TaxTMI 
TaxTMI 
2016 (3) TMI 279
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.... of the reported international transactions entered into by the assessee with its Associated Enterprises ('AE'), after obtaining the approval of the Commissioner of Income Tax - 8, Mumbai. The TPO passed an order under section 92CA of the Act dated 31.12.2012 proposing an adjustment of Rs. 142,80,14,163/- towards the ALP of the international transactions the assessee entered into with its AE in the period relevant to A.Y. 2009-10, which are as under: - i) Loan to THBV Rs. 1,366/- ii) Subscription to Share Capital to AE Rs.1,42,80,12,797/- Rs.1,42,80,14,163/- The AO completed the assessment for A.Y. 2009-10 under section 143(3) r.w.s. 144C of the Act vide order dated 09.05.2013. 2.2 Aggrieved by the order of assessment for A.Y. 2009-10 dated 09.05.2013, the assessee preferred an appeal before the CIT(A)-58, Mumbai. The learned CIT(A) dismissed assessee's appeal vide order dated 02.01.2015. 3. Aggrieved by the order of the CIT(A)-58, Mumbai dated 02.01.2015 for A.Y. 2009-10, the assessee has preferred this appeal before the Tribunal raising the following grounds: - "1. The learned Commissioner of Income Tax (Appeals) erred in facts and law i....
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....t applying any of the prescribed methods is therefore bad-in-law. (e) The learned Commissioner of Income Tax (Appeals) erred in fact and law in appreciating that the value of investment in the Associated Enterprise, being wholly owned subsidiary, was made based on the value of underlying assets to be acquired by the said Associated Enterprise. 4. (a) The learned Commissioner of Income Tax (Appeals) erred in facts and law in appreciating that no notional interest can be brought to charge by re-characterisation of investment, by holding a part of it to be loan. (b) The learned Commissioner of Income Tax (Appeals) erred in facts and law in sustaining the action of the learned Assessing Officer/ Transfer Pricing Officer in making an adjustment of Rs. 18,62,62,539 as notional interest income @ 15% p.a. without adopting any of the prescribed method for deriving at Arm's length rate and not appreciating that there is no charging provision in the Income-tax Act, 1961 to bring to charge such notional interest. 5. The Appellant prays that:- i. The reference made u/s.92CA and consequentially the order passed u/s. 143(3) r.w.s 144C be treated as....
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....The money of Rs. 124,60,14,673/- received by the assessee from 'TSL' was invested by acquiring 7200 shares @ Euro 2,663.38 per share during the period under consideration (i.e. A.Y. 2009-10) in Tops BV Netherlands, a wholly owned subsidiary, which was to be an intermediate holding company to acquire 'Shield'. The money received by Tops BV Netherlands was further invested towards acquisition of 'Shield'. The structure of the Topsgrup group of companies for acquisition of 'Shield' is given as under: - - TSL is the Holding Company; - TESL, the assessee, is a wholly owned subsidiary of TSL; - Tops BV is a 100% subsidiary of the assessee' - Tops UK is a 100% subsidiary of Tops BV; - 'Shield' is the target for acquisition. 5.3 It has been submitted by the assessee that while the investment in acquisition of shares of 'Tops BV' formed part of the notes in Form 3CEB, the same was not benchmarked as the assessee was of the view that the subscription to equity capital did not have any bearing on profitability, TP regulations were not applicable. It was further submitted that the recharacterization of this transaction as a loan was not permissib....
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....o an outbound transaction. 6. Before us, the learned A.R. for the assessee put forth submissions, arguments and contentions on this issue on two propositions as under: - i) That in the absence of income arising out of an international transaction, TP provisions do not apply; and ii) That a transaction of investment in share capital could not be recharacterized as a loan. 6.1.1 The assessee's first submission is that in the absence of income arising from an international transaction, TP provisions do not apply. It was submitted that the assessee invested /subscribed to 7200 shares of Tops BV @ Euro 2663.38 per share (Euro 10 plus share premium - Euro 2653.38). It was further contended that as is evident from the above transactions, being on capital account, it did not result in any income nor was there any scope of earning any potential income arising out of this transaction. Thus, it was submitted that the aforesaid transaction is beyond TP regulations. Chapter X of the Act, dealing with TP provisions, commences with section 92(1) of the Act which provides that "Any income arising from an international transaction shall be computed having regard to the arms ....
