TMI Blog2021 (9) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... uction u/s. 10 (38) or as the case may be. However, in case of CCM there is no such purchase at low price and sale at high price and it is on account of some punching error which has been rectified subsequently. So no infirmity in the order of the Ld. CIT(A) in deleting the addition made on account of Client Code Modification and commission earned for such accommodation entry. Addition u/s 36(1)(iii) - interest bearing funds have been diverted for interest free loans to Director of sister concern - assessee could not establish that the interest bearing funds borrowed by it is wholly and exclusively used for the purpose of business and there is no commercial expediency in giving interest free loan to its sister concerns - CIT(A) deleted the addition on the ground that the transactions with the 03 clients are business transactions and not loan transactions - HELD THAT:- As relying in own case [ 2020 (1) TMI 858 - ITAT DELHI] we find no infirmity in the order of the Ld. CIT(A) in deleting the addition made by the A.O. under section 36(1)(iii). Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted the disallowance - HELD THAT:- We find merit in the alternate contention of Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that Rule 11U and 11UA of Income Tax Rules, have come into force by Notification no. 23/10 dated 08.04.2010, which came into effect from 01.10.2009 - HELD THAT- Shares issued to SRSL and shares issued to NCDEX, are on different footing and cannot be compared. The purchase of shares by the assessee is not from related party. The submission of the Learned Counsel for the Assessee that shares are issued to the assessee-company @ ₹ 59/- per share as against Fair Market Value of ₹ 42.12 as per Rule 11U and 11UA could not be controverted by Ld. D.R. Since, the Ld. CIT(A) while deleting the addition has passed a detailed order giving reasons which the Ld. D.R. could not controvert, therefore, we find no infirmity in the order of the Ld. CIT(A) in deleting the addition. We, therefore, uphold the order of the Ld. CIT(A). Addition being income under section 92 as interest on loan from A.E. - CIT-A deleted the addition - HELD THAT:- CIT(A) correctly deleted the addition on the ground that ALP of interest on foreign currency loan, is to be determined at US Dollar LIBOR, for the year under consideration since loan given to A.E. is in US Dollar, for which, assessee will determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ CCM ] done by these companies in their own account as well as in the accounts of client were found. The Special Auditors appointed by the Department was directed to look into the aspect of CCM in the account of assessee company also. After examining the report of the Special Auditor, reply of the Assessee etc., the A.O. observed that CCM are carried-out by the assessee to shift Profit and Loss amongst Group Companies to reduce the tax liability. He noted that CCM were done by the assessee for its clients [other than Group concerns] vide which profit is transferred to the clients who have losses and transferred the losses to the clients who have profit to reduce the tax liability of the clients and accordingly, accommodation entries given, on which, Commission Income was determined by the A.O. at 3.5% of the profit/loss shifted. It was further analyzed by the A.O. that the whole process of CCM in the case of the assessee does not seem to be genuine. He held that the copy of File Transfer Protocol [ FTP ] was not made available during the assessment proceedings and, therefore, there may be entries not as per the guidelines of SEBI. He, therefore, concluded that an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is wholly and exclusively used in the business and there is no commercial expediency in giving interest free loan to sister concerns. Relying on various decisions, the A.O. held that interest amounting to ₹ 1.97 crores which is approximately 50% of interest expenses on working capital is used for non-business purposes and, therefore, applying the provisions of Section 36(1)(iii) of the I.T. Act, 1961, the A.O. made addition of ₹ 1,97,54,804/- to the total income of the assessee. 2.5. The A.O. also made the addition of ₹ 2,30,000/- being 1/5th of total preliminary expenses on account of increase in authorized capital. 2.6. The A.O. further noted that the assessee have substantial amount of investment in the shares of the Companies. From the details furnished by the assessee, the A.O. noted that assessee has tax free exempt income of ₹ 60,718/-. He, therefore, confronted the assessee to explain as to why disallowance under section 14A read with Section 8D should not be applied. It was explained by the assessee that it has received gross dividend of ₹ 60,718/- and no expenses are incurred as the amount is very small. However, the A.O. was not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee submitted the following details of sale of shares of USE which is as under : Name of purchaser No. of shares sold with the value Date of sale of shares Sale consideration received (Rs.) Sale price per share (Rs.) Atex Overseas (P) Ltd. 75,00,000 (₹ 10 value) 31-03-2010 29,25,00,000 39 Span Holding (P) Ltd. 7,50,00,000 (₹ 1 value) 19-09-2010 7,50,00,000 1 Shahi Sterling Export (P) Ltd. 7,50,00,000 (₹ 1 value) 19-09-2010 7,50,00,000 1 U.K. Paint (India) (P) Ltd. 7,50,00,000 (₹ 1 value) 19-09-2010 7,50,00,000 1 2.9. From the above reply, the A.O. noted that 75 lakhs shares were sold to M/s Atex Overseas Pvt Ltd as on 31.03.2010 @ ₹ 39/- per shares. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... top of certain sheets Cr and Dr have been mentioned indicating that the incoming and outgoing of funds. The assessee has not identified the person in whom hand writings the papers are written. However, the specific mentions of names Ahuja , Dhingra, Gujaral and Gulati are predominantly mentioned in certain pages which are page no 29,28,25,11 of the Annexure A.5. There are other entries in these pages also. For example in page No 25 amount of 2911.50 is mentioned against jobbers. It is quite unlikely that amount in paisa are taken in to accounts in loose sheets. The actual amount thus would be ₹ 291150/-. In page No 21 again figures of 5701.28 is mentioned. The assessee has not submitted anything to prove that such amount is recorded in its books of accounts. In page No 17 14 the rent is being shown at figures 727.50. The rent of any premises in such a odd figures and small amount is very' unlikely, therefore, the submission of assessee that all the figures mentioned in Annexure A-5 are actual figure are not believable. It has already been discussed above that Sh. Dhingra of U.K. Paint, Sri Naresh Gujaral, the Director of Span India and Sh. Harish Ahuja of Shahi Ster ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edium level Indian Companies. Therefore, the sale of shares by the assessee company through local placement and efforts of USE to bring large financial institutions and foreign investors are at different footings, so cannot be compared. (iv) The assessee could not explain the name and amount mentioned in the loose paper sheets Annexure A-4 as discussed above. The assessee itself sold the shares @ ₹ 3.9 per shares in March 2010. The assessee could not produce any convincing argument that despite the Exchange was going to receive the permission to commence the business, why the value of its share fell so drastically. 10.11. Therefore, the sale value of share of M/s USE by the assessee are estimated a ₹ 3.00 per share. The amount is arrived after considering the previous sale made by the assessee and on the basis of amounts mentioned in the seized documents, particularly against the name of Gujaral. The assessee sold ₹ 22.50.00,000/- shares during the year under consideration. The sale proceed of the same @ ₹ 3 per share comes to ₹ 67.50 Crore. The amount of ₹ 1 per share has been taken into the books of accounts by the assessee, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from JCSL. 2.13. The A.O. noted that a direct benefit of ₹ 113,31,36,000/- [149-59] X 1,31,76,000] was passed on to the JCSL by the NCDEX. This is the direct benefit passed on by NCDEX to JCSL in lieu of achieving its objectives. The A.O. analyzed the provisions of Section 56(2)(viia) and noted that as per the agreement between the company and NCDEX, the equity shares of NCDEX were allotted to JCSL @ ₹ 59 per share. The value of each equity share as on that date was ₹ 145 per share. A total of 1,31,76,000 shares were allotted by virtue of the agreement to the assessee company. Thus, a direct benefit of ₹ 113,31,36,000/- (₹ 145 - ₹ 59) x 1,31,76,000 was transferred to the assessee company. Therefore, the assessee was requested to submit the complete details of transactions and explain as to why the amount of ₹ 113,31,36,000/- i.e. the benefit accrues to it should not be treated as its income as per the provisions of Section 56(2)(viia) of the Income Tax Act, 1961. After considering the reply/explanation of assessee, the A.O. held that the provisions of Section 56(2)(viia) are applicable on the allotment of shares of NCDEX at concessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 2,02,72,428/- as income under section 92D being interest on loan from AE. While doing so, the A.O. noted that (i) the assessee has in the process of lending money to its subsidiary has not followed the arm s length price. (ii) The assessee did not correctly assess the risk associated with the international transaction of lending the money. The A.O, accordingly, made addition of ₹ 2,02,72,428/-. Thus, the A.O. determined the total income of the assessee at ₹ 177,91,86,740/- as against the returned income of ₹ 2,91,41,210/-. 