell the shares held under Option Rights to anybody else even in case of default on the part of the assessee or its nominee. Therefore, the provisions of framework agreements are only to enforce the clauses and not giving any discretion or free hand to counter party namely Asim Ghosh and Analjit Singh to sell or transfer the shares held under Call Option to anybody other than the assessee . Hence, in any eventuality, the shares held under Option Rights shall have to be transferred in favour of the assessee or its nominee as the case may be at a pre determined price. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 728. (ii) Badami (deceased ) by her LR Vs. Bhali (2012) 11 SCC 574. (iii) Dalip Singh Vs. State of Uttar Pradesh And Others ( 201) 2 SCC 114. (iv) Ram Chandra Singh Vs. Savitri Devi And Others (2003) 8 SCC 319. (v) State of A.P. And Another Vs. T. Suryachandra Rao (2005) 6 SCC 149. (vi) Hamza Haji Vs. State of Kerala And Another (2006) 7 SCC 416. 79. Thus the Ld. ASG has submitted that merely placing or referring a fact in the pleading without bringing the same to the notice of the court and consequently the judgment was passed without considering such a material fact amounts to suppression of fact before Hon'ble Supreme Court as well as before Hon'ble High Court. 80. In response to the submissions of revenue, the assessee explained that the assessee has duly disclosed all the facts including the exercise of Put Option in the year 2009 before the Hon'ble Supreme Court. The Ld. Senior Counsel has pointed out that after the exercise of Put Option, the assessee sought amendment in the SLP filed before the Hon'ble Supreme Court. The amendment sought through the IA No. 6 to the SLP was permitted by the Hon'ble Supreme Court vide order dated 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed this fact and placed on record of Assessing Officer. The said draft order was challenged before the Hon'ble High Court and the said letter dated 15.12.2011 was also filed before the Hon'ble High Court. Therefore, there is no question of concealment or misrepresentation on the part of the assessee. Hence, the revenue has made serious false allegations of fraud recklessly. 81. The Ld. Senior Counsel for the assessee has submitted that firstly, the factum of exercise of Put Option in 2009 was disclosed before the Hon'ble Supreme Court as also to the tax authorities. Secondly, the words till today used in para 88 of the judgment of Hon'ble Supreme Court are in reference to relevant Financial Year 2007-08 pertaining to the transaction of acquisition of 66.98% equity interest by VIHBV including the issue of re-writing of framework agreements 2007. Therefore, the word till today has been used in respect to the transaction that culminated in the Financial Year 2009 and have to be understood in the aforesaid factual matrix. The judgment of the Hon'ble Supreme Court has to be read as whole and sentences cannot be picked out de hors from the context in which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice of the court it cannot be said that the fact was expressly brought to the notice of the Court for its consideration. Therefore, it is clear that this fact of exercise of Put Option in the year 2009-10 was neither agitated nor brought to the notice of the Hon'ble Supreme Court nor considered by the Hon'ble Supreme Court while rendering the judgment. This fact though was brought to the notice of the tax authorities while computing the tax liability u/s 201 of VIHBV but it cannot be regarded as disclosing the fact by the assessee in the assessment proceedings of the assessee and to the taxing authorities having jurisdiction over the assessee. Therefore, it cannot be presumed that the fact of exercise of Put Option as noted by the Assessing Officer in the case of VIHBV for quantifying the liability u/s 201 as per the directions of the Hon'ble Supreme Court has been brought to the notice of the Assessing Officer having jurisdiction over the assessee during the assessment proceedings. As regards the relevant documents and facts submitted before the FIPB for allowing the transfer of shares in pursuant to the exercise of Put Option, it cannot be said that the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utchison Whampoa Limited ( HWL ) Group. It became part of Vodafone International Holdings B.V. ( VIH BV ) Group on completion of Share Transfer Agreement ( STA ) on 8 May 2007. Subsequently, the name of 3GSPL was changed to Vodafone India Services Private Limited ( VISPL ). 85. Since 2003, assessee operated a captive Call Centre catering to HWL Group companies viz. Hutchison 3G Australia Pty. Ltd. and Hutchison 3G UK Ltd. The services provided to these two companies were, with effect from 1 January 2006, made under two Managed Services Agreements ( MSA ) for contact centre services between Hutchison Call Centre Holdings Limited, British Virgin Islands ( HCCH ) and 3GSPL both dated 1 January, 2006. 