TaxTMI 
TaxTMI 
2021 (9) TMI 1172
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....oup on 30.03.2012. The key persons of the group are Shri Gaurav Arora and his son Shri Saurav Arora. This group is engaged in the business of trading of equity, commodity, derivatives of equity and forex market. During the course of search, incriminating documents and evidences have been found and seized. In response to the notice under section 153A of the I.T. Act, 1961 dated 05.08.2013, the assessee company filed its return of income on 02.09.2013 declaring a total taxable income of Rs. 2,91,41,210/-. 2.1. During the course of assessment proceedings, the A.O. noted that the assessee company is a member of stock exchanges and doing trading for the clients as well as in its own account. It is also a client with M/s Futurz Next Services Ltd. for trading in commodities. These companies are registered with NSE, MCX, and NCDEX. These are also registered with the United Stock Exchange. During the course of search and post search proceedings, the evidences of Client Code Modifications ["CCM"] done by these companies in their own account as well as in the accounts of client were found. The Special Auditors appointed by the Department was directed to look into the aspect of CCM in the a....
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.... arguments advanced by the assessee in absence of any details in respect of utilization of working capital and other loans on which interest of Rs. 3,95,09,607/- has been paid. From the various details furnished by the assessee, he noted that the account of the assessee company with the group persons namely Directors Shri Gaurav Arora and sister concern namely M/s. Jaypee Commodities Ltd., and M/s. Arora Timber Ltd., reveal that the accounts have debit balance in major part of the year. The peak debit in the case of Shri Gaurav Arora is Rs. 8.21 crores, in the case of Future Next Services (P) Ltd., the peak debit amount is Rs. 61.96 lakhs and in the case of Arora Timber Pvt. Ltd., the peak debit amount is Rs. 70 lakhs. He observed that the assessee has not charged any interest on the loan provided to its Director Shri Gaurav Arora and sister concerns. He, therefore, held that assessee could not establish that interest bearing fund borrowed by it is wholly and exclusively used in the business and there is no commercial expediency in giving interest free loan to sister concerns. Relying on various decisions, the A.O. held that interest amounting to Rs. 1.97 crores which is approximat....
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....amely Shri Gaurav Arora and Shri Saurav Arora gave additional advantage to Jaypee group in the management and decision making process of United Stock Exchange. The hype created around it led to the increase in share price of USE. The shares of USE were not listed and the existing shares were transferred through private placements. While processing the application of USE for permission to do the business of Stock Exchange, SEB1 noticed the dominant position of Jaypee Capital group in USE. Therefore in March 2010, SEB1 asked M/s Jaypee Capital Services Ltd group to reduce their share holding to 5% of issued capital. Consequent to same, the Jaypee Capital Services Ltd sold its share holding to bring the same within 5 % of share holding of the USE. 2.8. He, therefore, asked the assessee-company to submit the details of sale of shares of USE and justification of price on which it was sold. In response to the same, the assessee submitted the following details of sale of shares of USE which is as under : Name of purchaser No. of shares sold with the value Date of sale of shares Sale consideration received (Rs.) Sale price per share (Rs.) Atex Overseas (P) Ltd. 75,0....
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....ed in 4, are camouflaged by reducing the last two zeros of the figures. He explained that the entries in the A.5 are not camouflaged as in certain papers of this Annexure, the actual entries are found mentioned in Annexure A-3 (by removing last zeros). It was observed that A.4 is a small diary but Annexure A.3 and A.5 are loose paper sheets. These sheets are written in different hand writings. The papers are also not chronologically arranged. In the top of certain sheets "Cr" and "Dr" have been mentioned indicating that the incoming and outgoing of funds. The assessee has not identified the person in whom hand writings the papers are written. However, the specific mentions of names Ahuja , Dhingra, Gujaral and Gulati are predominantly mentioned in certain pages which are page no 29,28,25,11 of the Annexure A.5. There are other entries in these pages also. For example in page No 25 amount of 2911.50 is mentioned against jobbers. It is quite unlikely that amount in paisa are taken in to accounts in loose sheets. The actual amount thus would be Rs. 291150/-. In page No 21 again figures of 5701.28 is mentioned. The assessee has not submitted anything to prove that such amount is record....