3. In appeal, the Ld. CIT(A) gave substantial relief to the assessee. So far as the addition of ₹ 11,97,21,030/- on account of CCM is concerned, the Ld. CIT(A) deleted the same by observing as under : 9.4. I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. A.R. The objections/arguments of the appellant, are discussed as under : (i) It has been stated by the A.O. in the assessment order, that the client code modifications (CCM), are carried out by the assessee. to shift profit and loss amongst the group companies to reduce the tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e software, where total of 51 trades were modified (which includes one share of each company), through which the net profit and loss of ₹ 17/-, was shifted to appellant and is duly recorded in the books of accounts. In fact, it is argued by the A.R. that by doing so, appellant has increased its profit. (v) In appellate proceedings, it has been submitted by the appellant that CCM transactions, have been recorded less than 1%, and no penal action has been taken by the exchange on CCM transactions, except in one case (supra). It has also been submitted, that A.O. has wrongly mentioned in the assessment order that penalties have been imposed by the SEBI on the appellant during the period from 1.4.2010 to 31.01.2015 on account of CCM, whereas the penalties mentioned are on account of other discrepancies, i.e Margin shortage/ Margin Violation etc. Therefore, it is submitted by the appellant that there is no violation of rules and regulations prescribed in respect of CCM by the Exchange. (vi) Further, appellant also submitted that these entries have been entered into normal course of business. These entries are duly recorded in the books of accounts and also forming part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he allegation, apart from suspicion on the basis of SEBI guidelines. Hence, it is submitted by the appellant that there is no justification for drawing any adverse inference on this account, without bringing any specific anomaly with regard to genuineness of the transactions and no fine has been imposed by concerned authorities, in respect of CCM. It is further submitted by the appellant that the A.O. himself has made this addition by doing a guess work, whereby he has accepted that 20% of such CCM transactions, are genuine errors and 80%, as non-genuine errors and therefore, the entire addition on this account, is not correct. Therefore, it is submitted by the appellant that, the suspicion, cannot be a basis for making any addition. (vi) It is further submitted by the appellant that the entries, which are being alleged, where profit/losses arising from the alleged transactions by the A.O, are all being assessed to tax and such profit/losses, are included in total income declared in each of such case, which has been charged at the maximum marginal rate. Therefore, it is submitted that, there cannot be any allegation of intention to avoid taxes by shifting profit to loss b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for business only. From the perusal of submission filed during assessment proceedings, it can be observed that there are regular business transactions amongst the group persons / entities and the same are running throughout the year, which are attributed to the business of shares/futures/option of securities etc. In this background, the interest element on these funds cannot be disallowed, being part and parcel of business transactions. Further, the exercise of calculating peak balance on these accounts and then attributing interest expenses to the same, by the A.O. is incorrect. The assessee has filed detailed explanation before A.O. regarding money borrowed, on which interest has been paid and its utilization for business purposes. The A.O. has not pointed out any inaccuracy in the submission filed by the assessee. The assessee having utilized the borrowed funds for business purposes and therefore, it is submitted that no amount can be disallowed u/s 36(l)(iii) of the Act. (iv) In alternate, assessee has also submitted that in light of the judgment of Hon'ble Supreme Court in the case of M/s S.A. Builders Ltd. vs. C1T (A) 2007 (158) Taxmann 74 SC and M/s Hero Cycles Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessee company has earned dividend income of ₹ 60,718/- and for earning the exempt income, assessee has substantial amount of investment in shares of companies. The nature of income, which can be earned out of such investment, is dividend income, which is exempt income. (ii) The assessee has not claimed any expenses against the exempt income, however, as per A.O., there would be expenses incurred on manpower, office expenses etc. for maintaining and keeping track of funds. Therefore, the A.O. was of the view that provisions of Sec. 14A. are attracted and accordingly, the A.O. determined the disallowance of ₹ 67,98,422/-, as per Rule 8D(ii) and (iii). (iii) During the appellate proceedings, the appellant has submitted that, it has earned exempted income by way of dividend of ₹ 60,718/- only on the shares held as stock in trade and not as investment. Therefore, A.O. has wrongly invoked the provisions of Sec.l4A of the Act, which is invoked for the exempt income, earned as dividend on the investment in shares. The dividend income earned on such shares, are incidental to the main business of the assessee. Therefore, no disallowance u/s 14A can be made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, A.O. has erred in invoking the provision of Sec. 14A for making disallowance for alleged expenses, against exempt income. Accordingly, I agree with the arguments of the appellant that the dividend income is incidental income, which is earned on account of business activities of the appellant and therefore, the disallowance made by the A.O. cannot be sustained. Therefore, disallowance of ₹ 67,98,422/-, is deleted. 