86. On 11 February 2007, HTIL and VIH BV entered into the SPA, whereby VIH BV agreed to acquire the entire equity share capital of CGP Investments (Holdings) Ltd. ( CGP ) which indirectly owned assessee, together with certain loans. It was agreed upon between HTIL and VIH BV at the time of entering into SPA that the call centre business of the assessee will not be acquired by VIH BV. Pursuant to the SPA between HTIL and VIH BV, the call centre business of the assessee was transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f arm s length price as per the provisions of transfer pricing, the assessee, at the outset raised objection and submitted that BTA was entered with an Indian company, therefore, it is outside the purview of section 92B of the Act. The TPO after considering the Global Purchase Agreement between HTIL and VIH BV, MOU between assessee and HWP (India) Pvt. Ltd, business transfer agreement and SPA held that there exist a prior agreement among two AEs and their affiliates i.e. assessee and HWP India, all the four parties of the Global purchase agreement. The BTA was entered into the parties to give effect to the Global Agreement. The Indian Agreement is solely dependent on Global Agreement which has overriding effect on Indian Agreement. The TPO noted that In case of termination of global agreement, the Indian Agreement also terminates automatically. Therefore, the TPO was of the view the real parties to the Indian sale is also 2 AEs i.e. assessee and HWL. The TPO applied the doctrines of Lifting up of Corporate Veil and Substance over Form. The terms of relevant transaction are duly determined by global agreement to which, the assessee and HWP (India) are parties, therefore, it was conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO to consider Firstsource Solutions Ltd., for the purpose of valuation of business of call centre transferred by the assessee. The TPO was also directed to consider the TP adjustment made by the TPO in the earlier year post-tax and work out the EPS of the assessee. Apart from the above directions the DRP also directed the TPO to give relief regarding cash of ₹ 62,24,27,849/- which was not transferred by the assessee while transferring the call centre. Hence, the adjustment was reduced by the DRP to ₹ 1408 crores. 88. Before us, Shri Pawan Kumar, Ld AR of the assessee has submitted that the intent of hiving off the Call Centre was reflected in the SPA between VIH BV and HTIL which provided for the purchase of the entire share capital of CGP, together with certain loans. Para 8.8(j) of the SPA provided that an executed BTA was required to be delivered by HTIL to VIH BV before completion of the SPA. The signing of the BTA therefore preceded the completion of the SPA. It is evident from the aforesaid clause of the SPA that since Call Centre was required to be hived off (as VIH BV did not intend to, and nor did it want to, acquire the same), the BTA was signed betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PA on 8 May 2007. 92. The SPA at paragraph 8.13 pecifically provided that in case of failure to comply with the conditions specified in paragraph 8.2 to 8.11, which included the delivery of an executed business transfer agreement as a precompletion deliverable, VIH BV and HTIL shall have following remedies available: (a) Terminate the SPA; or (b) Complete the SPA to the extent practicable given the defaults which have occurred; or (c) Extend time for completion of conditions. 93. Thus, as it was a pre-condition to the SPA to ensure the execution of a business transfer agreement in respect of transfer of assessee s Call Centre business, the purpose of the aforesaid paragraph 8.13 of the SPA was to ensure that in the event BTA between assessee and HWP India was not executed prior to completion of the SPA, the SPA could still be given effect to. 94. It is important to note that assessee (transferor) was an indirect subsidiary of HTIL until 8 May 2007 prior to completion of SPA. During that period, HWP India (transferee) was also an indirect subsidiary of HWL and both HTIL and HWL were public listed companies in Hong Kong (having significantly different beneficiaries) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was brought out in para 86 of Affidavit in reply filed by the respondent in Writ Petition No.488 of 2012. The assessee filed the copy of BTA after one and half months and even that was incomplete as schedules forming part of the Agreement were not filed. Incomplete schedules were filed only on 21st October 2011 i.e. just 9 days before the time barring date. However, Schedule D to the BTA was not filed by the assessee and the same has now been filed by the respondent for the sake of completeness in its Paper book. As per the SPA, a draft BTA was attached to the disclosure letter which formed part of the SPA. However, the assessee did not file the copy of draft BTA before the TPO or AO. A copy of the draft BTA was filed on 25th September, 2012 before the DRP for the first time. The DRP could not have looked into it as there were only 5 days left before the order of the DRP would have become time barred. Therefore, the DRP did not admit draft BTA as additional evidence. The copy of SPA was also filed after two months that too after issuance of summons u/s.131 of I.T.Act, 1961. Further, the assessee did not file the signed and dated copy of MOU before the TPO. The assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 101. It is important to first ascertain whether the BTA was signed before the transfer of CGP share or the BTA was signed after the transfer of CGP share. This is because the relationship of associated enterprise between the assessee and other parties will change on the transfer of share of CGP. Since