TMI Blog2023 (10) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... 92A(2) of the Act which has not restricted the application of the provision, based on prior or subsequent transaction. In view of the above, we are of the opinion that it makes no difference whether the condition of 51% of the book value of total assets is not fulfilled prior to advancing the loan or subsequent thereto. In view of the above, this objection of the assessee is also without any basis and accordingly dismissed. TPO had applied the real estate filter for selecting the comparables - From the reading of the TP study of the assessee (executive summary) and also the submissions made by the assessee before the DRP it is clear that the assessee is in the business of developing building and leasing of life sciences and bio- technological parks which in our view is nothing but a real estate activity and, therefore, the authorities below have committed no error in taking the real estate filter as an appropriate filter for selecting the comparables. In view of the above, this issue is also decided against the assessee. Credit Rating Filter and Tenor Filter - The credit rating of the enterprise like the assessee is an important criteria/factor which determines the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s). Similarly, Assetz Premium Holdings Pvt. Limited was paying the interest @ 14%. These two comparables selected by the Assessing Officer were excluded by the DRP on the pretext that the NCDs were subscribed by the related parties. As held hereinabove, Gujarat Road Infrastructure Company Limited cannot be compared with the assessee for the reasons mentioned hereinabove and therefore, there is no comparable available with which the rate of the assessee can be compared as DRP has also not relied upon TP Study of TPO as well as assessee for the reasons in conclusive . In this scenario, we deem it appropriate to take a guidance from the Safe Harbour Rule and Section194 LD and hold that 12.275% interest rate (SBI base rate +300 basis points) would be the appropriate ALP for the purposes of benchmarking the interest paid by the assessee on NCD to M/s. DB International as against 13.13%. Thus, the ground nos. 2 to 8 of the assessee are partly allowed. ALP of international transaction involving payment of debenture issue expenses by the Assessee to Deutsche Bank AG (Mumbai Branch) - HELD THAT:- Admittedly, the assessee has benchmarked the expenses paid to its deemed AE as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has provided that the subsequent events occurring after the balance sheet date can also be factored in while finalizing the audited accounts. Our above said view is fortified in Electra Paper and Board Private Ltd [ 2022 (1) TMI 1316 - ITAT CHANDIGARH] held that it is justifiable to accept the unaudited balance sheet as on the valuation date when the same has been audited at a later date with no material variance in the financials. In the present case, the audit of balance sheet drawn as on 31.08.2016 was completed on 31.03.2018 after taking into account financials as on 31.08.2016. In view of the above, we hold that the balance sheet as drawn on 31.08.2016 being the closest approximation to the balance sheet on valuation date (date of transfer) should be considered under Rule 11U(b)(ii) read with Rule 11UA(1)(c)(b). The finding of DRP recorded in paragraphs 2.7.2 and 2.7.3 are not in accordance with law and, therefore, we set aside the same. The assessing officer is duty-bound to calculate the fair market value of the shares as per the balance sheet drawn on 31.08.2016. Therefore, the addition made in the hands of the assessee based on the balance sheet as on 31 March 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Court has held that the expression 'does not form part of the total income' in section 14A of the Act means that there should be an actual receipt of income which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. In the present case, no exempt income has been earned by the assessee from the investment made by it and therefore, no disallowance can be made by the Assessing Officer. Therefore we are of the considered opinion that the ground raised by the assessee is required to be allowed as there is no exempt income for the year under consideration. Disallowance of TDS Credit - assessee submitted that as per Section 199 TDS deducted on the income assessed in the hands of the assessee should be considered as the taxes paid by the assessee and TDS credit should be allowed to the assessee to offer the corresponding income, when the genuineness of TDS credit was not in dispute - HELD THAT:- On perusal of the draft assessment order, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and on facts by not appreciating the complete facts of the Assessee s international transaction Involving issuance of secured, rated, listed and Rupee denominated Non-convertible debentures (NCDs ) to DB International (Asia) Limited which was, at the time of entering into, an uncontrolled transaction between independent entities. 4. The Ld. AO/Hon'ble DRP erred in law and on facts by alleging that the Assessee has resorted to profit shifting by paying higher rate of Interest on NCDs to DB International (Asia) Limited. 