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....efore absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. This is settled by the decision of this Court in Cadell Weaving Mill Co. vs. CIT 249 ITR 265 was upheld by the Apex Court in CIT vs. D.P. Sandu Bros, Chember (P) Ltd. 273 ITR 1. .......... 42. .......... As pointed out above, the issue of shares at a premium is on Capital Account and gives rise to no income. The submission on behalf the revenue that the shortfall in ALP as computed for the purposes of Chapter X of the Act gives rise to income is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International Transaction between AEs. It does not warrant re-computation of a consideration taken/given on capital account. .......... 49. .......... Thus no, occasion to apply Chapter X of the Act can arise in such a case." ii) Shell India Markets (P) Ltd. - 369 ITR 516 (Bom) wherein it was held at para 12 thereof that ".......... the jurisdiction to apply Chapter X of the Act would occasion only....
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....und transactions. 6.1.4 The learned A.R. for the assessee submitted that in any event the provisions of section 56(2)(viia) and 56(2)(viib) of the Act do not bring to tax transactions such as payment of excess premium or shortfall in receipt of share premium. It was argued that the case of the assessee does not fall under section 56(2)(viia) as the consideration paid for the shares is alleged to be excessive as compared to the fair market value which is the opposite scenario of what section 56(2)(viia) envisages. It is argued that the same also does not fall within the ambit of the provisions of section 56(2)(viib) of the Act as this section covers the issue of shares, whereas the assessee has made an investment in shares. It is contended that in the above circumstances, Indian TP provisions are not applicable either to Vodafone India Services P. Ltd. or to the assessee. 6.1.5 The learned A.R. for the assessee further submits that without prejudice to the assessee's above submissions, the ITAT, Hyderabad Bench in the following cases, covering the issue of outbound investment in equity shares of an AE, has held that since no income arises from investment in equity share capita....
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....on the decision ITAT Mumbai Bench "B" in the case of Board of Control for Cricket in India Vs. DIT (Exemption), [2005] 96 ITD 263 (Mum) wherein it was held that 'the said order did not show that the AO had considered or applied his mind to the factual and legal aspects of the case. It was a stereotyped order which simply accepted what the assessee stated in its application without proper examination of the factual and legal aspects of the case. An order may be rendered erroneous due to error in approach, error in computation, error in applying the relevant law or facts or error in selecting a principle which would not govern the fact situation. Likewise, arbitrary exercise of quasi-judicial power without due consideration of the relevant aspects of the case would also render the resultant order erroneous within the meaning of 7 ITA NO. 842/Hyd/2012 M/s Vijai Electricals Ltd. section 263. In this view of the matter, the submissions of the assessee that the order passed by the AO u/s 195(2) was not erroneous within the meaning of section 263 could not be upheld. The said order was an erroneous order capable of being revised u/s 195(2) provided other conditions of section 263 were als....
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.... referred to section 92-B of the IT Act and the transfer pricing provisions are not applicable as there is no income. Accordingly, we set aside the order passed by the CIT u/s 263 and that of the AO is restored and the grounds raised by the assessee in this regard are allowed." 72.1 In view of the above, in our opinion impugned transaction cannot be considered u/s 92CA of the I.T. Act and accordingly, this ground is allowed." The learned A.R. for the assessee submits that in view of the findings rendered by the ITAT, Hyderabad Bench in the aforesaid cases (supra) on similar facts as those in the case on hand, as the international transactions of investing/subscribing in the equity capital of a foreign subsidiary does not result in any income, the same is outside the purview of Indian T.P. regulations. 6.2 The assessee's second line of argument is that a transaction of investment in share capital cannot be re-characterised as a loan. The learned A.R. for the assessee submits that the Balance Sheet of the assessee for this relevant period (placed at pages 29 and 34 of the Paper Book) clearly shows that the investment made was in equity shares of the subsidiary, which i....
