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Case Law Details

Case Name : DCIT Vs DLF Urban Pvt. Ltd. (ITAT Delhi)
Appeal Number : ITA No. 2078/Del/2022
Date of Judgement/Order : 08/04/2024
Related Assessment Year : 2016-17

DCIT Vs DLF Urban Pvt. Ltd. (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT) in Delhi recently ruled in the case of DCIT vs. DLF Urban Pvt. Ltd., addressing key issues in transfer pricing adjustments. The crux of the case revolved around the Arm’s Length Price (ALP) determination for the interest on loans involving Compulsorily Convertible Debentures (CCDs) and Optionally Convertible Debentures (OCDs). The ITAT’s decision to dismiss the appeal filed by the Deputy Commissioner of Income Tax (DCIT) was based on the Transfer Pricing Officer’s (TPO) failure to apply the appropriate industry filter, thus rendering the comparison flawed and unjustified.

In this case, the DCIT challenged the ALP determination of interest on loans to Associated Enterprises (AEs), where the assessee, DLF Urban Pvt. Ltd., had benchmarked the transaction using the Comparable Uncontrolled Price (CUP) method. The assessee determined an ALP of 15% based on 47 comparables. However, the TPO rejected these comparables and substituted them with just two others, arriving at an ALP of 10.25%.

The Commissioner of Income Tax (Appeals) [CIT(A)] examined this substitution critically. The CIT(A) noted that the TPO conducted a fresh search using the Bloomberg database but neglected essential parameters like the year of issue and tenure of the instrument. Moreover, the two comparables selected by the TPO were from industries not similar to that of the assessee, specifically, rubber products and energy sectors, which have differing risk profiles and, consequently, differing interest rates.

The CIT(A) highlighted that in high-risk industries such as real estate, where the assessee operates, the interest rates are typically higher compared to lower-risk industries. Additionally, the financial products selected by the TPO were bonds/loans, unlike the CCDs issued by the assessee. Therefore, the TPO’s comparables were not appropriate for determining the ALP.

Despite these discrepancies, the CIT(A) chose to include the two comparables from the TPO alongside the 47 selected by the assessee to broaden the analysis. Upon doing so, the average rate of interest was found to be 15.34%, with a median of 16%, supporting the assessee’s original ALP of 15%. Consequently, the CIT(A) concluded that the TPO’s adjustment was unjustified, and the addition of Rs. 6.29 crores was deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

These are cross appeals preferred by the Assessee and the Revenue against the order dated 30.06.2022 of the Commissioner of Income-tax (Appeals)-44, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No.CIT(A), Delhi-3/10660/2019-20/CIT(A)-44 arising out of the appeal before it against the order dated 14.02.2020 passed u/s 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle 7(1), Delhi (hereinafter referred to as the Ld. AO).

2. Background to present lis is that the appellant is engaged in the business of construction, development and sale of integrated townships and residential houses and apartments. It filed the return of income on 28.09.2016 declaring loss of Rs.1,65,90,818/- which was subsequently revised on 30.11.2016 at a loss of Rs.90,47,202/-. The case was taken up for scrutiny and in view of reported international transactions and “specified domestic transactions” with the AEs, and the case was referred to the Transfer Pricing Officer (TPO) for determination of arm’s length price of such transactions. The Ld.TPO passed the order u/s 92CA (3) of the Act on 31.10.2019 wherein adjustment u/s 92CA of the Income Tax Act, of Rs.3,28,72,48,398/- was proposed which included adjustment to purchase cost of land development rights of Rs.3,22,42,75,788/-and adjustment of interest paid to AEs on CCD / OCD of Rs.6,29,72,610/-.

2.1 The Ld.AO passed the Draft Order u/s 143(3) r.w.s. 144C of the Act, on 25.12.2019 wherein the income of the appellant company was proposed to be assessed at a total income of Rs.3,28,59,57,780/- as against returned loss of Rs.90,47,202/-, thereby proposing an addition of Rs.3,28,59,57,780/-. The appellant informed the AO that it was not filing objection against the draft order before the Dispute Resolution panel (‘DRP’) and intends agitating the same in an appeal before the Ld.CIT(A). Accordingly, the assessment was completed vide assessment order dated 14.02.2020 u/s 143(3) r.w.s. 144C(3) at a total income of Rs.3,28,59,57,780/-. Aggrieved with the assessment, the appellant had filed the first appeal before the Ld.CIT(A) who has dismissed the appeal of the assessee, for which now assessee is in appeal before this Tribunal raising following grounds:-

“A. Purchase of Development Rights

1.1 That on the facts and circumstances of the case, the Ld. CIT(A) has grossly erred in not admitting the additional ground relating to non-applicability of transfer pricing provisions u/s 92BA(i) even though same is purely of legal nature and arising from the assessment order.

1.2 That on the facts and circumstances of the case, the impugned order of Ld. CIT(A) in holding that omission of clause (i) to Section 92BA is effective from 01.04.2017 is bad in law as Ld. CIT(A) did not appreciate the fact that clause (i) of Section 92BA was omitted by Finance Act 2017 w.e.f 01.04.2017 without any saving clause of General Clause Act and thus the omission would apply for AY 2016-17 as well.

2.1 That on the facts and circumstances of the case, Ld. CIT(A) erred in holding that transfer pricing provisions under section 92CA(4) are applicable even where payment for development rights is capitalised in the books of accounts and not debited to Profit & Loss Account and in upholding part addition.

2.2 That the amount paid towards acquisition of development rights having been capitalized in the books of account under the head Capital work-in- progress and in absence of any impact on the profit for the year under reference, the transfer pricing adjustment and consequential addition to the income of the appellant is highly arbitrary and not in accordance with law.

3.1 That on the facts and circumstances of the case, Ld. CIT(A) erred in rejecting valuation report by M/s Cushman and Wakefield and in upholding application of circle rate for determination of arm’s length price even though the notified circle rate are only for the purpose of calculation of stamp duty and merely of indicative nature and cannot be taken as valid basis for benchmarking the transaction of purchase of development right.

3.2 That on the facts and circumstances of the case, Ld. CIT(A) erred in holding that Circle Rates serves as the most appropriate benchmark to determine arm’s length price of the transaction.

4. That in any case, the Ld. CIT(A) was not justified in upholding 10% reduction in the arm’s length price determined on the basis of circle rate without assigning any valid basis or justification.

5. That on the facts and circumstances of the case, Ld. CIT(A) erred in not allowing the benefit of tolerance/ Safe Harbour Limit of 5%/10% as per the amended provisions of section 92C which is of clarificatory and retrospective nature and duly supported from various judicial precedents.

B. Disallowance of Business Expenditure

6.1 That on the facts and circumstances of the case, Ld. CIT(A) erred in upholding the disallowance of business expenditure amounting to Rs 75,48,006 on the alleged ground that these expenses have not been incurred wholly and exclusively for the purpose of business of the appellant company.

6.2 That the expenses were incurred wholly and exclusively for the purpose of business and same being fully supported from relevant bills and vouchers, the disallowance is without proper opportunity and appreciation of facts of the case.

7. That the appellant company craves leave to add, alter, amend, substitute, withdraw and/or vary any grounds of appeal at or before the time of hearing.”

2.2 The Revenue has raised following grounds of appeal;

“1 Whether Ld. CIT(A) has erred on law and facts in deleting the transfer pricing addition on the issue of interest on CCDs/OCDs without considering the fact that the 47 comparables as selected by the assessee have different facts to the case of the assessee company.

2 Whether Ld. CIT(A) has erred on law and facts in holding in retaining the 47 comparables given by the assessee which were rejected by the TPO on the ground of comparability analysis.

3 Whether Ld. CIT(A) is correct in ignoring the fact that the assessee did not use appropriate filters to select the comparable agreements and that it had also not conducted proper comparability analysis in respect of agreements which were examined by it qualitatively after the use of quantitative filters.

4 Whether Ld. CIT(A) is correct in ignoring the facts that the search process conducted by assessee was flawed. The search process distinguishes between bonds and debentures. However, these securities are different only from legal point of view, not from financial point of view. Thus, while determining arm’s length price, this distinction should not be considered.

5 Whether the Ld.CIT(A) is correct in ignoring the facts that assessee did not take into account the maturity period of these securities. No filter to determine maturity was applied.

The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.”

3. Heard and perused the records.

3.1 The case of Revenue and assessee need to be first understood to adjudicate the aforesaid grounds. The appellant company, a wholly owned subsidiary of DLF Home Developers Ltd (DHDL), was incorporated with the main object to engage in the business of construction, development, and sale of integrated townships and residential complexes. The case of assessee is that it approached many investors for evincing interest in developing a project in Moti Nagar situated in New Delhi. Thereupon, Singapore government through its arm M/s Reco Moti Pte Ltd. (RMPL) (a Singapore Government entity) acquired a controlling stake of 51% in the appellant company based on a valuation report by Cushman & Wakefield, an internationally recognized real estate company. The appellant company entered into an Agreement with DLF Home Developers Ltd. on 21.12.2015 for purchase of irrevocable, absolute and unfettered rights in respect of land parcel measuring 19.06 acres (77,133.0754 square meters) situated at Shivaji Marg, Moti Nagar, New Delhi for development of planned residential project at Shivaji Marg. On the basis of Valuation Report dated 28.08.2015 of M/s Cushman Wakefield (C&W) (here in after refered as ‘Valuer’ ) for valuing the project, the land of the project was valued at Rs. 27831 Million rupees. The valuation was made on two methods:-

(a) Sales Comparable Method 27803
(b) Discounted Cashflow Method 27859
Average of (a) & (b) 27831

3.2 The total consideration Rs.925 Cr. is agreed / paid for Purchase of Development Rights of land as under:-

Particulars Consideration (Rs. in crores) Remarks
Fixed monetary consideration 462.50 Paid
Variable consideration based on % of realization 462.50 Future
Total 925.00

4. The Revenue is defending the case of TPO who had rejected this valuation report and proposed to apply circle rate for benchmarking this transaction of purchase of development rights.

5. In response, the appellant asserts that RMPL appointed M/s Cushman & Wakefield as an Independent Valuer, which is an International Real Estate Company having its office at U.S.A. On the basis of the Valuation Report by M/s Cushman and Wakefield the property has been valued at 931 Million Rupees. After making valuation, it has been agreed between the assessee and RMPL to enter into an agreement for transfer of development rights from M/s DHDL at a consideration of Rs.925 Cr. The Stamp Value Authority, which is Delhi Government, charged stamp duty from the assessee company on transfer of development rights amounting to Rs.55.50 Crs which is charged on Rs. 925 Crs and not on the Circle Value of Rs.192.57 Crs. Therefore, for the purposes of Sec. 50C and 43CA the assessable value is Rs.925 Crs.

5.1 Further, M/s DHDL has disclosed this transaction in their Return of Income at Rs.925 Crs. and not at the circle rate of Rs.192.57 Cr. In the Balance Sheet of M/s DHDL, revenue from sale of land has been shown of Rs. 1850 Crs which includes Rs. 462.50 Crs from the assessee company. Further, an amount of Rs. 1850 Cr was offered to tax by M/s DHDL u/s 43CA which includes the amount of Rs. 462.50 Crs related to the assessee company.

6. Now before CIT(A) the validity of transfer pricing reference of a ‘specified domestic transaction’ the Ld. CIT(A) was challenged as an additional ground of appeal. Assesee had claimed that in view of the omission of clause (1) of section 92BA with effect from 01.04.2017 action taken under that clause is invalid and bad in law in view of the decision of the Hon’ble Supreme Court in the case of Kolhapur Cane Sugar Works Ltd. vs UOI 2000 (2) SCC 536 which was followed by various Income Tax Appellate Tribunals and also upheld by Hon’ble Karnataka High Court in the case of Texport Overseas Pvt. Ltd. ITA No.392/2018 dated 12.12.2019. Assessee had relied upon various judicial precedents/ case laws wherein the various Benches of ITAT (including Delhi ITAT decision in case of SMR Automotive Systems India Ltd (ITA No 6614/Del/2017) have taken a view that since section 92BA (i) has been omitted by the Finance Act, 2017, Transfer Pricing reference and impugned proceedings and order will lapse and will become invalid in law even for the earlier assessment years. Apart from the Delhi ITAT decision (supra), ld. AR has also relied upon following judicial decisions wherein also it has been held that since clause (i) of section 92BA has been omitted by Finance Act, 2017 with effect from 01-04-2017 without any saving clause of General Clauses Act thereby meaning that the said clause never existed in the statute book and thus Transfer Pricing reference and impugned proceedings become invalid in law even for the earlier assessment years.

  • Cauvery Aqua Private vs. DCIT (ITA No.2021/Bang/2019) (ITAT Bangalore)
  • Sobha City us ACIT (IT AppealNo.2936 (Bangalore) of 2018)
  • Ammann India (P.) Ltd us ACIT, ITA No. 2262 of 2018 (ITAT, Ahmedabad)
  • Raipur Steel Casting India Ltd. vs. PCIT (ITA Nos.895, 1035 (Kol) of 2019) (ITAT Kolkata)
  • Bhartia-SMSIL (JV) vs ITO (ITA No. 117/Gau/2019

7. However, the Ld. CIT(A) was not satisfied with the plea and dismissed this additional ground with following relevant findings;

“9.4 Law is very clear and unambiguous that the relevant amendment has been made in section 92BA by Finance Act, 2017 with effect from 01.04.2017. The impugned transaction had taken place in FY 2015-16. In view of unambiguous provision of law, clearly, the omission of clause (i) to section 92BA is effective from 01.04.2017 only and the appellant case is not covered by the said amendment.