5. The Hon'ble DRP has erred in rejecting the following comparable companies selected by the Assessee: (i) Shree Sukhakarta Developers Pvt Ltd (14%) (ii) Rajesh Estates and Nirman Private Limited (15%) (iii) Total Environment Machine-Craft Private Limited (17%) (iv) Parinee Realty Private Limited (14%) 6. The Ld. AO/Hon'ble DRP erred in law and on facts by not appreciating that credit rating of an issuer of debenture constitute an appropriate filter while benchmarking the arm's length price of interest paid on debenture. 7. The Ld. AO/Hon ble DRP erred in law and on facts in making an upward transfer pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. The Hon'ble DRP has erred on facts in holding that the Assessee has requested to rely on unaudited financials of TTPL as on 31 August, 2016 for computing the FMV of shares of TTPL. The Hon'ble DRP has erred in not appreciating that the Assessee has requested to consider the audited balance sheet as on the valuation date i.e., 30 September, 2016 for computing the FMV of shares of TTPL. 16. The Hon'ble DRP has erred on facts by denying the impairment loss of INR 64,74,02,716/- in computation of FMV of shares of TTPL, on the premise that the impairment pertains to land parcels, whereas the impairment pertains to buildings. 17. The Ld. AO/ Hon'ble DRP has erred in law and on facts in making a disallowance of INR 37,86,302/- u/s 14A of the Act r/w Rule 80 of the IT Rules without appreciating the fact that in the absence of exempt income, disallowance u/s 14A of the Act based on the notional income is not warranted and is unjustifiable under the law: 18. The Hon'ble DRP has erred in confirming the disallowance under section 14A without appreciating that the disallowance has been made without satisfying the pre-conditions under section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961 ( the Act ) 8. The Ld. Assessing Officer/Hon'ble DRP has erred in law and on facts in making a disallowance of INR 37,75,415/- u/s 14A of the Act r/w Rule 8D of the IT Rules without appreciating the fact that in the absence of exempt income, disallowance u/s 14A of the Act based on the notional income is not warranted and is unjustifiable under the law. 9. The Hon'ble DRP has erred in confirming the disallowance under section 14A without appreciating that the disallowance has been made without satisfying the pre-conditions under section 14A(2) of the Act. Grounds relating to Tax Deducted at Source ( TDS ) Credit: 10. The Ld. AO has erred in law and on facts in not granting TDS credit of INR 3,11,17,286/-, without verifying the facts and providing an opportunity of being heard. 11. The Ld. AO has erred in law and on facts while not considering the TDs credit of INR 3,11,17,266/- ignoring the fact that the corresponding income has been offered for tax by the Assessee. 4. The assessee has also raised the following additional ground in both the appeals : Without prejudice to the above grounds, the interest rate on NCDs issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to deemed international transactions, DRP in its order held that since the payment made to the overseas entity is less than the ALP determined, no transfer Pricing adjustment needs to be made in respect of this international transaction. However, the DRP is of the view that provisions of Sec. 56(2)(viia) are applicable in this case and hence, directed the Assessing Officer to apply the provisions of Sec 56(2)(viia). 6.3 Upon DRP directions, the TPO re-determined total adjustment u/s 92CA(3) at Rs. 6,22,79,799/- (interest on NCDs Rs. 2,85,70,424/- plus debenture issue expenses Rs. 3,37,09,375/-). In view of the same, the total income of the tax payer was enhanced by Rs. 6,22,79,799/-. The DRP directed the AO to add an amount of Rs. 89,12,84,761/- to the income of the of the assessee being the difference between the Fair Market Value shares on the consideration paid for acquisition of shares u/s 56(2)(viia) of the Act. Thereafter, the TPO passed a rectification order on 05.01.2022 rectifying the mistake in adopting the number of shares purchased from M/s Takshila Techno Parks and Incubators (India) Pvt Ltd and revising the adjustment towards purchase of shares from the said en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment done by the TPO/DRP are without any merit. It was the contention of the assessee that the assessee had reported the investment made by M/s. DB International (Asia) Limited in form 3CEB. However, mere reporting of international transaction in form 3CEB will not automatically lead to determination of the character of M/s. DB International (Asia) Limited as associated entity of the assessee. It was the contention of the AR that M/s. DB International (Asia) Limited is a foreign bank and is in the business of financing, innovative ventures, providing loans etc., to its clients. The said M/s. DB International (Asia) Limited had made investment in various companies including the assessee in the equity/loan however, the said company being the financial institution cannot be termed as the AE within the meaning of section 92A of the Act. 8.2. It was the contention of the ld.AR that Section 92B of the Act defines international transaction and it refers to the transaction between two or more associated enterprises. The transaction referred to in section 92B of the Act should be between two or more existing associated enterprises. It was submitted that the relevant point to determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies; (iv) Taxpayer did not exclude instruments not classified as NCDs. 9.1. The ld.AR had submitted that when the assessee assailed the order of the TPO before the DRP, the DRP had not concurred with the reasoning of the assessee and given the finding with respect to the TP study in paragraph Nos. 2.11.3 to 2.11.4 and had wrongly concluded that - (i) Appellant is incorrect in applying disputable credit rating filter. (ii) Appellant has not used industrial filter of real estate sector in the benchmarking process. (iii) Tenor of the NCDs of corn parables selected by the Appellant are different. 