TaxTMI 
TaxTMI 
2017 (11) TMI 1137
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....ds interest chargeable on Share Application Money Pending Allotment with AEs, and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. 1.2 On the facts and in the circumstances of the case and in law, the authorities below erred in making an upward transfer pricing adjustment in respect of interest chargeable on Share Application Money Pending Allotment without appreciating the fact that said transaction being capital in the nature, no additions could be made which is wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. 1.3 Without prejudice to the above, on the facts and in the circumstances of the case and in law, the authorities below erred in determining the Arm's length interest rate on the share application money pending allotment with its AE's @353% p.a. without appreciating the fact that share application money has been given to the foreign Associate Enterprises in Foreign Currencies, the price chargeable as interest, if any, on such money has to be based on LIBOR rate i.e.....
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...., amend and/or modify all or any of the above grounds of appeal on or before the date of hearing. 2. The brief facts of the case are that the assessee company is engaged in exploration, extraction, production of all kinds of oils including petroleum crude oil. For the year under consideration, the assessee has no business activity except receipt of interest income. In the assessment proceedings, a reference under section 92CA(1) of I. T. Act, 1961 was made to the Transfer Pricing Officer, Mumbai for the determination of Arm's Length Price in relation to the international transactions entered into by the assessee company with its Associate Enterprises. The AO after obtaining the approval of the Pr.CIT-3, Mumbai. The Transfer Pricing Officer (TPO) vide order u/s.92CA(3) dated 05.11.2015 suggested an adjustment to the tune of Rs. 7,80,74,292 to the Arm's Length Price reported by the assessee in Form 3CEB. Accordingly, a draft assessment order was framed by proposing adjustment of Rs. 7,80,74,292 to the total income u/s. 92CA(3) of the Act. Against the said draft assessment order, the assessee filed its objections before the Dispute Resolution Panel -(DRP)- 2, Mumbai, which h....
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....circumstances of the case, provisions of the Income Tax Act, 1961 and Rules made there under. 1.9 On the facts and in the circumstances of the case and in law, the action of learned Assessing Officer (AO) of making reference to TPO is bad in law as the Ld. AO has not dealt with the appellants objection that the transaction in question is not an international transaction and without reaching to a finding that the transaction in question is an International Transaction and he thereby erred in making an upward adjustment of Rs. 7.80 crores on the basis of TPO's order which is bad in law as the jurisdictional conditions have not been satisfied. 1.10 The ld. Authorities below erred in not appreciating that the transaction in question is not an international transaction, as Explanation (C) with retrospective effect from 01.04.02 can have effect only from Assessment Year 2013-14 and thereby erred in making an upward adjustment of Rs. 7.80 crores. 1.11 On the facts and in the circumstances of the case and in law, the authorities below erred in holding that the transaction of share application money as a loan transaction which is wrong and contrary to the facts and circumstance....
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....owing grounds:- I.There is no income arising from an international transaction II.Income which could have, but was not earned is not chargeable to tax. III.Chapter X is not a charging provision, it is a machinery provision. IV. There is no international transaction for a price. V. There is lack of Jurisdiction. VI. The satisfaction of the CIT for granting approval for the reference to the TPO not having been produced is bad in law. In the alternative it is mechanical and bad in law for that reason. VII. Explanation (i)(c) to section 92B of the Act does not apply to the transaction of advancing of share application money by the appellant. VIII. The recharacterisation of Share Application Money as a loan is bad in law. IX. The Computation mechanism fails as no price exists. X. A Secondary Adjustment cannot he made in the absence of a statutory provisio. Although, the assessee has raised many grounds of appeal but since the legal grounds raised by the assessee goes to the roots of the case and challenges the very jurisdiction of the AO for referring the case, to the TPO, therefore we have decided to first of all deal with legal grounds in additional grou....
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.... AO u/s. 92CA(1) to Addl. Commissioner of Income Tax [CIT] - Transfer Pricing Officer (TPO) on 17.03.2015. The assessee vide its letter dated 13.06.2017 has requested the AO to provide the copy of reference made to Transfer Pricing Officer [TPO] u/s 92CA(1), satisfaction recorded by AO and approval of CIT for making said reference, especially when the assessee had objected to consider the transaction as International Transaction. As per learned AR, while providing the documents, the Id. AO has categorically specified in his letter dated 13.06.2017, that there is no requirement of recording separate satisfaction of AO where the value of international transactions is more than Rs. 15 crores. The relevant extract of AO's letter was as under: "5. As regards your query regarding whether satisfaction for making reference has been recorded, as per the CBDT circular in force, all the cases -wherein the value of international transactions is more than Rs. 15 crores were required to be referred to the TPO for determination of Arm's Length Price and no separate satisfaction was required to be recorded by the A. O, which may please be noted" 10.2 As per learned AR this is also evide....
