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2016 (4) TMI 515 - ITAT MUMBAI

2016 (4) TMI 515 - ITAT MUMBAI - TMI - Stay Application on the recovery of outstanding demand - Held that:- Applicant shall deposit a sum of ₹ 50.00 crores on or before 31/03/2016 and recovery of balance of the demand shall be stayed.

For the balance of the outstanding demand, the applicant shall provide a corporate guarantee to the satisfaction of the Assessing Officer within four weeks. The Registry shall list the appeal of the assessee on an out of turn basis before the Regu .....

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Fereshte Sethna/Shri Sachit Jolly/Mr.Mrunal Parekh For The Respondent : Shri Ashish K. Heliwal ORDER PER G.S. PANNU,AM: The captioned Stay Application has been preferred by the assessee seeking stay on the recovery of outstanding demand of ₹ 423,88,61,110/- ( inclusive of interest of ₹ 157,58,37,025/- ), which had arisen consequent to an assessment order finalized by the Assessing Officer dated 30/01/2016 under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ( in short the .....

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ustment to the stated value of the international transaction of I.T. enabled services(ITes) rendered by assessee to its associated enterprise; (iii) a disallowance of ₹ 26,05,29,938/- being depreciation claimed by the assessee on goodwill relating to acquisition of Call Centre business, which has been denied; and (iv) disallowance of ₹ 7,61,91,250/- under section 14A of the Act on account of expenditure incurred in earning exempt income. A pertinent point made out by Ld. Representati .....

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the factual matrix of each of the additions. In so far as the first issue relating to the assigning of call options is concerned, the relevant facts are as follows. The applicant before us is a company incorporated under the provisions of the Companies Act,1956 and is a wholly owned subsidiary of Vodafone Tele Services (India) Holdings Ltd., a company incorporated in Mauritius, which, in turn is a wholly owned subsidiary of CGP Investments (Holdings) Ltd., a company incorporated in the Cayman I .....

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arrying on the business of telecommunications in India. In terms of the Framework agreements, the other two groups i.e.Analjit Singh and Assim Ghosh were entitled to put options requiring the assessee or its nominees to buy the shares held by them in Scorpio Beverages Pvt. Ltd, and A.G. Mercantile Company Pvt. Ltd. respectively. 4. During the year under consideration, the case made out by the Assessing Officer is that Vodafone Group Plc s indirect stake holding in VIL has increased by 2.31% ,as .....

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75% of total paid up share holding of Telecom Investments India Pvt. Ltd. As per Assessing Officer, this acquisition resulted in Vodafone Group Plc s indirectly acquiring a further 1.17% stake holding in VIL. At the time of hearing Ld. Representative for the assessee has explained the said transaction with the help of a pictorial ownership chart of the shareholding in VIL. The ownership structure chart reflects the stake held directly or indirectly in VIL by CGP Investment Holding Ltd., Mauritiu .....

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in AG Mercantile Ltd.; and, 2.59% by virtue of holding 49% in Scorpios Beverages Pvt. Ltd., thereby enabling CGP India Investment Ltd., Mauritius to hold 14.45% in VIL, which reflected a net increase in its stake holding in VIL by 1.17%. The second transaction which has been noted by the Assessing Officer is the sale of 1,52,990 shares of A.G Mercantile Pvt. Ltd. to N.D. Callus Info Services Pvt. Ltd. This sale was made by individual shareholders of A.G Mercantile Pvt. Ltd., in terms of an agree .....

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on account of exercising of the call options contained in the two Framework agreements dated 05/02/2007. According to the income tax authorities, the call options held under the Framework agreements have been assigned/transferred by the assessee to its associated enterprise i.e. Vodafone International Holdings BV, a company incorporated in Netherlands ( in short VIHBV), and such a transaction has been considered as an international transaction within the meaning of section 92B of the Act. The v .....

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nt of section 92CA(4) of the Act. As per the Assessing Officer, transfer of right to acquire 2.34% shares of VIL ( as long term capital gain) was a taxable event but the addition was made on a protective basis for the reason that such transaction was already taxed in assessment year 2008-09. So, however, after passing of draft assessment order by the Assessing Officer, against which the assessee had raised objections before the DRP, the Hon ble Bombay High court vide its order dated 8/10/2015 se .....

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the impugned addition both in law and on facts. On facts, it was sought to be pointed out that the two transactions noted by the income tax authorities, namely, sale of shares of Telcom Investments India Limited by ND Callus Info Services to CGP India Investments Ltd. and sale of shares of AG Mercantile Company Pvt. Ltd. by the shareholders of such company to ND Callus Info Pvt. Ltd. were not connected whatsoever with the transfer or assigning of the right of call options held by the assessee i .....

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me could not be treated as an international transaction within the meaning of section 92B of the Act so as to warrant an adjustment under the mechanism of transfer pricing contained in Chapter-X of the Act. It has also been pointed out that in any case the stated call options cannot be construed as property rights so as to give rise to any chargeable capital gains on its transfer/extinguishment/relinquishment. In this context, it has been vehemently pointed out that pending exercise, call option .....