both the transactions have taken place on the same date, one has to look at the surrounding facts and circumstances to determine which would have been taken place first . Accordingly, the various documents such as BTA and SPA were examined. He has referred the various clauses of SPA and BTA submitted that it is clear that the BTA has taken place after assessee became part of Vodafone Group. As per termination clause in Clause 20 of the BTA, the BTA can be terminated by mutual consent. Therefore, VISPL has a right to terminate the BTA. In case of termination of BTA, the call centre will remain with VISPL which on 8/5/2007 became a Vodafone group company. Therefore, if the intention was to transfer the call centre from one Hutch group company (GSPL) to another Hutch group company (HWP India), there would have been no need for such a termination clause. This proves that the call centre w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court, the prior agreement test is satisfied even if the relevant transaction is modified or altered provided the relevant transaction is in relation to the prior agreement (Para 179 of Bombay High Court in WP No. 488 of 2012. 104. The reliance has been placed on the finding of the Hon ble High Court at para 140,147 and 179 of its order in Writ Petition no.488 of 2012 and the various clauses of the SPA r/w BTA referred to above and submits that the SPA was a prior agreement in relation to the transaction of sale of call centre business. 105. It is submitted that the provisions of the SPA show that HWP India is a party to the SPA as part of the Vendor Group and also as benefits, rights and obligations of the SPA in respect of the transaction involving the sale of the call centre business will accrue to and bind HWP India. The term Affiliate is defined to mean any subsidiary or holding company and any subsidiary of any holding company. HWP India would therefore qualify as an Affiliate of HWL/HTIL. 106. The term of SPA that a Business Transfer Agreement would be entered into between the Assessee and an Affiliate of HWL relating to the Call Centre Disposal was a right and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n authorizing the sale of the business, the execution of BTA and consummation of the BTA (refer to Clause 6.2.1). Similarly, the purchaser also will provide similar certificate under Clause 6.3.1. The requirement of the Board resolutions and other formalities as of the closing date, shows that the parties to BTA must have obtained these near about 4th December, 2007 and at that time, the seller (assessee) was a Vodafone Group company and the buyer (HWP India) was a Hutchison Group company. This conclusively proves that the transaction was completed between two unrelated parties. As per Clause 6.4, the receipt for payment and the closing memorandum will be issued on completion of actions mentioned in Clause 6. Clause 8 shows that the persons working in the call centre, were the employees of VISPL (assessee) till the closing date. This also proves that the transfer took place on the closing date. 111. A very strong and irrefutably positive evidence of call centre being part of Vodafone Group for the period from 11.2.2007 to 4.12.2007 is the fact that in its financials for the year ended 31.3.2008, the assessee has not only shown its business being running of call centre( ITES) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affiliate of the Hutchinson Wampoa Limited which is the ultimate holding company of the Hutchinson group (Clause 1.1- Definition of GSPL Transfer agreement of the SPA). The assessee has transferred the profitable call centre business to HWP India as per understanding and arrangement in the form of the SPA reached between HTIL, Assessee and HWP India. There is no requirement or advantage of selling the call centre business by the Assessee other than as per the mandate of the SPA. The sale attracts capital gains and other issues like getting the licences transferred in the name of the transferee, getting the name of the transferee substituted in the contracts with 3rd parties etc. The assessee has, under the SPA, agreed to enter into the BTA in substantially the same form as the draft BTA attached to the disclosure letter. There was not only an understanding but also an arrangement between HTIL, Assessee and HWP India. All the three parties have acted in concert to transfer the call centre business which was an essential condition for the successful completion of the SPA [clause 8.8(j) of SPA]. In this connection, the clauses 1.1 of definitions- Wider Group, Call Centre Business, GSP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court did not hold that the corporate veil of HWP (India) cannot be pierced. Thus although the judgment may assist the petitioner to a considerable extent, it does not preclude the respondents from invoking the doctrine. 