Business Restructuring Amongst Foreign Group Entities To Eliminate Duplicate Corporate Procedure Is ‘International Transaction’ U/s 92B: Mumbai ITAT

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Business Restructuring Amongst Foreign Group Entities To Eliminate Duplicate Corporate Procedure Is ‘International Transaction’ U/s 92B: Mumbai ITAT

 

Dimexon Diamonds Ltd vs ACIT

Case Number: ITA. No 2429/Mum/2022

Facts:

  1. The assessee, engaged in diamond manufacturing/distribution, was a wholly owned subsidiary of Dimexon (India) Holding Pvt. Ltd. (DIHPL), which in turn was wholly owned by Dimexon International Holdings B.V., Netherlands (DIHBV).

  1. The assessee entered into scheme of amalgamation with DIHPL, which was sanctioned by NCLT. Accordingly, assessee’s holding company became DIHBV, and assessee paid purchase consideration for the merger to DIHBV in the form of equity shares, CCDs and cash.

  1. The TPO took the view that assessee’s valuation report had no scientific basis, and that fresh equity shares issued to DIHBV represent fair value of assessee’s shares post-merger but consideration paid in the form of CCDs and cash is excessive payment and not at arm’s length.

  1. The TPO thus held that cash of Rs.100 crore paid to DIHBV represents deemed loan and computed interest thereon, and that ALP of interest paid on CCDs should be treated as NIL.

ITAT Mumbai held as below:

  1. Business restructuring is not defined in the Act, but as per the OECD Guidelines, the business restructuring in the present case is an organizational change in the Dimexon Group.

  1. Merely because the scheme of amalgamation appears to be fair and reasonable and not violative of any provision of law or contrary to public policy, the same doesn’t mean that the consideration paid pursuant to the said scheme is also at arm’s length price and if the TPO has proceeded to compute the arm’s length price as per the provisions of Chapter-X of the Act the same cannot be construed to be sitting over the judgment of the Court/Tribunal in approving the scheme of amalgamation.

  1. The valuation reports submitted by assessee cannot be considered for benchmarking of payment of merger consideration by adopting “other method” as MAM, since the purchase consideration, though stated to be determined by applying Net Asset Method, is based on management decision.

The copy of the order is as under:

1706614328-2429 - SSK + AS - DIMEXON DIAMONDS - OK

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