9.2. It is the contention of the ld.AR that the TPO/DRP, both erred in concluding that the credit rating filter is not the appropriate filter. 9.3. In support of the credit rating filter, the ld.AR submitted that the assessee was having credit rating in the range of BB-(SO). It was submitted that the companies/comparables having different credit rating would be liable to pay different rate of interest to the financial institutions. Therefore, the assessee had prudently applied the credit rating filter of BB-, BB-(SO) to B+, so that the comparables having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of townships, construction of residential/ commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships. Further, earning of rent/ income on lease of the property, not amounting to transfer, will not amount to real estate business. (emphasis supplied) 1.16. It is discernible from above that leasing of the property is not regarded as real estate business by the Government of India. The Appellant had also secured foreign direct investment in from of NCDs. If the Appellant was engaged in the real estate business, the Government / RBI would not have permitted investment by DB International in its NCDs. Thus, it is submitted that the DRP erred in stating that the Appellant should have applied real estate business filter while benchmarking the interest on NCDs. 11. The fourth argument raised by the ld.AR for the assessee was that the authorities below have failed to appreciate that the tenor of the NCD of the selected comparables were different from that of the assessee and were not falling within the same band-width of the tenor of the assessee. Assessee had taken four to six years as tenor for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antifying the spread and benchmarking the interest on loan from AE's: (i) DCIT v JSW Energy Ltd 180 ITD 598 (Mum) (ii) India Debt Management Pvt ltd v DCIT 69 taxmann.com 125 (Mum) [Affirmed by the Bombay High Court in 69 taxmann.com 125] 1.40. In fact, in Tega Industries Ltd v DCIT (2016) TaxCorp (AT.) 53503 (ITAT- KOLKATA) and UFO Movies India Ltd v ACIT (2016) 66 taxmann.com 120 (Delhi - Trib), the transfer pricing officer has argued that credit rating of borrower is to be considered for benchmarking the interest and quantifying the spread. 1.41. Considering the credit rating of the Appellant and other factors such as currency risk, the Appellant submits that a minimum of 300 basis points should be added to the SBI base rate as provided in Rule 10TD(2) to benchmark the interest on NCDs issue to DB International. If so, the rate at which the Appellant has paid interest to DB International [viz., 13.13%] would be at arm's length. It is also submitted that for benchmarking purposes, the rate of interest on NCDs paid to DB International should be considered at 12.50% (and not 13.13%). This is because 0.63% [13.13 minus 12.50] represents grossing up co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minated borrowings [including debentures] should not exceed benchmark rate plus spread of 450 basis points. The Framework states that prevailing yield of the Government of India securities of corresponding maturity should be adopted as the benchmark rate qua INR denominated borrowings (including debentures) [Para 1.5 of the Annex to ECB Framework]. The debentures in the present case was issued for a period of 5 years. The corresponding yield of the Government of India Bond as on the date of finalisation of terms of NCDs [viz., 16 August 2016] was 7.051 [https://in.investinq.com/rates-bonds/india-5-year- bond-vield-historical-datal. The Appellant submits that the benchmark rate of 7.051 plus 450 basis points should be further increased on account of poor credit rating of (BB-) the Appellant. Once the same is factored, the rate of interest on NCDs paid to DB International Ltd [13.13%] would be less than the benchmark rate of 7.051 plus 450 basis points plus additional basis points for poor credit rating of Appellant. Thus, even if ECB Framework is considered as a benchmarking base, the rate of interest paid to DB International on NCDs is at arm's length. The transfer pricing adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was concerning the ALP of interest grid on NCD's which is also the security under consideration in the Appellant's case. In Bennett Coleman Co. Ltd. (as successor to times infotainment media limited) v DCIT (2021) Taxcorp (AT) 91749 (ITAT-Mumbai), the Tribunal noted that the DRP has taken a view that SBI PLR rate is the rate at which persons other than banks can lend/borrow in India. 