118. The DRP in para no. 10.2.4 has held the transaction of sale of call centre business as international transaction u/s 92 B(1) by piercing the veil of HWP India. In this connection, the revenue has relied upon following rulings where the concept of piercing the corporate veil has been explained. a. In New Horizons Limited And Another V. Union of India Others (1995) 1 SCC 478, b. In Delhi Development Authority V. Skipper Construction Co (P) Ltd Another (1996) 4 SCC 622, c. In Commissioner of Income Tax, West Bengal V. East Coast Commercial Co. Ltd. (1967) 1 SCR 821, d. In Commissioner of Central Excise, New Delhi V. ModiAlkalies Chemicals Ltd. Others (2004) 7 SCC 574, e. In ParleBisleri Private Limited V. Commissioner of Customs And Central Excise, Ahmedabad (2010) 14 SCC 378, f. In Singer India Ltd V. Chander Mohan Chadha others (2004) 7 SCC 1, 119. It is submitted that HWP India is a dummy entity incorporated by the Hutch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (the ultimate Hutchison group holding company and a non-resident entity). The terms of this transaction is determined in substance and there is also a prior agreement in this regard in the form of the SPA between the assessee and VIHBV. Accordingly, the condition specified u/s.92B(2) are satisfied. 122. We have considered the rival submissions and carefully gone through the record produced before us. The first objection raised by the assessee against the action of TPO is that the call centre business was transferred to the HWP (India), which is an Indian associated enterprise of the assessee. Since HWP (India), is an Indian company, therefore, the transaction in question is an international transaction as per the provisions of section 92B of the Income Tax Act. This contention has been advanced by the Ld Counsel based on the premises that at the time of signing of BTA on 8th May 2007, the assessee was a part/an affiliate of Hutchison Whampoa Ltd. (HWL Group) and only on completion of the share purchase agreement, the assessee became part of VIH BV, therefore, the HWP (India), was an associated enterprises but an Indian company and transaction between two Indian companies/parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the disclosure letter 123. Therefore, from the terms and conditions of the SPA, it is clear that HTIL was under obligation to procure and deliver the call center business transfer agreement duly entered into between the assessee and an affiliate of HTIL at the time of completion of SPA on 8/5/2007. Though this aspect is not going to alter the status of the parties so far as the transaction between two AEs for the purpose of section 92B however, it discern from the agreements between the parties that the assessee was acting as a subsidiary of HTIL while entering into the BTA in pursuant to the discharge of the obligation of HTIL/HWL group under the SPA. Therefore, even if the BTA was signed on 8.05.2007 when the SPA was completed, it will be considered as on the same date and at the time of SPA and not subsequent to the SPA. Accordingly the language of SPA and BTA manifest without any ambiguity that the BTA was signed between the assessee being down stream subsidiary of HTIL and, therefore, the BTA is preceded the SPA. Both SPA and BTA was signed on the same date, however, BTA is considered as preceded the SPA because of the conditions provided under SPA. It was not the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2006, the process of divesting telecom business in India by HWL group started and it was decided to sell the telecom business in India through the sale of down stream subsidiaries except call centre business of the assessee. HWP (India) did not do any business till the execution of BTA on 8.05.2007. Even subsequent to the BTA, HWP (India) did not run the call centre business but it was run by the assessee as agreed upon between the parties till 4.12.2007. Since the HTIL was under obligation to retain the call centre business and the assessee was going to be the subsidiary of VIH BV, therefore, the said call centre business was required to be transferred from assessee to the affiliate of HWL Group. This aspect was also considered by the Hon'ble High Court in para 159 to 161 and 166 as under:- 159. That the BTA was foreshadowed by and was a part of the SPA is evidenced from what we said above and also by clauses 8.8, (c), (f) and (j), 8.13, 10.1, 10.2, 13 and 27 of the SPA. Clause 1.1 defines terms specifically in connection with the BTA such as Call Centre Business , Call Centre Disposal , GSPL Transfer Agreement and Transaction Documents . 160. Clause 8.8 required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended by the respondents, the BTA was signed after the petitioner ceased to be a part of the HTIL group and became a part of the Vodafone group. Upon the sale of the CGP share, the petitioner became a part of the Vodafone group. Till then, it was a part of the HTIL group. If the petitioner and HWP (India) were associated enterprises, sub-section (2) of section 92-B would not apply for the BTA, then could not be said to be a transaction entered into between an enterprise with a person other an associated enterprise. 126 As it was a precondition of the SPA that HTIL would get the call centre business of the assessee transferred to its group company, a MOU was entered into for settling the terms and conditions of the BTA. At the time of MOU dated 30.04.2007, the payment of purchase consideration of ₹ 64 crores was made. It is pertinent to note that HWP (India) was not having funds of its own nor any business ever done till the date of the BTA. The payment of ₹ 64 Crores was also made by HWL Group Company though routed through the bank account of HWP (India). The statement of account is placed at page no. 232 of the paper book. We have also carefully perused the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the relevant transaction between such other persons and associated enterprise as stipulated in sub-section 2 of section 92B as under:- (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise ; or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. 