TMI Blog2020 (1) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of securities advances having been given on account of commercial expediency of the group companies, disallowance made by the AO and confirmed by the ld. CIT (A) u/s 36(1)(iii) is not sustainable, hence ordered to be deleted Disallowance on account of foreign tour and travel expenses - expenses incurred by Director of assessee company which are pertaining to his travel to Australia and New Zealand on the ground that Shri Saurav Arora is neither Director nor employee of the assessee company and assessee company has not conducted any transactions with Australia and New Zealand Stock Exchanges - HELD THAT:- From the perusal of the reply filed by the assessee company before the ld. CIT (A), extracted in para 7.2 of the impugned order, assessee company has failed to prove the purpose for which foreign tours have been carried out by Shri Saurav Arora. Emails brought on record by the assessee company also failed to explain the purpose of foreign visits. Perusal of the foreign detail given by the assessee company, available at page 50 of the paper book, also does not disclose the purpose and result of the foreign visits. We are of the considered view that expenses Incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30, New Delhi qua the Assessment Year 2013-14 on the grounds inter alia that:- On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the disallowance of an amount of ₹ 55,73,9701- made by the AO invoking the provisions of Section 14A read with Rule 8D. (ii) That the learned CIT(A) has erred in confirming the disallowance rejecting the contention of the assessee that no expenditure on earning tax free income has been incurred by the assessee. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the shares having been held by the assessee as stock-in-trade for regular business of the assessee, the dividend income on such shares being incidental, the disallowance under Section 14A is not called for. 5. Without prejudice to the above and in the alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the assessee that the action of the AO in making the above said addition under Section 92 of the Act without referring the case to the Transfer Pricing Officer is bad in law. (iii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the act of the AO in making the above said addition without bringing any comparable on record to determine the arm's length price is bad in law. 11. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in jaw in rejecting the contention of the assessee that the transaction of providing equity to the AE is not an international transaction as defined under Section 92B of the Act. (ii) That the transaction of providing equity does not have any impact on profits or assets of the assessee, the same is not an international transaction. (iii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the AO has erred in recharacterizing the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,95,888/- on account of difference in the arm s length price on interest on equity provided to the foreign subsidiary. AO also treated the amount of ₹ 10,51,54,723/- standing in the name of the assessee in the last year as a loan given to the subsidiary during the current year and thereby assessed the total income of the assessee at ₹ 2,48,76,010/-. 5. Assessee carried the matter by way of appeal before the ld. CIT (A) who has confirmed the additions by dismissing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 7. Ground No.1 is general in nature, hence needs no adjudication. GROUNDS NO.2, 3 4 8. Grounds No.2, 3 4 are dismissed having not been pressed during the course of arguments. GROUNDS NO.5, 6, 7 8 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. rather all are regular business transactions supported with regular receipt and payment transactions occurring in the account. It is also contended by the ld. AR for the assessee that all the transactions are attributed to the business of shares/future/option of securities and drew our attention towards its financial ledger for the period 01.04.2012 to 31.03.2013, available at pages 64 to 68 of the paper book wherein business transactions with Futurz Next Services Pvt. Ltd. have been recorded. 12. It is also contended by the ld. AR for the assessee that advances to the group companies have been given out of its own paid up share capital and reserve surplus of ₹ 3,24,81,89,677/- for commercial expediency to the group companies and relied upon the decision of S.A. Builders Ltd. vs. CIT (2007) 158 taxman 74 (SC) . So, in view of the financials brought on record by the assessee company discussed in the preceding para, we are of the considered view that since transactions are pertaining of business of shares/future/option of securities advances having been given on account of commercial expediency of the group companies, disallowance made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,04,24,675/- on account of arm s length price value of the interest receivable on loans outstanding in the name of Jaypee Singapore Pte Ltd. against which the assessee has shown nil interest. It is categoric plea of the assessee company that remittance to foreign subsidiaries has been made vide capital infusion in order to extend its business and to keep its control over foreign subsidiaries. However, the AO has treated the capital infusion as deemed loan and thereby made addition on account of interest @ 13.5% on deemed loan as its arm s length price value. 18. Assessee company has raised categoric plea that foreign subsidiaries in which capital infusion was made, is part of Jaypee Capital Services Pvt. Ltd. and as such, there is no question of charging interest on the same. It is contended by the ld. AR for the assessee that transaction of investment into loan cannot be recharacterized by the AO. 19. Undisputedly, for the year under assessment, there is no loan outstanding against the subsidiary. When we examine Notes on Financial Statement ending 31.03.2013, available at page 21 of the paper book, it is proved that investment has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization rules in India, the Assessing Officer cannot disallow the interest payment on debt capital after having observed the abnormal thin capitalization ratio of 248:1? In this regard it was submitted that the Hon'ble Court held as under at paras 4 to 8 of its order: - 4) The respondent-assessee is a company incorporated under the laws of Belgium. The sole business of the respondentassessee is to carry out the project of construction of fuel jetty near Dabhol in India. The respondent-assessee had fully paid capital of 25.00 lacs (Belgium Francs) divided into 2500 shares of 1000 Belgium Francs each. This equity capital was divided in the ratio of 60:40 between the two joint venture partners N V Besix SA, Belgium and Kier International (Investment) Limited of U.K. The respondent assessee also borrowed from its shareholders in the same ratio as the equity share holding amount of ₹ 57.09 crores from N.A. Basix SA and ₹ 37.01 crores from Kier International Investment Limited. In the circumstances, the respondent had equity capital of ₹ 38.00 lacs and debt capital of ₹ 9410 lacs. Thus, debt equity ratio worked out i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echaractersing any equity into debt or vice versa. 8) We find no fault with the above observations of the Tribunal. There were at the relevant time and even today no thin capitalization rules in force. Consequently, the interest payment on debt capital cannot be disallowed. In view of the above, the question (i) raises no substantial question of law and is therefore, dismissed. 22. So, there is umpteen number of judgment declaring that transaction involving share application money cannot be recharacterized as international transaction of loan under Transfer Pricing provision. 23. Hon ble Bombay High Court in case of Pr. CIT vs. Aegis Limited in ITA No.1248 of 2016 dated 28.01.2019 held that in the absence of finding that the transaction was sham, the TPO could not have treated such transaction as a loan and charge interest thereon on notional basis. Coordinate Bench of the Tribunal in case of Voltas Ltd. vs. DCIT, Range 8(3)(2), Mumbai in ITA No.2822/Mum/2017 Ors. in the identical facts and circumstances of the case held that, the payment of share application money cannot be treated as partly in the nature of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been computed in similar manner as it would be computed for a loan transaction. Further as already noted, assessee's AE ultimately became wholly owned subsidiary of the assessee and therefore, whatever benefit would accrue to AE, the same would indirectly accrue to the assessee. Therefore, not convinced with the approach of lower authorities, we hold that no addition would be warranted on this account. .. 50. In view of these discussions, as also bearing in mind entirety of the case, we are of the considered view that the authorities below were in error in treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was indeed devoid of legally sustainable merits. We delete the impugned adjustment of ₹ 19,15,45,943. The assessee gets the relief accordingly. As we have decided this ground of appeal on the fundamental issue that the payment of share application money could not be partly treated as interest free loan to AE, we see no need to deal with other aspects of the matter. 24. Ld. DR for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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