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eme Court in the case of VIH BV v. UOI, 341 ITR 1(SC). On the strength of the said precedents it is argued that even under the amended definition of the terms capital assets and transfer prescribed under sections 2(14) and 2(47) of the Act respectively, the call options are neither capital assets and nor there has been any assignment or transfer of call options so as to trigger the impugned addition. Apart from placing reliance on the decision of the Hon ble Bombay High Court in the case of the .....

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was, therefore, contended that the action of the Transfer Pricing Officer in making protective adjustment and subsequent action of the DRP in converting such protective addition into a substantive addition is illegal and bad in law. The jurisdiction of the DRP to convert a protective addition into substantive addition was also sought to be challenged on the ground that the proceedings before the DRP are only corrective mechanism operating in the course of the process of assessment and is not str .....

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herefore, assessee had a good prima-facie case to succeed before the Tribunal. 7.1 Coming to the next addition relating to the denial of depreciation on goodwill, the Ld. Representative for the assessee explained that pursuant to a business transfer agreement dated 08/11/2008, the appellant company had acquired a running Call Centre business from Vodafone Essar Gujarat Limited ( VEGL ) as a going concern for a slump sale consideration of ₹ 160.54 crores, whereby all the assets and liabilit .....

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tax authorities against which the assessee is in appeal before the Tribunal. 7.2 The Ld. Representative for the assessee pointed out that the claim of the assessee is in line with the ratio of the judgment of the Hon ble Supreme Court in the case of Smifs Securities Ltd., 328 ITR 302(SC) and the same has been incorrectly denied by the lower authorities. In particular, the Ld. Representative for the assessee pointed out that the law laid down by the Hon ble Supreme Court in the case of Smifs Sec .....

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ssee referred to the disallowance made under section 14A of the Act amounting to ₹ 7,61,95,250/-. On this aspect, the Ld. Representative for the assessee pointed out that on facts, there was no dispute to the factual position that the assessee has not earned any exempt income during the year under consideration and, therefore, in such a situation, there cannot be any disallowance envisaged under section 14A of the Act following the ratio of judgment of the Hon ble Delhi High Court in the c .....

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cisions of the Co-ordinate Benches of the Tribunal, some of the comparables taken by the Transfer Pricing Officer are liable to be excluded and the assessee would be in a position to show that its margin in the IT es segment was within + 5% range of the average margin of the comparable concerns. 9.1 In nutshell, on each of the points, the Ld. Representative for the assessee has asserted that assessee has a good prima-facie case to succeed before the Tribunal. Emphasizing that the balance of conv .....

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bay High Court in the case of the assessee for the assessment year 2008-09 and, therefore, in the light of the Instruction No.1914 dated 2/12/1993 issued by CBDT, the corresponding demand is not liable to be recovered. Even otherwise, it is pointed out that the impugned assessment has been made at an income of ₹ 1237,89,76,780/- as against the returned income of ₹ 17,89,86,552/-, which clearly shows that it is a high pitched assessment. 10. On the other hand, the Ld. Departmental Rep .....

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tions are deemed to be exercised, thereby resulting in a transfer within the meaning of section 2(14) r.w.s 2(47) of the Act. In so far as the other issues are concerned, Ld. Departmental Representative has relied upon the stand of the income tax authorities in support of the case of the Revenue. 11. We have considered the rival submissions. At the outset, we may say that the merits of the grounds of appeal raised by the assessee is a matter which is liable to be determined only at the time of f .....

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allowance under section 14A are concerned, prima-facie the assessee has a good case, in as much as the ratio of the Hon ble Supreme Court in the case of Smifs Securities Ltd.(supra) and that of the Hon ble Delhi High Court in the case of Cheminvest Ltd. (supra) respectively support the stand of the assessee. Even in relation to the addition made on account of adjustment to the stated value of the international transaction of Provision of I.T enabled services to the associated enterprise, we find .....

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ive dispute in this year, which relates to an addition of ₹ 1180,29,26,796/- on account of assignment of call options. On this aspect, we have heard the various contentions raised by the assessee in slight detail. The factual matrix on this aspect has already been briefly noted by us in earlier paras, and the same is not being repeated for the sake of brevity. The sum and substance of the charge made against the assessee is that as a consequence of two transactions which we have noted earl .....

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y the Hon ble Bombay High Court in its judgment dated 08/10/2015 by laying down that pending exercise, options are not property rights and, therefore, not capital assets for the purposes of section 2(14) of the Act and the amendment made to the said section by Finance Act, 2012 does not alter the said position. At best, it has been explained that such right of call options, unless exercised, are contractual rights and cannot be said to be capital assets . It has also been sought to be canvassed .....

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ame is held by the other two groups i.e. Analjit Singh and Asim Ghosh through down the line corporate entities. Even if it is taken that the two transactions reported by the Revenue have enabled dilution in shareholding held by Analjit Singh and Asim Ghosh, directly/indirectly in VIL, but the moot point is whether such dilution is a result of an exercise of call options by the assessee which were available vide Framework Agreements of July, 2007 with Analjit Singh and Asim Ghosh. Ostensibly, the .....

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