128. For invoking the provisions of sub-section 2 of section 92B, the transaction must be entered into by the enterprise with the person other than an associated enterprise. The definition of the associated enterprises is provided u/s 92A which does not contemplate that associated enterprises means an enterprise inter alia a non resident. Therefore, an enterprise which fulfills the conditions as prescribed u/s 92A will fall under the expression associated enterprises irrespective of its residential status, domestic or non resident. It is only for the purpose of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly objected the comparability of First Source Solutions Ltd for determining the ALP of Call Centre Business on the ground that this company is a listed company on the stock exchange and also the functions performed by the said company are not comparable with the assessee apart from difference in the asset employed and risk assumed by the said company. It was further contended that the First Source Solutions Ltd has earned its major revenue from banking, financial services, insurance and healthcare sector, whereas, the assessee caters predominantly to telecom sector. Only 25% of the revenue of First Source Solutions Ltd is from telecom sector, therefore, the said company cannot be a compared with the assessee. The said company is a listed company many times bigger in the size of the assessee having diversified products offering and having global presence, multiple customers, ownership of intangibles, liquidity etc. Thus the same is not valid comparable of the assessee in terms of section 92C of the Act read with Rule 10B of the Income Tax Act. The assessee though filed the valuation report based on DCF method before the DRP, however, the same was not admitted by the DRP because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.58% 8. Transwork Information Services Ltd 185.10 (9.04) -4.88% 9. Sparsh BPO services Limited 148.25 12.77 8.61% 10. Spanco Ltd (Segment) 57.74 4.76 8.24% 11. HTMT Global Solution Ltd 300.32 57.66 19.20% Arithmetic Mean 1.04% 133. The assessee claimed its operating margin at arm s length in comparison to the arithmetic mean of the comparables which is much below to the assessee s operating margin. The TPO did not accept the comparables prices taken by the assessee and carried out a fresh search for identification of comparables in ITES sector. The reasons for not accepting the comparables selected by the assessee are lack of current year data and were not functionally comparable except some companies which are common in the comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies. These companies are not functionally comparable with the assessee as the services provided by the selected companies are functionally different from the functions of the assessee. Ld. AR has referred the functions performed by the assessee being a captive service provider and submitted that the assessee is providing services related queries, billing related queries, mobile no. portability queries, handset related queries, network related queries and price plan related queries. The Call Centre of the assessee functioning for handling of customer s questions and resolution of the same. The functions performed by the comparables selected by the TPO are different as contended and summarized by the assessee and summarized in following table:- Name of the Company Appellant s Contentions Accentia Technologies Ltd. (Seg.) Accentia is engaged in medical transcription, Medical Coding, Medical Billing and Receivables Management (Collections). Further it has earned nearly 19% of its income from provision of Software development and implementation services. Though majority of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (@ Para 21.6, page 232 of Paperbook, Volume B) has already rejected Cosmic Global Ltd on the ground of functional dissimilarity. Copy of the order is at pages 206 to 249 of Paperbook, Volume B. Accordingly, this company must be rejected. E4e Healthcare Solutions Ltd. E4e is primarily engaged in the business of providing healthcare outsourcing services for the healthcare industry in the United States of America. It provides offshore outsourced services in the medical billing and collection service space. Hence it is not functionally comparable to the Appellant s voice based contact centre services. Profit and loss account information is not available in the annual report of the Company available on the public domain. Accordingly, this company must be rejected. Infosys BPO Ltd. Infosys BPO has incurred substantial selling and marketing expenses i.e. 6.17 percent of the revenue while the Appellant has not incurred any such expenditure. Further, Infosys BPO also possesses brand value. For a branded service, a customer is usually willing to pay a premium. Hence, the Appellant sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centre management services, end user computing services, managed security services, networking services and tools and process consulting services. These services are functionally not comparable to Call Centre services provided by the Appellant and therefore, this company should not be considered as comparable. 