1.49. The SBI PLR rate during financial years 2016-17 and 2017-18 are as under [https://sbi.co.in/web/interest-rates/interest-rates/benchmark-prime- lending-rate historical-data]: Date PLR 01.01.2017 14% 01.04.2017 13.85% 01.07.2017 13.75% 01.10.2017 13.70% 01.01.2018 13.40% 01.04.2018 13.45% 1.50. The effective rate of interest paid by the Appellant on NCDs issued to DB International is 13.13%. The rate of interest paid by the Appellant is less than the SBI PLR rate preva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix per cent of the voting power in the other enterprise Investment company DB International (Asia) Limited A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one-per cent of the book value of the total assets of the other enterprise. Provides investment banking services Deutsche Bank AG A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise. Provides banking services 16. In our opinion, once the assessee itself declared the international transaction of loan/advances received from M/s. DB International (Asia) Limited by it being more than 51% of the book value of the assets, then the DRP had committed no error in deciding the above said issue against the assessee. The argument of the assessee is that the threshold point for determining the AE would be prior to the point of time when the investment was made. In the present case, the negotiations for NCD were concluded between the Deuts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or (g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or (h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the above, this objection of the assessee is also without any basis and accordingly dismissed. 16.2. The next argument raised by the assessee is that the TPO had applied the real estate filter for selecting the comparables. The case of the assessee is that the assessee is not a real estate company and is into leasing of the assets and, therefore, it was not appropriate for the authorities to apply real estate filter. In this regard, we may like to refer to page No. 121 of the paper book No.1 wherein the assessee had placed before us the objection in form 35A and at Sr. No. C at page No. 121 it is mentioned as under: (c) Assessee is a newly setup company LC Cerestra Core Opportunities Fund Pte Ltd ( LC Core ) is a real estate assets focused private equity firm, based out of Singapore. LC Core expressed its interest in taking over the assets held by Alexandria group in India, which were held for sale. The initial discussions and negotiations of the terms and conditions of the transfer of assets were held between LC Core and Alexandria group. Pursuant to above, LC Core set-up MN Takshila Industries Private Limited MN Takshila ) to act as a SPV for the acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benchmarking the transaction. 16.5. Besides the above, the term of NCD received by the assessee from M/s. DB International (Asia) Limited was only five years whereas the term of GRICL was fourteen years. In this regard, we may fruitfully rely upon the decision of the Hon ble Bombay High Court in the case of PCIT v India Debt Management (P) Ltd ITA No 266 of 2017 (Bombay), wherein it was observed as under : 15. The last leg of the controversy is, whether the benchmarking analysis done by the assessee is correct or not and whether the average rate of interest of 11.30% paid by the assessee to its AE is at ALP or not. So far as the assessee's benchmarking analysis as done in TP Study report based on external data using Thomson Reuters' DealScan, and Bloomberg Database, we find that such an approach is not correct, firstly, there are no INR denominated debt issuance available on such databases and; secondly, in absence of such a data the assessee has to carry out huge adjustments on account of country risk, currency risk and tenor risk. With all these factors of adjustments, it would be difficult to arrive at an appropriate arm's length range of price; therefore, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials on record, we are broadly in agreement with the view of tribunal. The significant features of the assessee's case were that the assessee was mainly engaged in identifying the companies in financial distress whose products were otherwise viable and taking over or financing of such companies. The business of the assessee was thus froth with inherent risks. Its credit rating therefore was relatively low of 'BBB-'. The assessee was raising funds for such investments through issuance of debentures to its AEs. The tribunal even on comparison found that the average rate of interest of 11.30% paid by the assessee to its AEs was not excessive and was in any case lower than in the comparable instances. The tribunal rejected the transfer pricing adjustment comparing the rate of return for the assessee's US based AE. This later conclusion of the Tribunal is supported by following decisions. And also in the case of CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401, had held and observed as under; 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no 'special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to 'eliminate hypothetical' the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pharmaceutical Ltd is 0.60:1. iv. The assessee is not a cash-rich company whereas torrent pharmaceutical Ltd is a cash-rich company. v. The credit rating of the assessee and torrent pharmaceutical Ltd is altogether different as submitted by assessee reproduced as under: Credit Rating given by ICRA Credit Rating given to Torrent Pharmaceuticals Ltd by ICRA during F.Y.2009-10. ICRA has reaffirmed LAA rating to Long Term fund based limits of Rs. 4700 million indicating high credit quality. Further the ICRA has also reaffirmed A1 to Rs. 100 million short term non fund based facilities and Rs. 600 million Commercial paper programme indicating highest credit quality. Please find attached herewith letter showing credit rating given by ICRA to Torrent Pharmaceuticals Ltd vide Annexure 2 Credit Rating given to MICT pvt ltd by ICRA during F.Y. 2009-10. ICRA has assigned LA rating to long Term Borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 2.13.10). It was submitted by the Ld.AR that the above finding is without any basis as the rate of interest paid on NCDs to M/s. DB International should be considered at 12.50%, as 0.63% represent grossing up cost arising on account of TDS. In support of the above said rate, the assessee relied upon the Safe Harbour Rule, Section 194 LD, RBI Circular for external and commercial borrowing and SBI prime lending rate being 14% as on 01.07.2017. 