Transfer pricing rules don't apply to share application money with no income accrual, FCCB expenses allowed under section 35D

ITAT Mumbai ruled in favor of the assessee on multiple issues. The tribunal held that transfer pricing provisions do not apply to share application money where no income accrues, following precedent from Shell India Markets case. The court allowed 1/5th deduction of FCCB issue expenses under section 35D, reversing AO's disallowance. Regarding section 14A disallowance, the tribunal deleted both AO's addition and assessee's suo-moto disallowance since no exempt income was derived, also directing corresponding adjustment to book profit under section 115JB. The AO was directed to examine and allow set-off of brought forward long-term capital losses against current year's long-term capital gains as per law.

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Issues Involved:
1. Transfer Pricing Adjustment u/s 92CA
2. Imputing Additional Interest on Share Application Money
3. Disallowance of Premium Payable on Redemption of FCCBs
4. Allowability of Premium on FCCBs in the Year of Redemption
5. Disallowance of FCCB Issue Expenses
6. Disallowance u/s 14A
7. Disallowance u/s 14A while Computing 'Book Profits' u/s 115JB
8. Credit for Foreign Taxes Paid
9. Credit for Tax Deducted at Source (TDS)
10. Levy of Interest u/s 234B
11. Levy of Interest u/s 234C
12. Initiation of Penalty Proceedings u/s 271(1)(c)
13. Rectification of Mistakes Apparent on Record
14. General Grounds

Summary:

Ground No. 1:
General in nature, no specific discussion required.

Ground No. 2: Transfer Pricing Adjustment u/s 92CA
The Tribunal held that the issue of imputing interest on share application money pending allotment has already been decided in favor of the assessee in previous years (A.Y. 2008-09, 2010-11, 2014-15, 2015-16). The Tribunal directed the AO to delete the addition made on account of notional interest, as the transaction was not deemed to be a loan.

Ground Nos. 3 & 4: Disallowance of Premium Payable on Redemption of FCCBs
These grounds were dismissed as they were not pressed by the assessee.

Ground No. 5: Disallowance of FCCB Issue Expenses
The Tribunal followed its previous orders for A.Y. 2008-09 and directed the AO to delete the disallowance of FCCB issue expenses, allowing the assessee's claim.

Ground Nos. 6 & 7 and Additional Ground No. 1 (19.06.2023): Disallowance u/s 14A
The Tribunal found that no disallowance u/s 14A is required when there is no exempt income. The suo-moto disallowance made by the assessee was also directed to be deleted. The Tribunal also held that no adjustment could be made to the book profit u/s 115JB with respect to disallowance u/s 14A.

Ground Nos. 8 & 9: Credit for Foreign Taxes Paid and TDS
The Tribunal noted that the relief sought by the assessee had already been granted by the AO in subsequent orders, rendering these grounds infructuous.

Ground No. 10: Levy of Interest u/s 234B
This ground was deemed consequential and required no specific finding.

Ground No. 11: Levy of Interest u/s 234C
The Tribunal directed the AO to verify the assessee's claim that there was no shortfall in tax payment and to delete the interest levied u/s 234C if verified.

Ground No. 12: Initiation of Penalty Proceedings u/s 271(1)(c)
This ground was dismissed as premature.

Ground No. 13: Rectification of Mistakes Apparent on Record
This ground was dismissed as infructuous since the assessee had already received relief through subsequent orders.

Additional Ground No. 1 (14.12.2022): Set-off of Brought Forward Long Term Capital Loss
The Tribunal directed the AO to examine and allow the set-off of brought forward long-term capital loss against the income from long-term capital gains as per law.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes. The Tribunal directed the AO to make necessary adjustments and deletions as per the findings on each issue.

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