135. Thus the Ld. AR of the assessee has submitted that out of the 10 comparables finally considered in pursuant to the DRP s direction, the above six companies are to be excluded on the ground that they are not functionally comparable with the assessee. If the above set of six comparables are excluded from the list of comparables then the mean margin would be reduced to 6.78% which would be less than the margin of the assessee and, therefore, no adjustment is warranted on account of provisions of ITES services to the AE. Alternatively, the Ld. AR has submitted that the companies like Infosys BPO and Wipro Ltd cannot be compared with the assessee on account of extremely high turnover. In support of his contention he has relied upon the decision of Hyderabad Benches of this Tribunal in the case of Capital IQ Information System in ITA No. 1961/Hyd/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons by the TPO Reasons by the DRP 1. Allsec Technologies Ltd. The company is functionally not comparable. The company is functionally not comparable. Additionally, the peculiar economic circumstances on account of certain amalgamations and expansions have made the company incomparable. The company has been validly rejected by the TPO. 2. Ask Me Info Hub Ltd. The company fails the Export earning filter. .i.e. the foreign exchange earning of the company is less than 75% and hence it is rejected as a comparable. The total revenue of the company was ₹ 1.56 Crore and it had no earning out of exports. It fails the export earning filter. The company has been validly rejected by the TPO. 3. Godrej Upstream Ltd. The company fails the Export earning filter. i.e. the foreign exchange earning of the company is less than 75% and hence it is rejected as a comparable. It fails the export earning filter. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO. 8. Sparsh BPO Services Ltd. The company fails the Export earning filter i.e. the foreign exchange earning of the company is less than 75% and hence it is rejected as a comparable. The company fails the Export earning filter. The company has been validly rejected by the TPO. 9. HTMT Global Solution Ltd. The Related Party transaction is more than 25% and hence the company fails the RPT filter applied by the assessee as well as TPO, hence rejected The Related Party transaction is more than 25% and hence the company fails the RPT filter applied by the assessee as well as Department. The comparable has been validly rejected. Additional companies relied by assessee after a fresh search 1 AxaBuisness Services (Seg.) Fails RPT filter of 25% Fails RPT filter of 25% 2 Microwave Communications Limited. The company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is functionally comparable with the assessee as held by the DRP as the segmental margins have been adopted by the TPO. As regards the objection of the assessee on account of extreme high turnover, the Ld. ASG has submitted that the Tribunal has considered this issue extensively in the case of Willis Processing Services India Pvt. Ltd., in (57 SOT 339). As regards the comparability of e4e Healthcare Solutions, the said company was also found as comparable with the assessee as held by the Tribunal in the assessee s own case for A.Y. 2007-08 in para 20.1 of the decision. Thus the Ld. ASG has submitted that the companies selected by the assessee are not functionally comparables whereas the companies selected by the TPO and confirmed by the DRP are even otherwise, comparables in view of the decision of this Tribunal in assessee s own case. 139. We have considered the rival submissions and as well as the relevant materials on record. The assessee has bench marked its margins from its international transaction in providing IT Enabled Services to AE by selecting 11 comparables as reproduced in the foregoing paras. The arithmetic mean calculated from the 11 comparables is 1.04% to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action cannot be completely ruled out. Therefore, having regard to the fact and circumstances and availability of the comparables to bench mark the international transaction, the reasonable tolerance range has to be considered which may be 10% on the lower side to 25% as the highest limit which could be permitted in any exceptional circumstances where the availability of the comparables is very less. In the case in hand, the TPO adopted a very lenient and highest limit of related party transaction, therefore, we do not find any error in applying filter of not exceeding 25% of related party. The DRP while deciding the comparability of the companies selected by the assessee applied these filters as well as functional comparability which is summarized in the table below:- Sr. No. Name of the Company Remarks 1 Allsec Technologies Limited The annual report of the company refers to the following: We expanded our vertical specialization resulting with the acquisition of Manila based ITES company Kingdom builders Inc during the year. Our verticals of specializa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has decreased compared to the earlier year by 44% on account of a conducting agreement entered by the company with its related party Upstream RPO Services Pvt. Ltd. As a result, the sales for the period 1.9.2007 to 29.2.2008, (ie. for six months) was booked as revenue as per arrangement in the books of the related party UBSPN, for which the company has received conducting fee of ₹ 1.5 crores. As this agreement did not materialize, the revenue for March 2008 was offered in the books of this company. Effectively revenue for 6 months of the year was not considered in its operating performance. Hence it not a reliable comparable. 