9.5 Hon’ble Supreme Court in the case of Govinddas v. ITO [1976] 103 ITR 123 has ruled on the retrospective operation of a statute as under: –

“Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that unless the terms of a statute expressly so provide or necessarily require it retrospective operation should not be qiven to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Ed.) and reiterated in several decisions of this Court as well as English Courts is that “all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective” and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.”

9.6 Further, the Apex Court in the case of CIT v. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121 in a detailed judgement provided clarity- on the matter of prospective and retrospective operation of the legislative changes brought about in the tax system. While referring to the observations in judgment in the case of Govinddas (supra) the Court has held as under: –

“Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock and every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset.

9.7 Thus, the Hon’ble Supreme Court has always followed the legal principle “lexprospicit non respicit” i.e. law in hand always looks forward and not towards the back. The essence of this principle is that the legislation which modified certain existing position is to be considered as of prospective nature and not of retrospective unless the legislation was clearly removing the one which was in existence from retrospective effect.

9.8 It is further observed that the issue has not become final as Hon’ble Supreme Court has admitted SLP on this issue against the Hon’ble High Court of Karnataka decision in the case of PCIT vs M/S Texport Overseas Pvt. Ltd. in its order dated 20.11.2020 in SLP No. 15296/2020.

9.9 It is pertinent to note that the appellant has taken this ground as an additional ground for the first time during appellate proceedings vide a letter filed on 26.10.2021. This ground was never taken at the time of filing appeal. In fact, the appellant had never raised this issue during assessment. The impugned assessment order was passed on 14.02.2020. It is observed that the leading case on this issue Texport Overseas Private Limited vs DCIT (supra) was decided by the Hon’ble ITAT vide order dated 12.09.2018. The Hon’ble High Court of Karnataka decision in this case is dated 12.12.2019. Therefore, if the appellant had any objection on this ground in the light of ITAT/ High Court decisions, it had every opportunity to raise this issue before the AO as the assessment was pending. In-fact the appellant had duly participated in the assessment proceedings. By not raising the issue during the assessment, the appellant has shown that it did not have any objection to the reference to the TPO. Further, even at the time of filing of appeal, the appellant has not raised this ground of appeal. The appellant, therefore, cannot take any such ground subsequent to the assessment during the course of appellate proceedings as an additional ground of appeal. As per section 124(3) of the Act, jurisdiction of the Assessing Officer / TPO cannot be called in question by an assessee after expiry of one month from date on which he was served to the notice u/s 142(1) of the Act or finalization of assessment whichever is earlier. In this case as the appellant had submitted details before the AO / TPO without raising any jurisdictional issue that the impugned transaction cannot be subjected to transfer pricing reference in view of omission of clause (i) of section 92BA by Finance Act, 2017 with effect from 01.04.2017 which shows that the appellant did not have any objection in this regard at the time of transfer pricing proceedings. Thus, the appellant is clearly barred by section 124 of the Act in raising this objection in appeal.

9.10 In view of the overall discussion above, the cognizance taken by the AO under section 92B(i) and reference made to the TPO in the appellant’s case under section 92CA is found as legally valid. It is also held that the additional ground cannot be admitted in the facts of the case at this stage. The additional ground appeal is legally inadmissible and is dismissed.”

8. Further the issue on merits of Transfer pricing adjustment in respect of transaction of purchase of development rights, the Ld. CIT(A) has dealt the aspect on the following three issues;

“1. Whether due to the captalisation of payment in lieu of purchase of development rights the provisions of section 92 of the Act are not triggered?

2. Whether the valuation of the development rights as made by M/s Cushman & Wakefield is justified?

3. Whether for benchmarking of transaction of purchase of development rights in land, the Circle rates are most appropriate method of valuation?”

9. As with regard to the first issue, Ld. CIT(A) observed as follows;

“10. In ground no. 2, the appellant has challenged the transfer pricing adjustment made in respect of payment for development rights on the ground that the same is shown as part of inventory i.e. capitalised in the books and not debited to the P&L account.

10.1 It has been contended that the transaction of payment in respect of development rights in land had been capitalized in the books of accounts in the relevant F.Y. and was not debited to the profit and loss account and as there is no impact on the taxable income, therefore, the provisions of section 92 of the Act are not triggered. It has been submitted that the acquisition of capital assets cannot be considered as an expenditure u/s 40A(2)(b) requiring disallowance. Reliance has been placed on the decision in the case of HDFC Bank Ltd Vs CIT [Writ petition No. 462 of 2017] wherein it was held that consideration paid for purchasing an asset would not mean that it is an ‘expenditure’ as an asset would be reflected in the balance-sheet of the company whereas an expenditure would be reflected in the Profit and Loss account. Thus, the loans purchased by in that case from AE which were reflected in the balance-sheet and not in the Profit and Loss account were held to be not an expenditure contemplated under section 92BA(i). Reliance has also been placed on the Bombay High Court decision in the case of Vodafone India Services Pvt. Ltd [Writ petition No. 871 of 2014] and Shell India Market Pvt Ltd vs ACIT [ Writ Petition No. 1205 of 2013], wherein, it was held that if the transaction does not have a bearing on the taxable income or expense of the company, the transfer pricing provisions will not apply.

10.2 It is observed that the contentions of the appellant in this regard are without merit. The transaction in this case is of purchase of development rights which is in the case of a builder/developer is undisputedly of revenue nature. The cost has been capitalised by the appellant in this year only because of the reason that this being the initial year of the project, no revenue was recognised in the books of accounts as per the accounting policy prescribed by the Institute of Chartered Accountants of India for Real Estate Developers. However, that does not change the ultimate nature of the transaction or the character of payment made. The purchase or land rights on which a real estate project is being developed, shall always be a revenue expenditure in the hands of the real estate developer notwithstanding the assertion that the expenditure has been capitalised in the books in view of an accounting policy. In any case, the expenditure will be ultimately debited in the P&L account when the revenue is recognised by the appellant. Therefore, this argument is not acceptable.

10.3 Further, it is pertinent to note that the appellant has itself reported this transaction in Form 3CEB and duly maintained Transfer Pricing Documentation under Rule 10D of Income Tax Rules, 1962 which was submitted during assessment/ transfer pricing proceedings. The appellant had itself shown the transaction of purchase of development right in land as expenditure in respect of which payment has been made to any person referred to in section 40A(2)(b). Thus, the appellant was itself of the view that the transaction impacts the taxable income or expense of the appellant. Therefore, the appellant cannot take a contrary position subsequently.

10.4 The reliance of the appellant on HDFC Bank; Vodafone India and Shell India cases is misplaced as the transaction in those cases was purely of capital in nature. In HDFC Bank (supra) case, the issue involved purchase of loans of another AE which was a capital transaction. In Vodafone India (supra) and Shell India (supra) cases, the issue was raising of share capital which is always capital in nature. In these cases, the transaction was only taken to the balance sheet and was never to be debited in the P&L account. The facts of the present case are clearly distinguishable. The arguments of the appellant could be considered if the appellant had not been a real estate developer and had purchased land/rights as a capital asset e.g. for setting up a plant or office etc. which is not the case here.

10.5 In view of above, ground no. 2 is dismissed.”

10. As with regard to the second issue of justification of the valuation made by M/s Cushman & Wakefield, the Ld. CIT(A) has held as follows;

11. The appellant has submitted that the JV partner M/s Reco Greens Pte Ltd (‘RGPL’) appointed M/s Cushman & Wakefield, International Real Estate Company having its office at U.S.A, as an Independent Valuer. It is claimed that C&W is amongst the largest commercial real estate service firms with a revenue of 8.2 billion dollars in 2018 and has 400 offices in 70 countries. M/s Cushman & Wakefield in its report dated 28.08.2015 valued the project at 931Cr.rupees. The valuation was made on two methods viz. (a) Sales Comparable Method valuing the land at 934 Cr. Rupees, and (b) Discounted Cashflow Method valuing it at 927.9 Cr. Rupees. On the basis of the average value of two methods, the property was valued at 931Cr.Rupees. It has been argued that the valuation made by an independent valuer of international repute should be accepted as the arm’s length price.

11.1 The TPO has rejected the valuation report on the ground that no comparable land sale has been taken in the valuation report for comparing the price of land under consideration and comparables taken for the purpose of valuation of land under consideration are of flats/apartments. The TPO has also noted that DCF method is not appropriate method for valuation of land.

11.2 During appeal, the appellant could not controvert the observations of the TPO.

11.3 It is observed that ‘sales comparable method’ is akin to comparable uncontrolled price (CUP) method where the criteria for selection of comparables is very strict. However, in this case land has been compared to the sale transaction of flats/apartments. Thus, the comparables selected for the valuation in this case are totally different and do not at all meet the strict comparability criteria. Therefore, the sales comparable method applied in the particular manner is not an appropriate method for valuation of land in this case.

11.4 Further, at the time of transaction, the property under consideration was simply a piece of land which did not have any intangibles. Admittedly, DCF method is suitable for the valuation of running business which has tangibles as well as intangibles. The valuation using DCF method in this case is based on various assumptions and projections. The DCF method applied here is not on a sound basis. Therefore, DCF method is also not an appropriate method for valuation of land in this case.

11.5 The argument that the valuation made by an independent valuer of international repute should be accepted as the arm’s length price is without any merit. The valuation report cannot be accepted merely because the valuer is stated to be an independent organisation of international repute. The TPO has not questioned the reputation of the valuer but the method of the valuation made.

11.6 In view of the above, it is concluded that the TPO has rightly rejected the valuation made by M/s Cushman & Wakefield. The argument is rejected.

Investment made by RGPL, a Singapore Government company, based on the valuation made by Cushman & Wakefield

12. The appellant has contended that RGPL (51% partner in the JV), a Singapore Government entity, has made investment based on the valuation made by Cushman & Wakefield and therefore, the transaction of purchase of development rights should be treated at arm’s length.

12.1 It is submitted that the appellant company, a wholly owned subsidiary of DLF Home Developers Ltd. (DHDL), incorporated with the main object to engage in the business of construction, development, and sale of integrated townships and residential complexes, approached many investors for evincing interest in developing a project in Moti Nagar situated in New Delhi. Thereupon, Singapore government through its arm M/s Reco Greens Pte Ltd. (RGPL) (a Singapore Government entity) acquired a controlling stake of 51% in the appellant company based on a valuation report by Cushman & Wakefield, an internationally recognized real estate company.

12.1.1 The appellant has submitted ownership structure of various companies to substantiate that RGPL is a statutory corporation set up and owned by the Government of Singapore to own and administrate Government assets. Documents from Accounting & Corporate Regulatory Authority/ Registrar of Companies & Business, Singapore have been filed in support of the contention. Accordingly, RGPL is 100% owned by Recosia Pte. Ltd which is 100% owned by GIC (Realty) Private Limited (GICR) which is 100% owned by Ministry of Finance of the Government of the Singapore. Thus, RGPL is owned by Ministry of Finance of the Government of Singapore.

12.1.2 It is submitted that Singapore is one of the topmost global financial centers in the world. The investment by RGPL was made on the valuation of development rights by Cushman & Wakefield, an internationally reputed expert in the field. It has thus been argued that the investment made by the Singapore government through its entity RMPL based on valuation made by Cushman & Wakefield, is beyond any doubt as the investor is one of the most trustworthy and reputed governments in the world.

12.2 The argument raised by the appellant is irrelevant and immaterial. It has been shown by the appellant that 51% JV partner, RGPL is a Singapore Government owned corporation; Singapore is one of the most reputed countries in the world; and, investment was made by RGPL based on the said valuation report. However, the issue here is not the genuineness of the investment made by RGPL in the appellant JV. Further, the ownership of RGPL that it is a Singapore Government corporation and the reputation of Singapore as a reputed jurisdiction is not in doubt. However, the impugned addition is not an addition of any unexplained investment or unexplained transaction where identity or genuineness of the transaction has been questioned. The issue pertains to the determination of transfer price of development rights of a land. It has been discussed in earlier paragraphs that the valuation made by Cushman & Wakefield was not correct. Thus, these arguments are found to be not relevant for the purpose of this appeal.”

11. Dealing with the third issue, the Ld. CIT(A) has sustained the bench marking of the alleged specified transaction on the Circle rate by following relevant observations:

“13. It has been contended that the circle rate cannot be considered as market rate and cannot be adopted as arm’s length price disregarding the valuation made by Cushman & Wakefield.

