DCIT 10(1), MUMBAI v. LEIGHTON WELSPUN CONTRACTORS P.LTD, MUMBAI

ITA 2194/MUM/2014 | 2009-2010
Pronouncement Date: 28-04-2015 | Result: Allowed

Appeal Details

RSA Number 219419914 RSA 2014
Assessee PAN AAACL3338D
Bench Mumbai
Appeal Number ITA 2194/MUM/2014
Duration Of Justice 1 year(s) 27 day(s)
Appellant DCIT 10(1), MUMBAI
Respondent LEIGHTON WELSPUN CONTRACTORS P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2015
Appeal Filed By Department
Order Result Allowed
Bench Allotted K
Tribunal Order Date 28-04-2015
Date Of Final Hearing 06-01-2015
Next Hearing Date 06-01-2015
Assessment Year 2009-2010
Appeal Filed On 01-04-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL ' K ' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NO. 1199 /MUM/2014 (ASSESSMENT YEAR: 2009 - 10 ) M/S. LEIGHTON INDIA CONTRACTORS VS. ADDL. CI T RANGE - 10(1) PVT. LTD . (FORMERLY LEIGHTON WELSPUN CONTRATORS PVT. LTD.) 7/F TOWER 3 EQUINOX BUSINESS PARK OFF BANDRA KURLA COMPLEX LBS MARG KURLA (WEST) MUMBAI 4000 70 MUMBAI PAN AAACL3338D APPELLANT RESPONDENT ITA NO. 2194/MUM/2014 (ASSESSMENT YEAR: 2009 - 10 ) D C I T 10(1) VS. M/S. LEIGHTON INDIA CONTRACTORS ROOM NO. 445 4 TH FLOOR M.K. ROAD AYAKAR BHAVAN MUMBAI 400020 PVT. LTD . (FORMERLY LEIGHTON WELSPUN CONTRATORS PVT. LTD.) 7/F TOWER 3 EQUINOX BUSINESS PARK OFF BANDRA KURLA COMPLEX LBS MARG KURLA (WEST) MUMBAI PAN AAACL3338D APPELLANT RESPONDENT APPELLANT BY: SHRI P.J. PARDIWALA & SHRI NISHANT THAKKAR RESPONDENT BY: SHRI N.K. CHAND DATE OF HEARING: 30.03.2015 DATE OF PRONOUNCEMENT: 28 .04.2015 O R D E R PER D. MANMOHAN V.P. THESE CROSS APPEALS BY THE ASSESSEE - COMPANY AND REVENUE ARE DIRECTED AGAINST THE ORDER PASSED BY THE DRP - I II MUMBAI AND IT PERTAINS TO A.Y. 2009 - 10. 2. IN THE APPEAL FILED BY THE ASSESSEE THERE ARE IN ALL 22 GROUNDS. AT THE TIME OF HEARING THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND ITA NO. 1119 /MUM/2014 M/S. LEIGHTON INDIA CONTRACTORS PVT. LTD. 2 NO. 1 IS GENERAL IN NATURE. GROUND NO. 17 IS NOT PRESSED AND GROUND NO. 22 IS ALSO NOT CONNECTED ON MERITS SINCE THE ISSUE EMERGES WHEN THE PROCEEDINGS UNDER SECTION 271(1)(C) ARE INDEPENDENTLY INITIATED. SIMIL ARLY GROUND NO. 21 IS CONSEQUENTIAL IN NATURE. THEREFORE THESE GROUNDS ARE REJECTED. 3. VIDE GROUND NOS. 2 TO 16 ASSESSEE CONTENDS THAT THE ADJUSTMENT MADE BY THE DRP/TPO/AO ON ACCOUNT OF DIFFERENCE BETWEEN ARMS LENGTH PRICE AND THE PRICE AT WHICH EQUITY S HARES WERE ISSUED BY THE ASSESSEE IS NOT IN ACCORDANCE WITH LAW. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THERE IS NO INCOME CHARGEABLE TO TAX AND THE ISSUE OF SHARES CANNOT BE TREATED AS AN INTERNATIONAL TRANSACTION. VALUATION OF SHARES WAS ALSO CHALLE NGED AND IT WAS ALSO CONTENDED THAT THE TAX AUTHORITIES HAVE ERRED IN NOT FOLLOWING THE DIRECTIONS ISSUED BY THE DRP IN THE FINAL ASSESSMENT. AS COULD BE NOTICED FROM DPRS OR DER ASSESSEE IN ITS FORM NO. 3 CEB DISCLOSED THAT M/S. LEIGHTON INTERNATOINAL LTD . HAD SUBSCRIBED TO 64.72 CRORES SHARES AND APPLIED FOR 61.51 CRORES EQUITY SHARES OF ` 10/ - AT PAR VALUE DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO MENTIONED THEREIN THAT THE TRANSACTION WAS NOT AN INTERNA TIONAL TRANSACTION AND HENCE TP RULES ARE NOT APPLICABLE TO ISSUE OF SHARES AND SUBMITTED A VALUATION REPORT UNDER CCI GUIDELINES. THE TPO HAS VALUED THE SHARES BASED ON PE CV METHOD. THE AO HAS VALUED THE EQUITY SHARES AS ON 31.03.2008 AND THE VALUE OF THE SAHRES ALLOTED TO THE AE WAS ARRIVED AT ` 886.28 CRORES WHEREAS THE ACTUAL CONSIDERATOIN PAID WAS ` 64.72 CRORES; THE TPO ARRIVED AT THE AMOUNT OF ` 821 56 99 901/ - AS ADJUSTMENT REQUIRED TO BE MADE TO ARRIVE AT THE ALP OF THE INTERNATIO NAL TRANSACTION RELAT ING TO THE ISSUE OF EQUITY SHARES TO THE A E. 4. THE TPO HAD ALSO DEALT WITH THE OTHER ISSUE S RAISE D BY THE ASSESSEE I.E. REGARDING APPLICBAILITY OF SECTION 92(1) 92B AND 92C OF THE ACT. IN HIS OPINION THE AMOUNT RECEIVABLE ARISES OUT OF THE INTERNATIONAL TRANSACTION OF ISSUE OF SHARES BY THE ASSES SEE TO ITS AE AND ONCE THE AMOUNT RECEIVABLE IS HELD TO BE A SEPARATE INTERNATIONAL TRANSACTION THE SAME HAS TO BE BENCH - MARKED SEPARATELY AND THEREFORE THE CONTENTIN OF THE ASSESSEE REGARDING NON - APPLICABI LITY OF PROVIONS OF CHAPTER - X W ERE REJECTED. ITA NO. 1119 /MUM/2014 M/S. LEIGHTON INDIA CONTRACTORS PVT. LTD. 3 5. THE HON'BLE DRP HAS CONSIDERED THE ISSUE IN GREAT DETAIL AND OBSERVED THAT IT WOULD AMOUNT TO INTERNATIONAL TRANSACTION AND ARMS LENGTH PRICE ADJUSTMENT REQUIRED TO BE MADE. ACCORDINGLY ADJUSTMENTS UNDER SECTION 92C(1) WAS WORKED OUT BY THE AO. 6. AGGRIEVED ASSESSEE - COMPANY IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE ISSUE STANDS SQUARELY COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. VS. UNION OF IN DIA (WP NO. 871 OF 2014 DATED 10 TH OCTOBER 2014). HE ADVERTED OUR ATTENTION TO THE ORDER PASSED BY THE HON'BLE HIGH COURT TO SUBMIT THAT IN THE AFOREMENTIONED CASE VODAFONE INDIA SERVICES PVT. LTD. ISSUED 289224 EQUITY SHARES OF THE FACE VALUE OF ` 10 EACH ON A PREMIUM OF ` 8 509/ - PER SHARE TO ITS HOLDING COMPANY AND THUS RECEIVED A TOTAL CONSIDERATION OF ` 246.38 CRORES WHEREAS ACCORDING TO THE AO/TPO THE FAIR MARKET VALUE OF THE EQUITY SHARES WAS MUCH HIGHER. ASSESSEE DETERMINED THE FAIR MARKET VALU E IN ACCORDANCE WITH THE METHODOLOGY PRESCRIBED BY THE GOVERNMENT OF INDIA UNDER THE CAPITAL ISSUES (CONTROL) ACT 1947 WHEREAS ACCORDING TO THE AO/TPO THE VALUE OF EACH EQUITY SHARE OUGHT TO HAVE BEEN DETERMINED AT ` 53 775/ - PER SHARE AND ON THAT BASIS TH E SHORTFALL IN PREMIUM WAS DETERMINED AT ` 45 256/ - PER SHARE AND DETERMINED THE INCOME THAT WAS TO BE RECEIVED AT ` 1308.91 CRORES. FURTHER THE SUM WAS TREATED AS DEEMED LOAN GIVEN BY THE ASSESSEE TO ITS HOLDING COMPANY AND PERIODICAL INTEREST WAS SOUGHT TO BE CHARGED. THE HON'BLE BOMBAY HIGH COURT CONSIDERED THE ISSUE AT GREAT LENGTH AND OBSERVED THAT TAX IS CHARGED ON THE RESIDENT ONLY IN RESPECT OF PROFITS EARNED AND NOT IN RESPECT OF PROFITS WHICH HE WOULD HAVE NORMALLY MADE BUT NOT MADE BECAUSE OF A BUS INESS ASSOCIATION WITH A NON - RESIDENT. IT WAS FURTHER OBSERVED THAT TAX CAN BE CHARGED ONLY ON INCOME AND IN THE ABSENCE OF ANY INCOME ARISING THE ISSUE OF APPLYING THE MEASURE OF ALP TO TRANSACTIONAL VALUE /CONSIDERATION ITSELF DOES NOT ARISE AND ALSO CLA RIFIED THAT THE REVENUE SEEMS TO BE CONFUSING THE MEASURE TO A CHARGE AND CALLING THE MEASURE A NOTIONAL INCOME; IN THE ABSENCE OF ANY CHARGE IN THE ACT THE ISSUE OF SHARES AT A PREMIUM CANNOT BE WORKED OUT. THE COURT ALSO TOOK NOTICE OF THE DEFINITION OF INCOME UNDER SECTION 2(24)(XVI) OF THE ACT AND SECTION 56(2)(VII - ITA NO. 1119 /MUM/2014 M/S. LEIGHTON INDIA CONTRACTORS PVT. LTD. 4 B) OF THE ACT TO INDICATE THAT THE INTENTION OF THE PARLIAMENT WAS TO TAX ISSUE OF SHARES TO A RESIDENT WHEN THE ISSUE PRICE IS ABOVE ITS FAIR MARKET VALUE AND NOT WHEN IT IS BELOW THE FAIR M ARKET VALUE; PARLIAMENT HAS CONSCIOUSLY NOT BROUGHT TO TAX THE AMOUNTS RECEIVED FROM A NON - RESIDENT FOR ISSUE OF SHARES AS IT WOULD DISCOURAGE CAPITAL INFLOW FROM ABROAD. IN THE ABSENCE OF A CHARGING SECTION IN CHAPTER X OF THE ACT IT IS NOT POSSIBLE TO READ A CHARGING PROVISION INTO CHAPTER X OF THE ACT. IT THUS CONCLUDED THAT IN THE ABSENCE OF CHARGING PROVISION TO TAX ISSUE OF SHARES AT PREMIUM TO A NON - RESIDENT THE OCCASION TO INVOKE COMPUTATION PROVISION DOES NOT ARISE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON ANOTHER DECISION OF THE HON'BLE BOMBAY HIGH COURT (M/S. SHELL INDIA MARKETS PVT. LTD. WP NO. 1205 OF 2013) WHEREIN THE VIEW TAKEN IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. WAS