TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 1172
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.... 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 account of assessee company also. After examining ....
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....etails 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 approximately 50% of interest expenses on working capital is used....
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.... 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. 75,00,000 (Rs. 10 value) 31-03-2010 29,25,00,000 39 Span Holding (P) ....
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....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 recorded in its books of accounts. In page No 17 & 14 the rent is being shown at figures 727.50. The rent of any pr....
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....ation 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. The amount is arrived after considering the previous sale made by the assessee and on the basis of amounts mentioned in the seized documents, particularl....
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....s 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 as to why the amount of Rs. 113,31,36,000/- i.e. the benefit accrues to it should not be treated as its income as per the provisions of Section 56(2)(viia) ....
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....ount 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 laws relied upon and oral arguments of the Ld. A.R. The objections/arguments of the appellant, are discussed as under : (i) It has been stated by the A.O. in the assessment order, that the client c....
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.... 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 Violation etc. Therefore, it is submitted by the appellant that there is no violation of rules and regulations prescribed in respect of CCM by the Exchange. (vi) Further, appellant also submitted that these entries have been entered into normal cours....
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....y 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 assessed to tax and such profit/losses, are included in total income declared in each of such case, which has been charged at the maximum marginal rate. Therefore, it is submitted that, there cannot be any allegation of intention to avoid taxes by shifting profit to loss by manipulating entries. The same A.O. has assessed all these entities in assessment proceedings u/s....
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....e 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 submitted that no amount can be disallowed u/s 36(l)(iii) of the Act. (iv) In alternate, assessee has also submitted that in light of the judgment of Hon'ble Supreme Court in the case of M/s S.A. Builders Ltd. vs. C1T (A) 2007 (158) Taxmann 74 SC and M/s Hero Cycles Pvt. Ltd. Vs. CIT 2015 (63 Taxmann.com 308 SC), no disallowance can be made u/s 36(l)(iii) of the Act, if the money is advanced to group concerns, is on account of comm....
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....d 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. has wrongly invoked the provisions of Sec.l4A of the Act, which is invoked for the exempt income, earned as dividend on the investment in shares. The dividend income earned on such shares, are incidental to the main business of the assessee. Therefore, no disallowance u/s 14A can be made and for this view, the appellant has relied upon on the judgment of Karnataka High Court in case of CCI Limited vs. JCIT, (2012,20 Taxmann.com 196) (Supra) and for sake of clarity, the same is reproduced as under : "When no e....
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....d 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 observed that the shares of NCDEX were issued to assessee @ Rs. 59/- per share, however the last traded price of share was @ Rs. 145 on 2.12.2010. sold to M/s. Shri Renuka Sugar Ltd. (SRSL). (ii) The provisions of section 56(2)(viia) applies from 01.62010. The allotment of shares by NCDEX to assessee company was carried oul by virtue of agreement dated 2.12.2010. Both NCDEX and assessee company are nol the companies in which public are substantially interested. Therefore, the provisions of section 56(2)(viia) would apply on the transaction of allotment of shares of NCDEX ....
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....her 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 received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be, (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation dale, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; 8(b) the fair market value of unquoted equity shares shall he th....
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....), 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 different footings and cannot be compared. * The purchase of shares by the appellant, is not from related party. In view of the above, I hold that shares issued to assessee company @ Rs. 59/- per share, is higher than the value @ Rs. 41.12 per share, determined u/s 56(2)(viia), in pursuance of Rule 11U and 11UA. Accordingly, I agree with the argument of the appellant and therefore, above addition cannot be sustained. In view of the above, the addition of Rs. 113,31,36,000/- made on account of share issued of NCDCX, is deleted." 3.4. So far as disallowance of an amount of Rs. 45 Crores on account of sale of shares of United Stock Exchange is concerned, the Ld. CIT(A) deleted the same by observing as under : "15.4. I have carefully considered the assessment order, written submissions, case laws relied....
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....hat 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 case of K.P. Varghese vs., ITO (1981, 131 ITR 597). (v) During appellate proceedings, it has also submitted that the alleged entries of seized material, represent cash received on account of sale of silver and the cash has been deposited in the bank. The same has been accounted for, in the case of group company, M/s Genx Services Pvt. Ltd. and no adverse view has been taken by the A.O. in the order passed u/s.153A. From the above following facts emerge :- * The sale price of the share on 17.9.2010, sold by USE to appellant and M/s. Richa Global Exports Pvt. Ltd., @ Rs. 1/- which is not a related party to the transaction. * On 13.11.2009, the exchange itself has allotted shares to 24 different persons @ Rs. 10/- per share (i.e.. par value), before splitting. * That the A.O. was no correct in drawing adverse inference and mixing the sale of silver with that o....