3.3. So far as addition of ₹ 113,31,36,000/- made by the A.O. by invoking the provisions of Section 56(2)(viia) is concerned, the Ld. CIT(A) deleted the same by observing as under : 14.4. I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. A.R. The objections / arguments of the appellant, are discussed as under : (i) The A.O. during the assessment proceedings observed that the shares of NCDEX were issued to assessee @ ₹ 59/- per share, however the last traded price of share was @ ₹ 145 on 2.12.2010. sold to M/s. Shri Renuka Sugar Ltd. (SRSL). (ii) The provisions of section 56(2)(viia) applies from 01.62010. The allotment of shares by NCDEX to assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant that the corresponding existing Rule for the year under consideration, in term of the above provision u/s 56(2)(viia), was prescribed by notification no. 23/10 dated 8.4.2010, came into effect from 1.10.2009, same is as under : 11UA. For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely - (c) valuation of shares and securities, (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely, (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be, (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation dale, and (b) the lowest price of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.] However, above rule was renumbered w.e.f 29.11.2012, on account of insertion of new Sec. 56(2)(viib), as 11UA(1) and 11UA(2). Accordingly, appellant submitted that, the A.O. has wrongly taken a view that Rule 11UA( 1), came into effect from 29.11.2012. From the above, following facts emerge :- Rule 11U and 11UA of Income-tax Rules, has come into force by Notification no.23/10 dated 8.4.2010, which came into effect from 1.10.2009. Accordingly, the rule shall be applicable for the allotment of shares taken place on 2.12.2010. Shares issued to SRSL and shares issued to NCDCX, are on different footings and cannot be compared. The purchase of shares by the appellant, is not from related party. In view of the above, I hold that shares issued to assessee company @ ₹ 59/- per share, is higher than the value @ ₹ 41.12 per share, determined u/s 56(2)(viia), in pursuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares were allotted to 24 different person @ ₹ 10/- (par value) each-and therefore, the A.O. should have also taken into consideration these transactions. (iv) During appellate proceedings, it is also submitted that the last traded rate to be taken on actual sale consideration, is not a correct method for determining the sale price. It is further submitted that, it is a trite law by that the income is to be taxed, has to be the real income of the assessee, which has actually been earned and not the income which it ought to have been earned. Therefore, it is argued that A.O. while making such addition, has to bring on record some material to prove that the assessee has actually received something over and above the consideration, which have been shown by it in its books of accounts and for this purpose, appellant has relied upon the judgment of the Hon'ble Supreme Court in the case of K.P. Varghese vs., ITO (1981, 131 ITR 597). (v) During appellate proceedings, it has also submitted that the alleged entries of seized material, represent cash received on account of sale of silver and the cash has been deposited in the bank. The same has been accounted for, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructural risk, as discussed in para 14.10 of the assessment order. Accordingly, determined the ALP of the interest amount at ₹ 2,02,72,428/-, for A.Y. 2011-12. (ii) During the appellate proceedings, it has been submitted that the appellant is of the view that the money, was given to the foreign A.E., as capital infusion in order to extend its business and keep its control over them. Therefore, it is submitted that there is no question of charging interest on such money. The A.O. has given a categorical findings in Para 14.4 and 14.5 of the assessment order that from the details obtained from Singapore tax authorities, it is seen that the remittance is only partly utilized for the purpose of equity and major fund, is of loan in substances and not of equity, as claimed by the appellant. Thus, funds have been admittedly transferred to the subsidiaries, without charging interest. From the above, it is clear that the appellant has entered into a international loan transaction with A.E. of Singapore, in terms of Sec.92B of the Act, and failed to determine the ALP, in terms of Sec.92 of the Act. Accordingly, I do not find any infirmity in the action of the A.O. for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO that for this reason the interest rate should be computed at 14% per annum i.e. the average yield on unrated bonds for Financial Years (FY, for short) 2006-07, has to be rejected. .. 