17. We have heard the rival contentions and perused the material available on record. Undoubtedly, strictly speaking, Safe Harbour Rules are only applicable if a person exercises a valid option for application of safe harbour rule in accordance with Rule 10TE. Though, in the present case, the assessee had not opted for Safe Harbour Rule, however, Rule 10TD(5) provides that in case the advancing of intra group loans referred to in item No.IV of Rule 10TC exceeds Rs.50,00,00.000/- (fifty crore), then the interest rate declared in relation to the eligible international transaction is not less than base rate of State Bank of India as on 30th June of the relevant previous year +300 basis points. The assessee, in this regard relied upon the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are essentially in the nature of real estate business and, therefore, the RBI circular dt. 01/01/2016 bearing No. RBI/FED/2015-16/2 is not applicable to the activities of the assessee. 18.2. The assessee has relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of Vena Energy KM Wind Power (P.) Ltd v DCIT 2022] 141 taxmann.com 557 (Bangalore - Trib) wherein it was held that no transfer pricing adjustment is warranted if the interest rate on rupee denominated NCDs is less than the SBI PLR rate after relying upon RBI Master Directions. As mentioned herein above, the above said decision is not appliable to the facts of the case as the assessee happens to be a real estate company and, therefore, the SBI PLR rate as contemplated under RBI circular is not applicable. 18.3 In our opinion, the finding recorded by the DRP that SBI base rate plus a nominal premium of 50 basis points as ALP, is incorrect as no basis of 50 nominal basis wih was given by the DRP. In fact, the comparable selected by the Assessing Officer namely, Mahua Bharatpur Express Ltd., was paying the interest @ 18% (SBI PLR + 400 basis points). Similarly, Assetz Premium Holdings Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity amount shall be payable by the Assessee. Ld. AR further submitted that the negotiations with Deutsche Bank (DB) on the structuring fee were undertaken on a third-party footing as there was no controlling relationship with DB. The most appropriate method for justifying the fees paid is 'Other Method'. As the issue expenses were negotiated with DB on a third-party footing, the Appellant claimed that the transactions were at Arm's length under 'other method'. [page no 50 of paper book 2A. 3. The Ld. TPO in his order stated that the Taxpayer has not shown any comparable transaction. There was no analysis as to whether the payment is commensurate with the benefit received by Appellant. The most appropriate method for is Other method. Under the Other method considering that (a) Basis of fees is not determined; (b) The payment is not commensurate with benefit, fees of 0.5% was considered appropriate. [Pg no 11 of TPO order]. Adjustment of INR 3,37,09,375 was made on this account. Feeling aggrieved by the order passed by the assessing Officer the assessee preferred the proceedings before the DRP. The DRP has confirmed the order passed by the assessing Ofc and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice of the TPO, no such comparable instances of debenture issue expenses / bank charges were furnished by the assessee. In view of the above, we uphold the determination of ALP by the TPO at 0.5% as against 2.5% paid by the assessee. 21. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the assessee has benchmarked the expenses paid to its deemed AE as international transaction and therefore, had mentioned in its TP Study. The assessee has paid the interest @ 2.5% to Deutsche Bank, AG, Mumbai Branch for facilitating the issuance of NCD to DB International (Asia) Limited. The TPO / DRP both have determined the ALP at 0.5% as against 2.5% on the pretext that the assessee being AE of Deutsche Bank, Mumbai and further, the assessee has not provided any comparable instance of debenture issue for the purposes of benchmarking the expenses / bank charges. In our view, the assessee had claimed 2.5% on actual basis whereas the DRP has restricted it to 0.5% on estimate basis. In our view, both the views cannot be approved by us as no person can earn the profit from himself . This principle applies to the fact to the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the DRP. The DRP vide its impugned directions, decided the issue against the assessee. The primary findings of the DRP are given in paragraph No. 2.1.7, wherein the DRP held that the transaction of acquisition of shares by the assessee through its AE (LC fund) was a transaction which falls within the purview of section 92B(2) of the Act. Further, the DRP in paragraph 2.6.3 have noted down that no TP additions as proposed by the Assessing Officer are required as the payment made to the overseas entities (Rs. 157,42,69,222/-) was less than the ALP determined (Rs. 211,29,36,353/-). However, the DRP in paragraph 2.6.4 had directed the Assessing Officer to apply the provisions of section 56(viia) of the Act as the assessee has received the shares for a consideration which was less than aggregate fair market value of the assets. 