TMI Blog2019 (5) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... OURT] upholding the decision of the Tribunal - we hold that re characterization of preferential shares as interest free loan is invalid. Accordingly, we delete the addition made on account of adjustment made by the Transfer Pricing Officer on this account. Grounds are allowed. Disallowance of interest expenditure u/s 36(1)(iii) - HELD THAT:- As regards the interest free loans advanced to the related parties in India amounting to ₹ 51,56,903, it is seen from the material on record that the assessee had huge surplus fund available with it amounting to ₹ 1844,95,00,000. Therefore, it is manifest, own funds available with the assessee was far in excess to the interest free loans advanced to the related parties. That being the case, no disallowance under section 36(1)(iii) can be made out of the interest expenditure in view of the ratio laid down in the decision of the Hon'ble Jurisdictional High Court in Reliance Utilities And Power Ltd. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] . Notably, similar disallowance was made by the AO in assessee s own case in assessment year 2009 10. The Tribunal having found that the assessee had sufficient fund available with it to adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of shares is zero percent non convertible preferential redeemable at par. He also noticed that the AE was not liable to pay any consideration with these shares. Therefore, the Transfer Pricing Officer was of the view that the transaction relating to subscription in preferential shares is international transaction covered by Explanation 1(c) to section 92B of the Act. He was of the view that the underlying intention for investment in preferential shares is to grant interest free loan to the AE. Accordingly, he called upon the assessee to explain why arm's length price of interest chargeable on the closing balance of preferential shares should not be determined. Though, the assessee objected to the proposed adjustment, however, the Transfer Pricing Officer rejecting the objection of the assessee re characterized the closing balance of preferential shares as interest free loan and computed arm's length price of the interest by applying the rate of 11.91%. This resulted in an adjustment of ₹ 69,96,12,440. The aforesaid transfer pricing adjustment was added back to the income of the assessee in the draft assessment order. 5. Though, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal filed by the Revenue against the said order of the Tribunal is pending before the Hon'ble Jurisdictional High Court. However, as brought to our notice by the learned Authorised Representative, in the meanwhile, the Hon'ble Jurisdictional High Court has disposed of the appeal filed by the Revenue for the assessment year 2009 10, vide judgment dated 28th January 2019, in ITA no.1248/2016, upholding the decision of the Tribunal. Further, while deciding identical issue in the assessment years 2010 11 to 2013 14, the Tribunal has decided the issue in favour of the assessee in the orders referred to herein below: i) ITA no.7694/Mum./2014, dated 08.02.2017, for A.Y. 2010 11; ii) ITA no.962 1556/Mum./2016, dated 12.05.2017, for A.Y. 2011 12 and 2012 13; and iii) ITA no.7348/Mum./2017, dated 06.02.2019, for A.Y. 2013 14. 9. Facts being identical, following the consistent view of the Tribunal and the Hon'ble Jurisdictional High Court, we hold that re characterization of preferential shares as interest free loan is invalid. Accordingly, we delete the addition made on account of adjustment made by the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the availability of surplus funds. Thus, he submitted, since the interest free loan was advanced out of own fund, no disallowance under section 36(1)(iii) of the Act can be made as per the decision of the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities And Power Ltd., [2009] 313 ITR 340 (Bom.). Further, he submitted, similar disallowance made in the assessment year 2009 10 by the Assessing Officer was deleted by the Tribunal and the said decision of the Tribunal was upheld by the Hon'ble Jurisdictional High Court. He submitted, the same view was reiterated by the Tribunal while deciding the issue in assessee s own case for the assessment years 2011 12, 2011 12, 2012 13 and 2013 14. 13. As regards the loan advanced to the overseas AE, the learned Authorised Representative submitted, the assessee has charged interest @ 9% on such loans and the Transfer Pricing Officer in the proceeding under section 92CA of the Act has accepted such interest payment to be at arm's length. Therefore, he submitted, the Assessing Officer cannot make addition by applying the interest rate of 11.91%. 14. The learned Departmental Representative rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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