Transfer pricing adjustments - Interest on deemed loan by recharacterizing equity into debt - Depreciation on business rights/intangible assets 

Facts:

1. Assessee an ITES/BPO entity had acquired 132500 shares of WNS Global Services UK from WNS Holdings Ltd for USD 25.484 mio./INR 43932 lakhs with its face value as INR 11.66 lakhs and INR 43921 lakhs as share premium based on valuation certificate of a merchant banker. The valuation report had adopted the DCF method and the Market - Comparable Companies Approach (CCM) with a per share price of INR 32,741/-. The transfer pricing officer rejected the CCM method and adopted his own DCF method and derived a price of Rs. 19,612/- per share and computed the difference of the purchase price into a deemed loan to its Associated Enterprise and added the same as interest under TP provisions. DRP gave partial relief on the interest rate applied but upheld the addition. On appeal to ITAT assessee canvassed that if there was no income implication there cannot be any TP adjustment made thereafter and the purchase price as per independent valuation report cannot be disturbed. The difference on the DCF working by the AO was primarily due to post facto actual figures taken by the TPO while the same was on the basis of the projections for the valuation report by the independent valuer. Besides this in the subsequent years these acquired shares were sold in parts during assessment year 2016-17 (9%), 2017-18 (26%), 2018-19 (14%) and the TPO chose not to disturb the sale value.

2. Separately as another point of appeal - assessee claimed depreciation on intangible assets on customer contracts, non-compete fees, customer relationships. AO and DRP disallowed the depreciation on some of these intangible assets. On higher appeal -

Held in favour of the assessee -

1. There was no requirement to disturb the purchase price of the shares under transfer pricing. TPO cannot substitute the actual figures with the projections of the valuation report.

2. Assessee was entitled to depreciation on the intangibles.

Applied: 

For Share purchase TP issue - 

Own case of the assessee (ITA No.1259/Mum/2021) order dated 09-12-2022

Vodafone Services (P) Ltd v. UOI (WP No.871 of 2014) and Shell India Market Pvt Ltd v. ACIT (WP No.1205 of 2013, dt. 18-11-2014) : 2014 TaxPub(DT) 4335 (Bom-HC) wherein the Honble High Court has held that in the absence of income from admitted international transaction, the Indian Transfer Pricing provisions are not applicable

For Depreciation on intangibles -

Areva T and D India Ltd v. DCIT (2012) 345 ITR 421 (Del) : 2012 TaxPub(DT) 2033 (Del-HC) 

Skyline Caterer (P) Ltd (2008) 118 TTJ 344 (Mum) : 2008 TaxPub(DT) 1400 (Mum-Trib) 

Weizmann Forex Ltd (2012) 21 Taxmann.com 99 (Mum-Trib) : 2012 TaxPub(DT) 2177 (Mum-Trib) 

India Capital Markets (P) Ltd v. DCIT (2013) 56 SOT 32 (Mum) : 2013 TaxPub(DT) 1131 (Mum-Trib)

CIT v. Areva T and D India Ltd (2021) 129 taxmann.com 55 (Madras) : 2021 TaxPub(DT) 1803 (Mad-HC)

Serum Institute of India Ltd v. ACIT (2012) 135 ITD 69 (Pune) : 2012 TaxPub(DT) 1916 (Pune-Trib)

Own case for A.Y. 2005-06 (ITA No.631/Mum/2011) read with Miscellaneous Application (No.261/Mum/2019 dated 16/01/2019)

Ed. Note: The summary of the valuation report is worth noting -

Case: WNS Global Services (P) Ltd. v. Asstt. CIT 2023 TaxPub(DT) 5561 (Mum-Trib)