TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 326
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....Share application money pending allotment - INR 9,25,35,248 [Page 3 and 4 of the Final Assessment Order] The learned AO/ the learned TPO and the Hon'ble DRP erred in facts and in law in imputing the interest on share application money, pending allotment, and in doing so have grossly erred 2.1 In failing to appreciate: 2.1.1 that re-characterization of the transactions is not permissible under the transfer pricing provisions. 2.1.2 the fact that only real income can be brought within the ambit of taxation and imputing interest on unearned income is unwarranted and unjustified. 2.2 In ignoring the fact that investments have been made as share application money to the Associated Enterprises ("AES") of the Appellant and hence, the amount remitted as share application money (and invested by the Appellant) could not be deemed as granting of loan. 2.3 In ignoring the fact that subsequently corresponding shares were allotted as against such payment of share application money. Further, such payment is also capital account. transaction and provision of Chapter X is not applicable. 2.4 In disregarding the binding judgment of Mumbai ITAT in Appellant's own case for AY 201....
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....arn dividend income. 4.3 The Hon'ble DRP and the learned AD erred in not following the decisions of Hon'ble Mumbai ITAT in Appellant's own case for AYs 2001-02/ AY 2002-03/ 2006-07 wherein the Mumbai ITAT deleted the disallowance under section 14A of the Act. Further, the same have also erred in not relying on the decision of Hon'ble Mumbai ITAT in Appellant's own case for AY 2014-15 and not restricting the disallowance (if, any) to INR 2,52,50,670 based on the specific directions given by the Hon'ble ITAT in the order passed for AY 2014-15. 4.4 Without prejudice to the above argument of the Appellant, disallowance, (if any) under Section 14A should be computed based on the methodology provided under Rule 8D of the Rules as amended by Notification No. 50 1949(E) [F.NO.370142/7/2016-TPL]. 5. Disallowance under Section 36(1)(iii), Section 37 and Section 38 of the Act amounting to INR 15,34,55,236 (Page 9 to 18 of the Final Assessment Order) The Hon'ble DRP and the learned AO erred in facts and in law in making disallowance under Section 36(1)(i), Section 37 and Section 38 of the Act, and in doing so have grossly erred: 5.1 In law in holding that ....
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....e Act by the learned AO 6.4 The Hon'ble DRP and the learned AO erred in disregarding the decision of Special Bench of the ITAT in the case of ACIT Vs. Vireet Investment Pvt. Ltd. [2017] ITA No. 502/ Del/2012 (Delhi Tribunal), which squarely applies to the Appellant's case. 6.5 The Hon'ble DRP and the learned AO erred in disregarding the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC), wherein the Hon'ble Court has held that the AO does not have the jurisdiction to go beyond the net profit shown in the audited profit and loss account except to the extent provided in the explanation to section 115JB of the Act 7. Disallowance of weighted deduction amounting to INR 17,54,78,992 claimed under Section 35(2AB) of the Act (Page 25 & 26 of the Assessment Order] The Hon'ble DRP and the learned AO erred in facts and in law in making disallowance of weighted deduction claimed under Section 35(2AB) of the Act, and in doing so have grossly erred: 7.1 In failing to appreciate: 7.1.1 that Section 35(2AB)(1) prescribes the requirement of approval of the facility and not the expenditure. Further, amended Rule 6 of....
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....er] The learned AO erred in law and facts in initiating penalty proceedings under Section 274 read with Section 271(1)(c) of the Act, as no case is made out by the AO that the Appellant has concealed any particulars of income/ furnished inaccurate particulars to the learned AO either in the tax return or during the assessment proceedings. The appellant craves to add, alter, amend, or delete all or any of the grounds of appeal before or during the course of Hearing before the Honorable ITAT. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be granted. 3. Assessee is a company engaged in integrated manufacturing and export of pharmaceutical dosages forms. It markets and supply pharmaceutical products. Assessee filed return of income on 28/11/2016 showing income of Rs. 534,925,020/-. The return of income was picked up for scrutiny. As assessee has entered into international transactions, reference under section 92CA (1) of the act was made by the learned assessing officer to The Assistant Commissioner Of Income Tax, Transfer Pricing, 4 (1) (2), Mumbai (the learned TPO) to examine arm's-length price of those i....
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....ts associated enterprises. ii. LD TPO further noted that assessee has invested in share application money in two foreign companies situated at Singapore and United Kingdom. In Singapore entities the assessee has invested a sum of Rs. 2,814,042,859 and in the United Kingdom associated enterprise assessee has invested Rs. 1,578,339,875/- as share application money. In the earlier years, the above sum was treated as loan by the TPO and interest was charged, according to the direction of the learned dispute resolution panel. Therefore the learned assessing officer noted that where there is a delay of more than six months between the payment of share application money and the issue of shares by the foreign associated Enterprises , share application money becomes the loan i.e. capital financing transaction. Therefore, the imputation of interest on share application money is justified. As the assessee has not charged, any interest on this account adjustment was warranted. The learned TPO took Bloomberg rate as per the country/currency. Accordingly, with respect to UK entity, the total interest was computed at Rs. 19,244,744 and with respect to the Singapore entities, the amount was comp....