24. On the basis of the directions issued by the DRP, the Assessing Officer passed the order giving effect and made the addition of Rs. 57,92,15,385/- u/s. 56(2)(viia) of the Act. Feeling aggrieved by the order passed by the lower authorities, the assessee is in appeal as per the grounds 11 to 16 reproduced herein above. At the time of argument, the ld.AR h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet as drawn on 30/09/2016 should be considered for determining the fair market value of the shares. Further it was submitted that the assessee had already determined the fair market value on the basis of the balance sheet as on 30/09/2016 and offered the difference in price and offered Rs. 26,96,57,437/- u/s. 56(2)(viia) in the revised return of income. 29. The ld.AR for the assessee further raised the contention that the finding of the DRP that impairment loss as recorded in the books of accounts of TTPL cannot be considered, was not in accordance with law as the DRP had wrongly noted that impairment loss was done with respect to land parcel (para 2.8.3). It was submitted that the DRP had further pointed out that the assessee has not furnished the guideline value in respect of the land nor given details of instances of sale transactions in the vicinity to demonstrate the fall in price . Ld.AR had drawn our attention to page 897 of the paper book wherein the impairment loss has been referred to the building. The table depicting/mentioning the impairment loss, provides as under: 30. It was submitted that the DRP had committed an error in understanding that the impairm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing effect: 2.7.1 In respect of the assessee's contention that balance sheet as on 31 st august 2016 should be taken, we are inclined to dismiss the argument in view of the following facts. 1) The financials of august attached to SPA is unaudited 2) Even if one were to take the net worth as on 31 August 2016, it is seen that, barring the impairment(64.7crores) there is no significant difference between net worth as on 31 Aug2016 (Rs 150 crores) and net worth as on March 2016 (216 crores) 2.7.2 We therefore hold that the request of the assessee for the adoption of the unaudited balance sheet as on August 31, 2016 as the basis for valuation is not acceptable 2.7.3 We therefore, direct the AO add an amount of Rs. 89,12,84,761 to the income of the assessee being the difference between the fair market value of the shares and the consideration paid for acquisition of the shares under section 56(2)(viia).The AO should give credit for the amounts already returned by the assessee in respect of this transaction u/s 56(2) (viia) after verifying whether the revised return was filed within the time prescribed by the Act or not. 2.8.1 Having considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,74,02,716/-. At Note 27 of the financials of TTPIIPL at page 897 it was mentioned as under: During the year, the Company s former ultimate holding company, Alexandria Real Estate Equities Inc. took a decision to permanently exit the Indian market, and to sell or otherwise dispose of all its interests in India. During the course of implementation of such decision, the erstwhile management of the Company earned out an impairment lest of the assets and it was assessed that then carrying values of cash generating unit, buildings as per books are higher than the recoverable amounts, i.e., the net selling prices. The net selling prices are determined by reference to the estimated releasable values obtainable in an active market. As a matter of measurement, the Company has written down the carrying values of buildings to their estimated recoverable amounts and recorded a impairment loss of Rs. 64,74,02,716/- during the quarter ended September 30, 2016. 33.3 At page 46 and 47 of the paper book (financials of Alexandria Group) the said company has mentioned about the impairment of the asset classified as held for sale the narration was given by the said Alexandria Group at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real estate investments located in Asia and, as a result, we recognized additional impairment charges of $7.3 million and $3.9 million, respectively. As of December 31, 2016, we had two operating properties aggregating 634,328 RSF remaining in China, which continued to meet the classification as held for sale, and no remaining investments in real estate in India. We expect to complete the transactions of our remaining real estate investments in Asia over the next several quarters. The following table summarized the 2016 disposition activity and remaining assets held for sale as of December 31, 2016, in Asia (dollars in thousands): Rental Properties Land Parcels Number RSF Number Acres Sales Price Completed dispositions during 2016 6 566,355 6 196 $ 66,131 Remaining assets held for sale in China 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share was determined at Rs. 169.32. The calculation is given at page 907. In the said calculation, the book value of the assets in the balance sheet was taken as Rs. 169,83,06,012/-. The said book value had factored in the impairment loss at Rs. 64,74,02,716/- . 