TaxTMI 
TaxTMI 
2020 (8) TMI 919
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....ly confirmed by the learned Dispute Resolution Panel ('DRP'). GROUNDS RELATING TO TRANSFER PRICING MATTERS: 2. The TPO/AO/DRP erred in making an adjustment of Rs.5,22,146/- for interest on outstanding receivables from Essar Africa Holding Ltd and considering the same as a separate international transaction and charging notional interest. 3. The TPO/AO/DRP erred in making an adjustment of Rs.2,79,88,575/- by charging Interest @ 4.19% on Outstanding Share application money paid by assessee to its AE Essar Power Overseas Ltd. GROUNDS RELATING TO CORPORATE TAX MATTERS: 4. The Assessing Officer has erred in assessing the interest income of Rs.49,03,51,025/-under the head "income from other sources" instead of business income. 5. The Assessing Officer has erred in disallowing Rs.204,32,67,630/- u/s. 14A of the Act read with Rule 8D while computing normal income under the Act and adding the same while determining book profit u/s. 115JB of the Act. 6. The Assessing Officer has erred in making addition of Rs. 1,30,81,163/- in respect of provision for income tax recoverable from Gujarat Electricity Board and Essar Steel L....
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....les. The AO/TPO has dealt with the issue at page No. 4 to 7 of his order. However, the ld DRP has confirmed the action of the A.O. after having its observation at page No. 6 to 11 of its direction. 4. At the outset, the ld AR of the assessee has placed on record the order of the Tribunal in assessee's own case for the A.Y. 2013-14 wherein the Tribunal have held that the interest on outstanding receivables has to be computed by applying LIBOR plus 0.5%. 5. We have considered the rival contentions and carefully gone through the orders of the authorities below and found that the TP adjustment was made by the AO on account of interest on outstanding receivables. In this regard, we found that exactly similar issue has been dealt with by the Tribunal in assessee's own case for the A.Y. 2013-14 in ITA No. 7329/Mum/2017 order dated 15/04/2019 wherein the Tribunal has held that interest on outstanding receivables has to be computed by applying LIBOR plus 0.5%. The precise observation of the Tribunal was as under: "9. We have considered rival submissions and perused material on record. Undisputedly, the Transfer Pricing Officer has determined the arm's length price of the ....
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....ing Officer in assessing the interest income of Rs. 27,47,80,861, under the head income from other sources instead of income from business. 11. Brief facts are, during the assessment proceedings the Assessing Officer noticed that interest income received by the assessee from ICDs, margin deposits from bank and other amounted to Rs. 27,47,80,861 have been shown by the assessee as business income. Referring to the treatment given to such income by him in assessment year 2006-07 to 2012-13, the Assessing Officer treated the aforesaid interest income as income from other sources. 12. The learned DRP also upheld the decision of the Assessing Officer. 13. The learned Authorised Representative submitted, while deciding identical issue in assessee's own case in the preceding assessment year, the Tribunal has held that interest income from margin money deposit is to be assessed as business income, whereas, interest income from bank deposits and ICDs have to be treated as income from other sources. In this context, he drew our attention to the appeal order passed by the Tribunal for assessment years 2009-10 to 2012-13. 14. Learned Departmental Representati....
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....clare any dividend. On facts, there is no dispute that the assessee has not earned any exempt income during the year under consideration. After consideration of Section 14A, the Delhi High Court followed decisions of certain other High Courts. Section 14A of the said Act provides that for the purpose of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the said Act. In other words, Section 14A provides that if there is an income which does not form a part of the total income under the said Act, the expenditure which is incurred for earning the income is not an allowable deduction. Therefore, during the relevant year, if the assessee has not earned any tax-free income, the corresponding expenditure incurred cannot be taken into consideration for disallowance." 13. In the instant case before us, there is no dispute to the fact that the assessee was not in receipt of any exempt income, therefore, applying the proposition of law laid down by the Hon'ble Jurisdictional High Court, no disallowance is warranted U/s 14A of the Act r.w.r. 8D of the Rules und....
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.... Zimbabwe. As per this agreement, the assesse would provide its expertise in project development and project management to EAHL. In consideration of the said services EAHL would pay USD 14,179 per month to the assesse. As per the terms of the agreement, EAHL shall pay the invoice amount within 30 days of the date of receipt of invoice. During the transfer pricing proceedings, the TPO observed that there was a delay in realization of the export invoices and the assesse had not charged any interest for the delayed realization of export proceeds. In view of the same, the TPO adopted an interest rate of 3.64% (as per Bloomberg database) and proposed transfer pricing adjustment of Rs. 5,22,146/- (Pgnos 4 to 7 of TPO). The Hon'ble DRP upheld the addition proposed by the TPO by relying on their own order for the immediately preceding year i.e. A.Y. 2013-14. It was argued by the ld AR of the assessee that the assessee has made advance to its AE for allotment of shares. Shares were allotted within six months. The TPO has computed interest on the advance given for share application money which was confirmed by the ld. DRP. 19. We have considered the rival contentions and carefully gon....
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....at similar issue has been considered by the Coordinate Bench in the case of Aegis Limited Vs Addl.CIT in ITA No. 1213/Mum/2014 order dated 27/07/2015. The precise observation of the Tribunal was 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 re-characterized 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 disregard any apparent transaction and substitute it, without any material of exception circumstance highlighting that assessee has tried t....
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....ow 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. 9. There is one more aspect of the matter. In the present case, allotment of shares does not make any change to the position of the assessee, as the subsidiary is admittedly a wholly owned subsidiary of the assessee. A delay in allotment of shares by the subsidiary company, as long as the subsidiary is a wholly owned subsidiary, does not prejudice the interests of the assessee. It is, therefore, wrong to even allege that an assessee does not behave in a commercially rationale manner, as expected in an arm's length situation, when the assessee does not ask for payment of interest for the period of delay in allotment of shares. We....
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....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. None of these conditions is satisfied in the present case. The form and substance of the transactions are the same. The assessee has behaved in a commercially rational manner inasmuch as whether the new shares are allotted at x point of time or y point of time, it does not make a difference to the position of the shareholder so far as the subsidiary is wholly owned by a single shareholder- as is the factual position in this case. The nominal value of shares, as long as all the shares are held by the assessee is entirely benefit neutral from a commercial point of view. The very foundation of the adjustment made by the Assessing Officer is, therefore, wholly devoid of legally sustainable merits and factually correct assumptions. 10. In view of these discussions, as also bearing in mind entirety of the case, we hold that the adjustment on account of notional interest on the share application money, whic....