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees, would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not appreciating the entries found in Annexure A-3, A-4 and A-5 which substantiate the sale of shares of USE at much higher rate than face value thereof. (h) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in deleting the additions made u/s 56(2)(viia) for the purchase of shares of NCDEX by ignoring the actual traded value of the shares of NCDEX. (i) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that LIBOR rate of interest is applicable. (j) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in accepting the contention of assessee that the loan to AE w as advanced in LSS without calling for report under Rule 46A from AO as no such details were submitted during the course of assessment proceedings. (k) That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. (l) That the grounds of appeal are without prejudice to each other. (m) That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of member (broker) group of companies of the assessee, it is held that the CCM is by and large not for the genuine reasons and for extraneous consideration and that the assessee has suppressed its income to the extent of ₹ 1,90,71,392/-. We find the Ld. CIT(A) deleted the addition made by the AO on the ground that the assessee is not a member of any exchange and cannot execute CCM. Further the transactions on account of CCM done by group concerns are genuine and the volume of CCM occurred are within permissible limit allowed by SEBI. It is also the observations of the CIT(A) that the exchange or SEBI has not found any violation of rules and regulations relating to CCM and the CCM transactions are falling within the prescribed limit. It is the submission of the Ld. DR that it is not a genuine mistake and the transactions are not genuine. Further the CCM was done by the assessee through its sister concern M/s. Futurz Next Services Limited through which the profit of the assessee company was reduced by ₹ 1.90 crores. According to the Ld. DR the CCM is akin to penny stock. It is the submission of the Ld. Counsel for the assessee that the transactions enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of the sister concern, we hold that there is no infirmity in the order of the Ld. CIT(A) in deleting the addition made on account of Client Code Modification and commission earned for such accommodation entry. Grounds of Appeal Numbers. (a), (b) and (c) are accordingly dismissed. 8. Grounds of Appeal Number. (d) relates to the Order of the Ld. CIT(A) in deleting the addition made by the A.O. of ₹ 1,97,54,804/- under section 36(1)(iii) of the I.T. Act, 1961. Learned Counsel for the Assessee submitted that the A.O. in the instant case made the addition on the ground that assessee could not establish that the interest bearing funds borrowed by it is wholly and exclusively used for the purpose of business and there is no commercial expediency in giving interest free loan to its sister concerns. He submitted that the Ld. CIT(A) holding that the assessee is having business transaction with the 03 clients which are for business transactions and no loan transaction has taken place, deleted the addition. He submitted that an identical issue had come up before the Tribunal in assessee s own case for the A.Y. 2013-2014. He submitted that the Tribunal vide ITA.No.1384/Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AO and confirmed by the ld. CIT (A) u/s 36(1)(iii) is not sustainable, hence ordered to be deleted. So, grounds no.5, 6, 7 8 are determined in favour of the assessee. 10.1. Since the facts of the instant case are identical to the facts decided by the Tribunal in assessee s own case for A.Y. 2013-2014, therefore, in the absence of any contrary material brought to our notice and respectfully following the decision of the Tribunal in assessee s own case cited (supra), we find no infirmity in the order of the Ld. CIT(A) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of Ld. CIT(A) is accordingly modified and the ground raised by the Revenue on this issue is partly allowed. 16. Grounds of Appeal Numbers. (f) and (g) relates to the order of the Ld. CIT(A) in deleting the addition of ₹ 45 crores made by the A.O. on account of sale of shares of United Stock Exchange. 