Tribunal allows appeals, deletes TP adjustments, considers assessments academic, and treats appeals as allowed.

The Tribunal allowed the appeals of the assessee, deleting the additions made by the A.O./TPO on account of TP adjustments for notional interest on share application money treated as a loan. Consequently, the issue of the validity of the assessments became academic and was not adjudicated upon. The appeals were treated as allowed.

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Issues Involved:
1. Validity of assessments made under section 143(3) read with section 147 of the Income Tax Act.
2. Addition made by way of Transfer Pricing (TP) adjustment on account of interest chargeable on share application money treated as a loan.

Detailed Analysis:

1. Validity of Assessments Made Under Section 143(3) Read with Section 147 of the Income Tax Act:

The assessee challenged the validity of the assessments made by the Assessing Officer (A.O.) under section 143(3) read with section 147 for the assessment years 2007-08 and 2008-09. The A.O. had reopened the assessments on the grounds that the share application money paid by the assessee to its Associated Enterprise (AE) was akin to a loan due to the delay in allotment of shares, thereby attracting notional interest.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the validity of the assessments, rejecting the assessee's contention. However, since the Tribunal's decision on the second issue (TP adjustment) was in favor of the assessee, the issue of the validity of the assessments became infructuous or academic and was not adjudicated upon.

2. Addition Made by Way of Transfer Pricing Adjustment on Account of Interest Chargeable on Share Application Money Treated as a Loan:

The core issue was whether the share application money, which remained unutilized for a period exceeding 60 days, should be treated as a loan, thereby attracting TP adjustments for notional interest.

The A.O. and the Transfer Pricing Officer (TPO) treated the unutilized share application money as a loan and made TP adjustments by calculating interest at 3% above the LIBOR rate. The CIT(A) confirmed these additions but allowed partial relief by accepting the assessee's alternative contention that the interest rate should be based on Euro LIBOR instead of US Dollar LIBOR.

The Tribunal, however, found that the issue was covered in favor of the assessee by the decision of the Delhi Bench of ITAT in the case of Bharti Airtel Ltd. vs. ACIT. The Tribunal noted that the TPO had not disputed the nature of the transactions as capital contributions and had not made any adjustments regarding the Arm's Length Price (ALP) of the capital contribution. The Tribunal observed that treating the delay in allotment of shares as an interest-free loan was inappropriate and not supported by any provision in the law.

The Tribunal held that the transactions involving payment of share application money could not be treated as international transactions of loan merely because of the delay in allotment of shares. The Tribunal deleted the additions made by the A.O./TPO on account of TP adjustments, following the precedent set by the Bharti Airtel case.

Conclusion:
The Tribunal allowed the appeals of the assessee, deleting the additions made by the A.O./TPO on account of TP adjustments for notional interest on share application money treated as a loan. Consequently, the issue of the validity of the assessments became academic and was not adjudicated upon. The appeals were treated as allowed.

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