2020 (6) TMI 632 - AT - Income Tax

Appeal allows relief for timely PF/ESI payments, restricts transfer pricing adjustment to share allotment delay.

The appeal challenges the disallowance of employees' contribution to PF and ESI, with the tribunal directing the AO to grant relief for timely payments ... Disallowance of employees contribution to PF and ESI - Addition u/s 36(1)(va) r.w.s. 2(24)(x) - delay from the due date prescribed by the Act - HELD THAT:- The proofs of payments made towards employees’ contribution of PF which has claimed to have been made within due date prescribed by PF Act i.e. 20th of the next month are also appearing from page nos. 1 to 12 of the paper book filed before us. In that view of the matter, we find force in the submissions made by the Learned counsel and therefore, we set aside the issue to the Learned AO to take into consideration the entire details filed by the assessee regarding payment made towards employees contribution to PF and ESIC and to give relief to that particular amount which has been paid in time as prescribed in the concerned acts taking into consideration the judgment passed in the case of CIT vs. GSRTC [2014 (1) TMI 502 - GUJARAT HIGH COURT]. Hence, first ground of assessee’s appeal is partly allowed for statistical purposes. TP Adjustment - upward transfer pricing adjustment in respect of the appellant’s International Transactional of Share Capital subscription into its Associated Enterprise (AE) - re-characterizing a share subscription transaction as a transaction of advancing of loan and holding the appellant’s international transaction is not at arms’ length by the Revenue - HELD THAT:- So far as the re-characterization of the transaction is concerned the case of the assessee is this that after 240 days, the share was allotted instead of 180 days as stipulated by the RBI Circular but the AO treated the entire transaction as on loans. The assessee joins issue here to this effect that the TPO cannot question the commercial expediency of the assessee entered into such transaction, neither cannot disregard the appellant transaction and substitute the same without any material of exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or the transaction in question was sham. In this regard we have carefully considered the judgment passed in the matter of PCIT vs. M/s. Sterling Oil Resources Ltd. [2019 (7) TMI 390 - BOMBAY HIGH COURT] wherein it has been pleased to hold that the TPO cannot question the commercial expedience of the assessee entered into such transaction. When nothing has been brought on record by the Revenue to suggest that the transaction is sham, the TPO has no authority to treat such transaction as a loan and charge interest thereon on notional basis.Respectfully relying upon the ratio laid down by the said judgment we are agreed to the proposition. Delay of 80 days - submission made by the AR in charging interest only on the period of delay - Taking into consideration the entire aspect of the matter, the ratio laid down in M/S. STERLING OIL RESOURCES LTD. [2019 (7) TMI 390 - BOMBAY HIGH COURT] on the question of TPO’s jurisdiction in questioning the commercial expediency of the assessee or suggesting this transaction ‘sham’ and also the fact of charging interest on the period of delay in view of the Master Circular 15/2014-15 dated 01.07.2014, we are of he considered opinion of restrict the adjustment in respect to the allotment of shares for the period of 80 days only. Accordingly interest is charged @2% for 80 days; the total addition is, therefore, to the tune of ₹ 3,53,108/-. The Ld. AO is directed to give effect to this order. - Decided in favour of assessee. Issues:1. Disallowance of employees' contribution to PF and ESI2. Transfer pricing adjustment in a share capital subscription transactionIssue 1: Disallowance of employees' contribution to PF and ESI:The appeal challenges the disallowance of employees' contribution to PF and ESI by the AO. The assessee argues that only four instances had actual delays in payment, and the rest were made on time. The tribunal finds merit in the submissions and refers to a judgment for relief. The AO is directed to consider all details provided by the assessee and grant relief for payments made on time, following the judgment cited. The first ground of the appeal is partly allowed for statistical purposes.Issue 2: Transfer pricing adjustment in a share capital subscription transaction:The appeal contests an upward transfer pricing adjustment in a share capital subscription transaction with the AE. The assessee asserts that the transaction was for share application money in a joint venture entity, not a loan. The TPO re-characterized it as a loan, leading to the adjustment. The tribunal examines the arguments, including an alternative claim based on RBI circular and previous judgments. It is highlighted that the TPO cannot question the commercial expediency of the transaction without evidence of sham or concealment. Citing relevant judgments, the tribunal restricts the adjustment to the period of delay in share allotment, in line with RBI guidelines and previous decisions. The total addition is adjusted accordingly, and the AO is directed to implement the order. The appeal is partly allowed in this regard.This detailed analysis of the legal judgment addresses the issues of disallowance of employees' contribution to PF and ESI, as well as the transfer pricing adjustment in a share capital subscription transaction, providing a comprehensive overview of the tribunal's decision and the reasoning behind it.