17. Learned Counsel for the Assessee submitted that United Stock Exchange [ USE ], is a national level recognized stock exchange and duly notified in the Gazette. USE shareholder includes national level institutions, public and private sector and Bombay Stock exchange being the strategic and single largest shareholder with 15% shareholding. Further it has 21 public sector banks, 6 private sector banks, one foreign bank and corporates like MMTC, Indian Potash are its shareholder. The shareholding of Jaypee group in USE was 24.99%. USE has applied for permission to do the business of stock exchange with SEBI. SEBI while processing the application of USE in March 2010, directed Jaypee Capital services P. Ltd. Group to reduce their shareholding to 5% of issued share capital, as a condition for obtaining the permission. Therefore assessee sold its stake in USE, to obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before 19.09.2010 at par. e. BSE has the right of first refusal i.e. if BSE can buy at the same price and further more BSE has the right to bring new buyer of their choice to buy shares at the offered price, then these could not be sold to other parties. Therefore, there cannot be any scope of understatement of selling price as the same was in knowledge of BSE and doubting this transaction would also raise questions on BSE. f. All the shares allotted/transferred were approved by the board of USE and BSE. That is, the shares are transferred with prior approval of board, hence there is no hidden transaction etc., 17.1. He, accordingly submitted that the addition is liable to be deleted and the order of the CIT (A) should be upheld. 18. The Ld. D.R. on the other hand heavily relied on the order of the A.O. 19. We have considered the rival arguments made by both the sides, perused the order of the Ld. CIT(A) and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the A.O. in the instant case made addition of ₹ 45 crores to the total income of the assessee by estimating the sale value of 22,50, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 10/- per share (i.e. par value), before splitting. We find as per SEBI guidelines, the shareholder cannot hold more than 5% of paid-up capital and accordingly the shares were sold. We find merit in the arguments of the Learned Counsel for the Assessee that the sole motive behind selling the shares was to obtain permission from SEBI for online trading and the shares were sold in a haste, hence the same were sold at par. USE was to formally commence its operations on 20.09.2010 and till 19.09.2010 the assessee had no option but to reduce the shareholding to 5% since the operation of USE could not commence under the above circumstances as assessee was holding 22.50 Crore shares in excess of 5% before 19.09.2010. Thus assessee has no option but to sell entire excess shareholding of 22.50 Crore on or before 19.09.2010 at par. BSE has the right of first refusal i.e. if BSE can buy at the same price and further more BSE has the right to bring new buyer of their choice to buy shares at the offered price, then these could not be sold to other parties. Therefore, there cannot be any scope of understatement of selling price as the same was in knowledge of BSE and doubting this transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s higher than fair market value. Further, the comparables selected by the A.O. are wrong. A.O. himself accepts that the shares were issued to the assessee-company at ₹ 59/- and there is no doubt expressed in this regard. Shares have been sold and profit has been booked and the corresponding income is also offered to tax. Hence, the addition is liable to be deleted and the order of Ld. CIT(A) should be upheld. 21. The Ld. D.R. on the other hand heavily relied on the order of the A.O. He submitted that the provisions of Section 56(2)(viia) are applicable on the allotment of shares of NCDEX at concessional rates for which the assessee had got benefit of ₹ 113,36,31,000/-, but, the assessee received the shares at below the market rate, therefore, the A.O. is fully justified in invoking the provisions of Section 56(2)(viia) of the I.T. Act, 1961. 22. We have considered the rival arguments made by both the sides, perused the orders of the A.O. and Ld. CIT(A) and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the A.O. in the instant case made addition of ₹ 113,36,31,000/- on the ground that pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the case decided by the Tribunal in assessee s own case for the A.Y. 2013-2014, therefore, the same being a covered matter in favour of the assessee, the Grounds raised by the Revenue on this issue should be dismissed. 25. The Ld. D.R. on the other hand heavily relied on the Order of the A.O. 26. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the A.O. in the instant case made addition of ₹ 2,02,72,428/- on account of ALP interest receivable on loans outstanding in the name of Jaypee Singapore Pte Limited by invoking the provisions of Section 92 of the I.T. Act, 1961. We find the Ld. CIT(A) deleted the addition on the ground that ALP of interest on foreign currency loan, is to be determined at US Dollar LIBOR, for the year under consideration since loan given to A.E. is in US Dollar, for which, assessee will determine the ALP, and file its claim before the A.O. If the A.O. finds that the claim as per US Dollar LIBOR, in terms of decision of Hon ble Delhi High Court in the case of Cotton Naturals (I) Pvt. Ltd., the addition to the extent will be made and the excess of interest now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re- structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. 