TATA SONS PVT. LTD,MUMBAI vs. CIT (A)-58, MUMBAI

(A.Y.2012-13) ITA NO.1349/MUM/2019(A.Y.2012-13) hybrid method of valuation of shares which is not permissible. The Transfer Pricing provisions do not distinguish between inbound and outbound investments. The method which provides most reliable estimate/value should be adopted. In the present case DCF is the most reliable method for valuation of shares. The TPO has adopted the same for valuation of shares. Referring to the findings of TPO in para 9.7 and 9.8 of the TPO order he submitted that there are fundamental errors in valuation report, therefore, the valuation report has been has been rightly rejected by the TPO/CIT(A).

(A.Y.2012-13) ITA NO.1349/MUM/2019(A.Y.2012-13) informed to us by the Management) Value per ordinary share (GBP/share) 2.56 The case of the assessee is that the valuation of unlisted shares of the overseas company is in accordance with RBI Master Circular No.11/2011-12 dated 01/07/2011, hence, should be accepted. The TPO rejected assessee’s method of valuation inter-alia questioning hybrid method adopted by the Valuer instead of pure DCF method as prescribed under Income Tax Rules and raising objections to selection of comparable companies under CCM method. The TPO held that value of shares should have been determined in accordance with DCF method. The TPO accordingly applied DCF method for the valuation of share and made adjustment of Rs.35,00,07,909/-.

Valuer. Generally, such valuation and the transaction based thereon are not to be disregarded, unless the valuation is based on patently wrong approach or assumptions or there is fundamental flaw in the valuation. In transfer pricing mechanism there is no concept of valuation based on RBI Circular for the purpose of determination of ALP. Valuation made under any such Circular at the best be considered under the ‘Other Method’, if valuation cannot be made under any of the approved methods specified u/s. 92C of the Act. As per RBI Circular (supra), where shares of an unlisted company are disinvested in a private arrangement, the share price should not be less than the value certified by a Chartered Accountant/Certified Public Accountant based on the latest Audited Financial Statement of the wholly owned subsidiary (WOS). It is an undisputed fact that TGBGL is a WOS of the assessee, the shares of TGBGL are sold to TGBCL in a private arrangement. A perusal of the valuation report dated 17/11/2011 reveals that valuation analysis of shares of TGBCL is based on Audited Financial Statement as on 31/03/2011. The report has been certified by a Chartered Accountant. Thus, all the mandatory conditions set out in RBI Circular (supra) are duly complied.

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 Lack of availability of the credible data about recent transaction in sufficiently comparable companies.” A list of comparable companies selected for the purpose of analysis under CCM method is given in para 1.7 of the report. The gist of comparables and there business activities is reproduced herein under: a. Sara Lee Corporation (Sara Lee) is a global manufacturer and marketer of consumer products. It derived 40.7% from the business of beverage segment which sells coffee and tea products. b. Peets coffee & Tea Inc., is a specialty coffee roaster and distributor of fresh roasted whole bean coffee. c. Unilever PLC is a supplier of fast moving consumer goods. It derives only 19.4% of its revenue from icecream and beverages. d. Associated British Foods PLC is engaged in the processing and manufacture of food worldwide. It derived 33.7% of its revenues from the grocery segment. e. The J.M. Smucker Company is a marketer and manufacturer of fruit spreads, retail packaged coffee etc. It derived 40% of its revenues from coffee products. f. Caribou Coffee Company, Inc. is engaged in operating coffeehouses in the United States. g. Tata Global Beverages Limited [holding company]. h. Tata Coffee Limited is engaged in growing of coffee, pepper, tea and other plantation crops. i. Strauss Group Limited is engaged in the production of branded beverages, fresh foods, instant coffee and snacks. It derived 51.6% of its revenues from the coffee segment.

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When comparable companies are examined in the light of difficulties pointed by the Valuer, the study makes it obvious that the comparables selected lack comparability or had scanty information under beverages segment. Some of the companies selected are not even engaged in the business of beverages let alone tea segment. Some of the companies that have business under beverage segment have substantially low contribution to the total revenue of business. Despite aforesaid handicap in selection of comparable companies, the Valuer gave 50% weightage to CCM method. Selection of comparables is key to the acceptable valuation under CCM method.