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....share capital. ii. During the previous year the assessee has not earned any income whereas it has incurred finance cost to the extent of Rs. 1.31 crores. iii. The assessee failed to submit the financial statement of the AE for the relevant period even though as the holding company the assessee undoubtedly had access to the same. iv. The assessee also failed to produce any resolution passed by the AE calling for the share application money and justification for non- allotment of shares against the same. 11.3 It was submitted by Ld. DR that in the background of these facts, the TPO concluded that the impugned transaction was actually a loan transaction and accordingly imputed interest on the same. As the amounts were advanced in US$, the TPO applied Libor+262.50 BPS. The same came to 3.53%. The TPO determined the Arm's Length interest at Rs. 7.80 crores. 11.4 It was submitted by Ld. DR that before the DRP, the assessee furnished two pages of the AE's Balance sheet. It was found that the authorized share capital of the AE as disclosed in its Balance Sheet as on 31/12/2013 was US$ 205 million. As against the same, the AE had already issued shares to the extent of US....
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....ternational transactions is more than Rs. 15 crores. The relevant extract of AO's letter is reproduced below: "3. As regards your query regarding whether satisfaction for making reference has been recorded, as per the CBDT circular in force, all the cases -wherein the value of international transactions is more than Rs. 15 crores were required to be referred to the TPO for determination of Arm's Length Price and no separate satisfaction was required to be recorded by the A. O, which may please be noted" 12.3 This is also evident from the letter of reference u/s 92CA(1) of the Act made to the Addl.CIT (TPO)- 4(3) wherein he has simply quoted the provisions of the Section 92CA which reads as under: "3. I consider it necessary and expedient to refer, all the transactions contained in form No. SCEB, u/s 92CA(1) of the Act, for computation of the Arm's Length Price. Therefore, all the international transactions mentioned in form No. 3CEB are referred to you for computation of the arm's length price. " 12.4 Further, letter dated 16.03.2015 from the office of CIT conveying the approval does not contain his satisfaction in the said approval. 12.5 Before we decide t....
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....And in this way, assessee would get a hearing after the TPO passed the order and the AO was empowered to reject the TPO's findings on hearing the assessee and grant relief. But this premise is no longer valid After the amendment to section 92CA(4) which now reads as under:- "('4) On receipt of the order under sub-sec/ion ('3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer. Thus in this way, prior to the amendment, the AO was obliged to give an opportunity of being heard to the assessee after the receipt of the TPO's report. However after the amendment, the AO has no choice but to pass the order in conformity with the order of the TPO. Hence in this way, if the arguments of the Revenue is considered that, no hearing is required to be given to the assessee before referring the matter to the TPO, then in that eventuality the assessee would be deprived of the opportunity of being heard on Both occasions i.e. before the reference is made to the TPO as well as after the TPO makes his report. Which to our mind is a....
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....he ALP or referring the issue to the TPO to determine the ALP. In this case, we find that the petitioner has from the very beginning been challenging the jurisdiction to apply Chapter X on the ground that no income arises and/or is affected or potentially arises and/or is affected on account of issue of its shares to its holding company, The Assessing Officer does not deal with this objection/issue before referring the matter to the TPO. The TPO does not deal with the above objection on the ground that in terms of Section 92CA his mandate is only to compute the ALP in relation to the International Transaction. The TPO in the impugned order dated 28 January 2012 meets the petitioner's objection by stating that the same would be dealt with by the Assessing Officer. However, when the same objection was raised before the Assessing Officer post the order of the TPO, the Assessing Officer does not consider the same in the impugned draft assessment order dated 22 March 2013 on the ground that in view of Section 92 CA ('4), the Assessing Officer is obliged to pass an order in conformity with the ALP determined by the TPO. This jurisdictional issue has to be dealt with either by the TPO....
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....sing officer would be sufficient before referring the transaction to the TPO for determining the ALP. However where an objection is raised about the applicability of chapter X by an assessee then the requirement for taking a decision after taking on board the objection becomes necessary. In the absence of it being considered at this stage, the same could only be considered by the DRP and as pointed out above, if considered at the very threshold by the Assessing Officer it could save an elaborate exercise of determining the ALP which may turn out to be entirely academic. It is for the above reason that grant of personal hearing before referring the matter to the TPO has to be read into Section 92CA(1) in cases where the very jurisdiction to tax under Chapter X is challenged by the assessee. Admittedly the aforesaid exercise of considering the objection of no income arising or potentially arising from the transaction has not been done in this case and finds no mention even in the draft assessment order. ...... .............. 45. We are unable to accept the above submission of the revenue. CBDT Circular regarding distribution of files depending on value of transaction cannot ....
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....n that case the Delhi High Court was considering the position of law as it stood before 01.06.2007. Section 92CA(4) before its substitution w.e.f 01.06.2007 read as follows: "(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm's length price determined under sub-section (3) by the Transfer Pricing Officer. " It held in Para 21 as follows: "Two aspects require to be taken note of in this context. The Assessing Officer will necessarily have to give an opportunity to the assessee after receiving the report of the TPO and before he finalises the assessment computing the total income. Secondly, the provisions do not mandate that the Assessing Officer is bound to accept the ALP as determined by the TPO. And for good reason because the Assessing Officer has himself not made up his mind at the stage about the ALP. He has, in a sense, only 'outsourced' this exercise to the TPO. He can always be persuaded by the assessee at that stage to reject the TPO's Report and proceed to still determine the ALP himself. It must be recalled t....