33.6 In the present case, the property has been received by the assessee as on 4 th October, 2016 when the shares were actually transferred to the appellant. Thus, the valuation date which is required to be considered is 4 th October, 2016. For the purposes of determining the fair market value, the balance sheet as drawn on the valuation date which has been audited by the auditors of the company after being appointed u/s. 224 of the Companies Act is required to be considered. AO/DRP have made addition under section 56(2)(viia) of Rs 57,92,15,385 by determining the fair market value (FMT of Takshila Tech Parks Incubators (India) Private Limited (TTPL') shares under Rule 11UA(1)(c)(b) by adopting the balance sheet as on 31.03.2016 as against the balance sheet as on 30.09.2016. Explanation to section 56(2)(viia) provides the manner of computing the FMV of shares for the purposes of section 56(2)(viia), which is men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved and adopted in the annual general meeting of the shareholders of the company; and ii in any other case, (A) in relation to an Indian company, the balance sheet of such company (including the notes annexed thereto and forming art of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and (B) in relation to a company, not being an Indian company, the balance sheet of the company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company, if any, appointed under the laws in force of the country in which the company is registered or incorporated;]] j) valuation date means the date on which the property or consideration, as the case may be, is received by the assessee.] 33.8. As per clause (ii) of Rule 11U [extracted above], the 'balance sheet' including the notes annexed thereto sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of Balance sheet as on the valuation date. There is no further stipulation that the audit of balance sheet should also be completed before the transaction date. The audit normally happens subsequently after the receipt of the shares. The audited balance sheet would be available for filing the return of income and offering the income under section 56(2)(viia) of the Act to tax. For the purposes of determining the fair market value, the guiding principle has been provided by the Act for the benefit of the assessing authority i.e., to adopt the valuation as per the balance sheet drawn on the date of transfer subject to it being audited. This should be the basis of making the valuation by the assessing officer for making the addition under section 56(2)(viia) of the Act. Further the law does not expect the assessee to perform the impossible act. It is unimaginable that the assessee will get its accounts audited on the date of drawing up of the balance sheet itself. The accounting standard provides that the accounts of the assessee are required to be audited after the finalization of balance sheet and even it has provided that the subsequent events occurring after the balance sheet d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the land, which is contrary to the realities in India. In our view, the above said finding of fact has been wrongly recorded as the assessee has never claimed the impairment of land whereas the assessee has only claimed the impairment of the building. At Page 897 of the Paper Book, a tabulation is provided which categorically mentioned impairment of the building and not the land. At Sl.No.2, it is mentioned against building under the depreciation and net block as under : Depreciation Net block September 30, 2016 April 1, 2016 For the period On disposals Impairment for the period September 30, 2016 Land -- Building 167,707,807 29,421,373 -- 647,402,716 844,531,896 923,725,495 37. Therefore, the finding of the DRP that there is impairment of land is without any basis and contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n enterprise should reverse an impairment loss and it prescribes certain disclosures for impaired assets. Scope 1. This Standard should be applied in accounting for the impairment of all assets, other than: (a) inventories (see AS 2, Valuation of Inventories); (b) assets arising from construction contracts (see AS 7, Construction Contracts); (c) financial assets1, including investments that are included in the scope of AS 13, Accounting for Investments; and (d) deferred tax assets (see AS 22, Accounting for Taxes on Income). 2. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets or investments because existing Accounting Standards applicable to these assets already contain specific requirements for recognizing and measuring the impairment related to these assets. 3. This Standard applies to assets that are carried at cost. It also applies to assets that are carried at revalued amounts in accordance with other applicable Accounting Standards. However, identifying whether a revalued asset may be impaired depends on the basis used to determine the fair value of the asset: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, we find force in the submissions of the assessee and accordingly, the findings of the DRP is required to be set aside and the addition made in the hands of the assessee is required to be deleted. 