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.... this regard it was submitted that the Hon'ble Court held as under at paras 4 to 8 of its order: - "4) The respondent-assessee is a company incorporated under the laws of Belgium. The sole business of the respondent-assessee is to carry out the project of construction of fuel jetty near Dabhol in India. The respondent-assessee had fully paid capital of 25.00 lacs (Belgium Francs) divided into 2500 shares of 1000 Belgium Francs each. This equity capital was divided in the ratio of 60:40 between the two joint venture partners N V Besix SA, Belgium and Kier International (Investment) Limited of U.K. The respondent assessee also borrowed from its shareholders in the same ratio as the equity share holding amount of Rs. 57.09 crores from N.A. Basix SA and Rs. 37.01 crores from Kier International Investment Limited. In the circumstances, the respondent had equity capital of Rs. 38.00 lacs and debt capital of Rs. 9410 lacs. Thus, debt equity ratio worked out is to 248:1. 5) The respondent assessee paid interest of Rs. 5.73 crores on the aforesaid borrowing of Rs. 57.09 crores and Rs. 37.01 crores from NV Basix SA and Kier International (Investments) Limited respective....
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.... the above, the question (i) raises no substantial question of law and is therefore, dismissed." ii) Aegis Limited [TS-342-ITAT-2015 (Mum) -TP]: It is submitted that the relevant findings in this case at para 27 is as under: - "27. We have heard the rival submissions and also perused the relevant findings in this regard in the impugned orders. The assessee has subscribed to redeemable preference shares of its AE, Essar Services, Mauritius and has also redeemed some of these shares at par. The TPO has redeemed some of these shares at par. The TPO has recharacterized the said transaction of subscription of shares into advancing of unsecured loan by terming it as an exceptional circumstance and has charged/imputed interest, on the reasoning that 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 disregarded any apparent transaction and substitute it, without any material of exception circumstance highlighting....
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....y as of an interest free loan, for the period between the dates of payment till the date on which shares were actually allotted, and partly as capital contribution, i.e. after the subscribed shares were allotted by the subsidiaries in which capital contributions were made. No doubt, if these transactions are treated as in the nature of lending or borrowing, the transactions can be subjected to ALP adjustments, and the ALP so computed can be the basis of computing taxable business profits of the assessee, but the core issue before us is whether such a deeming fiction is envisaged under the scheme of the transfer pricing legislation or on the facts of this case. We do not find so. We do not find any provision in law enabling such deeming fiction. What is before us is a transaction of capital 9 ITA 9010/M/10 subscription, its character as such is not in dispute and yet it has been treated as partly of the nature of interest free loan on the ground that there has been a delay in allotment of shares. On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonabl....
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....hey cannot be treated as 'loans and advances'. Since in this case, the investments are in the nature of equity and shares have been allotted after a period of four months, we are of the opinion that TPO cannot reclssify the amount as 'loans and advances'. Moreover, we have considered the appeal in AY. 2008-09 vide orders dt. 10-01-2014, wherein it is noticed that TPO has not made any adjustment from 1st April 2007 to the period of allotment. Therefore, keeping that factor also in mind, we are of the opinion that adjustment proposed by the TPO as confirmed by the DRP is not warranted. We direct the same to be deleted. Ground is allowed." v) Allcargo Global Logistics Ltd. [150 ITD 651 (Mum)]: It was submitted that in this case the company had paid a certain sum to its AE as share application money which remained unutilized for a certain period. TP adjustment was made in the hands of the assessee on account of interest chargeable on amount of share application money, treating the same as loan due to non-allotment of shares. At para 7 thereof it was held as under: - "7. As the issue involved in ground No. 2 of the present appeals as well as all the material ....
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.... required to benchmark such transactions against a similarly placed transaction and not deem the transaction to be a lending or borrowing transaction. No doubt, a transaction of advancing loans is within the purview of transfer pricing mechanism and the arm's length price computed thereof is includible in the assessable income of the assessee. So however, where the character of payment is towards share application money, thereby reflecting a capital investment, and the same not having been disputed by the TPO, such a transaction cannot be subject to an arm's length price adjustment under the plea of it being a transaction of lending or borrowing. Therefore, in our view, the TPO was not justified in treating the aforesaid transaction as being an interestfree lending transaction entered with the associated enterprise. Moreover, it is also not the case of the TPO that in a comparable transaction of share application money amongst unrelated parties, the transaction would have entailed charging of interest for ITA No.273/PN/2014 A.Y. : 2009-10 8 the period between payment of share application and the date of allotment of shares. Therefore, in our considered opinion, the approach....