13.1 It has been submitted that the limited and the sole purpose of notifying minimum rate (circle rate) is to collect stamp duty by the state government which cannot be used as a benchmark to ascertain the commercial value or the market value of the immovable property; the purpose of specifying this minimum circle rate is to indicate the minimum value at which the property should be valued in a particular area for the purpose of collection of stamp duty; the commercial value of a property can still be higher than the minimum rate or circle rate depending upon various factors. Reliance in this regard has been placed on Hon’ble Delhi High Court decision in case of GoVt of NCT of Delhi Collector of Stamps vs CTA Apparels Ltd (LPA No 278 of 2019) wherein it has been held that circle rate is only a guidance for the Registering Authority to, at best, mechanically determine the valuation of the property, but it cannot be followed as a sole factor to determine market value of the property in question which depends on multiple factors. Reliance has also been placed on the decision of the Hon’ble Supreme Court in Lal Chand vs. Union of India & Anr. [(2009) 15 SCC 769) and Union of India Vs. Savitri Devi, 2017 SCC Online 1400 decided on 21.09.2017 wherein it has been laid down that the circle rates for the purpose of stamp duty cannot be made the basis for determining the market value. It has also been argued that the concept of circle rate has not been defined anywhere in the Income Tax Act 1961 and the only reference to circle rate is mentioned in Section 50C & 43CA of the Act. Accordingly, as per section 50C, for the purpose of capital gains, the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of transfer of land is the determining factor for the purpose of determining the full value of consideration of land, if the actual consideration is less than the stamp duty valuation. Similarly, section 43CA lays down that stamp duty valuation shall be treated as full value of consideration for the purpose of computing profit or gains from transfer of an asset (other than a capital asset / stock in trade), being land or building or both, if the actual consideration is less than the stamp duty valuation.

13.2 It is observed that the circle rate is the value below which a property cannot be bought or sold in an area in so far that the Registering Authority of the State Government will not register the sale deed which is required to effect transfer under Transfer of Property Act, 1956. As per section 50C of Income Tax Act, for the purpose of capital gains, where the consideration received or accruing as a result of the transfer by an asscssee of a capital asset, being land or building or both, is less than the value of adopted or assessed or assessable by any authority of State Govt, for the purpose of payment of Stamp duty in respect of such transfer, the value of adopted or assessed or assessable shall be deemed to be full value of the consideration received or accruing as a result of such transfer. Therefore, if the value adopted or assessed or assessable for stamp duty purposes is more than the consideration shown by the assessee then the value adopted or assessed or assessable for stamp duty purposes will be deemed as full value of consideration. Circle rate is notified by the State Government in respect of each area and it is on this rate that the Registering Authority values the property for the purpose of levy of stamp duty. Circle rates vary from locality to locality. They are revised from time to time by the State Government, to keep the value close to the existing market value of property in a particular area. Therefore, the argument of the appellant that ‘circle rate’ is not recognised in the Income Tax Law is incorrect.

13.3 The case laws relied upon by the appellant are for the purpose of levy of stamp duty (GNCT Delhi), award of compensation on acquisition of land (Lal Chand and Savitri Devi cases). Therefore, the issue in those cases was totally different than the issue at hand which is determination of arm’s length price/market value of the development rights in land. It is observed that the valuation by the Stamp Duty Authority based on circle rate notified by a State Government gives a good guidance for the purpose of adopting the same as market value for determining arm’s length price of the transaction for the purpose of transfer pricing proceedings.

13.4 It is settled law that section 50C (i.e. stamp duty valuation to be deemed as full value of consideration) is applicable in the case of development agreements. Hon’ble Mumbai ITAT in CTT v. Bhupindra Flour Mills (P.) Ltd. [2011) 59 DTR 307 (Mum)(Trib) has held that such development rights are akin to property itself and provision of section 50C should be applicable. Similar view was taken by ITAT Mumbai in the cases of Arif Akhtar Hussain v. ITO [(2011) 59 DTR 307 (Mum.)(Trib.); Chiranjeev Lal Khanna v. ITO [(2012) 66 DTR 250 (Mum.)(Trib.); Mrs Arlette Rodrigues v. ITO [ITA No. 343/Mum/2010); and, Smt Myrtle D’Souza v. ITO [ITA No. 3168/Mum/2011]. Thus, section 50C valuation is considered applicable to the development agreements like the agreement in this case.

13.5 In view of above, it is reasonable to conclude that circle rate is a good indicator of market value of a land and also development rights in a land. It is held that the circle rate, which gives a reasonably good guidance of market value, can be considered for the purpose of transfer pricing proceedings for determination of arm’s length price of the development rights in land. The objections of the appellant are dismissed and the in principle stand of the TPO that circle rate of land serves as the most appropriate benchmark for benchmarking land transaction is confirmed.

11.1 In regard to the third issue, the Ld. CIT(A) has also gone into the question of classification of property for circle rate/ stamp valuation and observed as follows;

“14. Having held that the TPO was correct in principle that circle rate of land is the most appropriate benchmark for benchmarking of land in this case, the contentions of the appellant that the AO has made some errors while applying the correct circle rate is examined. It has been submitted that the TPO has wrongly applied circle rate of category “F” whereas the property in question falls under category “E”. It has also been shown that the property for the purpose of circle rate falls in “Industrial” category as against the “residential” category considered by the TPO.

15. The relevant findings of the TPO [at p. 4 of order u/s 92CA(3)] are reproduced below:

“7. For the purpose of benchmarking of transaction of land, valuation as per stamp valuation authority i.e. the circle rate of land serves the most appropriate benchmark. Therefore, basis above facts, cost of purchase Of development rights ‘is restricted to the value of land under consideration i.e. the circle rate as per area of land.

8. The Assessee has submitted that the area of land falls within zone / category ”E” and ‘F HAVING CIRCLE RATE OF Rs.70,000/- per Sq. Mtr. And Rs.56,640/- per Sq. Mtr. However, the assessee did not submit bifurcation that how much area fall underE & and how much falls under F category. In valuation, the assessee has applied rate of E category (higher) to the entire area; which is wrong. In absence of exact bifurcation between E and F category, rate of F category is applied to the entire plot. Hence value of land as per circle rate of F category within (Rs.56,640) comes to Rs.27,478,1115 x 55,640 = Rs.155,63,60,235/-.”

16. The appellant has submitted that in response to the show cause notice dated 29.10.2019, it was categorically informed to the TPO vide submission dated 30.10.2019 that the property falls under category E and not category F. Relevant portion of the submission dated 30.10.2019 filed before TPO is reproduced below:

17. It is also stated that land of the assessee and in Zone ‘E’ and Zone ‘F’. Therefore, circle rate may be worked out. In this regard kindly note that the land is situated at Karampura, Delhi which is adjacent to Greens Nagar. As per Notification dated 22.09.2014, Circle Rate of Category ‘E’ property is at Rs. 70.080 per Sq. Mtr. Area at Greens Nagar falls under Category ‘E’. The property at Karampura is next to Greens Nagar, therefore, falls under ‘E’ category. The assessee company worked out circle rate on Category ‘E’ circle rate not Category ‘F’ circle rate. Area falling under Category ‘F’ are different. Therefore, the circle rate mentioned in Annexure ‘IV’ of our earlier letter is been mentioned as Category ‘E’ and not Category ‘F’. A copy of the area falling under Category ‘F’ are enclosed herewith as Annexure 4.”

16.1 In support of the above submission that the land falls under category ‘E’ details of category of various areas notified by Government for the purpose of circle rate downloaded from public domain was filed was before the TPO, which has also been submitted during appeal, which shows that the land in question is situated at Karampura, adjacent to Moti Nagar which falls under category ‘E’ of the classification notified by the State Govt. A scanned copy of the same is as below:

12. Ld.AR has primarily relied on all the submissions as raised before Ld. CIT(A) and same shall be dealt at appropriate places. The Ld. DR has made following submission to defend the order of Ld. CIT(A).

13. On issue of effect of omission of Clause (i) of section 92BA by Finance Act 2017. Ld. DR has submitted that this ground of retrospective application/omission of clause (i) of section 92BA has been dealt in detail by the Ld. CIT(A) and all the grounds/contentions raised by assessee have been disposed off by the Ld. CIT(A) by a speaking order. He relied the Explanatory notes to Finance Act 2017 with regard to scope of section 92BA of the IT Act. It is submitted that the amendment has been made in section 92BA by Finance Act, 2017 which is applicable with effect from 01.04.2017. The explanatory notes to the amendment were relied and we find it relevant to reproduce the same here in below:-

“44. Scope of section 92BA of the Income-tax Act relating to Specified Domestic Transactions (SDTs).

44.1 Before amendment by the Act, the provisions of section 92BA of the Income-tax Act provided inter alia that any expenditure in respect of which payment has been made by the assessee to certain “specified persons” under section 40A(2)(b) of the Income-tax Act were covered within the ambit of SDTs.

44.2 As a matter of compliance and reporting, taxpayers needed to obtain the chartered accountant’s certificate in Form 3CEB providing the details such as list of related parties, nature and value of SDTs, method used to determine the arm’s length price for SDTs, positions taken with regard to certain transactions not considered as SDTs, etc. This had considerably increased the compliance burden of the taxpayers.

44.3 In order to reduce the compliance burden of taxpayers, section 92BA of the Income- tax Act has been amended so as to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Income-tax Act. Consequential amendment has also been made to section 40(A)(2)(a) of the Income-tax Act.

44.4 Applicability: These amendments take effect from 1st April, 2017 and will, accordingly, apply from assessment year 2017-18 and subsequent assessment years.”

13.1 It was submitted by ld. DR that from the amendment, especially with regard to the applicability clause, it is made crystal clear by the legislature that it will take effect from 01.04.2017 and it is also expressly mentioned that these amendments will apply from A.Y. 2017-18 and subsequent assessment years.

13.2 Further he has submitted that the section 92BA is part of Chapter X, which deals with special provisions relating to tax avoidance and various courts have held that these provisions have to be strictly applied. Reliance is placed on the order of the Pune Tribunal in the case of M/s. AGS Customer Services India P.Ltd., ITA No.l62/PUN/2022 & C.O. No.22/PUN/2022. Being pertinent, we reproduce here in below the relevant extract of the Tribunal’s order relied by Ld. DR;

5. We have given our thoughtful consideration to the forgoing rival pleadings and find forced in the Revenue’s stand since an advance pricing agreement “APA” is applicable only for the specified time span not exceeding five consecutive previous years u/s.92CC(4) r.w. subsection (9A) of the Act. We make it clear that Chapter X in the Act is in the nature of a “SPECIAL PROVISION RELATING TO AVOIDANCE OF TAX” i.e. an anti avoidance measure introduced by the legislature. Hon’ble apex court’s recent landmark decisions PCIT V/s Wipro Ltd. (2022) 140 taxmann.com 223, Commissioner V/s Dilip Kumar & Co. 2018 (9) SCC 1(SC) FB & CIT V/s. GM Knitting Industries (P) Ltd.(2015) 376 ITR 456 (SC) have1 settled the law that the relevant provisions in the Act ought to be put to stricter interpretation only.

13.3 Further rebutting the argument of Ld. AR that as there is no saving clause in the amendment made accordingly all the proceedings initiated and in progress even for the period prior to the date of omission of the said section gets omitted and becomes invalid. The Ld. DR has submitted that the language of the amendment itself proves the implied saving clause in the amendment because it is specifically mentioned that the amendment will take effect from 01.04.2017 and also it is clarified that it is applicable from A.Y. 2017-18 and subsequent assessment years. Thus, from wordings of the amendment itself, it is crystal clear that the legislature wanted to save all the actions initiated/pending in section 92BA(i) till the period of 31.03.2017 for A.Y. 2016-17 and all proceedings initiated will continue. Thus, as per Ld. AR there is no merit in the arguments of the assessee that there is no saving clause in the amendment made.

13.4 Rebutting the reliance by Ld. AR on the decision of Hon’ble Karnataka High Court in the case of PCIT-7 Vs. Texport Overseas Pvt. Ltd., 114 taxmann.com 568 (Karnataka), the Ld. DR has submitted that the Hon’ble High Court while relying on the judgement of the Hon’ble Apex Court in the case of Kolhapur Canesugar works ltd. vs. UOI, AIR 2000 SC 811 has held that once section has been omitted by the Finance Act 2017 with effect from 01.04.2017, the resultant effect is that it had never been passed to be considered as a law and never been existed. He on the contrary relied the Hon’ble Supreme Court decision in the case of Fiber Boards Pvt. Ltd. vs. CIT Bangalore 62 taxmann.com 135/ 376 ITR 596(SC) and submitted that the omission and repeal of any law/Act is governed by the General Clauses Act. Whether the omission means repeal of the particular section right from the very inception has been dealt by the Hon’ble Supreme Court in the case of Fiber Boards Pvt. Ltd. vs. CIT Bangalore (supra). He has pointed out that in this case, the Hon’ble Supreme Court has considered its earlier decisions in the case of Kolhapur Cane Sugar (supra) and also several other decisions including Rayala Corporation Pvt. Ltd. and MR Pratap vs. Director of enforcement (1969) 2 SCC 412 and came to a conclusion that the decision rendered in the earlier cases is per incurium. Being very pertinent, the relevant extract of the Hon’ble Supreme Court judgment, as relied by Ld. DR in the case of Fibre Boards Pvt. Ltd.(supra) is reproduced below:-

21. In Rayala Corporation (P.) Ltd. & M.R. Pratap (supra) what fell for decision was whether proceedings could be validly continued on a complaint in respect of a charge made under Rule 132A of the Defence of India Rules, which ceased to be in existence before the accused were convicted in respect of the charge made under the said rule. The said Rule 132A was omitted by a notification dated 30th March, 1966. What was decided in that case is set out by paragraph 17 of the said judgment, which is as follows:

“17. Reference was next made to a decision of the Madhya Pradesh High Court in State of Madhya Pradesh v. Hiralal Sutwala [AIR 1959 MP 93] but, there again, the accused was sought to be prosecuted for an offence punishable under an Act on the repeal of which Section 6 of the General Clauses Act had been made applicable. In the case before us, Section 6 of the General Clauses Act cannot obviously apply on the omission of Rule 132-A of the DIRs for the two obvious reasons that Section 6 only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not of a rule. If Section 6 of the General Clauses Act had been applied, no doubt this complaint against the two accused for the offence punishable under Rule 132-A of the DIRs could have been instituted even after the repeal of that rule.”