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....nce to record that USE made any offer of the shares to large investor community. As per the document submitted by the assessee the negotiation of USE with regard to allotment of its shares was only with big financial institutions and foreign investors. The intention of USE seems to be was to bring big financial instructions to its board. The assessee has not brought any document to prove that the offer of USE was also available to any small and medium level Indian Companies. Therefore, the sale of shares by the assessee company through local placement and efforts of USE to bring large financial institutions and foreign investors are at different footings, so cannot be compared. (iv) The assessee could not explain the name and amount mentioned in the loose paper sheets Annexure A-4 as discussed above. The assessee itself sold the shares @ Rs. 3.9 per shares in March 2010. The assessee could not produce any convincing argument that despite the Exchange was going to receive the permission to commence the business, why the value of its share fell so drastically. 10.11. Therefore, the sale value of share of M/s USE by the assessee are estimated a Rs. 3.00 per share. Th....
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....t levels to higher level. NCDEX's ADTV was about Rs. 6000 crores per day in the year 2011, it is striving to achieve through JCSL, ADTV of Rs. 12,000 crores for any period of 3 consequent calendar months [clause 1.23 of the agreement] and Rs. 18,000/- crores [clause 3.3.1] for a continuous period of 3 months within 3 years, or else it shall receive damages equivalent to Rs. 113.32 crores from JCSL. 2.13. The A.O. noted that a direct benefit of Rs. 113,31,36,000/- [149-59] X 1,31,76,000] was passed on to the JCSL by the NCDEX. This is the direct benefit passed on by NCDEX to JCSL in lieu of achieving its objectives. The A.O. analyzed the provisions of Section 56(2)(viia) and noted that as per the agreement between the company and NCDEX, the equity shares of NCDEX were allotted to JCSL @ Rs. 59 per share. The value of each equity share as on that date was Rs. 145 per share. A total of 1,31,76,000 shares were allotted by virtue of the agreement to the assessee company. Thus, a direct benefit of Rs. 113,31,36,000/- (Rs. 145 - Rs. 59) x 1,31,76,000 was transferred to the assessee company. Therefore, the assessee was requested to submit the complete details of transactions and explain....
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....I approval of investments, bank advice of remittance made, Copy of certificate of Form 15CA/ 15CB at the time of making remittance is also required to be submitted. (4) If the amount is remitted as loan, the rate of interest charged is required to be submitted. 2.15. Rejecting the various explanation given by the assessee, the A.O. made addition of Rs. 2,02,72,428/- as income under section 92D being interest on loan from AE. While doing so, the A.O. noted that (i) the assessee has in the process of lending money to its subsidiary has not followed the arm's length price. (ii) The assessee did not correctly assess the risk associated with the international transaction of lending the money. The A.O, accordingly, made addition of Rs. 2,02,72,428/-. Thus, the A.O. determined the total income of the assessee at Rs. 177,91,86,740/- as against the returned income of Rs. 2,91,41,210/-. 3. In appeal, the Ld. CIT(A) gave substantial relief to the assessee. So far as the addition of Rs. 11,97,21,030/- on account of CCM is concerned, the Ld. CIT(A) deleted the same by observing as under : "9.4. I have carefully considered the assessment order, written submissions, case l....
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...., in appellate proceedings, it has been submitted that the, CCM transactions, have been recorded less than 1%, except only on 1 day i.e 21.7.2010, where penalty of Rs. 500/-, was imposed, since CCM exceeded 1%, being 2.63%. In this regard, appellant has submitted that the CCM on 21.7.2010, was carried out for the purpose of testing the software, where total of 51 trades were modified (which includes one share of each company), through which the net profit and loss of Rs. 17/-, was shifted to appellant and is duly recorded in the books of accounts. In fact, it is argued by the A.R. that by doing so, appellant has increased its profit. (v) In appellate proceedings, it has been submitted by the appellant that CCM transactions, have been recorded less than 1%, and no penal action has been taken by the exchange on CCM transactions, except in one case (supra). It has also been submitted, that A.O. has wrongly mentioned in the assessment order that penalties have been imposed by the SEBI on the appellant during the period from 1.4.2010 to 31.01.2015 on account of CCM, whereas the penalties mentioned are on account of other discrepancies, i.e Margin shortage/ Margin Viola....