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....of Tops BV, Netherlands, i.e. the subsidiary, in the event of future sale of shares under the head 'Income from Capital Gains'. The contention of the learned D.R. was that the assessee may sell the shares it holds in Tops BV, at a future date for a price lower than the cost at which they had been acquired resulting in long term/short term capital loss, thereby impacting the income of the assessee in subsequent years. It was also contended by the learned D.R. that the assessee could enter into a future transaction for sale of the said shares it held in Tops BV, Netherlands to a Non-AE as a result of which the sale of shares would not come within the purview of TP regulations and thereby defeating the purpose of Chapter X of the Act. The learned D.R. placed reliance on the case of PMP Auto Components (2014) 50 taxman.com 272 on the grounds that payment towards share application money was to be benchmarked to determine the ALP of the transaction by considering the application money as a loan and the delay in allotment of shares as the period of loan. 6.4 In rejoinder to the submissions of the learned D.R., the learned A.R. for the assessee argued that as per the decision of the Spe....
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....conclude that Income has to be given a broader meaning to include notional income, as otherwise Chapter X of the Act would be rendered otiose is farfetched. The issue of shares at a premium does not exhaust the universe of applicability of Chapter X of the Act. There are transactions which would otherwise qualify to be covered by the definition of International Transaction. The transaction on capital account or on account of restructuring would become taxable to the extent it impacts income i.e. under reporting of interest or over reporting of interest paid or claiming of depreciation etc. It is that income which is to be adjusted to the ALP price. It is only a tax on capital receipts. This aspect appears to have been completed lost sight of the impugned order. 42. It was contended by the Revenue that in any event the charge would be found in Section 56(1) of the Act. Section 56 of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, there must be income which arises. As pointed out above, the issue of shares at a premium is on....
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....ed at ultimately building losses in the future. It was contended that the assessee, in the future, would sell the shares purchased in Tpos BV in the year under consideration, at a value substantially lower than the purchase price and accordingly claim a capital loss under the head 'Income from capital gains' iii) That the entire transaction was a manipulation and not bonafide. The learned DR contended that the investment in the shares of Tops BV was a bundled transaction actually consisting of two parts - investment in share capital (including premium) and a loan. In this context, the learned D.R. submitting that the re-characterization of investment was possible, placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd. (2012) 24 taxmann.com 199 (Del) and Article 9 of the OECD guidelines drawing the attention of the Bench to para 16 of the order: - "16. ........................................................................................................... "1.36 ..................................................................................................... 1.37 ...........................
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....n the net asset value of an unquoted share computed on the basis of its book value be considered as its fair market value as done by the TPO [i.e. @ Euro 7,704 / 1800 shares = 4.28 Euro per share]. It is submitted that the assessee and its wholly owned subsidiaries were mere holding companies, the entire amount of share capital and premium would belong to the assessee and therefore the value of the investment would be based on the value of the Target company, i.e. Shields Guarding Company, UK, which was in the nature of an underlying asset with respect to the valuation of Tops BV, Netherlands, the assessee submitted before the authorities below the valuation report of the ultimate target for acquisition, Shields Guarding Company, UK, which was carried out by a SEBI registered company on the basis of Discounted Cash Flow Method and Earning's Multiple Method, which are widely accepted methods for valuation of shares of unlisted companies, and in this context cited the decision of the Chennai ITAT in the case of Ascendas (India) Pvt. Ltd. (2013) 33 taxmann.com 295 (Chennai - Trib) wherein it was held that fixing of the enterprise value on discounted value of future projects or cash fl....
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....-2012 (Bom)] re-characterization of equity into debt and vice versa is not permissible. 6.5.5 With respect to the contention of the learned D.R. that there was no proof that the investment made by the assessee in Tops BV, Netherlands was actually in the nature of investment in share capital , the learned A.R. for the assessee submitted that the said investment has been duly reflected as investment in shares of Tops BV in the Balance Sheet of the assessee for the relevant period (placed at pages 29 & 34 of assessee's Paper Book). It was also submitted that the Balance Sheet of Tops BV, Netherlands has disclosed the said transaction as an increase in share capital and share premium (at pages 292 and 296 of the Paper Book). Therefore, the learned A.R. for the assessee contends that, the fact that the investment was in the nature of investment in share capital of Tops BV is clearly supported by the financials of the assessee and the investee company, i.e. Tops BV, Netherlands. It was also submitted that the assessee has observed the relevant compliances with RBI for the reporting of this investment in equity shares. 6.5.6 The learned D.R.'s response to the judicial pronouncements....
