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2016 (11) TMI 1031 - ITAT DELHIExistence of international transaction - tpa - interest free loans given to AE - Held that:- If the tax payer claims it is an interest free loan as a share holding activity, to be utilized by the AE for acquiring and increasing its portfolio and on utilization and fulfilling the internal and external requirements by way of permissions and procedures of the regulatory authority etc. it is to be converted into equity and that too at a premium then it is the correctness of this claim which is to be specifically addressed and decided. Merely because it is shown as an international transaction itself will not decide the claim. The consistent objection posed by the assessee that the act of advancing interest free loan as “quasi equity” for the stated purpose was supported by documents and hence not an “international transaction”, cannot be ignored on the specious plea that disclosure was made by the tax payer in its Form 3CEB There is nothing on record to support the conclusion that the interest free loan must necessarily be deemed to be an interest earning activity and not an activity to capitalize the opportunity cost for investing in new territories. We hold that for the tax authorities to consider re-characterizing the transaction the tax authorities must necessarily demonstrate that the transaction as claimed and documented is a sham or on the basis of facts and evidences is at a substantial variance with the stated form. In the absence of any such exercise the tax authorities are entering at their peril in the realm of arbitrariness. In the facts of the present case there is not even a whisper of a suggestion that it was a bogus transaction, as admittedly shares have been allotted. There is nothing in the provisions of the Act which empowers the tax authorities to insist that the interest free loan towards its AE for capitalization the opportunity of cost of entering in new territories must necessarily by modified and re-characterized into a loan simplicitor and considered to be an activity for earning interest. The tax authorities must bring on record facts and evidences impacting the veracity of the claim of the assessee and demonstrate the hollowness of the assessee’s claim. No such exercise has been done to counter the consistent claim of the assessee demonstrated by facts on record that the intention was to capitalize the opportunity cost and not to encash the opportunity to best utilize the available funds. - Decided in favour of assessee Disallowance u/s 14A - Held that:- Considering the judicial precedent cited and in the absence of any rebuttal on the material facts that these constituted strategic investments for the assessee, we direct the AO to examine the correctness of the computation placed on record by the assessee which as per the calculation sheet at page 19 is shown to be working out to ₹ 91,021/-, when it is compared with the suo moto disallowance of ₹ 2,28,777/- made by the assessee we find no further disallowance on facts is warranted. The fact of suo moto disallowance is evident from the second last page of the AO itself. Accordingly, we hold no further disallowance need be made subject to the verification of the calculation placed on record.
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