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....hat 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 subsidiaries, without charging interest. From the above, it is clear that the appellant has entered into a international loan transaction with A.E. of Singapore, in terms of Sec.92B of the Act, and failed to determine the ALP, in terms of Sec.92 of the Act. Accordingly, I do not find any infirmity in the action of the A.O. for determining the ALP of the interest chargeable on this international transaction and therefore the arguments of the appellant, are not acceptable. (iii) During the appellate proceedings, it has also been submitted by taking alternative argument that A.O.'s action, while applying CUP method for determination of rate of interest at ALP, by using interest rate towards the amount advanced to an Indian Company, will charge interest @ 12% to 15% p.a., which is not correct. Since, the loan is granted in foreign currency to a foreign entity and not to an Indian company, the best comparable would be US Dollar LIBOR rate, not the interest rate of Indian compa....
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....ntained 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. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply." In view of the above, I agree with the argument of the appellant 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 appellant will determine the ALP, and file its claim before the A.O.. If A.O. find that the claim as per US dollar LIBOR, in terms of above "decision of the Hon'ble High Court (Supra) is in order, that the addition to that extent will be made and the excess of interest now determined, will be deleted . Accordingly, ground no. 13 to 17, are hereby partly allowed." 4. Aggrieved with such Order of the Ld. CIT(A), the Revenue is in a....
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....ed in LSS without calling for report under Rule 46A from AO as no such details were submitted during the course of assessment proceedings. (k) That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. (l) That the grounds of appeal are without prejudice to each other. (m) That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. 5. So far as Ground Numbers. (a), (b) and (c) are concerned, the same relate to the order of the Ld. CIT(A) in deleting the addition made by the A.O. on account of Client Code Modification ["CCM"]. The Learned Counsel for the Assessee submitted that the issue stands covered in favour of the assessee by the decision of the Tribunal in the case of Group Company Jaypee Financial Services Ltd., for the A.Y. 2011-2012 vide ITA.No.4266/Del./2016 order dated 03.12.2019 wherein an identical issue had come up. Referring to Para-15 of the order of the Tribunal, he submitted that the Tribunal has decided the issue in favour of the assessee. Referring to page-2, para-6 of the assessment order, he submitted that the present case is also exactly the....
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.... that it is not a genuine mistake and the transactions are not genuine. Further the CCM was done by the assessee through its sister concern M/s. Futurz Next Services Limited through which the profit of the assessee company was reduced by Rs. 1.90 crores. According to the Ld. DR the CCM is akin to penny stock. It is the submission of the Ld. Counsel for the assessee that the transactions entered into by the assessee are not found to be false or untrue and although SEBI is the regulator no action has been taken by SEBI holding that the transactions are not genuine. Further no adverse material has been found by the search party during the course of search and the revenue even have not gone to the broker who has done the CCM. It is also his argument that it is not known as to whom the account has shifted. 11. We find some force in the argument of the Ld. Counsel for the assessee. We find force in the argument of the Ld. Counsel for the assessee that client code modification is the internal matter of the broker and assessee has no control over it. The AO in the instant case has not spelt out as to on which scrips the assessee has shifted the profit. We find the AO nowhere in the ass....
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.... that the Ld. CIT(A) holding that the assessee is having business transaction with the 03 clients which are for business transactions and no loan transaction has taken place, deleted the addition. He submitted that an identical issue had come up before the Tribunal in assessee's own case for the A.Y. 2013-2014. He submitted that the Tribunal vide ITA.No.1384/Del./2017 Order Dated 17.01.2020 has decided the issue and upheld the order of the Ld. CIT(A) in deleting the addition on the ground that advances are pertaining to the business transaction having been given on account of commercial expediency. He submitted that the facts of the present case being similar to the facts in A.Y. 2013-2014, therefore, the issue being covered in favour of the assessee, the order of the Ld. CIT(A) be upheld and the grounds raised by the Revenue should be dismissed. 9. The Ld. D.R. on the other hand heavily relied on the order of the A.O. 10. We have considered the rival arguments made by both the sides, perused the orders of the A.O. and Ld. 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 A.O. in the instant case ....