4 Maple E-solutions Ltd As per schedule 13 the revenue from exports services ₹ 17.76 crores and domestic sales and services ₹ 15.88 crores. The export earnings constitute 53% of the total revenue. It fails the export earning filter set by the TPO. As we have already observed that this filter is valid, we are of the view that this company was validly rejected. 5 N I I T Smartserve Ltd The related party transaction is more than 25%. Fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing stiff competition within as well as with the related industry such as Cellular and WLL due to being two way communication and low service rates offered as compared to pager rates. Due to high operational cost and debts cost, the company has made losses and the accumulated losses amounted to ₹ 16659.06 lakhas as on 31st March 2008. The company has expanded its activities to call centre business and the management is hopeful of arresting these losses and turning around the operations in coming years. Accordingly the accounting standards have been prepared on a going concern basis. The company has given segmental profitability information from call centre business and paging business. The revenue from call centre is ₹ 11,83,05,511/-, the operating profit was ₹ 2,83,69,152/-.The OP/TC comes to 31.54%. However, it is seen it has not reported any export earnings. It fails the export earning filter. This company was validly rejected as comparable. 14. Survin Internet services Ltd The company has no export earnings. It fails the export earning filter. This company was validly rejected as comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not been considered in the operating performance. In the absence of complete and contemporary data, it was not considered as appropriate comparable. The assessee has not disputed that the revenue of the company is less than 75% from export and further the revenue for six months of the year was not considered in its operating performance. Accordingly, we find that this company cannot be considered as a good comparable for determining the arm s length price of international transaction. 144. Maple E-Solutions Ltd. This company was rejected on the ground of failing to pass the export earning filter as its export earning constitutes only 53% of the total revenue which is not disputed. Accordingly, we do not find any reason to interfere with the orders of authorities below for rejecting this company as a comparable. 145. NIIT Smartserve Ltd This company has been rejected on the ground that the related party transaction is more than 25%. This fact is not disputed by the assessee that this company has more than 25% related party transaction. We have alredy discussed the filters applied by the TPO and found to be proper and justified. Accordingly, this company cannot be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses were taken to the P L account without any division based on the segment. In our view the company having no earning from export cannot be compared with the 100% export transaction. Accordingly we do not find any error or illegality in the orders of the authorities below in rejecting it as comparable. 155. Jindal Intellicon Ltd. It was rejected on the ground that related party filter of not more than 25% is not satisfied. In the absence of any dispute about the related party transaction is more than 25%, it was rightly rejected as a comparable. 156. The assessee has raised the objection regarding the jurisdiction of the TPO to carry out fresh search for selecting the comparables for determination of arm s length price in relation to international transaction. It is pertinent to note that as per provisions of section 92C(A)(3) of the Income Tax Act, the TPO has the jurisdiction/power to gather and consider all relevant material and information apart from evidence, information and documents, produced by the assessee as required u/s 92D(3). Further secion 92C(A)(7) empowers the TPO to exercise any of the powers specified in clause (a) to (d) of sub-section 1 of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the field of telecommunication related services which cannot be compared with the services provided by Accentia Technologies Ltd which is in the field of medical transcription. Accordingly, we are of the view that the company Accentia Technologies Ltd., is not functionally comparable with the assessee s BPO activity. Hence the said company should be excluded from the list of comparables. 160. Cosmic Global Ltd. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. At the outset we note that this company was considered by this Tribunal in assessee s own case for the A.Y. 2007-08 (supra) in para 21.6 as under:- 21.6 The assessee has objected to the inclusion of this comparable on the ground that the company is not comparable as it is mainly engaged in translation business in addition to medical transcription, accounts BPO and consultancy. The learned DR has placed on record the annual report of the company which shows that the main revenue i.e. 4.05 crore is from translation business where as revenue from medical transcription is only 9.72 lakh and from BPO at ₹ 12.41 lakh. The translation business is not comparable to the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 165. The company e4e Healthcare Solutions Ltd is engaged in the business of providing healthcare outsourcing services in the nature of medical billing and collection services. The services provided by this company is purely BPO in nature and does not involve any analytical work or mental process work, therefore, the services provided by this company is nothing but pure BPO services and accordingly it is comparable so far as the services are in the nature of BPO and no mental intervention is required. The service of medical billing and collection services is nothing but arranging the electronic data in the computer device without any involvement of application of mind. Hence this company is a good comparable for the purpose of determining the arm s length price. 166. Infosys BPO We have heard the Ld. AR as well as Ld. ASG and considered the relevant material on record. At the outset, we note that the comparability of this company was examined by the Tribunal in the assessee s own case for the A.Y. 2008-09 in para 24.3.2 and 24.3.3 as under:- 24.3.2 We have carefully considered the various aspects of the issue and the rival arguments advanced by both the parties. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scale and held that it was relevant to manufacturing concerns and not applicable to service companies. The Tribunal in case of Capgemeni India (P) Ltd. (Supra) noted that employees in service companies were not doubt, valuable assets which have to be considered as a factor for comparability. The Tribunal observed that the assets employed had two dimensions i.e. quantity and quality, more employees would mean more turnover but there was linear relationship between margin and turnover. As regard the quality of employees, the Tribunal noted that this would depend upon the nature of projects and employee cost being more in case of more skilled manpower, it will not result into higher margins. Therefore following the decisions of Tribunal (Supra), we reject the argument advanced for exclusion of Infosys BPO Ltd. and accordingly hold that this has to be accepted as a good comparable. 167. There is no change in the business profile of the said company during the year consider, therefore, following the earlier order of this Tribunal, we hold that the Infosys BPO is a good comparable to the assessee to determine the arm s length price. 168. Wipro Ltd. We have heard the Ld. AR as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y. 2008-09, the said company was excluded from the list of comparables on the ground of related party transaction. As we have already discussed that for the year under consideration, the TPO applied the filter of related party transaction at 25%, the DRP also considered the comparability of this company and directed the Assessing Officer to verify the related party transactions. Since the related party transactions were found to be below the filter criteria of 25% therefore, by following the order of this Tribunal in assessee s own case, we hold that this company is functionally comparable and to be included in the list of comparables. 172. Out of ten comparables, the assessee had raised objection before us only with respect to six companies as discussed above. In view of our above finding, the two comparables namely, Accentia Technologies Ltd,. and Cosmic Global Ltd., are directed to be excluded from the list of comparables and, accordingly, the Assessing Officer/TPO is directed to re-compute the arm s length price on the basis of the remaining 8 comparables. 173. Ground No. 17 is regarding set off of unabsorbed depreciation against income from other sources or alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative claim of deduction u/s 10A, since the issue of unabsorbed depreciation is set aside therefore, the Assessing Officer is directed to consider the same as per law in case the business income of the assessee is enhanced due to disallowance of unabsorbed depreciation. 179. Ground no. 18 is regarding short credit of tax withheld amounting to ₹ 21,59,286/-. 180. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The grievance of the assessee is that the assessee claimed credit of tax withheld of ₹ 3,30,26,766/-, whereas the Assessing Officer has given the credit on account of tax withheld only of ₹ 3,08,67,480/- resulting a short credit of withheld amounting to ₹ 21,59,286/-. This claim of the assessee is based on the revised return of income. Since the complete facts are not recorded by the authorities below as this ground was not raised before the authorities below particularly before the DRP, therefore, in the facts and circumstances of the case as well as in the interest of justice, we direct the Assessing Officer to verify the correct amount of tax withheld and accordingly consider the claim of credit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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