TMI Blog2016 (8) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER For The Appellant : Shri Vijay Mehta For The Respondent : Shri Vivek A Peram Purna ORDER PER C.N. PRASAD, JM: This appeal is filed by the assessee against the order of the Ld. CIT(A)-15, Mumbai dated 13.1.2014 pertaining to assessment year 2008-09. 2. The only issue in the appeal of the assessee is that the Ld. CIT(A) erred in upholding the adjustments made by the Assessing Officer on account of non-charging of interest on advance given towards 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be charged, the rate of interest to be applied is at LIBOR and not at the prime lending rate as applied by the TPO. The contentions of the assessee were rejected by the Ld. CIT(A) and confirmed the order of the Assessing Officer. 6. The Ld. Counsel for the assessee Shri Vijay Mehta submits that during the previous year relevant to assessment year the assessee was in the process of setting up 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 assessee intends to set up 8.0 MTPA Integrated Iron Ore Pellet Plan comprising of Beneficiation Plant and a slurry transportation system and pellet plant at Joda, Orissa. The assessee requires design, engineering am procurement services and M/s Global Supplies (UAE) FZE had requisite experience, capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 advance and the assessee has concealed the real position of the transaction. The agreement for supply of machinery is at Pg 1 of P.B. The agreement provided for detailed terms and condition for supply of machinery. It also provides for payment of advance @ 10% of total value. Further, the machineries worth USD 85.22 millions has been actually supplied under said agreement. It is further submitted that the said amount has been shown as 'Advance for EPC contracts' under the head capital work in 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench considered a situation where assessee subscribed for shares and this subscription was treated as advancing of loan by the TPO by re-characterizing the transaction and in such situation, the Co-ordinate bench held as under: We have heard the rival 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 an uncontrolled third party situation, interest would have been charged. We are unable to appreciate such an approach of TPO and under what circumstances, leave above any exceptional circumstances, a transaction of subscription of shares can be re-characterized as Loan transaction. The TPO /Assessing Officer cannot disregarded any apparent transaction and substitute it, without any material of exception circumstance highlighting that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn 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 this tribunal order, the tribunal has considered this argument also that there is delay in allotment of shares. The tribunal stated that since 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, the very foundation of impugned ALP adjustment is devoid of legally 6 ITA No. 7026, 7025 7608 /Mum/2013 sustainable merits. In the present case also, 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 order, the TPO starts with this obse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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