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.... instant case are identical to the facts decided by the Tribunal in assessee's own case for A.Y. 2013-2014, therefore, in the absence of any contrary material brought to our notice and respectfully following the decision of the Tribunal in assessee's own case cited (supra), we find no infirmity in the order of the Ld. CIT(A) in deleting the addition made by the A.O. under section 36(1)(iii) of the I.T. Act, 1961. Accordingly, Grounds of Appeal Number. (d) of the Revenue is dismissed. 11. Grounds of Appeal Number (e) relates to disallowance under section 14A of the I.T. Act, 1961 of Rs. 67,98,422/- made by the A.O. and deleted by the Ld. CIT(A). 12. Learned Counsel for the Assessee submitted that an identical issue had come up before the Tribunal in assessee's own case for the A.Y. 2013-2014 and the Tribunal vide ITA.No.1384/Del./2017 order dated 17.01.2020 has upheld the order of the Ld. CIT(A) in deleting the entire addition made by the A.O. on the ground that A.O. has not recorded satisfaction and investment is not out of borrowed funds. He accordingly submitted that since the facts of the instant case are identical to the facts of the case decided by the Tribunal in A.Y. 2013-....
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....with SEBI. SEBI while processing the application of USE in March 2010, directed Jaypee Capital services P. Ltd. Group to reduce their shareholding to 5% of issued share capital, as a condition for obtaining the permission. Therefore assessee sold its stake in USE, to obtain permission. The Learned Counsel for the Assessee filed the following details of shares sold : Name of Purchaser Date of sale No. of shares sold Sale Price Sale consideration Atex Overseas P. Ltd 31.03.2010 75,00,000 39 29,25,00,000 Span Holding p. Ltd 19.09.2010 7,50,00,000 1 7,50,00,000 Shahi Sterling Export P. Ltd. 19.09.2010 7,50,00,000 1 7,50,00,000 U.K. Paint (India) P. Ltd. 19.09.2010 7,50,00,000 1 7,50,00,000 * He submitted that these shares were allotted to assessee at par with face value of Rs. 10/- each. Thereafter, shares were splitted to face value of Rs. 1/- each. The shares were sold at par value only and not at a reduced price, hence no adverse inference should be drawn that the same are sold at lesser value. * While supporting the order of Ld. CIT(A) in deleting the addition, he submitted that the Ld. CIT(A) has given the following findings : a. T....
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.... the name of Gujaral. 18.1. We find the Ld. CIT(A) deleted the addition on the ground that the sale price of share on 17.09.2010 sold by USE to assessee and M/s Richa Global Exports Pvt. Ltd, @ Rs. 1/-, which is not a related party transaction. On 13.11.2009, the Exchange itself has allotted shares to 24 different persons @ Rs. 10/- per share (i.e. par value), before splitting. In view of the above, Ld. CIT(A) held that the shares were allotted to different persons at par/face value and no adverse material has been brought on record to substantiate the rate of share @ Rs. 3/- taken by the A.O. Therefore, we do not find any infirmity in the order of the Ld. CIT(A). 18.2. We find 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 as its shareholder. The shareholding of Jaypee group in USE was 24.99% in USE. USE has applied for p....
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....f the Ld. CIT(A) in deleting the addition made by the A.O. Accordingly, we, confirm the order of the Ld. CIT(A) on this issue. Grounds of Appeal Numbers. (f) and (g) of the Revenue are, therefore, dismissed. 19. Grounds of Appeal Number (h) relates to the order of the Ld. CIT(A) in deleting the addition of Rs. 113,31,36,000/- made by the A.O. on account of allotment of shares of NCDEX at concessional rate by invoking the provisions of Section 56(2)(viia) of the I.T. Act, 1961. 20. Learned Counsel for the Assessee submitted that during the year under consideration assessee-company was allotted 1,31,76,000 shares of NCDEX at a value of Rs. 59/- per share for a total consideration of Rs. 77,73,84,000/- (59 * 1,31,76,000). He submitted that NCDEX entered into an agreement with assessee-company on 02.12.2010. During the course of assessment proceedings, the A.O. alleged that, the equity shares of NCDEX were allotted @ Rs. 59/- per share, whereas the value of shares as on that date was Rs. 145 and, therefore, a direct benefit of Rs. 11,31,36,000/- [(Rs. 145 - 59) X 1,31,76,000] was transferred, which according to him, is the income as per provisions of Sec. 56(2)(viia). It was submitte....