22. It will be clear from a reading of this paragraph that a Madhya Pradesh High Court judgment was distinguished by the Constitution Bench on two grounds. One being that Section 6 of the General Clauses Act does not apply to a rule but only applies to a Central Act or Regulation, and secondly, that Section 6 itself would apply only to a “repeal” not to “an omission”. This statement of law was followed by another Constitution Bench in the Kolhapur Canesugar Works Ltd. case (supra). After setting out paragraph 17 of the earlier judgment, the second constitution bench judgment states as follows:

“33. In para 21 of the judgment the Full Bench has noted the decision of a Constitution Bench of this Court in Chief Inspector of Mines v. Karam Chand Thapar [AIR 1961 SC 838] and has relied upon the principles laid down therein. The Full Bench overlooked the position that that was a case under Section 24 of the General Clauses Act which makes provision for continuation of orders, notification, scheme, rule, form or bye-law, issued under the repealed Act or regulation under an Act after its repeal and re-enactment. In that case Section 6 did not come up for consideration. Therefore the ratio of that case is not applicable to the present case. With respect we agree with the principles laid down by the Constitution Bench in Rayala Corpn. Case [(1969) 2 SCC 412 : (1970) 1 SCR 639] . In our considered view the ratio of the said decision squarely applies to the case on hand.”

23. The Kolhapur Canesugar Works Ltd. (supra) judgment also concerned itself with the applicability of Section 6 of the General Clauses Act to the deletion of Rule 10 and 10A of the Central Excise Rules on 6th August, 1977.

24. An attempt was made in General Finance Co.v.Asstt. CIT [2002] 257 ITR 338/124 Taxman 432 (SC) to refer these two judgments to a larger bench on the point that an omission would not amount to a repeal for the purpose of Section 6 of the General Clauses Act. Though the Court found substance in the argument favouring the reference to a larger bench, ultimately it decided that the prosecution in cases of non­compliance of the provision therein contained was only transitional and cases covered by it were few and far between, and hence found on facts that it was not an appropriate case for reference to a larger bench.

25. We may also point out that in G.P. Singh’s Principles of Statutory Interpretation, 12th Edition, the learned author has criticized the aforesaid judgments in the following terms:

“Section 6 of the General Clauses Act applies to all types of repeals. The section applies whether the repeal be express or implied, entire or partial or whether it be repeal simpliciter or repeal accompanied by fresh legislation. The section also applies when a temporary statute is repealed before its expiry, but it has no application when such a statute is not repealed but comes to an end by expiry. The section on its own terms is limited to a repeal brought about by a Central Act or Regulation. A rule made under an Act is not a Central Act or regulation and if a rule be repealed by another rule, section 6 of the General Clauses Act will not be attracted. It has been so held in two Constitution Bench decisions. The passing observation in these cases that “section 6 only applies to repeals and not to omissions” needs reconsideration for omission of a provision results in abrogation or obliteration of that provision in the same way as it happens in repeal. The stress in these cases was on the question that a ‘rule’ not being a Central Act or Regulation, as defined in the General Clauses Act, omission or repeal of a ‘rule’ by another ‘rule’ does not attract section 6 of the Act and proceedings initiated under the omitted rule cannot continue unless the new rule contains a saving clause to that effect…. “(At pages 697 and 698)

26. In view of what has been stated hereinabove, perhaps the appropriate course in the present case would have been to refer the aforesaid judgment to a larger bench. But we do not find the need to do so in view of what is stated by us hereinbelow.

27. First and foremost, it will be noticed that two reasons were given in Rayala Corporation (P) Ltd. for distinguishing the Madhya Pradesh High Court judgment. Ordinarily, both reasons would form the ratio decidendi for the said decision and both reasons would be binding upon us. But we find that once it is held that Section 6 of the General Clauses Act would itself not apply to a rule which is subordinate legislation as it applies only to a Central Act or Regulation, it would be wholly unnecessary to state that on a construction of the word “repeal” in Section 6 of the General Clauses Act, “omissions” made by the legislature would not be included. Assume, on the other hand, that the Constitution Bench had given two reasons for the non-applicability of Section 6 of the General Clauses Act. In such a situation, obviously both reasons would be ratio decidendi and would be binding upon a subsequent bench. However, once it is found that Section 6 itself would not apply, it would be wholly superfluous to further state that on an interpretation of the word “repeal”, an “omission” would not be included. We are, therefore, of the view that the second so-called ratio of the Constitution Bench in Rayala Corporation (P.) Ltd. & M.R. Pratap (supra] cannot be said to be a ratio decidendi at all and is really in the nature of obiter dicta.

28. Secondly, we find no reference to Section 6A of the General Clauses Act in either of these Constitution Bench judgments. Section 6A reads as follows:

“6A. Repeal of Act making textual amendment in Act or Regulation – Where any Central Act or Regulation made after the commencement of this Act repeals any enactment by which the text of any Central Act or Regulation was amended by the express omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal.”

29. A reading of this Section would show that a repeal can be by way of an express omission. This being the case, obviously the word “repeal” in both Section 6 and Section 24 would, therefore, include repeals by express omission. The absence of any reference to Section 6A, therefore, again undoes the binding effect of these two judgments on an application of the ‘per incuriam’ principle.1

30. Thirdly, an earlier Constitution Bench judgment referred to earlier in this judgment, namely, M.A. TuIIoch & Co., (supra] has also been missed. The Court there stated:

“….Now, if the legislative intent to supersede the earlier law is the basis upon which the doctrine of implied repeal is founded could there be any incongruity in attributing to the later legislation the same intent which Section 6 presumes where the word ‘repeal’ is expressly used. So far as statutory construction is concerned, it is one of the cardinal principles of the law that there is no distinction or difference between an express provision and a provision which is necessarily implied, for it is only the form that differs in the two cases and there is no difference in intention or in substance. A repeal may be brought about by repugnant legislation, without even any reference to the Act intended to be repealed, for once legislative competence to effect a repeal is posited, it matters little whether this is done expressly or inferentially or by the enactment of repugnant legislation. If such is the basis upon which repeals and implied repeals are brought about it appears to us to be both logical as well as in accordance with the principles upon which the rule as to implied repeal rests to attribute to that legislature which effects a repeal by necessary implication the same intention as that which would attend the case of an express repeal. Where an intention to effect a repeal is attributed to a legislature then the same would, in our opinion, attract the incident of the saving found in Section 6 for the rules of construction embodied in the General Clauses Act are, so to speak, the basic assumptions on which statutes are drafted ” (At page 484)

31. The two later Constitution Bench judgments also did not have the benefit of the aforesaid exposition of the law. It is clear that even an implied repeal of a statute would fall within the expression “repeal” in Section 6 of the General Clauses Act. This is for the reason given by the Constitution Bench in M.A. Tulloch & Co. (supra) that only the form of repeal differs but there is no difference in intent or substance. If even an implied repeal is covered by the expression “repeal”, it is clear that repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression “repeal” in Section 6 of the General Clauses Act.

13.5 He thus stressed on the argument that the Hon’ble Supreme Court, after duly considering all the decisions, came to a conclusion that the ratio of the decisions in Rayala Corporation (supra) and Kolhapur Canesugar (supra) cannot be said to be ratio decidendi at all and it is really in nature of obitor dicta. It has also been held by Hon’ble Apex Court that these decisions don’t have binding effect.

13.6 Ld. DR then relied Hon’ble Supreme Court judgement in the case of Shree Bhagwati Steel Rolling Mills vs Commissioner of Central Excise in Civil Appeal No. 4280 of 2007, to submit that wherein prayer was made to reconsider its earlier decision in the case of Fibre Board (supra)and the Hon’ble Supreme Court again clarified the law and held that the position of law as held in the decision of Fibre Boards (supra) case still holds and the Hon’ble court declined to reconsider the judgement in the case of Fibre Board (supra).

13.7 Then to strengthen his aforesaid arguments, the Ld. DR has relied the order of Mumbai Tribunal in the case of Firemenich Aromatics (India) Pvt. Ltd vs ACIT Circle 4(2), Mumbai in ITA No.348 and submitted that after analyzing decision of Hon’ble Supreme Court in the case of Kolhapur Canesugar (supra) vis a vis Fiber Board (supra) and Shree Bhagwati Steel (supra), the Mumbai Bench has dismissed the assessee’s plea of retrospective application of deletion of relevant provisions appeal and being pertinent and for ready reference, the relevant part of the Tribunal order, relied by Ld. DR, is reproduced below-

11. The Id. AR for the assessee while objecting the application of condonation of delay raised another objection that the appeal of revenue is not maintainable and submitted that sub-section (2A) of section 253 was inserted by Finance Act 2014 with retrospective effect from 01.06.2013, however, the same was omitted by Finance Act 2016 from 01.06.2016. It was argued that, the sub-section (2 A) was omitted from the statue by way of omission, hence, this sub-section shall be deemed as it was not on the statue book right from the beginning. The Id. AR for the assessee further submits that ‘omission’ and ‘repeal’ of provision in the statue carries different meanings and effect. Therefore, as per section 6 of General Clauses Act, the proceedings initiated under the omitted provisions cannot be continued unless there is saving clause to that effect while omitting such provisions. To buttress his submissions the Id AR for the assessee relied on the decision of Bangalore Tribunal in Textport Overseas Private Limited Vs DCIT (IT (TP) A. 1772/Bang/2017, which has been affirmed by High Court of Karnataka vide order dated 12.12.2019 reported vide [2020] 114 taxmann.com 568 (Karnataka High Court], Mumbai Tribunal in Add.CIT Vs WNS Global (ITA No. 4520/Mum/2013 dated 19.02.2019, reported vide [2020] 116 taxmann.com 20 (Mumbai – Trib.J and the decision of Hon’ble Supreme Court in General I Finance Company Vs ACIT [2002] 257 ITR 338(SC)/ [2002] 124 Taxman 432(SC). Accordingly, the Id. AR for the assessee prayed for outright dismissal of the appeal filed by the revenue/ assessing officer.

12. On the other hand the Id. CIT-DR for the revenue submits that the assessee has not filed Cross Objection in the appeal filed by the revenue nor sought any permission for raising objection on the maintainability of the appeal of the revenue. The assessing officer filed the present appeal during the currency of the sub-section 253(2A) of the Act. And the appeal of the revenue cannot be treated as non-maintainable. The Id. DR further submits that the omission and repeal are broadly synonyms to each other. If the submissions of the AR for the assessee is taken for consideration that there is no saving clause to that effect while omitting such provisions, similarly there is no proviso or clause for abating the proceedings, which were initiated during the currency of the sub-section (2A] of section 253 of the Act. The Id. DR for the revenue submits that the case laws relied on behalf of assessee is not applicable on the facts of the present case.

13. We have heard the submissions of the learned authorised representative (Id AR] for the assessee and the learned Departmental Representative (Id. DR) for the revenue and deliberated on the case laws relied on behalf of the assessee. It is an admitted position that the assessee has neither filed Cross Objection for objecting the maintainability of the appeal filed by the revenue. However, the Id. AR for the assessee has raised legal objection, which goes to the root of amenability of the appeal filed by the revenue. Therefore, we admit the objection of the assessee on the maintainability of revenue’s appeal. For appreciation of various legal aspects and effect of ‘repeal’ or ‘omission’, we have gone through the various sections 6, 6A and 24 of General Clauses Act. The section(s) 6, 6A and 24 of General Clauses Act are read as under;

6. Effect of repeal.-Where this Act, or any (Central Act) or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not- (a) revive anything not in force or existing at the time at which the repeal takes effect; or (b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or (d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or (e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.

6-A. Repeal of Act making textual amendment in Act or Regulation:— Where any [Central Act] or Regulation made after the commencement of this Act repeals any enactment by which the text of any [Central Act] or Regulation was amended by the express omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal.

24. Continuation of orders, etc., issued under enactments repealed and reenacted,. Where any (Central Act) or Regulation, is, after the commencement of this Act, repealed and re¬enacted with or without modification, then, unless it is otherwise expressly provided any (appointment notification) order, scheme, rule, form or bye-law, (made or) issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions reenacted, continue in force and be deemed to have been (made or) issued under the provisions so re­enacted, unless and until it is superseded by any (appointment, notification,] order, scheme, rule, form or bye-law, (made or) issued under the provisions so re-enacted (and when any (Central Act) or Regulation, which, by a notification under Section 5 or 5A of the Scheduled Districts Act, 1874, (14 of 1874] or any like law, has been extended to any local area, has, by a subsequent notification, been withdrawn form the re-extended to such area or any part thereof the provisions of such Act or Regulations shall be deemed to have been repealed and re-enacted in such area or part within the meaning of this Section).

14. A careful reading of section 6 of General Clauses Act (this Act] makes it clear that made after the commencement of General Clauses Act, any Central Act or Regulation repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not effect affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.

15. Further a careful reading of section 6A this Act make it clear that where any Central Act or Regulation made after the commencement of this Act repeals any enactment by which the text of any Central Act or Regulation was amended by the express omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal.

16. The Hon’ble Supreme Court in Bhagat Ram Sharma Vs Union of India (AIR 1988 SC 740] held that it is a matter of legislative practice to provide while enacting an amending law that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between ‘repeal1 and an ‘amendment’. /Is per the commentary on Principles of Statutory interpretation by Justice G.P. Singh, “the legislative practice in India shows that ‘omission’ of a provision is treated as ‘amendment’. (page 675, Chapter; “Express Repeal”). Further Hon’ble Supreme Court in Ekambrarappa Ks EPTO (AIR 19671541), held that amending Act which limits the area of operation of existing Act by modifying the extent clause, result in partial repeal of the Act in respect of the area which its operation is excluded ( emphasis and under lines are added by us).

17. Further; the Hon’ble Supreme Court in the matter of Fibre Boards P. Ltd dated 11.08.2015 reported vide [(2015) 52 com 135] /(2015) 10 SCC 333, as well as in the matter of M/s. Shree Bhagwati Steel Rolling Mills [CA No.4280 of2007, dt.24.11.2015], reported vide (2016) 3 SCC 643, wherein the Hon’ble Supreme Court in these two cases elaborately discussed the issue of repeal /omission/ amendment etc, and held that ‘omission’ would amount to ‘repeal’. It is also held that there is no real distinction between an amendment and that “amendment’’ is in fact a wider term which includes deletion of the provision in an existing statue.

18. The Hon’ble Court in M/s. Shree Bhagwati Steel Rolling Mills (supra) in a later decision, while referring its order in Fibre Board Private Ltd (supra) held that omission would amount to repeal. “On the argument of the contesting parties that the omitted provision being treated as it never existed as per section 6 of General clauses Act would not apply to allow the previous operation of the provisions is omitted or anything done or suffered thereunder. Nor may a legal proceeding in respect of any rights and liability acquired or incurred under the enactment so omitted.” The Hon’ble Apex Court took a view that in majority of the cases, this would cause great public mischief, and that the decision in Fibre Board case was therefore clearly delivered by their lordship for the public good, being, at the least reasonably possible view and that no aspect of the question at their hand was remained unnoticed in Fibre Board Case.(emphasis added by us)

19. With the aforesaid legal back ground and with utmost regard to the decision of coordinate bench the coordinate bench relied by Id AR for the assessee in Texport Overseas (supra), we have noted that the bench was not having the benefit of the latest judgment of the Hon’ble Supreme Court in the matter of Fibre Boards P. Ltd [(2015) 52 com 135] as well as in the matter of M/s. Shree Bhagwati Steel Rolling Mills [CA No.4280 of 2007, dt.24.11.2015] which were not brought to the notice of the bench by either of the parties.

20. The Hon’ble Supreme Court in these two matters had elaborately discussed the issue of repeal /omission and after relying upon the decision of the coordinate bench had decided the issue that omission will also be repealed and therefore by virtue of section 6 and 6A the action taken pursuant to the valid legislation during its life time before omission will be saved and will not come to end. The decision in the case of Texport Overseas Private Ltd (supra) was rendered without considering the decisions of the Hon’ble Apex Court in the cases of (i) M/s. Fibre Boards Pvt. Ltd and (ii) M/s Shree Bhagwati Steel Rolling vs. Commissioner of Central excise & another and also the statutory provision contained in section 6A of General clauses Act and hence, lacks any binding or persuasive value.

16. The Hon’ble Apex court in the case of Fibre Boards Pvt. Ltd and M/s. Shree Bhagwati Steel Rolling has doubted and disapproved its earlier decisions rendered in the case of Rayala Corporation (P) Ltd Vs Enforcement (1969) 2 SCR 412 and Kolhapur Cane Sugar Works Ltd Vs Union of India (2000) 2SCC536 and in the case of General Finance Company Vs CIT (2002) 7 SCC 1. Further, the Hon’ble Supreme Court in the case of Fibre Boards (I) Ltd, after referring to the provisions of Section 6A of the General Clauses Act held that “a repeal can be by way of an express “omission” and that even an implied repeal of a statute would fall within the expression “repeal” in section 6 of the General clauses Act. Repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression “repeal” in section 6 of General clauses Act. Considering the latest decision of Hon’ble Supreme Court in Fibre Board and Bhagwati Steel, the earlier decisions rendered by the Constitution Bench in Rayala Corporation (P) Ltd and Kolhapur Cansugar Works cannot be said to have laid down any ratio decidendi on an interpretation of the word “repeal” an “omission” would not be included. Their observations are in the nature of obiter dicta as held by the Supreme Court in Fibre Boards. It is also held that the earlier decisions have not referred to Section 6A of the General clauses Act and they lose their binding effect on an application of the “per incuriam” principle, as held by the Supreme Court in the case of Fibre Boards Private Limited. Thus, in our view the decision rendered in Royala Corporation Pvt. Ltd lacks binding value for the reasons discussed by the Apex Court in Fibre Boards Pvt. Ltd, the decision rendered in the case of Kolhapur Cane Sugar Works Ltd as also in the case of General Finance Company following the decision in Royala Corporation Ltd, loses its binding value.

17. As we have already noted that the Hon’ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills again reiterated that repeal would include repeal by way of an express omission. The Supreme Court further held that the decision in Fibre Boards Private Limited clarifies the law in holding than an omission would amount to repeal. As a result, the provisions of Sec. 6 of the General Clauses Act would apply to allow the previous operation of the provision so omitted or anything duly done or suffered thereunder, and such a view is reasonable and for the public good.

18. At the cost of repetition we may note that the Hon’ble Supreme Court in the matter of Fibre Board (supra) and Bhagwati Steel Rolling (supra) had elaborately reproduced the paragraphs of General Finance Co., (supra) and also the earlier two judgments relied in General Finance Co., (supra), namely Rayala Corporation P. Ltd and Kolhapur Cane Sugar Works Ltd, and observed that even the court has not referred the matter to the larger bench. The Hon’ble Supreme Court in Fibre Board (supra) and Bhagwati Steel Rolling (supra) had also discussed the provision of law including the General Clauses Act, Section 6A and 24 and thereafter held that the repeal, omission and deletion are interchangeable and thereafter had held that ‘omission’ will have an effect of ‘repeal’ and ‘repeal’ will have an effect of ‘omission’. The distinction carved out in Rayala Corporation (supra) was not correct and further the reference to the Constitution bench has not considered in view of a binding judgment of the Constitution bench in the matter of M.A.Tulloch & Co as well as the provisions of Section 6A of the General Clauses Act and thereafter the Court had held that the decision, in the matter of Rayala Corporation (supra) was per incurium.

19. In our humble view the Hon’ble Supreme Court in Fibre Board (supra) and Bhagwati Steel Rolling (supra) have declared that the law in Rayala Corporation is per in curium, on the basis of which General Finance Co., (supra) was passed. Thus, the later judgments in Fibre Board (supra) and Bhagwati Steel Rolling (supra) shall have a binding precedent on all Courts in India including this Tribunal.

20. he Constitution of India. The law declared by Hon’ble Apex Court in Fibre Boards (P) Ltd (supra) dated 11.08.2015, was available when the decisions was rendered by Bangalore Tribunal Textport Overseas Pvt Limited Vs DCIT (supra), however, the same was not brought to the notice of the bench. The coordinate bench while rendering the decision relied on the decision of Hon’ble Apex Court in General Finance Co. Vs ACIT (supra), which was already declared as per-in curium. Similarly, the decision in General Finance Co (supra) is based on Rayala Corporation P. Ltd Vs Director of Enforcement (supra)’ and Kolhapur Canesugar Works Ltd Ks Union of India (supra). Considering the aforesaid legal position and the dates of various judgments of the Hon’ble Apex Court, we are of the view that the Id. AR for the assessee has referred and relied on the decisions of General Finance Company Vs ACIT (supra) which have been declared as per-in curium by Hon’ble Apex Court.

21. We are conscious of the facts that the latest law declared by Hon’ble Apex Court in various cases (supra) was not confronted with the Id. AR for the assessee; however, it is always presumed that the law declared by the Court is in the knowledge of the legal practitioner. We instead of going in further discussions are of the view that in view of the decision of Hon’ble Apex Court in Fibre Boards (P) Ltd (supra), the word ‘repeal’ includes ‘omission’. Thus, we do not find any merit in the objection raised by the Id. AR for the assessee which we are rejecting, being without any merit and held that appeal filed by the revenue with in currency of the sub-section 2 A of Section 253 of the Act, is valid.

13.8 Ld. DR has rebutted the contention of Ld. AR, that the decision of Hon’ble Karnataka High Court is with regard to section 92BA of the Act only whereas other decision of Hon’ble Supreme Court and decision of Hon’ble ITAT Mumbai in the case of Firemenich Aromatics (supra) is on other sections/other laws by submitting that omission or repeal is neither defined nor considered in the Act. Also omission/repeal etc. are governed by the General Clauses Act which are applicable to all laws/regulations including Income Tax Act. He stressed that in fact, the general rules with regard to omission/repeal/amendment are common for all the laws and what is important is the basic principles which regulates the effect of such omission/repeal. In the above noted case laws, the basic principles which governs the effect of any omission/repeal has been analyzed at length by the Hon’ble Supreme Court and also laid down/clarify the law and the general clauses Act which governed any omission/repeal and its consequent effect.

14. The Ld. AR has submitted the rejoinder to the aforesaid contention of Ld. DR on the issue of legality of the domestic transfer pricing adjustment, reinforcing that on account of omission of clause (i) of section 92BA of the Act vide Finance Act, 2017, the impugned transfer pricing adjustment made post omission of the clause (i) is illegal and unsustainable in the eyes of law as post omission it will be treated as if the said clause never existed in the statute. In this regard, placing reliance on the direct decision of Hon’ble Karnataka High Court in the case of PCIT v. Texport Overseas (P.) Ltd. [supra] it was again submitted that this decision of Hon’ble Karnataka High has been consistently followed and applied by the various benches of Hon’ble ITAT.

14.1 The reliance placed by the Ld. DR on Mumbai bench decision in the case of Firemenich Aromatics (India) Pvt. Ltd vs ACIT Circle 4(2), (supra) is sought to be distinguished by Ld. AR by submitting that said decision of Mumbai Bench is not in the context of section 92BA(i) and as such the same has no relevance. He stressed that there is no contrary decision of Jurisdictional High Court or for that matter any other High Court. So, the Hon’ble Karnataka High Court judgement is binding on the Tribunal.

14.2 Further, with regard to the decision of Mumbai Bench in the case of Firemenich Aromatics (supra) as relied upon by the Ld. DR, the Ld. AR however defended his reliance of the Hon’ble Karnataka High Court judgement by submitting that the said decision of Mumbai Bench was considered and extensively dealt with by a Co-rdinate Bench at Delhi in the case of Yorkn Tech Pvt, Ltd. v. DOT (ITA No. 535/DeI/2I dated 18/08/2021) wherein the Co­ordinate Bench after discussing the provisions of General Clause Act coupled with interpretation given by the Hon’ble Apex Court in the case of Fiber Boards Pvt, Ltd. (supra) and Shree Bhagwati Steel Rolling Mills (supra), held that the after omission of clause (i) of section 92BA, no adjustment could be made and as such the adjustment made u/s 92BA was directed to be deleted in that case. The finding of the Co-ordinate Bench, as relied by Ld. AR, is reproduced hereunder for ready reference:

“14. Further, it is a very well recognized rule of interpretation of statutes that where a provision of an Act is omitted by an Act and the said Act simultaneously re-enacts a new provision which substantially covers the field occupied by the repealed provision with certain modification, in that event such re-enactment is regarded having force continuously and the modification or changes are treated as amendment coming into force with effect from the date enforcement of the re-enacted provision.

15. The issue for consideration before us is clause (i) of Section 92BA which has been omitted from 01.04.2017 and there is no re-enactment with modification or any Saving Clause in any other Sections of the Act. Thus, without any Saving Clause or similar enactment, then it has to be held that Clause (i) of Section 92BA did not come into operation whenever any action has been taken especially after such omission. Accordingly, we hold that no Transfer Pricing Adjustment can be made on a domestic transaction which has been referred to by the Assessing Officer after the omission of the said clause by the Finance Act, 2017 even though transaction has undertaken in the Assessment Year 2016-17.

16. Further, our decision is equally fortified by the judgment of IT AT Kolkata Bench in the case of M/s. Raipur Steel Casting India (P) Ltd. vs. PCIT which pertained to the Assessment Year 2014-15, and catena of other judgments as relied upon by the Ld. Counsel of the assessee cited extensor in the foregoing paragraphs.”

15. As with regard to the merits of case Ld. DR has relied the Entries in the Form of 3CEB. He has submitted that Form 3CEB provides for a report, from an accountant, which is to be furnished u/s 92E of the Act relating to international transactions and specified domestic transaction. This form has been attached great importance by the Government of India in Transfer Pricing analysis and it provides that every person who has entered into in international transaction during the previous year shall file this report after verification from the accountant. This form is to be voluntary filed by the assessee and basic pre condition is that it must have entered into international transactions/ specified domestic transaction. When the assessee on its own has filed this form, it is clear that this form has been filed only because assessee is also aware that it has entered into specified domestic transaction during the previous year. Thus the basic condition of admitting specified Domestic transaction with AE’s has been fulfilled in this case. The importance, Government attaches to this form is that if the person fails to submit this report then penalty of Rs. 1 lakh is to be levied on that person u/s 271B of the Act.

