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2015 (9) TMI 1041 - AT - Income TaxTransfer pricing adjustment - addition on interest on the deemed loan resulting from the receipt of share application money equal to face value in full and final settlement of consideration, at value lower than the fair value estimated by the Transfer Pricing Officer (TPO) - whether any addition towards transfer pricing adjustment on account of interest on deemed loan can be made under the circumstances as are obtaining in the instant case? - Held that:- Though the international transaction on capital account itself would not lead to generation of any income because of the transfer pricing adjustment, but the international transaction on capital account, which impacts income, such as, under reporting of interest or over reporting of interest paid or claiming of depreciation etc. is required to be adjusted to the ALP price, which is not a tax on the capital receipts. Thus if such offshoot transactions of the original transaction on capital account, such as, interest or depreciation are not at arm’s length price, then it is mandatory to determine their ALP and make addition, if any, on account of transfer pricing adjustment. The Hon’ble Bombay High Court in Shell India Markets Pvt. Ltd. Vs. ACIT and Others, (2014 (11) TMI 897 - BOMBAY HIGH COURT) has dealt with a case in which equity shares were allotted by an Indian enterprise to its non-resident AEs at face value. The TPO enhanced the value of shares from the face value of ₹ 10 to ₹ 183.44 per share and computed the ALP of this transaction accordingly. Apart from making the resultant addition on account of such transaction on capital account, he also held that interest on the deemed loan due to short receipt of the consideration resulting in transfer pricing adjustment, was also to be made. Such interest was also benchmarked and addition was made. The Hon’ble High Court, following the judgment in Vodafone India Services Pvt. Ltd. (2014 (10) TMI 278 - BOMBAY HIGH COURT) held that there can be no addition by applying the provision under Chapter-X on account of less share premium received and also the consequential interest on the resultant deemed loan. The learned DR has not drawn our attention towards any contrary judgment not mandating the determination of ALP of interest on deemed loan consequent upon issue of shares by an Indian company to its non-resident AE at lower price than its fair market value. Respectfully following the precedent, we hold that the addition of ₹ 15.18 lac on account of interest on the deemed loan due to under-receipt of share premium, upheld by the learned CIT(A), cannot be sustained. Accordingly, the addition is deleted - Decided in favour of assessee.
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