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....tion on the ground that Rule 11U and 11UA of Income Tax Rules, have come into force by Notification no. 23/10 dated 08.04.2010, which came into effect from 01.10.2009. Accordingly, the Rule shall be applicable for the allotment of shares taken place on 02.12.2010. Shares issued to SRSL and shares issued to NCDEX, are on different footing and cannot be compared. The purchase of shares by the assessee is not from related party. The submission of the Learned Counsel for the Assessee that shares are issued to the assessee-company @ Rs. 59/- per share as against Fair Market Value of Rs. 42.12 as per Rule 11U and 11UA could not be controverted by Ld. D.R. Since, the Ld. CIT(A) while deleting the addition has passed a detailed order giving reasons which the Ld. D.R. could not controvert, therefore, we find no infirmity in the order of the Ld. CIT(A) in deleting the addition. We, therefore, uphold the order of the Ld. CIT(A). Accordingly, Grounds of appeal Number. (h) raised by the Revenue is dismissed. 23. Grounds of Appeal Number. (i) and (j) relate to the order of the Ld. CIT(A) in deleting the addition of Rs. 2,02,72,428/- made by the A.O. being income under section 92 of the I.T. Act....
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....he Ld. CIT(A), by observing as under : "17. AO noticed investment made by the assessee company in foreign companies, namely, Jaypee Capital Inc., USA and Jaypee Singapore Pte Ltd.. AO made addition of Rs. 1,04,24,675/- on account of arm's length price value of the interest receivable on loans outstanding in the name of Jaypee Singapore Pte Ltd. against which the assessee has shown nil interest. It is categoric plea of the assessee company that remittance to foreign subsidiaries has been made vide "capital infusion" in order to extend its business and to keep its control over foreign subsidiaries. However, the AO has treated the "capital infusion" as deemed loan and thereby made addition on account of interest @ 13.5% on deemed loan as its arm's length price value. 18. Assessee company has raised categoric plea that foreign subsidiaries in which capital infusion was made, is part of Jaypee Capital Services Pvt. Ltd. and as such, there is no question of charging interest on the same. It is contended by the ld. AR for the assessee that transaction of investment into loan cannot be recharacterized by the AO. 19. Undisputedly, for the year under assessment, there is no loa....
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....ng that in the absence of any specific thin capitalization rules in India, the Assessing Officer cannot disallow the interest payment on debt capital after having observed the abnormal thin capitalization ratio of 248:1?" In 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....
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....tions of the Tribunal. There were at the 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." 22. So, there is umpteen number of judgment declaring that transaction involving share application money cannot be recharacterized as international transaction of loan under Transfer Pricing provision. 23. Hon'ble Bombay High Court in case of Pr. CIT vs. Aegis Limited in ITA No.1248 of 2016 dated 28.01.2019 held that in the absence of finding that the transaction was sham, the TPO could not have treated such transaction as a loan and charge interest thereon on notional basis. Coordinate Bench of the Tribunal in case of Voltas Ltd. vs. DCIT, Range 8(3)(2), Mumbai in ITA No.2822/Mum/2017 & Ors. in the identical facts and circumstances of the case held that, "the payment of share application money cannot be treated as partly in the nature of interest free loans to the Associated Enterprises and as such, ALP adjustment based on that hypothesis is not legally sustainable". Operative part of the ....
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....ee and therefore, whatever benefit would accrue to AE, the same would indirectly accrue to the assessee. Therefore, not convinced with the approach of lower authorities, we hold that no addition would be warranted on this account. ........... 50. In view of these discussions, as also bearing in mind entirety of the case, we are of the considered view that the authorities below were in error in treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was indeed devoid of legally sustainable merits. We delete the impugned adjustment of Rs. 19,15,45,943. The assessee gets the relief accordingly. As we have decided this ground of appeal on the fundamental issue that the payment of share application money could not be partly treated as interest free loan to AE, we see no need to deal with other aspects of the matter." 24. Ld. DR for the Revenue by relying upon the order passed by the AO/CIT (A) contended that health of the AE needs to be looked into and it is not disclosed by the assessee company that if the loan was given and later on converted into equity. This contention o....
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....n law and on facts in deleting additions made on account of client code modifications(CCM). (b) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that the CCM done by the assessee company is within permissible criteria, thus, ignoring the fact that the CCM was done in the code of certain entities only and the modified client code were not similar to the original client code, the values of client code was significant and other conditions laid down by stock exchanges. (c) On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in directing the A.O. to delete disallowance u/s.36(i)(iii). (d) 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 disallowance made u/s 14A. (e) 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. (f) 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 was advanced in US $ without c....