40.2 There is yet another reason for the assessee to consider the impairment of assets in the balance-sheet as on 30.09.2016 (Page 889 of the paper book). As per the scope of Standard of Accounting 560, it is the auditor s responsibility to take into account the events occurring after balance-sheet date. The scope and objective of Standard of Accounting 560 provides as under : 1. This Standard on Auditing (SA) deals with the auditor's responsibilities relating to subsequent events in an audit of financial statements. It does not deal with matters relating to the auditor's responsibilities for other information obtained after the date of the auditor's report, which are addressed in SA 720(Revised).1 However, such other information may bring to light a subsequent event that is within the scope of this SA. (Ref: Para. A1) 4. The objectives of the auditor are to: (a) Obtain sufficient appropriate audit evidence about whether events occurring between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fair Market Value cannot be faulted with. 40.5 There is yet another reason to allow the grounds raised by the assessee. As on December 12, 2017, the Hon ble National Company Law Tribunal, Hyderabad Bench, sanctioned a scheme of demerger between Takshila Tech Parks and Incubators (India) Private Limited (Demerged Company) and MN Takshshila Industries Private Limited ( Resulting Company ). Pursuant to the scheme, all assets and liabilities pertaining to the demerged business of the Demerged company have been transferred and vested with Resultant company with retrospective effect from October 1 2016. The consideration for the demerger to the equity shareholders of the demerged company has been discharged by issuance of equity shares of the Resulting Company. Further, pursuant to the provisions of the scheme, the value of investment in the demerged company in the books of the resulting company is to be suitably adjusted considering the net assets transferred pursuant to demerger. In the said scheme of merger, the valuation of the assets were also considered and no objections were raised as to the valuation of the fixed assets acquired by the assessee. The scheme of amalgamation was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to section 14A is retrospective in Victory Electricals Ltd v. DCIT [in /TA No.738/Hyd/2017] and DCIT v. Mandava Holdings (P) Ltd [in /TA No.2089/Hyd/2017]. The Jurisdictional Tribunal had rendered these decisions prior to the decision of the Delhi High Court in ERA Infrastructure (Supra). Subsequent to the decision of the ERA Infrastructure (supra}, the Jurisdictional Tribunal followed its earlier decisions in Walden Properties (P) Ltd v. DCIT /TA No. 643 644/Hyd/2017. However, the decision of the Delhi High Court in ERA Infrastructure was not citied before the tribunal in this case. Subsequently, the Gauhati Tribunal in ABC/ Infrastructure Private Limited v. ACIT /TA No. 43/GTY/2022, ITA No. 2 I GTY/2023, ITA Nos. 37, 38 39/GTY/2022 followed the decision in ERA Infrastructure (supra) and took a view that the explanation to section 14A is not retrospective and hence no disallowance under section 14A should be made in years prior to AY 2022-23 if no exempt income has been earned. 4.11. The jurisdictional ITAT decisions had been rendered in the light of the Gauhati ITAT's decision holding that the explanation to section 14A is retrospective. With the renderi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd, reported in [2022] 144 taxmann.com 80 (Delhi) had held as under : 8. In the opinion of this Court, the present case is covered by the Division Bench judgment in Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi), wherein this Court has held that the expression 'does not form part of the total income' in section 14A of the Act means that there should be an actual receipt of income which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 9. Furthermore, this Court in Pr. CIT v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384 (Delhi) has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act. The relevant portion of the said judgment is reproduced hereinbelow: 8. Consequently, this Court is of the view that the amendment of Section 14A, which is for removal of doubts cannot be presumed to be retrospective even where such langu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining to section 14A of the Act is allowed in favour of the assessee. The Assessing Officer is rejected to delete the addition of Rs.37,86,302/-. 45. In the result, the appeal of the assessee in ITA No.340/Hyd/2022 for A.Y. 2018-18 is partly allowed. ITA 456/Hyd/2022 46. As far as the other appeal i.e. ITA 456/Hyd/2022 is concerned, it is the submission of both the parties that the facts in both the appeal are identical. We, therefore, for the reasons stated hereinabove while deciding the appeal in ITA 340/Hyd/2022 and for similar reasons, ground nos.1 to 7 i.e., T.P. Grounds are partly allowed in favour of the assessee, similarly, ground nos.8 and 9 relating to addition u/s 14A of the Act, is allowed in favour of the assessee. 47. Now we will come to the other grounds i.e., 10 and 11 relating to TDS Credit, which were raised by the assessee in ITA 456/Hyd/2022 for A.Y.2018-19 only. 48. With respect to the disallowance of TDS Credit, the assessee submitted that as per Section 199 of the Act, TDS deducted on the income assessed in the hands of the assessee should be considered as the taxes paid by the assessee. The ld. AR for the assessee also emphasized that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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