15.1 In this context the Ld. DR has pointed out that in serial no. 1 of from 3CEB, it is mentioned “I/We for Chartered Accountant who has/have verified the information received from the assessee regarding international transactions.” Ld, DR has submitted that the accountant has to delete either I/We, which ever is not applicable. In the case of assessee, form 3CEB (page no. 183 to 190 of PB) has been verified by one Mr. Amit Gupta on behalf of S.R. Batliboi & Company LLP. Also the word used in the first paragraph is “WE” which means that a team of Chartered Accountant on behalf of Price Waterhouse and company has verified the form 3CEB of the assessee company, which means that the information along with the documents has been verified and examined by team of CA’s on behalf of S.R. Batliboi & Company. Further, he submitted that Part B of the form 3CEB contains the details of specified Domestic transactions, the assessee had with party enterprise. Ld. DR thus submitted that it is clear that the accountant after due verification of the documents has clearly came to the conclusion about the AEs and also mentioned in detail, the nature of the relationship assessee has with AEs. Also the accountant has given description of the business which are carried out by AEs. Thus the accountant has clearly stated that M/s DLF Home Developers Ltd, is the AE and it has transactions with the assessee company which fall under the TP guidelines. Also in column no. 22, again the assessee has stated “YES” with regard to the fact that it has entered into specified domestic transaction with the person referred to in section 40A(2)(B).

15.2 Then Ld. DR, made reference to the transfer pricing study report (TPSR) wherein the assessee at page 102 and 103 has clearly mentioned that it has specified domestic transaction with its AE with regard to purchase of development rights in land parcel from DHDL.

15.3 Ld. DR has also pointed out that though in page 139 assessee has mentioned that as a matter of abundant caution, the assessee has adopted other method to benchmark expenditure incurred of purchase of development rights, the facts remains that it has itself shown such expenditure and it has been duly verified by the transfer pricing expert engaged by assessee itself.

16. Ld. DR has then submitted that the assessee company is indisputably a builder, who is engaged in the business of construction, development and sale of integrated townships. Accordingly, to say, as per Ld. DR, the cost of land is capitalised is of no consequence in case of assessee company because the transaction in case of builder is definitely revenue in nature. The assessee stand that no revenue is recognized in P&L a/c is because it was the initial year of the project but this does not change the character of the transaction because purchase of land rights on which a real estate project is to be built in the hands of the real estate company will always be revenue in nature. Also for Real Estate Company ultimately all the expenditure on land will be debited in the P&L account. Thus, the nature of entry shown by assessee in its books is of no consequence and rather this itself shows assessee’s intention to bypass TP provision and avoid taxation. Ld. DR has relied the settled law that the theory of real income for application of TP provisions has no locus standi specially after the decision of Special bench in the case of Instrumentarium Corporation ltd. Vs. ADIT, IT Kolkata , 71 taxmann.com 193 (2016) wherein it has been held that even when no income is reported in respect of an item but the same can be brought to tax u/s 92 of the IT Act. We consider it beneficial to reproduce the relevant part of the decision in para 39 below:-

“39. In our considered view, the assessee is not really correct in contending that when the assessee has not reported any income from a particular international transaction, the ALP adjustment cannot compute the same. The computation of income on the basis of arm’s length price does not require that the assessee must report some income first, and only then it can be adjusted for the ALP. Section 92(1) is not an adjustment mechanism; it is a computation mechanism. The arm’s length price principle requires that an arm’s length price is assigned to the transactions between the associated enterprise, and if the income in computed, if any, on the basis of the arm’s length price so assigned. As regards reliance on the Vodafone India Services (P.) Ltd. ‘s case (supra), that deals with a situation in which the international transaction was inherently incapable of producing the income chargeable to tax as it was in the capital field. This is evident from the observation of Hon ‘ble Bombay High Court to the effect that, “In this case, the revenue seems to be confusing the measure to a charge and calling the measure a notional income. We find that there is absence of any charge in the Act to subject issue of shares at a premium to tax”. Undoubtedly, learned counsel is right in interpreting this decision to the extent that what is not in the nature of income cannot be turned into income so as to make ALP adjustment therein, and then bring the ALP adjustment to tax, since the computation is of income and it is only the price at which transaction is entered into that is to be taken as an arm’s length price in computation of that income. The ALP adjustments cannot be treated as income per se. However, the assessee does not derive any support from this decision since consideration for a loan, i.e interest, is inherently in the nature of income. There is no, and there cannot be any, dispute or controversy about this character of income. The point of dispute is whether zero interest, or no interest, is good enough for computing the income or whether an arm ‘s length interest must substitute this zero interest. The answer is obvious. As long as the transaction is an international transaction between the AEs, the computation of income has to be on the basis of arm’s length interest. Therefore, in our considered view, even when no income is reported in respect of an item in the nature of income, such as interest, but the substitution of transaction price by arm’s length price results in an income, it can very well be brought to tax under Section 92. This plea of the assessee is also, therefore, unsustainable in law.”

17. Next in regard to the valuation of development rights the Ld. DR submitted that the valuation report of Cushmen and Wakefield was supplied to both the AE i.e. DHPL and the assessee company DLF Urban Pvt. Ltd., he thus submitted that valuation lacks objectivity.

17.1 Then referring to page 54 of the valuation report Ld. DR submitted that the valuation of property is done on the current state on the date of visit i.e. 28.08.2015, on which date the land was industrial land, however, it should have been on residential.

17.2 He then has referred to page 80 of PB, where it is mentioned that the valuer has adopted the sales comparable method, Discounted Cash Flow and Residual method for valuation of the property. He submitted that as mentioned by the valuer, also in sales comparable method, the price per unit area of similar properties are examined. The sales of properties similar to the subject property are analysed. However, though valuer adopts sale comparable method but in para 1.8 at page 81 , it clearly mentions that due to minimal group housing land comparable available in New Delhi, they have compared the so called residential plotted development in the micro market and compared the same with subject property. Thus even the basic comparables were not available to the valuer and accordingly is own assumptions become faulty and not reliable in the very first place.

18. Ld. DR has submitted that the DCF method is also not suitable in the case because the piece of land was industrial land and the various assumption and presumptions made are also not correct. He pointed out that the comparable chosen, mentioned at page 86 also shows the range of more than 300% i.e. the base selling price are taken from Rs. 13000 per square feet per Rs. 45000 per square feet which in itself is to big range for arriving at the correct price. Also the other assumptions made are far from realty without any sound basis and accordingly rightly rejected by the AO and the Ld. CIT(A).

19. Ld DR has also countered the assertion of Ld. AR valuation report is to be accepted because it is made by Cushmen and Wakefield which is an internationally renowned valuers. Ld. DR has submitted that the question before the Ld. CIT(A) and also before the this Tribunal is whether the valuation has been correctly done by the valuer based on the objective principles and verifiable facts and evidences and not questioning or verifying the reputation and standing of the valuer but what is questioned and examined is the valuation method as well as the principle employed for valuation of the land, which are completely lacking and improper.

20. Then Ld. DR has rebutted the contention of Ld. AR, that as in the JV, 51% controlling stake is with M/s RGPL , Singapore Government Company, whose basis for investment, was the valuation report of Cushmen and Walkfield, accordingly the valuation is to be accepted by the department. He submitted that again, it is a faulty argument because department is not judging the creditworthiness or trustworthiness of the company controlled by the Singapore Government and the issue before hand is the determination of transfer price of development rights of land which is subjected to the rules and regulations as contained in the provision of the Income Tax Act/Transfer Pricing and based on the same, the valuation has been rejected.

21. As with regard to the question whether circle rate can be taken as market rate, Ld. DR has submitted that it is settled law that section 50C is applicable in the case of development agreements and several tribunal have taken this stand. Reference was made to the 1TAT Mumbai decision in the case of Arif Akhtar Hussain vs. ITO in ITA No. 541/Mumbai/2010 (also mentioned by Ld. CIT(A) in his order. He submitted that Circle Rate is one of the best indicator of market value of land and also for measuring development rights in the land. It is fixed by the government based on extensive analysis of the price /market value of land in a particular area based on several factors. In transfer pricing, the primary requirement is to benchmark a transaction based on a comparable transactions. For doing the same, the most important factor is to arrive at a comparable price / rate which has been fixed by the government / other government agency etc. the legitimacy of the comparable rate is the most important ingredient of comparing two transactions. He submitted that in several cases for transfer pricing analysis, various courts have taken the prices /rates taken by the custom authority/Govt. agency for benchmarking /determining ALP in Income Tax. Reference was invited to the Delhi ITAT decision in the case of Louis Drefus in [2023] 150 taxmann.com 392 (Delhi – Trib.) We consider it appropriate to reproduce here in below, the relevant findings, relied by Ld. DR:-

“19. We do not agree with the above contention of the Ld. Counsel for the assessee, even where no tariff rate is notified as in the case of sugar, cotton, meals and grains, the transaction values of customs data can be relied upon as it is based on transaction of similar nature and items on the same date at the same port. The issue of related party transactions in customs data would equally apply to any other public data as well. In the absence of complete details of the differences arising out of contract terms and product quality, the customs data being Govt, notified would provide a reasonable basis for arriving at the uncontrolled transaction price.”

22. Ld. DR has also sought indulgence of Bench on the basis of what he calls contradictory stand on circle rate by assessee company. He submitted that on one hand the assessee is assailing the circle rate as not the valid rate for determining market value but at the same time the assesse has himself taken the ground that his land falls in the industrial category and he should be allowed to determine the rate of land based on the government notification for the subject land. He has pointed out that before the Ld. CIT(A), the assessee produced the Delhi Govt. Notification/SDM’s Reports/DDA’s reports w.r.t its claim of Categorizing the land as industrial land. Ld. DR submits that all this has been duly mentioned in the order of Ld. CIT(A) from page no. 106 to 120 of his order. He has contended that the assessee vehemently made this argument before Ld. CIT(A) because the circle rate meant for industrial use needs to be multiplied by factor of 2 to arrive at the correct rate. In fact, the assessee, based on his arguments and evidences convinced the Ld. CIT(A) to treat the said land as industrial land and the rate of land was determined by multiplying by 2 in line with government notifications. Ld. DR has further contended that not only this, the assessee also submitted before the Ld. CIT(A) that the circle rate of E category is to be taken and not the F category rates. Again in its support, the assessee has relied on the circle rate notification issued by the Delhi Govt. In fact, based on the documents submitted by the assessee, the Ld. CIT(A) has not only taken the land classification as industrial and also the rates of the land are taken in the E category against the F category taken by the TPO/AO. Thus the assesee when himself has taken the use of the various notification issued by the Government for categorization /valuation of land based on Circle Rate Only then according to Ld. DR, the assesee cannot take a totally contradictory stand of negating the circle rate. The assessee is not allowed to take one position before the lower authorities and identical opposite stand in appeal.

23. Next addressing the issue raised by the assessee that circle rate should not be adopted because it has purchased the land in 2007 at almost 6 times more than the prevailing price from DCM. Ld. DR has submitted that this issue of purchasing of land in 2007 is irrelevant, as also dealt by Ld. CIT(A) in para 22.2/page 129 because the issue in the instant case is consideration by the TPO of circle rate as the fair market rate for bench marking purposes and it is immaterial at what price the land was purchased by the company in 2007. Ld. DR has submitted that in transfer pricing, it is settled legal position that the financial parameter of only current year are to be considered as per the TP rules and not the earlier rates/transactions done more than 10 years back. Ld. DR has relied, the Hon’ble Delhi High Court judgement in the case of [2015] 56 taxmann.com 417 (Delhi) Chryscapital Investment Advisors (India) (P.)Ltd. v. Deputy Commissioner of Income-tax.

24. Next the Ld. DR has responded to the submission of Ld. AR assailing the Ld. C1T(A) decision of confirming the stand of the AO of reducing the circle rate by 10% because the assessee has not received the full legal rights over the impugned land. Ld. DR submitted that from the facts of the case, it is absolutely clear that the assessee has not obtained the full ownership rights and the Ld. CIT(A) was completely reasonable in his approach to reduce 10% of the circle rate value on this count only.

25. Further as the assessee has sought application of 5%/10% tolerance rate for arriving at ALP of development rights in land because of Finance Act, 2018 & Finance Act 2021, Ld. DR has submitted that this issue is dealt in detail by the Ld. CIT(A) in his order at page 123 to 127. He submitted that as the amendment is only applicable from 01.04.2019, there is no question of its retrospective application because it is clearly mentioned in the Explanatory Notes about its prospective applicability w.e.f 01.04.2019.

Findings:

26. We now take up the preliminary issue with regard to applicability of clause (i) of section 92BA of the Act, and at outset, we find no force in the contention of the ld. DR that as the assessee had prepared a transfer pricing report and had disclosed specified domestic transaction in Form 3CEB which is to be furnished u/s 92E of the Act disclosing international transactions and specified domestic transaction, therefore, the assessee cannot now escape from the liability to get this transaction benchmarked and so the TPO was justified to make the adjustments. The ld. DR has himself admitted that the assessee while filing the transfer pricing study report had mentioned that as a matter of abundant caution the transaction is being reported for the purpose of section 92E of the Act. We are of the considered view that when the law had provided for penalty in case of non-compliance of a provision of the Act and the assessee reserving a right to protest at appropriate stage, makes the compliance, the assessee cannot be estopped by own act and conduct to dispute the applicability of the said provisions during the assessment.

