×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
The assessee has filed the appeal against the order u/s 143(3) r.w.s. 144C dated 26/10/2017 passed in pursuance to the directions of the Hon’ble Dispute Resolution Panel dated 27/09/2017.
2. The assessee has raised the following grounds of appeal:
3. Brief facts of the case are that the assessee-company is engaged in manufacturing metal handing equipment and the assessee has an Associated Enterprises Jervis B Webb Company, USA (JBW). The shareholding of the assessee company is held by Vinar 60% and JBW 40% and whereas JBW held 40% of shares of Forge-Pro India Pvt.Ltd. (‘ForgePro’) and the assessee-company owning 60% of shares in the financial year 2012-13. The assessee-company owning 60% shares of ForegoPro has sold its stake to JBW for a consideration of Rs.25,56,92,340/- and paid long-term capital gains tax. Since the nature of transaction is by sale of share of subsidiary to its AE, hence, valuation report is prepared in September 2012. The assessee-company filed the Return of income on 29/11/2013 declaring nil income. Subsequently the case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Income-tax Act,1961 were issued. The AO found that the assessee had the following international transactions with its AE:
4. As per Form 3CEB, the transactions with its AE being Rs.28,95,93,437/- in respect of sale of shares, the matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm’s length price (ALP) of international transaction with the approval of the CIT. Since the assessee-company has sold 60% shares of Forge Pro India Pvt. Ltd of subsidiary company to its AE(JBW) for a consideration of Rs.25,56,92,340/- and disclosed long-term capital gains of Rs.17,21,93,247/-. The TPO, on receipt of reference called for documents maintained and prescribed u/s 92D(3) vide letter dated 17/6/2016 and considered the financial profile at para. 2.1 as under: Valuation report was prepared and historical financial data referred at para 3.1 which is as under:
The TPO has also verified the audited historical balance sheets and provisional balance-sheets for future periods as re referred at para 3.4 of the order.
5. Whereas as the TPO observed that the assessee has perceived discounted cash flow (DCF) as an appropriate method of valuation and referred and computed the cash flow for 5 years and discounted to the present value and for rest of the economic life after 5 years and it has taken a terminal period cash flow and discounted. The details of cash flow and discounts are referred at para 3.6 of the TPO order as under:
The TPO found that the valuer has computed estimated adjusted equity value of Forge Pro India Pvt. Ltd., share at Rs.284.60 referred at para.3.6.1 of the order:
Since the TPO was not able to assess the method of valuation due to inconsistencies and assumptions made by the assessee on some key matters not accepted the value of share computed by the assessee and issued show-cause notice on 26/09/2006 referred at para.4.1 of the order and worked out average risk free (RF) rate at 8.39% which is more than accurate risk free rate. Whereas the assessee has taken the equity risk and premium (ERP) at 6% based on the cumulative long-term average return on the National Stock Exchange. Further, the TPO observed that the tested party is not a small firm and does not belong to MSME industry and has a turnover of Rs.27 crores and hence the small risk premium is not liable to be tested parties. Whereas Beta value and equity risk premium take care of systematic risk and the specific premium is incorrectly attributed at 4%. The TPO found that the perpetual growth rate has been taken at 2% whereas it should have been taken at 6% based on historical data for financial year 2011-12. Based on the said