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.... in their case, these errors are at 0.54% during the whole year, which is less than 1% of the total number of transactions entered into and the entries relating to CCM and have been accepted by both the parties. The A.O. has not brought any evidence to support the allegation, apart from suspicion on the basis of SEBI guidelines. Hence, it is submitted by the appellant that there is no justification for drawing any adverse inference on this account, without bringing any specific anomaly with regard to genuineness of the transactions and no fine has been imposed by concerned authorities, in respect of CCM. It is further submitted by the appellant that the A.O. himself has made this addition by doing a guess work, whereby he has accepted that 20% of such CCM transactions, are genuine errors and 80%, as non-genuine errors and therefore, the entire addition on this account, is not correct. Therefore, it is submitted by the appellant that, the suspicion, cannot be a basis for making any addition. (vi) It is further submitted by the appellant that the entries, which are being alleged, where profit/losses arising from the alleged transactions by the A.O, are all being ass....
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....has been submitted by the appellant that chart showing the nexus between the borrowed funds used for business purposes and interest paid filed now, was also submitted during the assessment proceedings, vide which it can be clearly observed that borrowed funds are utilized for business only. From the perusal of submission filed during assessment proceedings, it can be observed that there are regular business transactions amongst the group persons / entities and the same are running throughout the year, which are attributed to the business of shares/futures/option of securities etc. In this background, the interest element on these funds cannot be disallowed, being part and parcel of business transactions. Further, the exercise of calculating peak balance on these accounts and then attributing interest expenses to the same, by the A.O. is incorrect. The assessee has filed detailed explanation before A.O. regarding money borrowed, on which interest has been paid and its utilization for business purposes. The A.O. has not pointed out any inaccuracy in the submission filed by the assessee. The assessee having utilized the borrowed funds for business purposes and therefore, it is submitt....
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....serving as under : "12.4. I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. A.R. The objections / arguments of the appellant, are discussed as under : (i) As per A.O. during the year under consideration, assessee company has earned dividend income of Rs. 60,718/- and for earning the exempt income, assessee has substantial amount of investment in shares of companies. The nature of income, which can be earned out of such investment, is dividend income, which is exempt income. (ii) The assessee has not claimed any expenses against the exempt income, however, as per A.O., there would be expenses incurred on manpower, office expenses etc. for maintaining and keeping track of funds. Therefore, the A.O. was of the view that provisions of Sec. 14A. are attracted and accordingly, the A.O. determined the disallowance of Rs. 67,98,422/-, as per Rule 8D(ii) and (iii). (iii) During the appellate proceedings, the appellant has submitted that, it has earned exempted income by way of dividend of Rs. 60,718/- only on the shares held as stock in trade and not as investment. Therefore, A.O. ha....
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.... as stock in trade and not an investment. • The investment made in its group concerns, are on account of strategic investments and on which, no dividend income has been earned. In view of the above, I hold that the dividend income is incidental to the main business of trading in shares and therefore, A.O. has erred in invoking the provision of Sec. 14A for making disallowance for alleged expenses, against exempt income. Accordingly, I agree with the arguments of the appellant that the dividend income is incidental income, which is earned on account of business activities of the appellant and therefore, the disallowance made by the A.O. cannot be sustained. Therefore, disallowance of Rs. 67,98,422/-, is deleted. 3.3. So far as addition of Rs. 113,31,36,000/- made by the A.O. by invoking the provisions of Section 56(2)(viia) is concerned, the Ld. CIT(A) deleted the same by observing as under : "14.4. I have carefully considered the assessment order, written submissions, case laws relied upon and oral arguments of the Ld. A.R. The objections / arguments of the appellant, are discussed as under : (i) The A.O. during the assessment proceedings ....
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....into effect from 29.11.2012. The provision of sec.56(2)(viia) has come into force from 1.6.2010 and as per relevant explanation, the fair market value of the shares, has to be determined in accordance with the method, prescribed under Rule 11U and 11UA. (vii) It is further submitted by the appellant that the corresponding existing Rule for the year under consideration, in term of the above provision u/s 56(2)(viia), was prescribed by notification no. 23/10 dated 8.4.2010, came into effect from 1.10.2009, same is as under : "11UA. For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely - (c) valuation of shares and securities, (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely, (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are rec....
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....ayable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet. PV = the paid up value of such equity shares;] (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.]" However, above rule was renumbered w.e.f 29.11.2012, on account of insertion of new Sec. 56(2)(viib), as 11UA(1) and 11UA(2). Accordingly, appellant submitted that, the A.O. has wrongly taken a view that Rule 11UA( 1), came into effect from 29.11.2012. From the above, following facts emerge :- • Rule 11U and 11UA of Income-tax Rules, has come into force by Notification no.23/10 dated 8.4.2010, which came into effect from 1.10.2009. Accordingly, the rule shall be applicable for the allotment of shares taken place on 2.12.2010. • Shares issued to SRSL and shares issued to NCDCX, are on dif....
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....Pvt. 1 id. and M/s Riddhi Siddhi Buildcon Pvt. Ltd. were allotted @ Rs. 1/- per share by USE itself. From the perusal of list of allottees of shares of USE placed in paper book page no.267-268, which was also filed in the assessment proceedings, it is observed that a total number of 110944300 shares were allotted to 24 different person @ Rs. 10/- (par value) each-and therefore, the A.O. should have also taken into consideration these transactions. (iv) During appellate proceedings, it is also submitted that the last traded rate to be taken on actual sale consideration, is not a correct method for determining the sale price. It is further submitted that, it is a trite law by that the income is to be taxed, has to be the real income of the assessee, which has actually been earned and not the income which it ought to have been earned. Therefore, it is argued that A.O. while making such addition, has to bring on record some material to prove that the assessee has actually received something over and above the consideration, which have been shown by it in its books of accounts and for this purpose, appellant has relied upon the judgment of the Hon'ble Supreme Court in the c....
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....ed any interest. Therefore, as per provisions of Sec.92 of the Act, the interest chargeable on this international transaction with A.E., is to be determined at ALP. Accordingly, the A.O. considered the interest @ 13.5% p.a. at ALP by following CUP method, after taking into account financial risk, credit risk, business risk and structural risk, as discussed in para 14.10 of the assessment order. Accordingly, determined the ALP of the interest amount at Rs. 2,02,72,428/-, for A.Y. 2011-12. (ii) During the appellate proceedings, it has been submitted that the appellant is of the view that the money, was given to the foreign A.E., as capital infusion in order to extend its business and keep its control over them. Therefore, it is submitted that there is no question of charging interest on such money. The A.O. has given a categorical findings in Para 14.4 and 14.5 of the assessment order that from the details obtained from Singapore tax authorities, it is seen that the remittance is only partly utilized for the purpose of equity and major fund, is of loan in substances and not of equity, as claimed by the appellant. Thus, funds have been admittedly transferred to the subsidiari....
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....vancing a loan to an unrelated party in India with a simitar financial health as the taxpayer's subsidiary. The aforesaid reasoning is unacceptable and illogical as the loan to the subsidiary AE in the instant case is not granted in India and is not to be repaid in Indian Rupee. It is not a comparable transaction. The finding of the TPO that for this reason the interest rate should be computed at 14% per annum i.e. the average yield on unrated bonds for Financial Years (FY, for short) 2006-07, has to be rejected. .............. 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees, would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. T....
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....o delete disallowance made u/s 14A. (f) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in directing the AO to delete the additions made on account of sale of shares of United Stock Exchange. (g) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in not appreciating the entries found in Annexure A-3, A-4 and A-5 which substantiate the sale of shares of USE at much higher rate than face value thereof. (h) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in deleting the additions made u/s 56(2)(viia) for the purchase of shares of NCDEX by ignoring the actual traded value of the shares of NCDEX. (i) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that LIBOR rate of interest is applicable. (j) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in accepting the contention of assessee that the loan to AE w as advanced in LSS without calling for report under Rule 46A from AO as no such details were submit....
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....s under : "10. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case made addition of Rs. 1,90,71,392/- on account of CCM on the ground that in the case of member (broker) group of companies of the assessee, it is held that the CCM is by and large not for the genuine reasons and for extraneous consideration and that the assessee has suppressed its income to the extent of Rs. 1,90,71,392/-. We find the Ld. CIT(A) deleted the addition made by the AO on the ground that the assessee is not a member of any exchange and cannot execute CCM. Further the transactions on account of CCM done by group concerns are genuine and the volume of CCM occurred are within permissible limit allowed by SEBI. It is also the observations of the CIT(A) that the exchange or SEBI has not found any violation of rules and regulations relating to CCM and the CCM transactions are falling within the prescribed limit. It is the submission of the Ld. DR that it is not a genuine mistake and the transactions a....
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....unt of some punching error which has been rectified subsequently. We, therefore, do not find any merit in the argument of the Ld. DR that CCM is akin to penny stock." 7.1. Since the facts of the present case are identical to the facts of the case decided by the Tribunal cited (supra), therefore, respectfully following the decision of the Tribunal in the case of the sister concern, we hold that there is no infirmity in the order of the Ld. CIT(A) in deleting the addition made on account of Client Code Modification and commission earned for such accommodation entry. Grounds of Appeal Numbers. (a), (b) and (c) are accordingly dismissed. 8. Grounds of Appeal Number. (d) relates to the Order of the Ld. CIT(A) in deleting the addition made by the A.O. of Rs. 1,97,54,804/- under section 36(1)(iii) of the I.T. Act, 1961. Learned Counsel for the Assessee submitted that the A.O. in the instant case made the addition on the ground that assessee could not establish that the interest bearing funds borrowed by it is wholly and exclusively used for the purpose of business and there is no commercial expediency in giving interest free loan to its sister concerns. He submitted that the Ld. CIT....
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....sessee that all the transactions are attributed to the business of shares/ future/option of securities and drew our attention towards its financial ledger for the period 01.04.2012 to 31.03.2013, available at pages 64 to 68 of the paper book wherein business transactions with Futurz Next Services Pvt. Ltd. have been recorded. 12. It is also contended by the ld. AR for the assessee that advances to the group companies have been given out of its own paid up share capital and reserve & surplus of Rs. 3,24,81,89,677/- for commercial expediency to the group companies and relied upon the decision of S.A. Builders Ltd. vs. CIT (2007) 158 taxman 74 (SC). So, in view of the financials brought on record by the assessee company discussed in the preceding para, we are of the considered view that since transactions are pertaining of business of shares/future/option of securities & advances having been given on account of commercial expediency of the group companies, disallowance made by the AO and confirmed by the ld. CIT (A) u/s 36(1)(iii) is not sustainable, hence ordered to be deleted. So, grounds no.5, 6, 7 & 8 are determined in favour of the assessee." 10.1. Since the facts of ....
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....he actual dividend income received in view of the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd., (supra). Since the assessee in the instant case has received dividend income of only Rs. 60,718/-, therefore, the disallowance under section 14A is restricted to Rs. 60,718/-. The order of Ld. CIT(A) is accordingly modified and the ground raised by the Revenue on this issue is partly allowed. 16. Grounds of Appeal Numbers. (f) and (g) relates to the order of the Ld. CIT(A) in deleting the addition of Rs. 45 crores made by the A.O. on account of sale of shares of United Stock Exchange. 17. Learned Counsel for the Assessee submitted that United Stock Exchange ['USE'], is a national level recognized stock exchange and duly notified in the Gazette. USE shareholder includes national level institutions, public and private sector and Bombay Stock exchange being the strategic and single largest shareholder with 15% shareholding. Further it has 21 public sector banks, 6 private sector banks, one foreign bank and corporates like MMTC, Indian Potash are its shareholder. The shareholding of Jaypee group in USE was 24.99%. USE has applied for permission to do the business....
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....nd further more BSE has the right to bring new buyer of their choice to buy shares at the offered price, then these could not be sold to other parties. Therefore, there cannot be any scope of understatement of selling price as the same was in knowledge of BSE and doubting this transaction would also raise questions on BSE. f. All the shares allotted/transferred were approved by the board of USE and BSE. That is, the shares are transferred with prior approval of board, hence there is no hidden transaction etc., 17.1. He, accordingly submitted that the addition is liable to be deleted and the order of the CIT (A) should be upheld. 18. The Ld. D.R. on the other hand heavily relied on the order of the A.O. 19. We have considered the rival arguments made by both the sides, perused the order of the Ld. CIT(A) and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the A.O. in the instant case made addition of Rs. 45 crores to the total income of the assessee by estimating the sale value of 22,50,00,000 shares of M/s.USE @ Rs. 3.00 per share as against Rs. 1/- by the assessee. While doing so, he considered th....
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....ordingly the shares were sold. We find merit in the arguments of the Learned Counsel for the Assessee that the sole motive behind selling the shares was to obtain permission from SEBI for online trading and the shares were sold in a haste, hence the same were sold at par. USE was to formally commence its operations on 20.09.2010 and till 19.09.2010 the assessee had no option but to reduce the shareholding to 5% since the operation of USE could not commence under the above circumstances as assessee was holding 22.50 Crore shares in excess of 5% before 19.09.2010. Thus assessee has no option but to sell entire excess shareholding of 22.50 Crore on or before 19.09.2010 at par. BSE has the right of first refusal i.e. if BSE can buy at the same price and further more BSE has the right to bring new buyer of their choice to buy shares at the offered price, then these could not be sold to other parties. Therefore, there cannot be any scope of understatement of selling price as the same was in knowledge of BSE and doubting this transaction would also raise questions on BSE. We find all the shares allotted/transferred were approved by the board of USE and BSE. That is, the shares are transfe....
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....xpressed in this regard. Shares have been sold and profit has been booked and the corresponding income is also offered to tax. Hence, the addition is liable to be deleted and the order of Ld. CIT(A) should be upheld. 21. The Ld. D.R. on the other hand heavily relied on the order of the A.O. He submitted that the provisions of Section 56(2)(viia) are applicable on the allotment of shares of NCDEX at concessional rates for which the assessee had got benefit of Rs. 113,36,31,000/-, but, the assessee received the shares at below the market rate, therefore, the A.O. is fully justified in invoking the provisions of Section 56(2)(viia) of the I.T. Act, 1961. 22. We have considered the rival arguments made by both the sides, perused the orders of the A.O. and Ld. CIT(A) and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the A.O. in the instant case made addition of Rs. 113,36,31,000/- on the ground that provisions of Section 56(2)(viia) are applicable on the allotment of shares of NCDEX at concessional rates. According to him, the assessee got the benefit of Rs. 113,31,36,000/- by virtue of receipt of shares of NCDEX....