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....tion money is closer to loan than share capital as pending allotment there is scope to refund the share application money (as in the case of loan). In the assessee's case, the investment is in share capital which was recorded so in the books of both the assessee and the investee company, therefore making it nonrefundable. In fact, the case of the assessee, dealing with share capital investment as opposed to share application money is on a much stronger footing. Therefore the contention of the DR fails. Further, it is pertinent to note that the DR has relied on PMP Auto Components v DCIT [2014] 50 taxmann.com 272 (Mum), wherein the subject matter of dispute was share application money and a delay in period of allotment. 7 Prithvi Information Solutions Ltd. [34 ITR(T) 429 (Hyd)] Investments in nature of equity, cannot be treated as loans and advances and hence cannot be brought within purview of international transactions as defined under section 92B The DR contended that the said judgment was not applicable to the case of the assessee as it dealt with whether a delay in share application money could be treated as a loan It is pertinent to note that in the said judgeme....
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....t with the case of merits and not on whether the re-opening was sustainable in law [PB/227] Further, it is pertinent to note that the DR has relied on PMP Auto Components v DCIT [2014] 50 taxmann.com 272 (Mum), wherein the subject matter of dispute was share application money and a delay in period of allotment. 9 Allcargo Global Logistics Ltd. [150 ITD 651 (Mum)] 10 Vodafone India Services P. Ltd. v Add CIT - 368 ITR 001 (Bom) A plain reading of Section 92(1) of the Act very clearly bring out that income arising from an international transaction is a condition precedent for application of Chapter X of the Act i.e. income arising from an International Transaction between AEs must satisfy the test of income under the Act and must find its home in one of the heads of income i.e. charging provisions In the absence of income arising out of the international transaction, Transfer Pricing Provisions are not applicable. The DR contended that the judgements of the Bombay High Court were not applicable to the assessee as they dealt with inbound transactions which was different as compared to the transaction of the assessee i.e. outbound transac....
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....l transaction shall be computed having regard to the arms length price." Evidently, therefore, income arising from the international transaction is a condition precedent for computing the ALP and such income should be chargeable to tax under the Act. In the absence of such income, benchmarking of an international transaction and computing ALP thereof would not be in order. Consequently, if an international transaction is on capital account and does not result in income as defined under section 2(24) of the Act, the provisions of Chapter X of the Act would not be applicable to such transaction. This proposition finds support in a number of judgements of the Hon'ble Bombay High Court viz. Vodafone India Services (2014) 368 ITR 001 (Bom), i.e. (Vodafone IV), Shell India Markets (P) Ltd. 269 ITR 516 (Bom), Equinox Business Parks (P) Ltd. vs. Union of India 320 Taxman 191 (Bom) and decisions of the ITAT, Hyderabad Bench in the case of Vijay Electrical Ltd (60 SOT 77) (Hyd) and Hill Country Properties Ltd. [48 taxmann.com 94 (Hyd)]. 7.1 Before us, the learned D.R. was not able to establish that any income arose out of the assessee's transaction, i.e. of investment in the shares of....
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....on. In any case, the entire exercise of charging to tax the amounts allegedly not received as share premium fails, as no tax is being charged on the amount received as share premium. Chapter X is invoked to ensure that the transaction is charged to tax only on working out the income after arriving at the ALP of the transaction. This is only to ensure that there is no manipulation of prices/ consideration between AEs. The entire consideration received would not be a subject-matter of taxation. It appears for the above reason that the learned Solicitor General did not seek to defend the conclusion in the impugned order on the basis of the reasons found therein, but sought to support the conclusion with new reasons". "43. It was contended by the revenue that income becomes taxable no sooner it accrues or arises or when it is deemed to accrue or arise and not only when it was received. It is submitted that even though the Petitioner did not receive the ALP value/ consideration for the issue of its shares to its holding company, the difference between the ALP and the contract price is an income, as it arises even if not received and the same must be subjected to tax. There can ....
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....It was contended by the Revenue that in any event the charge would be found in Section 56(1) of the Act. Section 56 of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, there must be income which arises. As pointed out above, the issue of shares at a premium is on Capital Account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purpose of Chapter X of the Act given rise to income is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant re-computation of a consideration received/given on capital account. It permits re-computation of Income arising out of a Capital Account Transaction, such as interest paid/received on loans taken/given, depreciation taken on machinery etc. All the above would be cases of income being affected due to a transaction on capital account. This is n....
