TMI Blog2020 (8) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... e before us, there is no dispute to the fact that the assessee was not in receipt of any exempt income, therefore, no disallowance is warranted U/s 14A of the Act r.w.r. 8D of the Rules under normal provisions as well as while computing income u/s 115JB of the Act, since assessee was not in receipt of any exempt income during the year under consideration. Addition on account of provision of income tax recoverable from GUVNL and Essar Steel Ltd. while computing income under the normal provisions and for the purpose of book profit U/s 115JB - HELD THAT:- Respectfully following the orders of the Tribunal in assessee s own case [ 2019 (4) TMI 2094 - ITAT MUMBAI] we confirm the addition made by the AO/TPO under normal provisions of the Act. Addition made while computing book profit U/s 115JB - As relying on [ 2019 (4) TMI 2094 - ITAT MUMBAI] confirm the action of the A.O. on account of provisions of income tax recoverable while computing income under normal provisions of the Act and also direct the A.O. to delete the addition made while computing book profit U/s 115JB of the Act. TP adjustment on account of interest on money advanced as share application money - adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in assessing the interest income of Rs.49,03,51,025/-under the head income from other sources instead of business income. 5. The Assessing Officer has erred in disallowing Rs.204,32,67,630/- u/s. 14A of the Act read with Rule 8D while computing normal income under the Act and adding the same while determining book profit u/s. 115JB of the Act. 6. The Assessing Officer has erred in making addition of Rs. 1,30,81,163/- in respect of provision for income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd. while computing normal income under the Act as well as computing book profit u/s. 115JB of the Act. 7. The Assessing Officer has erred in disallowing Rs.25,74,584/-, being depreciation claimed on the major overhauling expenditure capitalized in A.Y. 2003-04. 8. The learned Assessing Officer has erred in initiating penalty proceedings under section 271(1)(c)of the Act. 9. The appellant craves leave to, add to, alter, amend, modify, substitute and/or delete all or any of the foregoing grounds of appeal. Each of the ground is referred to separately, which may kindly be considered independent of each other. The appellant prays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, we found that exactly similar issue has been dealt with by the Tribunal in assessee s own case for the A.Y. 2013-14 in ITA No. 7329/Mum/2017 order dated 15/04/2019 wherein the Tribunal has held that interest on outstanding receivables has to be computed by applying LIBOR plus 0.5%. The precise observation of the Tribunal was as under: 9. We have considered rival submissions and perused material on record. Undisputedly, the Transfer Pricing Officer has determined the arm's length price of the interest chargeable on outstanding receivable from the AE by applying the rate of 6.56% as per Bloomberg database. However, it is noticed that before the Transfer Pricing Officer and learned DRP the assessee had submitted that as per LIBOR rate of interest the interest chargeable on such outstanding receivable is LIBOR plus 0.5%. The aforesaid contention of the assessee has not at all been considered by the Transfer Pricing Officer and learned DRP. As held in various judicial precedents, interest on outstanding receivables has to be charged by applying LIBOR rate as applicable in the country of residence of AE. In view of the aforesaid, we direct the Assessing Officer to comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Authorised Representative submitted, while deciding identical issue in assessee s own case in the preceding assessment year, the Tribunal has held that interest income from margin money deposit is to be assessed as business income, whereas, interest income from bank deposits and ICDs have to be treated as income from other sources. In this context, he drew our attention to the appeal order passed by the Tribunal for assessment years 2009 10 to 2012 13. 14. Learned Departmental Representative submitted, the issue has been decided partly in favour of the assessee by the Tribunal in the preceding assessment years. 15. We have considered rival submissions and perused material on record. Notably, while deciding identical issue in assessee s own case for assessment year 2009 10 in ITA no.1849/Mum./2015, dated 17th October 2017, the Tribunal has held that interest earned on margin deposit has to be treated as business income, whereas, interest on ICDs and fixed deposit with Bank are to be treated as income from other sources. The same view was reiterated by the Tribunal while deciding assessee s appeal for the assessment year 2011 12 and 2010 11 in ITA no.1388/Mum./2016 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble deduction. Therefore, during the relevant year, if the assessee has not earned any tax-free income, the corresponding expenditure incurred cannot be taken into consideration for disallowance. 