REITERATED AND ALSO OBSERVED THAT THE AO COULD NOT HAVE BROUGHT TO TAX THE DEEMED INTEREST ON THE GROUND OF NON RECEIPT OF THE CONSIDERATION EQUIVALENT TO THE ALP ON ISSUE OF EQUITY SHARES BY THE ASSESSEE. HE HAS ALSO REFERRED TO THE VIEW TAKEN BY THE BOARD WHEREIN IT WAS CLARIFIED THAT THE UNION CABI NET CHAIRED BY THE PRIME MINISTER SHRI NARENDRA MODI HAVING DECIDED TO ACCEPT THE ORDER OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT. LTD. THE DEPARTMENT HAS DECIDED TO ACCEPT THE VIEW TAKEN BY THE HON'BLE BOMBAY HIGH COURT . IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT WHICH WAS ACCEPTED BY THE REVENUE THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE INSTANT CASE ALSO THE ADJUSTMENT MADE BY THE AO ON ACCOUNT OF ARMS LENGTH PRICE OF SHARES ISSUED AND ARMS LENGTH PRICE OF DEEMED LOAN TO THE HOLDING COMPANY HAS NO LEGS TO STAND. HE FURTHER SUBMITTED THAT THERE ARE ALTERNATIVE GROUNDS RAISED IN THE GROUNDS OF APPEAL WHICH NEED NOT BE ELABORATED SINCE THE MAIN ISSUE STA NDS SQUARELY COVERED BY THE AFORECITED JUDGEMENTS. 7. THE LEARNED D.R. ADMITTED THAT THE ISSUE STANDS S Q U A RELY COVERED BY THE AFORECITED DECISIONS. HE HOWEVER RELIED UPON THE REASONS GIVEN IN THE ORDER PASSED BY DRP/TPO/AO. 8. IT IS NOT IN DISPUTE THAT THE FAC TS AND CIRCUMSTANCES ARE IDENTICAL TO THE FACTS OF THE AFORECITED DECISIONS. HAVING REGARD TO THE CIRCUMSTANCES OF ITA NO. 1119 /MUM/2014 M/S. LEIGHTON INDIA CONTRACTORS PVT. LTD. 5 THE CASE AND IN THE LIGHT OF THE BINDING DECISIONS OF THE HON'BLE BOMBAY HIGH COURT WE HOLD THAT THE AO ERRED IN MAKING THE IMPUGNED ADDITION REFERABLE TO THE PRICE OF SHARES AND OF THE INTEREST ON DEEMED LOAN TO THE HOLDING COMPANY. WE DIRECT THE AO ACCORDINGLY. 9. VIDE GROUND NOS. 18 TO 20 ASSESSEE - COMPANY SUBMITS THAT THE DRP ERRED IN DIRECTING THAT UNREALIS ED GAINS OF ` 25.58 CRORES ON ACCOUNT OF STRUCTURED DERIVATIVE CONTRACT BEING MARK TO MARKET TRANSACTION IS TAXABLE. ACCORDING TO THE ASSESSEE THE UNREALIS ED GAIN CAN NEVER BE TREATED AS INCOME SINCE IT IS CONTINGENT IN NATURE. 10. REVENUE HAS ALSO PREFERRED AN APPEAL ON THE GROUND THAT THE DRP ERRED IN DELETING THE ADDITIONS MADE BY THE AO OF ` 17 92 92 437/ - BEING REVERSAL OF DERIVATIVE LOSS ON CAPITAL ACCOUNT WITHOUT APPRECIATING THE FACT THAT THE DERIVATIVE LOSS IS SPECULATION LOSS WHICH CAN BE SET OFF AGAINST SPECULATION INCOME. IT WAS FURTH ER CONTENDED THAT THE DRP ERRED IN DELETING THE INTEREST IMPUTED ON THE BENEFIT RECEIVED BY THE AE ON RECEIVABLE/LOANS. 