DEPUTY COMMISSIONER OF INCOME-TAX, CIR 1(1),, PUNE vs. M/S. CITY CORPORATION LTD.,(EARLIER KNOWN AS M/S AMANORA FUTURE TOWERS P LTD), PUNE

PER R.S.SYAL, VP :

These two cross appeals – one by the assessee and other by the

Revenue - arise out of the order passed by the ld. CIT(A) on

22.09.2020 in relation to the assessment year 2014-15.

2 ITA No.618/PUN/2020 and ITA No. 44/PUN/2021 M/s. City Corporation Ltd.,

AR did not raise any objection to the condonation of the delay. The

delay is hereby condoned and the appeal is admitted for hearing.

the deletion of transfer pricing addition towards interest on

debentures/CCDs.

leading real estate development, township development,

construction and property Management Company of Pune. It

initiated some major real estate development projects including

development of one of the largest township – Amanora Park Town

at Hadapsar, Pune. A return was filed declaring total income of

Rs.41.87 crore. The assessee reported certain international

transactions and Specified Domestic transactions (SDTs) in Form

No. 3CEB. The Assessing Officer (AO) made a reference to the

Transfer Pricing Officer (TPO) for determining the Arm’s Length

Price (ALP) of the transactions. Instantly, we are concerned with

the international transaction of interest of CCDs paid to IIRF

Cyprus V. Holding Limited amounting to Rs.8,84,87,000/- and the

Specified Domestic transaction of payment of interest on debentures

to M/s. City Corporation Limited amounting to Rs.9,27,50,000/-.

3 ITA No.618/PUN/2020 and ITA No. 44/PUN/2021 M/s. City Corporation Ltd.,

The assessee applied the Comparable Uncontrolled Price (CUP)

method to demonstrate that the international transaction and the

SDT were at ALP. The TPO observed that the assessee, in fact,

availed funds from its related concerns as share capital but wrongly

classified them as debentures/CCDs for claiming interest deduction.

Relying on his decision for the A.Y. 2013-14, the TPO finally held

that such financing by the related concerns was a shareholders’

activity. He, thus recharacterized the transactions of issue of

debentures/CCDs as that of issue of equity shares and held that no

interest payment was called for. That is how, he determined Nil

ALP of the transactions and accordingly proposed transfer pricing

adjustment of Rs.18,12,37,000/-. The AO made such an addition,

which came to be deleted by the ld. CIT(A) by means of his order

dated 22-01-2018. The ld. CIT(A) also directed the TPO to verify

certain facts regarding the ALP determination of the interest on

debentures/CCDs paid by the assessee at 17.5% and restrict the

addition to 1.13% in a certain eventuality. Both the sides have come

up in their respective appeals before the Tribunal.

through the relevant material on record, it is seen that similar issue

came up for consideration before the Tribunal in the assessee’s own

4 ITA No.618/PUN/2020 and ITA No. 44/PUN/2021 M/s. City Corporation Ltd.,

case for the immediately preceding assessment year 2013-14. In

fact, the TPO also referred to his own decision taken for the

assessment year 2013-14 for determining NIL ALP. The Tribunal,

vide its order dated 18-12-2020 in ITA No.772/PUN/2018, has

countenanced the assessee’s stand by holding that the assessee

rightly issued debentures and CCDs to its AEs and the AO was not

justified in re-characterizing the transactions. As regards the ALP

determination, the Tribunal restored the matter to the file of

AO/TPO for a fresh determination. Since the facts and

circumstances of the instant appeal are mutatis mutandis similar to

those of the preceding year, respectfully following the precedent, we

approve the view taken by the ld. CIT(A) and hold that the AO was

not justified in re-characterising the transaction of issue of

debentures/CCDs as that of equity shares. As regards the ALP

determination, we again follow the view taken by the Tribunal for

the immediately preceding year and direct the AO/TPO to re-

compute the ALP of the transactions of payment of interest on

debentures/CCDs. Thus the departmental grounds are dismissed.

Since the matter of ALP determination has been sent back to the

AO/TPO, the direction given by the ld. CIT(A) in this regard, which

5 ITA No.618/PUN/2020 and ITA No. 44/PUN/2021 M/s. City Corporation Ltd.,

forms the subject matter of the assessee’s ground, has become

infructuous.

Education Cess and Secondary and Higher Secondary Cess

amounting to Rs.26,66,359/- may be allowed as a deduction while

computing the total income of the assessee company.

The Hon’ble Supreme Court in National Thermal Power 7.

Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) has observed that

“the purpose of the assessment proceedings before the taxing

authorities is to assess correctly the tax liability of an assessee in

accordance with law. If, for example, as a result of a judicial

decision given while the appeal is pending before the Tribunal, it is

found that a non-taxable item is taxed or a permissible deduction is

denied, we do not see any reason why the assessee should be

prevented from raising that question before the tribunal for the first

time, so long as the relevant facts are on record in respect of that

item”. Answering the question posed before it in affirmative, their

Lordships held that on the facts found by the authorities below, if a

question of law arises (though not raised before the authorities)

which has bearing on the tax liability of the assessee, the Tribunal

has jurisdiction to examine the same. Having gone through the

6 ITA No.618/PUN/2020 and ITA No. 44/PUN/2021 M/s. City Corporation Ltd.,

subject matter of the additional ground taken by the assessee, it is

discernible that it raises a pure question of law. We, therefore, admit

the same.

8 On merits, the issue raised through the additional ground is no

more res integra in view of the judgment of Hon’ble jurisdictional

High Court in Sesa Goa Lt. Vs. JCIT (2020) 423 ITR 426 (Bom.) in

which it has been held that Education Cess is not disallowable

expenditure u/s.40(a)(ii) of the Income tax Act. 1961 (hereinafter

also called as `the Act’). Similar view was earlier taken by the

Hon’ble Rajasthan High Court in Chambal Fertilisers and

Chemicals Ltd. and Another Vs. JCIT (2018) 102 CCH 0202 (Raj-

HC). We, therefore, direct the AO to ascertain the correct amount of

education cess and then allow a deduction for it, after allowing

opportunity of hearing to the assessee.

of the assessee is partly allowed. Order pronounced in the Open Court on 17th August, 2021.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 17th August, 2021 सतीश

ITA No.618/PUN/2020 and ITA No. 44/PUN/2021 M/s. City Corporation Ltd.,

आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. 3. The CIT(A)-13, Pune 4. The PCIT-5, Pune 5. DR, ITAT, ‘C’ Bench, Pune गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 16-08-2021 Sr.PS 2. Draft placed before author 17-08-2021 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *