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M/s. Essar Steel Orissa Ltd., (Since merged with Essar Steel India Ltd.) Versus The ACIT, Range 5 (1) , Mumbai

2016 (8) TMI 415 - ITAT MUMBAI

Addition on account of non-charging of interest on advance given towards supply of equipment by the assessee to its AE - Held that:- The assessee has made advance of 10% of the contract price to its AE for offshore supply contract. The TPO was of the view that interest should be charged on such advances to AE. The TPO charged interest on advance paid by the assessee against supply of machinery as if such advance is loan to its AE, therefore interest is to be charged on such advance. The TPO has .....

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ssessee against supply of machinery as if such advance is loan to its AE, therefore interest is to be charged on such advance. The TPO has not brought any material on record to suggest that this is only a loan and therefore interest is to be charged. The TPO re-characterized the whole transaction and this is not permissible without any materials or evidence suggesting that such advance is only a loan. - Decided in favour of assessee. - I.TA No. 2289/Mum/2014 - Dated:- 22-6-2016 - SHRI RAJENDRA, .....

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ards supply of equipment by the assessee to its AE. 3. Brief facts are that the assessee-company was incorporated on 14th June, 2006 as a wholly owned subsidiary company of Essar Steel India Ltd which is an integrated steel manufacturing unit of flat rolled products in Hazira, District Surat at Gujarat. The assessee was in the process of setting up 8.0 MTPA integrated Iron Ore Pellet plant comprising of Beneficiation Plant at Joda in Orissa and a Slurry transportation system and pellet plant at .....

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assessee in conformity with the Arm s Length Price determined by the TPO in the order passed u/s. 143(3) r.w. section 144C of the Act dated 15th December, 2011. The assessee by letter dated 2.1.2012 informed the Assessing Officer that it would not be filing objections before the Dispute Resolution Panel and requested for passing final order. The final order dated 24.1.2012 was passed u/s. 143(3) of the Act. 4. During the previous year ended 31.3.2008, the assessee made trade advance of 10% of th .....

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to determined by following CUP method and Benchmarked the interest arising out of the advance transaction applying CUP method based on the information about the average yield on long term instrument during financial year 2007-08 which was collected u/s. 133(6) from CRISIL Ltd. and arrived at interest rate of 18.81% and calculated the adjustment at ₹ 1,24,30,054/-. 5. The assessee preferred an appeal before the Ld. CIT(A) and contended that advance was made only towards supply of goods, sup .....

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8.0 MTPA Integrated Iron Ore Pellet Plant comprising of Beneficiation Plant and a slurry transportation system and pellet plant at Joda, Orissa. It has an Associated Enterprise (AE) in UAE namely Global Supplies (UAE) FZE. M/s Global Supplies (UAE) FZE and it is engaged in business of providing design, engineering and procurement services. The assessee has entered into an offshore supply contract dated 27.07.2007 (Pg 1 of paper book) with its AE in which it has been provided that; a) The assesse .....

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t price towards advance payment within 45 days of signing the contract through a letter of credit; i) on receipt of original invoice and ii) on receipt of bank guarantee from M/s Global Supplies (UAE) FZE for the advance amount to be paid by assessee The Ld. Counsel for the assessee submits that on the basis of the above agreement, the assesse received bank guarantee from M/s Global Supplies (UAE) FZE issued by Bank of India London branch dated 11.01.2008 for the amount of advance to be paid. Th .....

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est amounting to ₹ 1,24,30,054/- by applying rate of 18.81% p.a. for 72 days. It is submitted that the TPO has erred in calculating interest for 72 days. The advance payment was made on 31.01.2008 so if at all interest was to be charged, it was to be charged for a period of 60 days and not 72 days as calculated by TPO. The Ld. Counsel for the assessee submits that the CIT(A) confirmed the view of Assessing Officer that assessee ought to have charged interest on advance given towards purcha .....

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Addl. CIT being ITA No: 5816/De1/2012 dated 11/03/2014. c) DIT v. Besix Kier Dabhol SA [210 taxman 151 (Bom)] (Head note) d) M/s Pan India Network Infravest Pvt. Ltd v. Addl. CIT (ITA No: 7026/Mum/2013 dated 04.12.2015) The Ld. Counsel for the assessee submitted that the assessee has demonstrated with the help of evidences that the money paid is towards advance against supply of equipment. Further, the TPO has not brought any evidence on record to prove that the said transaction is not an advanc .....

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progress in the balance sheet of the assessee (Pg. 67, 70 of P.B.). Thus, the agreement for supply and consequential advance payment thereunder could not have been doubted and rightly has not been doubted by A.O. or CIT(A). It is submitted that the facts of the present case are better than that of cases cited hereinabove in para 7 in as much as in present case, A.O. and CIT(A) have not even attempted to allege that advance against machinery is in reality a loan. The Ld. Counsel therefore prayed .....

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Hinduja Global Solutions Ltd v Addl.CIT [145 ITD 361 (Mum)] c) Siva Industries & Holding Ltd. vs. CIT [145 DJ 497 (Chen)] . Without prejudice, it is further submitted that the amount was advanced by the assessee on 31.01.2008. Hence, if at all interest is to be computed, it has to be computed for 60 days and not 72 days as calculated by the TPO. The TPO has erred in calculating interest from the date of invoice instead of date of payment made which is erroneous. Without prejudice to the abov .....

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f the authorities below. The assessee has made advance of 10% of the contract price to its AE for offshore supply contract. The TPO was of the view that interest should be charged on such advances to AE. The TPO charged interest on advance paid by the assessee against supply of machinery as if such advance is loan to its AE, therefore interest is to be charged on such advance. The TPO has not brought any material on record to suggest that this is only a loan and therefore interest is to be charg .....

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submissions and also perused the relevant findings in this regard in the impugned orders. The assessee has subscribed to redeemable preference shares of its AE, Essar Services, Mauritius and has also redeemed some of these shares at par. The TPO has redeemed some of these shares at par. The TPO has re-characterized the said transaction of subscription of shares into advancing of unsecured loan by terming it as an exceptional circumstance and has charged/imputed interest, on the reasoning that in .....

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am transaction has been unearthed. The TPO cannot question the commercial expediency of the transaction entered into by the assessee unless there are evidence and circumstances to doubt. Here it is a case of investment in shares and it cannot be given different colour so as to expand the scope of transfer pricing adjustments by re-characterizing it as interest free loan. Now, Aegis Limited ITA No.1213/M/2014 24 whether in a third party scenario, if an independent enterprise subscribes to a share .....

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by treating it as a loan. Accordingly, on this ground alone, we delete the adjustment of interest made by the Assessing Officer. Thus, ground no. 14 is treated as allowed. 28. Next issue relates to adjustment of ₹ 16,70,226/- 8. In the case of Bharati Airtel Ltd., in ITA No. 5816 of 2012 dated 11.3.2014, the Co-ordinate Bench held as under: Ïn any event, it is not open to the Revenue authorities to recharacterize the transaction unless it is found to be a sham or bogus transaction. Wh .....

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effect. 9. In the case of Pan India Network Infravest Pvt. Ltd Vs ACIT in ITA No. 7026 & 7025/M/13 dated 4.12.2015, the Co-ordinate Bench held as under: Now, we examine the applicability of the tribunal order rendered in the case of Bharti Airtel limited vs. Addl. CIT (Supra). In that case, the money was advanced to AE foreign subsidiaries as share application money as in the present case and shares were allotted after 13 to 16 months as against 42 months in the present case. In Para 47 of t .....

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o, the TPO has not brought on record anything to show that any unrelated share applicant was to be paid any interest for the period between making the share application money payment and allotment of shares. In fact, in the present case, the TPO has reproduced the submissions of the assessee in Para 4.2 of his order where the assessee submitted that the amounts were provided as equity/quasi equity and subsequently converted into equity shares. Thereafter in very next Para i.e. Para 4.3 of his or .....

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