11. FACTS IN BRIEF ARE THAT THE ASSESSEE HAD TAKEN LOAN IN EARLIER YEARS . IT HAD ENTERED INTO TWO STRUCTURED DERIVATIVE CONTRACTS TO HEDGE ITS FOREIGN CURRENCY RISK ASSOCIATED WITH THE REPAYMENT OF LOAN TAKEN FROM BANKS FOR PURCHASE OF CAPITAL EQUIPMENTS. SINCE THE FOREIGN CURRENCY LOAN WAS TAKEN FOR CAPITAL PURPOSES AND NOT FOR WORKING/CIRCULATING CAPITAL ANY LOSS ARISING ON ACCOUNT OF FORE IGN CURRENCY FLUCTUATION WOULD ALSO BE REGARDED AS CAPITAL IN NATURE AND WOULD NOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PREVIOUS YEAR THERE WAS LOSS BUT THE SAME WAS NOT CLAI MED AS DEDUCTION. HOWEVER IN THIS YEAR THERE WAS APPRECIATION OF RUPEE BUT THAT WAS ALSO NOT CLAIMED IN THIS YEAR. HOWEVER THE ASSESSEE HAS FOLLOWED A CONSISTENT METHOD. IT WAS ALSO CONTENDED THAT REVERSAL OF PROVISION CREATED IN EARLIER YEARS WOULD NOT BY ITSELF GENERATE TAXABLE INCOME UNTIL AND UNLESS THE COMPANY HAS CLAIMED DEDUCTION IN RESPECT OF PROVISION CREATED IN PREVIOUS YEAR. IT WAS ALSO STATED THAT THE OBSERVATION OF THE AO THAT THE LOSS WAS DISALLOWED IN A.Y. 2008 - 09 SINCE IT WAS SPECULATIVE IN NATURE WAS ERRONEOUS; ASSESSEE - COMPANY IS NOT A DEALER IN FOREIGN CURRENCY AND HAS ITA NO. 1119 /MUM/2014 M/S. LEIGHTON INDIA CONTRACTORS PVT. LTD. 6 TAKEN DERIVATIVES CONTRACT IN THE ORDINARY COURSE OF ITS BUSINESS. BASED ON THE CONTENTION OF THE ASSESSEE THE AO WAS DIRECTED NOT TO TAKE THE AMOUNT IN QUESTION ON BEIN G WRITTEN BACK AND CREDITED IN THE PROFIT & LOSS ACCOUNT. 12. THE CASE OF THE LEARNED COUNSEL WAS THAT IT HAD NOT ACCOUNTED FOR IN THIS YEAR AND THE TAX AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE FACTS IN PARTICULAR THE ADDITIONAL EVIDENCE FURNISHED BEFORE THE AO SINCE FOUR DAYS TIME WAS GIVEN BY THE AO. BOTH THE LEARNED D.R. AS WELL AS THE LEARNED COUNSEL AGREED THAT THE ISSUE CAN BE REMITTED TO THE FILE OF THE AO FOR RECONSIDERATION. 13. HAVING REGARD TO THE ARGUMENTS PUT FORTH BY BOTH THE PARTIES WE HEREBY SET ASIDE THE MATTER TO THE FILE OF THE AO FOR RECONSIDERATION AFRESH. THIS DISPOSES OF THE ONLY GROUND URGED BY THE REVENUE AND GROUND NOS. 18 TO 20 IN THE APPEAL OF THE ASSESSEE. 14. IN THE RESULT APPEAL FILED BY REVENUE IS TREATED AS ALLOWED FOR STATISTI CAL PURPOSES WHEREAS THE ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL 2015. SD/ - SD/ - ( R.C. SHARMA ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI DATED: 28 TH APRIL 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) DRP - 1 MUMBAI 4. THE CIT 5 MUMBAI CITY 5. THE DR K BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P .