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....saction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail." Equally important is sub-rule (3) to Rule 10B, which reads as under:- "(3) An uncontrolled transaction shall be comparable to an international transaction if (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arisi....
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.... all material and relevant aspects. If we keep the aforesaid aspects in mind, it would be delusive to accept and agree that Transfer Pricing provisions/Rules can be different for inbound and outbound investment in shares. Such reasoning is not what Chapter X of the Act and Rules mandate or prescribe. The aforesaid provisions, in our view, do not make any such distinction. 7.1.8 Therefore, whether the transaction under comparability is inbound share investment or outbound share investment, the comparison has to be with comparables and not with what options or choices were available to the assessee for earning income or maximizing returns. Thus, what is made applicable for inbound share investment would be equally applicable to outbound share investments also. The parameters to be applied cannot be different for outbound investment and inbound investments. Therefore, in our view, the argument that different parameters would apply for inbound and outbound investments does not have any basis that emanate from the Transfer Pricing Rules. 8.1.1 We have already held that the impugned transaction cannot come within the purview of Indian Transfer Pricing provisions since the said tran....
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....contends that the re-characterization of the impugned investment in share capital was possible. 8.3.1 From the details on record we find that the assessee has placed material evidence on record to establish the bona-fide of the impugned transaction. The assessee's balance sheet reflects the investment made as investment in equity shares which is also correspondingly reflected in the balance sheet of the investee company, Top BV Netherlands. The details of investment in equity shares were informed and submitted to the Reserve Bank of India. Further, even the agreement entered into between TSL ( the holding company) and its investors provides for the proposed structure for acquisition of the Target company i.e. Shields Guarding Company, UK, wherein the assessee was to incorporate a wholly owned subsidiary in the Netherlands as an intermediate holding company. Therefore, even on the merits of the case, we find no reason to hold that the impugned transaction was in fact in the nature of a loan advanced and not an investment in share capital. The only ground taken by the Transfer Pricing Officer for recharacterization of the loan was that the value at which the investment was made wa....
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....the above observations of the Tribunal. There were at relevant time and even today no thin capitalization rules in force. Consequently, the interest payment on debt capital cannot be disallowed. In view of the above, the question (i) raises no substantial question of law and is therefore, dismissed. 8.3.4 Further, in Aegis Ltd.(supra) to which one of us is party, the Coordinate bench relying on the aforesaid decision of the Hon'ble Bombay High Court in Besix Kier Dabhol SA(supra) at para 27 thereof held that the recharacterization of equity into loan as carried out by the Transfer Pricing Officer was not permissible. Para 27 of this order of the Co-ordinate bench is extracted hereunder:- "27. We have heard the rival submissions and also perused the relevant findings in this regard in the impugned orders. The assessee has subscribed to redeemable preference shares of its AE, Essar Services, Mauritius and has also redeemed some of these shares at par. The TPO has redeemed some of these shares at par. The TPO has recharacterized the said transaction of subscription of shares into advancing of unsecured loan by terming it as an exceptional circumstance and has charged/imput....
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....notional interest. 9.1.1 In view of our finding that there is no income/potential income arising to the assessee out of the impugned international transaction of investment in acquiring shares in its subsidiary TOPs BV, Netherlands, the same would not fall within the purview of Indian Transfer Pricing provisions. In coming to this view we drew support from the ratio laid down in the following judicial pronouncements:- (i) Vodafone India Services Pvt. Ltd. (368 ITR 1(Bom)(Vodafone IV), wherein at para 42 it is mentioned that the ratio applies equally to inbound and outbound capital transactions; (ii) Shell India Markets Pvt. Ltd. (269 ITR 516)(Bom) (iii) Equinox Business Parks Pvt. Ltd. [230 Taxman 191(Bom)] (iv) Vijay Electricals Ltd., [60 SOT (Hyd)] (v) Hill Country Products Ltd. [48 taxman.com 94 (Hyd)] 9.1.2 In the absence of provisions/Rules for re-characterization of investment in share capital into loan and vice-versa, we are of the considered view that the re-characterization of the impugned capital transaction into a loan as sought for by the Transfer Pricing Officer/CIT(A) is not tenable in law in view of the decision of t....