TaxTMI 
TaxTMI 
2023 (6) TMI 725
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....ed Share Premium. 2. The Learned ACIT has erroneously added the Transfer Pricing Adjustment amounting to Rs. 1,05,96,120 even though the transaction are at arm's length price only. 3. Learned AO has erred in law and on facts in not properly appreciating and considering various submissions, evidence and supporting documents placed on record during the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective. 4. Your Appellant reserves the right to add, alter, amend and withdraw any of the above grounds of appeal. 3. The facts in brief are that the assessee company is subsidiary of M/s Guandong Yuzumi Precision Machinery Ltd Co of China in which 10% shares also held by a person of Indian resident namely Shri Ramesh Vardhan. The assessee in the year under consideration issued 1,39,034 fresh shares at a face value of Rs. 100/- and premium of Rs. 400/- per share to M/s Guandong Yuzumi Precision Machinery Ltd Co of China (1,14,355 shares) and Shri Ramesh Vardhan(24,679 shares). The income tax return of the assessee for the year under consideration was selected for limited scrutiny under CASS on accoun....
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....re the learned DRP submitted that its return was selected under limited scrutiny to verify the large volume of share premium in the light of the provision of section 56(2)(vii) of the Act or any other relevant section. Thus, the issue of verifying transfer pricing report was outside the purview of the purpose of limited scrutiny. The action of the AO making reference to TPO under section 92CA of the Act is amounting to extension of the scope of limited scrutiny which has been prohibited by the CBDT unless limited scrutiny is converted into complete scrutiny with previous approval of competent authority and after giving opportunity of being heard to the assessee to that effect. ii) The notice for initiating assessment proceedings clearly states that issue of the share premium is to be verified in view of applicability of provisions of section 56(2)(vii) of the Act and other relevant provision of the Act. Thus, the return was selected only to verify the issue of fresh shares issued at premium which has been allotted to its AE and local existing share holder. The phrase "any other relevant section" cannot be read as applicability of TP provision requiring necessary verificati....
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....isclosed before us. It is also not known whether the investments are out of the funds for current year or earlier years. And though Sh Ramesh Varadan has shown to have received Rs. 28,85,398/- on 07.07.2017 and rs.35,15,118/- on 10.07.2017 as the amounts received on redemption of mutual fund, he has also transferred a sum of Rs. 30,00,000/- to Alchemy Capital Management Pvt. Ltd. PMS. Moreover, several credits to the bank statement indicate investment in the mutual funds viz. Sundram Select Food funds, Sundram Select Midcap Fund, Tata Mutual fund by Sh Ramesh Varadan, and the investment in these funds have not been disclosed in the statements submitted by Sh Ramesh Varadan. Under these circumstances we are of the view that no credit can be allowed on account of redemption of mutual funds to Sh Ramesh varadan for the purpose of investment in equity shares issued by the assessee. 5.3.19 No credit can be allowed to Sh Ramesh Varadan for the purpose of investment in equity shares issued by the assessee on account of loans from, friends and relatives either since the Sh Ramesh Varadan has not furnished any information about the loans taken from his friends and relatives as unde....
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....nt for the reason that this effect of the ALP is required to be given in the case of the foreign AE GYPM, China, will also not improve the case of the assessee as it is provided in the Act, that where the adoption of arm's length price under sub-sections (1) and (2) of section 92 would result in decrease in the overall tax incidence in India in respect of the parties involved in the international transaction sub-section (3) enjoins that principle of arm's length price shall not be given effect to In this regard we are also guided by the ruling of the Hon ble Authonty for Advance Rulings of New Delhi in Castleton Investment Ltd, (Supra), the applicability of section 92 does not depend on the chargability under the Act and the ruling of the Hon'ble Authority for Advance Rulings, New Delhi in Instrumentarium Corpn. In re [2005] 143 TAXMAN 1 (AAR - N. Delhi) wherein it is held that "Without complying with the statutory requirements it will be too presumptuous to assume the said transaction is beneficial for the Revenue and then invoke sub-section (3) of section 92 it is held as under it will be necessary to bear in mind the scheme of sections 92. 92A and 92B The As....
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....assessment Scheme, 2019 and the assessee was intimated accordingly vide letter dated 15.10.2020. The AO. National Faceless Assessment Centre. Delhi has categorically recorded a finding on page 3 and 4 of the order that a reference u/s 92CA(1) of the Act was made to the TPO to ascertain the ALP of such international transaction after taking the approval of the Principal Commissioner of Income tax. This fact was also brought to the notice of the AR that he has not disputed. The online approval given by the Pr. CIT on 25.01.2021, is also on record: 5. In view of the above direction, the AO framed final assessment order under section 144C r.w.s 143(3) of the Act wherein made addition of Rs. 68,83,170/- under section of the Act on account of share application money from Shri Ramesh Vardhan and Rs. 1,05,96,120/- on account upward TP adjustment for the transaction of purchase goods/spares . 6. Being aggrieved the assessee is in appeal before us. 7. The learned AR before us filed a paper book running from pages 1 to 189 and contended that the AO/TPO exceeded their jurisdiction by making adjustment under section 92 of the Act for international transaction though the same was not su....
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....s. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad). 9.1 The CBDT further amended the para 3(d) of the above-mentioned instruction vide instruction No. 05/2016 dated 14-07-2016 with additional requirement that the AO will form a reasonable view regarding the potential escapement of income. The relevant portion of the instruction stands as under: 2. In order to ensure that maximum objectivity is maintained in converting a case falling under 'Limited Scrutiny' into a 'Complete Scrutiny' case....
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....gard to "purchase made from an AE" which requires determination of ALP as per the provision of section 92 to 92CA of the Act. Further, there was no whisper in the order of the authority below that the limited scrutiny was converted into complete scrutiny. The learned DRP in his order given a finding that the AO after previous approval of PCIT made reference to TPO under section 92CA of the Act to determine ALP of international transaction. In this regard we note that the approval pf learned PCIT before referring to TPO under section 92CA of the Act is different from the approval of competent authority to convert the limited scrutiny to complete scrutiny. Therefore, we are not in agreement with the above finding of learned DRP. The Ld. DR before us has also not brought anything on record justifying that the "Limited Scrutiny" was converted by the Assessing Officer under normal/ regular scrutiny after obtaining necessary approval from the appropriate authority. Accordingly, we hold that the Assessing Officer/TPO has exceeded his jurisdiction by making upward adjustment in TP report on account of purchase of goods/spares from the AE. 9.4 The right course of action for the AO was to....
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....nt of the dispute raised in the notice issued under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, we hold the addition made by the AO on account TP adjustment is without having valid jurisdiction therefore the same cannot be sustained. Hence, the ground of appeal of the assessee in this regard is hereby allowed. 9.6 Coming to the issue of addition under section 68 of the Act. The assessee received an amount of Rs. 1,23,39,500/- from its existing share holder namely Shri Ramesh Vardhan on account of issue of fresh share at premium. The AO as per direction of DRP treated the partial amount of 68,83,170/- as unexplained credit under section 68 of the Act against which the assessee is in appeal before us. 9.7 The provision of section 68 of the Act fastens the liability on the assessee to make proper and reasonable explanation regarding the nature and sources of sum credited in the books to the satisfaction AO. The assessee is liable to provide proof of the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the as....