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.... 25. The Ld. D.R. on the other hand heavily relied on the Order of the A.O. 26. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the A.O. in the instant case made addition of Rs. 2,02,72,428/- on account of ALP interest receivable on loans outstanding in the name of Jaypee Singapore Pte Limited by invoking the provisions of Section 92 of the I.T. Act, 1961. We find the Ld. CIT(A) deleted the addition on the ground that ALP of interest on foreign currency loan, is to be determined at US Dollar LIBOR, for the year under consideration since loan given to A.E. is in US Dollar, for which, assessee will determine the ALP, and file its claim before the A.O. If the A.O. finds that the claim as per US Dollar LIBOR, in terms of decision of Hon'ble Delhi High Court in the case of Cotton Naturals (I) Pvt. Ltd., the addition to the extent will be made and the excess of interest now determined, will be deleted. We do not find any infirmity in the order of Ld. CIT(A) on this issue. We find an identical issue had come up before the Tribunal in assessee's own case in A.Y. 2013-2014 vide ITA.No.1384/Del./2017 dated 17.01.202....
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....ines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re- structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner." 21. Similarly, coordinate Bench of the Tribunal in case of Topsgrup Electronic System Ltd. vs. ITO (2016) 48 ITR (trib) 753 also held that re-characterization of capital transaction into loan by the Transfer Pricing Officer is not sustainable in the eyes of law in view of the decision rendered by Hon'ble Bombay High Court in case of Besix Kier Dabhol SA 2012 (10) TMI 817 (Bombay). Operative part of the order is ex....
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....ccount of interest of Rs. 5.73 crores paid to Joint Venture Partners. The Commissioner of Income Tax (Appeals) held that Article 7(3)(b) of the Double Taxation Avoidance Agreement forbids allowance of any interest paid to the head office by permanent establishment in India as a deduction. Further, the payment of interest also directly violates the conditions imposed by RBI in its letter dated 3/11/1998. Therefore, the order of the Assessing Officer was upheld. 7) However, the Tribunal allowed the respondent-assessee's appeal. During the course of the proceedings before the Tribunal the revenue contended that the borrowings on which the interest has been claimed as a deduction are in fact capital of the assessee and brought only under the nomenclature of loan for tax consideration. It was the case of the appellant-revenue before the Tribunal that debt capital is required to be re-characterized as equity capital. However, the Tribunal held that in India as the law stands there were no rules with regard to thin capitalization so as to consider debt as an equity. It is only in the proposed Direct Tax Code Bill of 2010 that as a part of the General Anti Avoidance Rules it i....
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....that there was delay in the legal process which has been substantiated by the assessee, inter-alia, by furnishing email correspondences etc. The entirety of the facts and circumstances would demonstrate that the investment made by the assessee was for genuine business purpose and the stated transaction was not found to be a sham transaction, in any manner. Another fact is that whatever benefit would accrue to assessee's AE, they would indirectly accrue to the assessee since AE ultimately became wholly owned subsidiary of the assessee company. No doubt, there was inordinate delay in allotment of shares, nevertheless, the assessee was successful in explaining the delay in allotment of share and was able to demonstrate with evidences the circumstances which led to delay in allotment of shares. Therefore, re-characterization of this transaction as advance / loan by revenue authorities, in our considered opinion, was not correct approach and this transaction could not be equated with loan transactions. The Ld. DR has contended that the transactions have not been recharacterized as loan but the same has been benchmarked since certain benefits have accrued to AE by infusion of fund wh....
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....d fourthly, in the absence of any specific finding by the AO that any income has arisen from international transaction, TP provisions contained in Chapter-X of the Act do not apply. Section 92(1) of the act says that income arisen from international transaction is a condition precedent for application of Chapter-X of the Act. Consequently, we are of the considered view that addition made by the AO and confirmed by the ld. CIT(A) on account of arm's length price of value of interest receivable on loans outstanding of Rs. 1,04,24,675/- in the name of Jaypee Singapore Pte Ltd. is not sustainable, hence ordered to be deleted. So, grounds no.10 to 13 are determined in favour of the assessee." 26.1. Since the facts of the instant case are identical to the facts of the case already decided by the Tribunal in assessee's own case for the A.Y. 2013-2014, therefore, in absence of any contrary material brought to our notice by the Ld. D.R, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, the same is upheld and Grounds of appeal Numbers. (i) and (j) raised by the Revenue on this issue are dismissed. 27. Grounds of Appeal Numbers. (k), (l) and (m) being general....