13. In the instant case before us, there is no dispute to the fact that the assessee was not in receipt of any exempt income, therefore, applying the proposition of law laid down by the Hon ble Jurisdictional High Court, no disallowance is warranted U/s 14A of the Act r.w.r. 8D of the Rules under normal provisions as well as while computing income u/s 115JB of the Act, since assessee was not in receipt of any exempt income during the year under consideration 14. The next grievance of the assessee relates to addition on account of provision of income tax recoverable from GUVNL and Essar Steel Ltd. while computing income under the normal provisions and for the purpose of book profit U/s 115JB of the Act. The AO/TPO has dealt with the issue at page No. 7 to 14 of his order and the ld. DRP has dealt with the issue at page No. 15 to 19 of its direction. Both the authorities have made addition of income tax recoverable under normal provisions as well as while computing book profit. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO). The Hon'ble DRP upheld the addition proposed by the TPO by relying on their own order for the immediately preceding year i.e. A.Y. 2013-14. It was argued by the ld AR of the assessee that the assessee has made advance to its AE for allotment of shares. Shares were allotted within six months. The TPO has computed interest on the advance given for share application money which was confirmed by the ld. DRP. 19. We have considered the rival contentions and carefully gone through the orders of the authorities below and found that the TPO has made adjustment of Rs. 6,74,47,878/- by charging interest @ 4.19% on outstanding share application money paid by the assessee to its AE Essar Power Overseas Limited. We found that during the previous year relevant to year under consideration, the assessee advanced Rs.399.69 crores towards share application money on 29-01-2014 to Essar Power Overseas Limited (EOPL) for issue of shares. The shares were allotted to the assessee on 25-07-2014. The TPO held that since the shares were allotted after a delay of six months, interest ought to have been charged on the advance given towards share application money. It was submitted before the TPO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disregard any apparent transaction and substitute it, without any material of exception circumstance highlighting that assessee has tried to conceal the real transaction or some sham 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, whether in a third party scenario, if an independent enterprise subscribes to a share, can it be characterized as loan. If not, then this transaction also cannot be inferred as loan. The contention of the Ld. Counsel is also supported by the Hon ble jurisdictional High Court in the case of DexiskierDhboal SA, ITA No. 77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidiary of the assessee. A delay in allotment of shares by the subsidiary company, as long as the subsidiary is a wholly owned subsidiary, does not prejudice the interests of the assessee. It is, therefore, wrong to even allege that an assessee does not behave in a commercially rationale manner, as expected in an arm s length situation, when the assessee does not ask for payment of interest for the period of delay in allotment of shares. We have noted that the TPO s stand that since the assessee was not issued shares during the period, the assessee did not derive any benefit from this investment and, for this reason, the arm s length price adjustment has been made for notional interest for the money which should be assessee s reward for the investment. What the TPO and DRP have overlooked is that since the assessee was only shareholder of the subsidiary company, the fruits of this investment belong to the assesse only and in entirety. On giving this money to the subsidiary and on use of this money by the subsidiary, the assessee, in its capacity as sole owner of the subsidiary, is beneficiary of all the gains of the subsidiary company. Whether the assessee was allotted these shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the shares are held by the assessee is entirely benefit neutral from a commercial point of view. The very foundation of the adjustment made by the Assessing Officer is, therefore, wholly devoid of legally sustainable merits and factually correct assumptions. 10. In view of these discussions, as also bearing in mind entirety of the case, we hold that the adjustment on account of notional interest on the share application money, which has been recharacterized as loan, is not sustainable in law. We, therefore, direct the Assessing Officer to delete the same. As the recharacterization itself is held to be unsustainable in law and on facts of this case, all other issues raised in the assessee s appeal are rendered academic. With these observations, and in these terms, the appeal filed by the assessee is allowed. 24. Similar view has been taken by the Coordinate Bench in the case of group concern Essar Steel Orissa Ltd. Vs ACIT (2016) 74 taxmann.com 70 (Mum-Trib) wherein it was held that recharacterization of the transaction is not permissible without any material or evidence suggesting that such advance is only a loan 25. Similar view has also been taken by the Coordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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