(A.Y.2012-13) ITA NO.1349/MUM/2019(A.Y.2012-13) pricing is to benchmark the arm’s length price of the transaction by applying the most appropriate method. The method that takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances should be applied. In the present case, since there were flaws in valuation of shares under CCM approach, the valuation report to that extent is rejected. The Valuer has also used DCF method giving it 50% weightage, the DCF method is applied by the TPO giving 100% weightage, the same has been upheld by the CIT(A) as well. We see no reason to take a different view. Hence, ground no.4 of appeal is rejected. Ground No.5- Income from House Property : 11. The ld.Counsel for the assessee submits that the assessee had incurred expenditure of Rs. 48,51,650/- towards amenities and maintenance of facilities like salaries, security charges, electricity, etc. and the same was claimed as deduction from Annual Letting Value(ALV). The Assessing Officer disallowed the claim of assessee. The assessee carried the issue in appeal before the CIT(A). The CIT(A) following the order of his predecessor in Assessment Year 2009-10 and Assessment Year 2011-12 dismissed the said ground of appeal

. The assessee had assailed the said findings in appeal for Assessment Year 2011-12 before the Tribunal in ITA No.4221/Mum/2017. The Tribunal following earlier year orders in assessee's own case in & 4637/Mum2016 for Assessment Year 2009-10 decided on 07/08/2020 restored the issue to the file of Assessing Officer.

12. Per contra, Shri Manoj Kumar Chavhan representing the Department vehemently defended the impugned order and prayed for dismissing

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. However, he fairly submitted that identical issue was considered by the Tribunal in assessee's own case in the preceding Assessment Years.

13. Both sides heard. The short issue assailed in ground No.5 of appeal is with respect to claim of maintenance charges and expenditure incurred towards amenities from the rental income. The assessee had offered rental income under the head ‘Income from House Property’. The assessee claimed deduction of maintenance charges from the ALV of the building. The Assessing Officer and CIT(A) disallowed assessee’s claim. A perusal of the impugned order reveals that CIT(A) has dismissed this ground in summary manner by only observing that the same issue was considered in Assessment Year 2009-10 and 2011-12. Facts and circumstances remain identical in the present Assessment Year, hence, for the same reasons the grounds is dismissed. It is an admitted position that in the impugned Assessment Year facts are identical to Assessment Year 2009-10 and 2011-12. The Tribunal while adjusting appeal of the assessee for Assessment Year 2011-12 restored the issue back to the file of Assessing Officer observing as under:- “12. We have considered the rival submissions and perused the material available on record. In the present case, during the year assessee received Rs. 3,17,77,432 towards amenities and service charges which has been offered to tax along with the rent under the head ‘Income from House Property’. In addition to the statutory deduction claimed from these amounts, the assessee has also deducted expenses of Rs. 41,00,674 being expenditure incurred towards electricity charges, security charges and salaries against the income earned in addition to rent, whilst computing ‘Income from House Property’. As per the assessee such expenses were incurred for enjoyment of benefits/facilities by the users of the house property, which the assessee in addition to its obligation as the landlord, was required to provide. Therefore, it is the claim of the assessee that such expenses are to be reduced from the rental income

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Respectfully following the decision of Co-ordinate Bench ground No.5 of appeal is allowed for statistical purpose in similar terms. Ground No.6 – Disallowance u/s.14 of the Act: 14. The assessee during the period relevant to Assessment Year under appeal has earned exempt income to tune of Rs.3403.09 crores. The assessee made suo-motu disallowance of Rs.873.24 crores for earning exempt income. The Assessing Officer applied Rule 8D and made disallowance of Rs.1175.70 crores. The above disallowance included disallowance u/r.8D(2)(ii) Rs.990.63 crores and u/r. 8D(2)(iii) Rs. 185.07 crores. The ld. Counsel for the assessee submitted that assessee had incurred interest expenditure as well as earned interest income. The assessee prayed for netting off of interest expenditure against interest income for the purpose of disallowance u/r. 8D(2)(ii). The ld. Counsel for the assessee further pointed that Assessing Officer had disallowed certain interest u/s. 43B of the Act. However, while computing disallowance u/s. 8D(2)(ii) the Assessing Officer again disallowed the said interest. This amounts to double disallowance. She pointed that disallowance u/r. 8D(2)(ii) in similar manner was made in assessment year 2011-12. The assessee carried the issue in appeal before the Tribunal in (supra). The Tribunal decided the issue in favour of the assessee.

facts has been considered by the Tribunal in the preceding assessment years. We find that the Co-ordinate Bench in appeal of assessee for assessment year 2011-12 considered the issue of disallowance u/s. 14A on similar set of facts. The assessee in sub-grounds to ground No.6 has assailed disallowance u/s.14A of the Act on different facets. The Ld.Counsel for the assessee has restricted her submissions primarily on sub-ground No.(ii) i.e. adjustment of gross interest income of Rs.159.26 against interest expenses of Rs.78.64 crores. In other words, the assessee is seeking that net interest expenses i.e. interest expenditure minus interest income to be considered for the purpose of disallowance u/r. 8D(2)(ii) and sub-ground No.(iii) relating to alleged double disallowance of interest, i.e. interest already disallowed u/s.43B of the Act not to be considered again while computing disallowance u/r. 8D(2)(ii). The Co- ordinate Bench in A.Y. 2011-12 deleted the disallowance u/s. 14A of the Act r.w.r. 8D by observing as under: “20. We have considered the rival submissions and perused the material available on record. Section 14A of the Act disallows the expenditure incurred in relation to income which does not form part of the total income under the Act. On the other hand, under section 43B expenditure of the nature mentioned in the said section are allowable only on the payment basis, irrespective of the method of accounting regularly followed by the assessee. Thus, there could be certain expenditures which may fall under both the sections for the purpose of disallowance. In such a situation, question arises whether the same expenditure can be disallowed under both the aforesaid sections and thus resulting in double disallowance. It is pertinent to note that the Act is silent on this aspect. In this regard, it is relevant to note following observations of Hon’ble Supreme Court in Jain Brothers vs Union of India, [1970] 77 ITR 107 (SC): “It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the same subject twice over to the same tax..... If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to anyone thereafter to invoke the general principles that subject cannot be taxed twice over.”

21. In the present case, it has not been disputed by the Revenue that interest amounting to Rs. 83.91 crore has been disallowed by the assessee under section 43B

(A.Y.2012-13) ITA NO.1349/MUM/2019(A.Y.2012-13) of the Act. It is also not in dispute that the aforesaid amount forms part of the gross interest of Rs. 1031.83 crore. That being the case, we are of the considered view that since the interesthas already been disallowed by the assessee under section 43B of the Act, therefore, interest amount to that extent be excluded by the AO from the gross interest, while computing disallowance under Rule 8D(2)(ii). Otherwise, same will result in double disallowance of interest of Rs. 83.91 crore under section 14A as well as under section 43B of the Act. We order accordingly. Further, it is pertinent to note that under section 14A the expenditure incurred in relation to income which does not form part of the total income is disallowed as the corresponding income is also not taxable. In the present case, assessee has already disallowed interest of Rs. 83.91 crore, though under section 43B of the Act. Thus, even though the corresponding income is exempt, the expenditure is also not claimed by the assessee, which suffices the purpose of section 14A of the Act. However, at the same time, we cannot be oblivious to the aspect that expenditure under section 43B of the Act are allowable on payment basis and the expenditure suo moto disallowed by the assessee, during the year under consideration, is allowable in the year when the same is paid by the assessee. Thus, for the very same amount of Rs. 83.91 crore assessee shall be entitled to claim deduction under section 43B of the Act in the year of payment. Therefore, in view of the above, we deem it fit to further direct the AO to disallow the interest expenditure of Rs. 83.91 crore under section 14A of the Act in the year in which said sum will be claimed and allowed as deduction under section 43B of the Act. This approach will avoid the situation of double disallowance of the interest amount of Rs. 83.91 crore under the aforesaid provisions in any givenyear. With above directions, ground no. 10(ii) raised in assessee’s appeal is allowed for statistical purpose.

22. In ground 10(iii) and 10(iv), it is the claim of the assessee that only investments which yield dividend income during the year should be considered. We find that claim of the assessee is supported by decision of Special Bench of the Tribunal in ACIT vs Vireet Investment (P) Ltd., [2017] 165 ITD 27 (Delhi – Trib), wherein it was held that only those investments are to be considered for computing average value of investment, which yields exempt income during the year. We further find that the coordinate bench of the Tribunal in assessee’s own case in Tata Sons Ltd vs ACIT, in and 3508/Mum/2013, vide order dated 06/11/2019 for assessment year 2008-09, following the aforesaid decision rendered by Special Bench, granted relief to the assessee. The aforesaid decision rendered in assessment year 2008–09 has been consistently followed in assessee’s own case for assessment years 2009– 10 and 2010–11 cited supra, by the coordinate bench of the Tribunal. Thus, respectfully following the aforesaid judicial precedents, we direct the AO to only consider those investments, for purpose of computation of disallowance under Rule 8D of the Rules, which yield dividend income during the year. As a result, grounds no. 10(iii) and 10(iv) raised in assessee’s appeal are allowed.