21. Similarly, coordinate Bench of the Tribunal in case of Topsgrup Electronic System Ltd. vs. ITO (2016) 48 ITR (trib) 753 also held that re-characterization of capital transaction into loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monies paid by the Head Office to the branches was not allowable as a deduction. 6) In appeal, the Commissioner of Income Tax (Appeals) by an order dated 29/3/2007 upheld the order of the Assessing officer and disallowed the deduction on account of interest of ₹ 5.73 crores paid to Joint Venture Partners. The Commissioner of Income Tax (Appeals) held that Article 7(3)(b) of the Double Taxation Avoidance Agreement forbids allowance of any interest paid to the head office by permanent establishment in India as a deduction. Further, the payment of interest also directly violates the conditions imposed by RBI in its letter dated 3/11/1998. Therefore, the order of the Assessing Officer was upheld. 7) However, the Tribunal allowed the respondent-assessee's appeal. During the course of the proceedings before the Tribunal the revenue contended that the borrowings on which the interest has been claimed as a deduction are in fact capital of the assessee and brought only under the nomenclature of loan for tax consideration. It was the case of the appellant-revenue before the Tribunal that debt capital is required to be re-characterized as equity capital. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital requirements. Another undisputed fact is that ultimately the shares have been allotted to the assessee during December, 2015 after getting the desired regulatory approvals from concerned authority i.e. SAGIA. It is also undisputed fact that there was delay in the legal process which has been substantiated by the assessee, inter-alia, by furnishing email correspondences etc. The entirety of the facts and circumstances would demonstrate that the investment made by the assessee was for genuine business purpose and the stated transaction was not found to be a sham transaction, in any manner. Another fact is that whatever benefit would accrue to assessee's AE, they would indirectly accrue to the assessee since AE ultimately became wholly owned subsidiary of the assessee company. No doubt, there was inordinate delay in allotment of shares, nevertheless, the assessee was successful in explaining the delay in allotment of share and was able to demonstrate with evidences the circumstances which led to delay in allotment of shares. Therefore, re-characterization of this transaction as advance / loan by revenue authorities, in our considered opinion, was not correct approach and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not come up with specific finding that the transaction in question is a sham transaction, he cannot treat the transaction of capital infusion by the assessee company as a loan and to charge the interest thereon on notional basis; and fourthly, in the absence of any specific finding by the AO that any income has arisen from international transaction, TP provisions contained in Chapter-X of the Act do not apply. Section 92(1) of the act says that income arisen from international transaction is a condition precedent for application of Chapter-X of the Act. Consequently, we are of the considered view that addition made by the AO and confirmed by the ld. CIT(A) on account of arm's length price of value of interest receivable on loans outstanding of ₹ 1,04,24,675/- in the name of Jaypee Singapore Pte Ltd. is not sustainable, hence ordered to be deleted. So, grounds no.10 to 13 are determined in favour of the assessee. 26.1. Since the facts of the instant case are identical to the facts of the case already decided by the Tribunal in assessee s own case for the A.Y. 2013-2014, therefore, in absence of any contrary material brought to our notice by the Ld. D.R, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CCM. 31. After hearing both sides, we find the above grounds are identical to Grounds of Appeal Numbers (a), (b) and (c) in ITA.No.3558/Del/2016. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following similar reasonings, the Grounds of Appeal Numbers (a) and (b) of the Revenue are dismissed. 32. Grounds of Appeal Number (c) by the Revenue relates to the order of the Ld. CIT(A) in deleting addition of ₹ 41,33,260/- made by the A.O. under section 36(1)(iii) of the I.T. Act, 1961. 33. After hearing both the sides, we find the above ground is identical to Grounds of Appeal Number (d) in ITA.No.3558/Del/2016. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following similar reasonings, Ground of Appeal Number (c) of the Revenue is dismissed. 34. Grounds of Appeal Number (d) by the Revenue relates to the order of the Ld. CIT(A) in deleting the addition of ₹ 54,12,130/- made by the A.O. under section 14A read with Rule 8D of the I.T. Rules. 35. After hearing both the sides, we find the above ground is identical to Grounds of Appeal Number (d) vide ITA.No.3558/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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