27. Coming to merits of the additional ground, having given a thoughtful consideration to the matter on record and the submissions we observe that the ld. DR could not dispute the fact that the Hon’ble Karnataka High Court in case of Texport Overseas Pvt. Ltd. (supra) and the coordinate Benches of this Tribunal in several cases, as referred by the ld. AR has held that once this section is omitted w.e.f. 01.04.2017, the resultant effect is that it had never been passed to be considered as a law and never been existed. However, in the light of the Explanatory Notes to the Finance Act, 2017 relied by the ld. DR along with the judgement of the Hon’ble Supreme Court in the case of Fiber Boards Pvt. Ltd. (supra) and Shree Bhagwati Steel Rolling Mills (supra) which have been considered by the Mumbai Bench in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) we need to decide the impact of the judgement of the Hon’ble non-jurisdictional High Court in a situation in which these decisions canvassed a view contrary to what has been decided by another non-jurisdictional High Court.

28. In this context, without much indulgence on our part, we would like to rely on the order of the Mumbai Bench of the Tribunal in the case of Siro Slimpharma Pvt. Ltd. vs. ITO in ITA No.847/Mum/2016, order dated 09.09.2021 wherein while dealing with somewhat similar question of law, the Mumbai Tribunal has indicated that in the absence of judgment of Jurisdictional High Court, the non-jurisdictional High Court judgment has persuasive value and should be generally followed. The relevant part of the decision in paras 7 and 8 is as follows:

“7. While on this issue, we may usefully take note of the observations of Hon’ble Supreme Court in the case of ACCE v. Dunlop India Ltd. [(1985) 154 ITR 172 (SC)], wherein the Their Lordships quoted, with approval, from the decision of House of Lords to the effect that “We desire to add and as was said in Cassell & Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that “in the hierarchical system of courts” which exists in our country, “it is necessary for each lower tier”, including the High Court, “to accept loyally the decision of the higher tiers”. “It is inevitable in hierarchical system of courts that there are decisions of the Supreme appellate Tribunal which do not attract the unanimous approval of all members of the judiciary… But the judicial system only works if someone is allowed to have the last word, and that last word, once spoken, is loyally accepted” and observed that. . . “the better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system.” The principle is thus unambiguous. As a rule, therefore, judicial discipline warrants that the wisdom of a lower tier in the judiciary has to make way for higher wisdom of the tiers above. Unlike the decisions of Hon’ble jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon’ble non-jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these decisions and on account of the concept of judicial propriety. In the case of CIT Vs Godavari Devi Saraf [(1979) 113 ITR 589 (Bom)], Hon’ble jurisdictional High Court took note of a non-jurisdictional High Court and held that the Tribunal, outside the jurisdiction of that Hon’ble High Court and in the absence of a jurisdictional High Court decision to the contrary, could not be faulted for following the same. Their Lordships observed that, “It should not be overlooked that the Income-tax Act is an All-India statute…. Until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land”. Of course, these observations were in the context of a provision being held to be unconstitutional, an issue on which the Tribunal could not have adjudicated anyway, as evident from the observation “Actually, the question of authoritative or persuasive decision does not arise in the present case because a Tribunal constituted under the Act has no jurisdiction to go into the question of constitutionality of the provisions of that statute” but nevertheless the respect for the higher judicial forum was unambiguous. In Tej International Pvt Ltd Vs DCIT [(2000) 69 TTJ 650 (Del)], a coordinate bench has, on this issue, observed that “In the hierarchical judicial system that we have, better wisdom of the Court below has to yield to higher wisdom of the Court above and, therefore, one a authority higher than this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position…”. . There can, however, be exceptions to this situation on account of a variety of reasons, and these exceptions come into play only when the views are of non-jurisdictional High Court which, do not, legally speaking, bind the lower tiers of judiciary. In our considered view, so far as the precedence value of a non-jurisdictional High Court’s judgment is concerned, the position has been very well summed up by a coordinate bench decision, in the case of Bank of India (supra), wherein, speaking through one of us (i.e. the Vice President), the coordinate bench has observed as follows:

While dealing with judicial precedents from non-jurisdictional High Courts, we may usefully take of observations of Hon’ble jurisdictional High Court in the case of CIT Vs Thana Electricity Co Ltd [(1994) 206 ITR 727 (Bom)], to the effect “The decision of one High Court is neither binding precedent for another High Court nor for the courts or the Tribunals outside its own territorial jurisdiction. It is well-settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect”. Unlike the decisions of Hon’ble  jurisdictional High Court, which bind us in letter and in spirit on account of the binding force of law, the decisions of Hon’ble  non-jurisdictional High Court are followed by the lower authorities on account of the persuasive effect of these  decisions and on account of the concept of judicial propriety-factors which are inherently subjective in nature. Quite clearly, therefore, the applicability of the non-jurisdictional High Court is never absolute, without exceptions and as a matter of course. That is the principle implicit in Hon’ble Supreme Court’s judgment in the case of ACIT Vs Saurashtra Kutch Stock Exchange Ltd [(2008) 305 ITR 227 (SC)] wherein Their Lordships have upheld the plea that “non-consideration of a decision of Jurisdictional Court or of the Supreme Court can be said to be a mistake apparent from the record”. The decisions of Hon’ble non-jurisdictional High Courts are thus placed at a level certainly below the Hon’ble High Court, and it’s a conscious call that is required to be taken with respect to the question whether, on the facts of a particular situation, the non-jurisdictional High Court is required to be followed. The decisions of non-jurisdictional High Courts do not, therefore, constitute a binding judicial precedent in all situations. To a forum like us, following a jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non-jurisdictional High Court is a call of judicial propriety which is never absolute, as it is inherently required to be blended with many other important considerations within the framework of law, or something which cannot be, in deserving cases, deviated from.

[Emphasis, by underlining, supplied by us]

8……………. At one place, this decision, inter alia, states that “To a forum like us, following a jurisdictional High Court decision is a compulsion of law and absolutely sacrosanct that way, but following a non-jurisdictional High Court is a call of judicial propriety…..-which can…be, in deserving cases, deviated from”. Implicit in this observation is the fact that not following non-jurisdictional High Court decision is more of an exception than the rule. There have to be very strong and good reasons not to follow even non jurisdictional High Court decisions….”

29. On the basis of the aforesaid principles of law of precedents and taking into consideration the fact that in a coordinate bench decision dated 20.07.2023 here in Delhi, in the case of Relaxo Footwear Ltd., Versus Assessing Officer, National e-Assessment Centre, New Delhi, ITA No.590/Del/2021, wherein one of us (the Judicial member) was on the Bench we had followed the decision of the Hon’ble Karnataka High Court in the case of Texport Overseas Pvt. Ltd (supra), we are of the considered view that the indulgence sought by ld. DR to accept the view of Mumbai Tribunal in Firemenich Aromatics (India) Ltd., is not sustainable.

30. We have also taken into consideration the order relied by ld. DR of Mumbai Tribunbal in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) and the order of coordinate Bench of Delhi in the case of Yorkn Tech Pvt, Ltd. (supra) relied by ld. AR and there is no doubt the coordinate Bench at Delhi has distinguished the Mumbai Bench order in the case of Firemenich Aromatics (India) Pvt. Ltd. (supra) and held that even after the judgement of the Hon’ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills (supra) and Fiber Boards Pvt. Ltd. (supra) clause (i) of section 92BA which has been omitted from 01.04.2017 has to be considered to have never been part of the statute and, accordingly, no transfer pricing adjustment can be made on a domestic transaction.

31. We will also like to distinguish the Mumbai Tribunal order in Firemenich Aromatics (India) Pvt. Ltd. (supra) by observing that in that case the issue was with regard to omission of sub-section (2A) of section 253 of the Act which was initially inserted by Finance Act, 2014 with retrospective effect from 01.06.2013 and which was then omitted by Finance Act, 2016 from 01.06.2016. The said provisions related to right to file appeal and in that case, the AO had filed the appeal during the currency of section 253(2A) of the Act and for that reason, the Mumbai Bench had considered the issue of repeal/omission made in a statute and the consequences thereof. Since right to appeal is a substantive and, certainly, if it was there in the statute when the appeal was filed and, subsequently, if the statute had omitted the provision, the substantive right of appeal vested in a party would not be taken away by holding the repeal to be retrospective. However, in the case in hand, a substantive provision, being in fact a charging provision, has been omitted/deleted and consequently benefit of the same has to be given to the assessee. Thus, we are inclined to follow the Hon’ble Karnataka High Court judgement and, on that basis, the additional ground raised by the assessee deserves to be allowed and consequently the whole exercise done by ld. AO to bench mark the transaction of purchase of development right, stands being void.

32. Next, coming to remaining three issues on merits covered in ground Nos.2 to 5, in appeal of assessee, on which Ld. CIT(A) has given the findings, it comes up that the Revenue does not dispute the fact that the development rights were purchased by the assessee for Rs.925 crores on the basis of the valuation done by M/s Cushman & Wakefield and and the same is far above the circle rates. In fact, when the subject land was purchased by DHDL in the year 2007, the consideration paid was 1648.13 Cr., which was like 6 times the then notified circle rates. So there is no question of under or misrepresented consideration in the transaction. In fact the sales consideration received by DHDL has been subjected to tax and seller has paid tax upon sales consideration which is higher than tax that would have been payable if circle rate was taken as sales consideration. So there is no reason to doubt the transaction as a whole and to make adjustments for mere reason that assessee had filed TP study report, as measure of caution and to avoid penalty.

33. It appears from the orders of the ld.CIT(A) and the submissions of the ld. DR that provisions of section 50C of the Act had heavy bearing on their mind. However, we are of the considered view that the deeming income provisions of section 43CA, 50C and 56(2)(vii)(b) of the Act intend to be operational where the Act intends to tax an un-reported part of the consideration allegedly occurring in a capital asset transfer. To be more specific, Section 50C of the Act is rather applicable to tax, the deemed income in the hands of seller. Reliance in this regard can be placed on judgement of Hon’ble Gujarat High Court in the case of Gayatri Enterprises vs. ITO 2019 (9)TMI 777).

34. At the same time, the provisions of section 92C of the Act come into effect where a transaction, international or domestic, has to be examined for the limited purpose of computation of arm’s length price of the transaction. The intention of section 92CA is to make adjustment in the consideration involved in the said transaction on the basis that while dealing with an associated enterprise an assessee had entered the transaction in a manner that the price or consideration paid towards acquisition of any tangible or intangible asset is less than the market value leading to avoidance of tax.

34.1 Thus, Section 92 of the Act provides that any income arising from an international transaction shall be computed having regard to the arm’s length price. Section 92C of the Act, dealing with computation of ALP, provides through sub-section (1) that the ALP shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. Five specific methods have been set out, namely, (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method. Thereafter, another method is given in clause (f), namely, such other method as may be prescribed by the Board, which has since been prescribed in rule 10BA as `Other method’. Sub-section (2) of section 92C mandates that: `The most appropriate method (MAM) referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed’. On going through the prescription of sub-sections (1) and (2) of section 92C read with section 92, it gets highlighted that the legislature has used the word `shall’ for determining the ALP under the most appropriate method and the most appropriate method is to be applied having regard to the nature of transaction or class of transaction etc. The crux is to apply the most appropriate method for determining the ALP having regard to the nature of transaction etc. It means we need to first understand the nature of transaction and then select the method for the ALP determination, that is befitting its nature etc. The ultimate aim of Chapter –X of the Act is to determine the arm’s length price of the transaction. The methods prescribed are only the means of achieving the object of the ALP determination.

34.2 When assessee is paying for land at market price which is higher than circle rate, we are of the considered view that as for the purpose of section 92CA of the Act, invoking the principles of section 50C of the Act and to apply circle rate is not justified because while dealing with an associated enterprise the assessee cannot be said to have entered the transaction in a manner that the price or consideration paid towards acquisition of asset is less than the market value leading to avoidance of tax. It appears that Ld. CIT(A) and TPO both have missed the basic principle that at first the nature of transaction has to be understood and then only after giving finding of fact that while dealing with an associated enterprise, an assessee had entered the transaction in a manner that the price or consideration paid towards acquisition of any tangible or intangible asset is less than the market value leading to avoidance of tax, the provisions of Section 92CA of the Act should be invoked. The only should select the most appropriate method for the ALP determination, that is befitting its nature etc. The point to be thus noted is the selection of actual most appropriate method in the facts of the case is essential and not the perception of the assessee or the TPO to this effect.

34.3. Thus we move to consider and determine the three issues, by first taking up controversy, as to what should be the most appropriate method for benchmarking the transaction in issue. Assessee has claimed that it has chosen the `Other method’ being average of Sales Comparable Method and Discounted Cash Flow Method. Ld. TPO has discarded the two methods applied for arriving the average for valuation of transaction and instead the Ld. TPO adopted Circle rate as most appropriate method of valuation. We are of the view that the same also amounts to adopting ‘other method’ as MAM. In this context, after considering all the aspects, we like to conclude that assessee was justified to adopt the ‘other method’ as most appropriate method since this method stipulates for determining the ALP of a transaction under any method, which takes into account (and not directly considering) the price charged or paid, or that would have been charged or paid, for the same or similar uncontrolled transaction considering all the relevant facts. The term `would have been charged or paid’ may encompass quotations or valuation reports etc., instead of actual comparable. The specific methods, such as, the Comparable Uncontrolled Price, Resale Price, Cost plus etc., which provide for the ALP determination by considering the profit/price actually transacted, would not have been applicable in the absence of availability of actual transacted price in a comparable uncontrolled situation, thus leaving room to look for a probable price of asset, that would have been transacted for same or similar property. The fortiori is that the `other method’ was rightly considered as most appropriate method as none of the other five specific methods was capable of application.