(A.Y.2012-13) ITA NO.1349/MUM/2019(A.Y.2012-13) read with rule 8D. In this regard, we find that this issue is already covered in favour of the assessee in its own case by order dated 06/11/2019 passed by the coordinate bench of the Tribunal in and 3508/Mum/2013, for assessment year 2008-09. The aforesaid decision rendered in assessment year 2008–09 has been consistently followed in assessee’s own case for assessment years 2009–10 and 2010–11 cited supra, by the coordinate bench of the Tribunal. Thus, respectfully following the judicial precedents in assessee’s own case, ground no. 10(v) raised in assessee’s appeal is allowed. The other aspect raised in aforesaid ground pertaining to allocation of net interest between exempt dividend income and taxable brand income was not pressed during the course of hearing. Therefore, the said part of ground no. 10(v) is dismissed as not pressed.” The sub-grounds No. (ii) and (iii) of ground No.6 are allowed for parity of reasons.

is squarely covered by the decision of Special Bench in the case of Vireet Investments Pvt. Ltd., 165 ITD

27. (Del-SB). The Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd. (supra) has held that while computing Book Profits u/s. 115JB disallowance made u/s. 14A of the Act

(A.Y.2012-13) ITA NO.1349/MUM/2019(A.Y.2012-13) r.w.r 8D is not to be considered. Similar view has been expressed by Hon’ble Karnataka High Court in the case of Sobha Developers Ltd. vs. DCIT, 125 taxmann.com 72. In view of the aforesaid decisions the Assessing Officer is directed not to consider disallowance u/s. 14A for the purpose of computing Book Profits u/s. 115JB of the Act. Ground No.8- Disallowance of provision of pension – Rs.2.48 crores: 20. The Ld.Counsel for the assessee submits that the assessee had made provision of Rs.3.84 crores in respect of pension paid to whole time Directors. The provision for pension is based on actuarial valuation. Similar disallowance was made inAssessment Year 2011-12. The Tribunal after considering the facts of case and various decisions granted relief to the assessee. The facts in the impugned assessment year are identical .

year to provide for the pension amount payable to the Directors in recognition of their servicesrendered during the tenure as whole time Directors. Further, it is also not disputed that during the year under consideration assessee has made payment of Rs. 4.45 crore. The assessee has made an estimate on reasonable basis of such liability on the basis of actuarial valuation. In this regard, it is relevant to note following observations of the Hon’ble Supreme Court in Bharat Earth Movers vs CIT, [2000] 245 ITR 428 (SC): “4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.

Ground No.9 – Short Grant of Credit of DIT: 23. The Ld.Counsel for the assessee submits that the Assessing Officer has erred in granting short credit for DIT, directions may be given to the Assessing Officer for granting full relief. We find that the CIT(A) has already directed the Assessing Officer to verify the claim of assessee and grant the eligible relief. The Assessing Officer is directed to comply with the directions of the CIT(A) on the issue. Ground No.10 – Short grant of TDS Credit – Rs.1,10,39,578/- : 24. A perusal of the impugned order reveals that the CIT(A) has already directed the Assessing Officer to grant TDS credit after verification of Form

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No.26AS and follow Instruction No.5/2013. The Assessing Officer is directed to comply with the aforesaid direction of CIT(A).

ITA NO.1349/MUM/2019(A.Y.2012-13): 25. The Revenue in ground No.1 to 3 of appealhas raised a single issue i.e. with respect to disallowance u/s. 14A of the Act. The CIT(A) had granted part relief to the assessee. The Department is in appeal against the relief granted to the assessee by CIT(A). While adjudicating the issue of disallowance u/s. 14A of the Act in appeal by the assessee, we have allowed relief in full qua ground No.6(ii) and 6(iii). Since we have accepted assessee’s contentions, as a sequitur ground No. 1 to 3 in appeal by the Department are liable to be dismissed. We hold and direct accordingly.

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Order pronounced in the open court on Friday the 15th day of March, 2024.

Sd./- Sd./- (S.RIFAUR RAHMAN) (VIKAS AWASTHY) लेखा सद�/ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER मुंबई/ Mumbai, िदनांक/Dated 15/03/2024 Vm, Sr. PS(O/S)

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