34.4 The market rate of real estate transaction, have to be determined on individual basis and thus there was no error on the part of assessee to claim that for benchmarking “other method”, was found to be most appropriate method. Consequently we have no hesitation to hold that Ld. TPO and so also the Ld. CIT(A) have fallen in error in discrediting the method adopted by assessee on basis of Valuation Report and to make adjustment of the transaction on the basis of Circle Rate.

35. Further, being conscious to the fact that the transaction under scrutiny is of a real estate sector, which has its own peculiarity and each subject of real estate transaction is unique in itself, self contained and has to be considered in wholesome way, we examine the question if TPO was justified to reject the Valuation report of Cushman & Wakefield, and adopt the Circle rate for benchmarking the transaction. As we take into consideration the Valuation report made available at page 50-94 of the paper book we find that the Valuer has given a very detailed report about the methods used, the data available, the limitations of both the methods and the data.

36. As with regard to the valuation calculation on Land Sales Comparable Method the comparable instances from the B, C, D Blocks of Moti Nagar, New Delhi have been used and based on the location, profile of surrounding development, frontage, accessibility & road width, large size of subject property, FSI available and negotiation, the premium or discount has been assigned to the subject property.

36.1 However, the Ld. CIT(A) has not approved this method and held that, “It is observed that ‘sales comparable method’ is akin to comparable uncontrolled price (CUP) method where the criteria for selection of comparables is very strict. However, in this case land has been compared to the sale transaction of flats/apartments. Thus, the comparables selected for the valuation in this case are totally different and do not at all meet the strict comparability criteria. Therefore, the sales comparable method applied in the particular manner is not an appropriate method for valuation of land in this case.”

36.2 We do not agree with the observation of Ld. CIT(A) to hold ‘sales comparable method is akin to comparable uncontrolled price (CUP)’. The sales comparison method is a real estate centric approach that compares one property to comparables or other recently sold properties in the area with similar characteristics. This method accounts for the effect that individual features of parties or property, have on the overall value. In other words, the total value of a property is the sum of the values of all of its features. On the other hand, the comparable uncontrolled price (CUP) method establishes a price based on the pricing of similar transactions that have taken place between third parties. The individual features of the transaction are generally not relevant. The CUP method makes a comparison between the price charged for a specific product/service for a specific quantity at a specific moment with comparable terms and conditions and quantities. When comparable uncontrolled prices exist, then only this method is applicable. However, in case of transaction like we are dealing of Development rights, there is very less possibility of comparable uncontrolled prices being in existence. Infact TPO himself had fallen on circle rate only, and could not give any other comparable uncontrolled price/value.

36.3 It is for this reason we are of opinion that the principles applicable to land acquisition matters where market value is determined on the bases of certain parameters peculiar to the parties and property, is more appropriate method of valuation of market price, than the circle rates. Infact it comes up that before the Ld. CIT(A), on behalf of assessee, on the basis of the judgement Lal Chand V. UOI (2009) 15 SCC 769 and UOI V. Savitri Devi 2017 SCC Online 1400 it was submitted that circle rate is not suitable parameter or comparable for making any adjustment of a transaction involving land. The Ld. CIT(A) has distinguished them by observing that these observations of Hon’ble Supreme Court are in regard award of compensation in land acquisition cases. On the contrary we are of the view that where the question involved is about the valuation of any land which becomes a merchantable commodity, then the market value of the land needs to be determined on certain established principles which help in arriving a fair market value of the land. In Viluben Jhalejar Contractor v. State of Gujarat (2005) 4 SCC 789 p 797, Hon’ble Supreme Court has held :-

“(19) Market value is ordinarily the price the property may fetch in the open market if sold by a willing seller unaffected by the special needs of a particular purchase. Where definite material is not forthcoming either in the shape of sales of similar lands in the neighbourhood at or about the date of notification Under Section 4(1) or otherwise, other sale instances as well as other evidences have to be considered.

(20) The amount of compensation cannot be ascertained with mathematical accuracy. A comparable instance has to be identified having regard to the proximity from time angle as well as proximity from situation angle. For determining the market value of the land under acquisition, suitable adjustment has to be made having regard to various positive and negative factors vis-a-vis the land under acquisition by placing the two in juxtaposition….”

36.4 Here we will like to consider the argument of Ld. DR that in several cases for transfer pricing analysis, various courts have taken the prices /rates taken by the custom authority/Govt. agency for benchmarking /determining ALP in Income Tax. We are of considered view that the levy of rates of excise or customs, is generic for the class of product, to earn Revenue. The purpose is to have uniformity of levy. However, circle rates are not fixed to levy uniform stamp duty, but to ensure there is no undervaluation of particular property. The principles and methods of arriving at the rates or prices of merchantable products, as determined by the Custom authority cannot be equated with the circle prices for land.

36.5 Thus, we find no fault in valuation arrived using the relevant parameters and adding premium or discounting, the value, on those parameters. The Valuer’s Report is quite in conformity with the principles and method by which market value of a real estate property should generally be arrived at.

37. Then coming to the valuation calculation on DCF method, the Valuer has primarily calculated the saleable area of 1.43 million sq. feet on the basis of effective FAR of 4.0. Then having taken into consideration the fact that the subject property would be extension of residential township of DLF Green. Further taking into account the cost assumptions, the value of cash inflow at Rs.15,500/- per sq.ft as an appropriate selling rate for subject property is calculated. Certainly the benchmarking has been done on basis of sale rate of apartments of other residential projects, but then the development rights are acquired for apartments proposed at the subject property. It is also coming up that in benchmarking with other property the range is kept between Rs. 13,000/- per sq. feet to Rs. 19,500/- per sq feet. Excluding the high end Queen and King Court projects of Rs. 40,000/ and 45,000/- per sq. feet.

37.1 Ld. CIT(A) has however, discredited this method and held, “Further, at the time of transaction, the property under consideration was simply a piece of land which did not have any intangibles. Admittedly, DCF method is suitable for the valuation of running business which has tangibles as well as intangibles. The valuation using DCF method in this case is based on various assumptions and projections. The DCF method applied here is not on a sound basis. Therefore, DCF method is also not an appropriate method for valuation of land in this case.”

37.2 In our understanding the Discounted cash flow (DCF) refers to a valuation method that estimates the value of an investment using its expected future cash flows. DCF analysis attempts to determine the value of an investment today, based on projections of how much money that investment will generate in the future. In case of real estate project, initial cost, annual cost, estimated income, and holding period of a property are some of the variables used in a DCF analysis. We are of considered view that more than to determine the profitability, but to atleast ensure the viability, of an investment, DCF method is often used in real estate sector. DCF method is not only applicable where the assets-based approach is applied and the value of a business is derived from the FMV of the assets (tangible and intangible) less the liabilities. But in case of real estate development projects the income-based approach of the DCF method, is more appropriate method, as rightly applied by the valuer. Thus absence of tangibles could not have been basis to discard the DCF method.

38. Now coming to the wisdom of TPO to apply circle rates to make adjustment we are in agreement with Ld. AR that certainly the circle rates never are correct reflection of the market rates. Circle rates are merely fair market value of the land for fiscal purposes but cannot be considered to be market value. When a transaction involving land is to be benchmarked, then the market value is more realistic parameter for making the adjustment and not the circle rates. Thus at one end, the Ld. CIT(A) and Ld. TPO have fallen in error in invoking the provisions of Section 92CA of the Act and on the other hand in discarding the valuation report and to substitute it with circle rate.

39. Resultantly, the ground no. 1 and 3 with their sub grounds are decided in favour appellant and as a consequence to same the ground no. 2, 4 and 5 have become academic and are left open.

40. Now coming to Ground No. 6 with sub-grounds, the assessee company has challenged the order of Ld.CIT(A) of confirming disallowance of claim of expenses aggregating Rs. 77,56,583/-. It comes up that the Ld.CIT(A) has sustained the findings of assessing officer that no proper details in support of claim of expenses were filed. The Ld. Counsel has submitted that out of total expenses of Rs. 1,53,04,789/-, the assessee company has suo moto disallowed expenses to the tune of Rs. 75,48,006/- and the balance claim of expense to the extent of Rs. 77,56,593/- is in respect of routine business expenses such as insurance, payment to auditors, debenture issue expenses, legal and professional expenses etc. which have direct nexus with the business of assessee and are accordingly allowable.

41. We have considered the findings of assessing officer and observe that disallowance is primarily on basis that no business income has been earned by the assessee during the year. It seems that Ld. AO completely blind folded himself to the nature of business activity of the assessee and as to in what mode the revenue will be generated over the years. As we examine the break-up of claim of expenses aggregating to Rs. 77.56,593/- coupled with audited financial statement, we find that the expenses appears to be of routine business expenses. However, as Ld. AO was not given relevant details and same require verification, we deem it justified to restore this issue back to the files of Ld. AO, and accordingly the ground no. 6 is allowed for statistical purposes.

42. Now coming to the appeal filed by the Revenue in ITA No. 2078/Del/2022, Ld. DR has submitted that the Ld. TPO in his order has dealt in detail why the ALP determined by the assesse was not proper and he claimed that based on speaking order the Ld. TPO computed the ALP of the interest on loan of CCD/ODC at the rate of 10.25% against 15% paid by the assessee. Ld. DR has submitted that the Ld. CIT(A) order was contradictory because on one hand he disagrees with the TPOs approach of conducting the fresh search and also the introduction of two comparables selected by him, on the ground that the company are not similar to the asseessee’s company. The Ld. C1T(A) also mentioned that the TPO did not apply the correct industry filter. Ld. DR submitted that the action of the Ld. CIT(A) is clearly erroneous as he has accepted the 47 comparables selected by asseessee company without examining/analysing the functional profile and other terms and conditions including nature of the financial products/debentures etc.

42.1 The Ld. AR of the assessee however relied the order of Ld. CIT(A) and contended that the Ld. TPO arbitrarily rejected the 47 comparables selected by the assessee company and substituting the same with 2 comparables.

42.2 Giving our thoughtful consideration to the issue, regarding transfer pricing adjustment u/s 92CA of Rs. 6,29,72,610/- in respect of interest paid to AE on CCD/OCD. It comes up that the assessee company has benchmarked the transaction based on CUP method and the ALP of interest was determined at 15% based on 47 comparables. The Ld. TPO rejected the comparables so selected by the assessee company and coupon rate of 10.25% was treated as ALP based on 2 separate comparables thus resulting in the transfer pricing adjustment. The Ld. CIT(A) has decided the issue with following finding:

“24.18 It is observed that the TPO conducted fresh search on the Bloomberg database; however, the parameters such as year of issue, tenure of the instrument etc. which need to be considered while performing the search have not been considered by the TPO. It is also observed that the two comparables considered by the TPO were the companies which were not similar to the appellant company. The companies identified by the TPO operate in different industry i.e. Rubber products (Suja Shoei Industries Private Limited) and Energy sector (Celestial Solar Solutions Private Limited). Thus, TPO did not apply the industry filter for determining the ALP which is critical as the rates of interest may differ from industry to industry based on the circumstances prevailing in each industry. Further, in a high-risk industry like the real estate sector, the rate of interest is likely to be more vis-a-vis a low-risk industry. It is also observed that the instruments selected by the TPO are bonds/loans instead of CCDs (as issued by the appellant).

24.19 Thus, the TPO was not justified in rejecting the comparables of the appellant which are third-party debentures similar to the nature of the inter-company debentures issued by the appellant. The TPO is directed to consider the 47 comparables selected by the appellant for the purpose of benchmarking. Further, though the two comparables considered by the TPO are not entirely comparable as they pertain to different industry. However, in order to further broad base the list of comparables, the TPO is directed to add the two comparables chosen by the TPO to the list of 47 comparables.

24.20 The average rate of interest on such 49 comparables comes to 15.34%. After adding the two comparables selected by the TPO, the 35th percentile comes to 15.00% and the 65th percentile comes to 18.00% with a median of 16.00% which is higher than the 15% coupon rate of interest paid by the appellant company. Therefore, the adjustment made by the TPO is not justified and warranted. Thus, addition made by the AO/TPO of Rs 6.29 crores on account of disallowance of interest on CCDs/OCDs is deleted. The ground of appeal 3(2) is allowed. ”

42.3 We are of considered view that Ld. CIT(A) has thoughtfully taken into consideration the facts in wholesome manner and has adopted a judicious approach by considering median @16% based on 49 comparables i.e. 47 comparables selected by assessee company as well as 2 by TPO. Even if the 2 comparables were not of same industry but as the assessee does not object to their inclusion, the order of Ld. CIT(A) cannot be faulted. There is no apparent infirmity requiring our indulgence. Accordingly, the grounds so raised have no substance.

43. In the result, the appeal of assessee is allowed with consequential effects as per the determination of grounds and appeal of Revenue is dismissed. Order pronounced in the open court on 08.04.2024.

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