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....et, coffee Mixtures , books, stationery, pen etc. The assessee submitted that these are the sales promotion activities and incurred expenses for promotion of the name and brand of the company. The learned TPO held that the above expenditure incurred by the assessee is against the notification issued by the Medical Council of India on 10/12/2009. The learned AO asked the assessee to submit details of the expenditure however; assessee has merely furnished the breakup of the expenses. Therefore, the learned assessing officer considering the guidelines of the Indian Medical Council, circular number 5/2012 dated 1/8/2012 has disallowed the sum of Rs. 15,199,296 as expenditure incurred but prohibited by law. iv. The learned assessing officer further noted that assessee has incurred expenditure in the form of provision of expenses, audit fees amounting to Rs. 29,802,989/- on which tax deduction at source has not been made and therefore 30% of same is disallowable under section 40a (ia) of the act, accordingly Rs. 8,940,897/- being 30% of Rs. 29,802,989 was disallowed. v. Assessee has claimed deduction under section 35 (2AB) of the act at the rate of 200% of such expenditure incurred o....
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....terprises, the learned dispute resolution panel following its direction in earlier years confirms the action of the learned AO. iii. With respect to the disallowance of business promotion expenditure of Rs. 15,199,296/- under section 37 (1) of the act, the learned DRP followed its earlier direction and the assessing officer was directed to restrict the disallowance to the 50% of the expenses incurred similarly Provided in the earlier years. iv. With respect to disallowance under section 14 A of the act of Rs. 153,455,236/-, the learned DRP following the direction of dispute resolution panel in earlier years confirm the disallowance. v. With respect to the adjustment to the book profit under section 115JB of the act of the same amount disallowed under section 14 A of the act, the learned dispute resolution panel held that the assessing officer has taken one of the possible views and therefore the disallowance was confirmed. vi. On the issue of deduction under section 35 (2AB) of the act of disallowance of Rs. 175,478,992/-, following the CBDT notification number 29/2016 dated 28 April 2016 that there was no such provision in the notification which says that prior to the amen....
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.... direction of the learned dispute resolution panel stating that assessee has issued loan to its associated concerns in the garb of share application money and therefore, it is a capital financing transaction that should have been benchmarked for the interest imputation. 15. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that identical issue arose in the case of the assessee for assessment year 2014 - 15 and 2015 - 16 wherein adjustment proposed by the learned TPO and confirmed by the learned dispute resolution panel were this deleted by the coordinate bench. We find that for assessment year 2014 - 15 in ITA number 7370/M/2018, coordinate bench has decided ground number 2 of the appeal wherein the share application money pending allotment resulted into the imputation of interest of Rs. 50,815,164 which was deleted by the coordinate bench as per paragraph number 14 of the order dated 7/2/2020. Further for assessment year 2015 - 16 [2022] 141 taxmann.com 430 (Mumbai - Trib.)[06-04-2022] identical issue arose wherein the coordinate bench has dealt with this issue as under:- "3. The issue arising in ground no. 2, in assessee....
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....the approach adopted in the earlier years, the TPO rejected the contention of the assessee and held that imputation of interest on share application money is justified as there has been a delay of more than six months between the payment of share application money and the issue of shares by the foreign A.Es for which no interest was charged by the assessee from its A.Es. The TPO further noted that in respect of share application money invested by the assessee during the relevant assessment year interest imputation is not required as either the investment was itself made in March 2015, or the amount was refunded during the same year. However, in respect of share application money investment which was outstanding as on 31-3-2014, the TPO by applying Boomberg rate for the respective country made an adjustment of Rs. 3,11,09,890, towards notional interest on share application money remitted by the assessee to its A.Es for which shares were allotted after more than six months. The Assessing Officer passed draft assessment order dated 20-12-2018, under section 143(3) r/w section 144C(1) of the Act, inter-alia, on the basis of adjustment proposed by the TPO. 6. The DRP, vide its directi....
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....est could be made on a transaction of share application money paid to subsidiaries. The coordinate bench of Mumbai Tribunal in the case of Aries Agro Ltd. v. DCIT - ITA No. 1452/Mum/17(supra) has been held as follows : "18. We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the assessee has advanced money as share application money to Golden Harvest a foreign AE to set up a plant in free trade zone in Sharjah. It is also undisputed that the AE could not convert the share application money into share capital by issuing shares to the assessee as the permission from the free trade zone authorities with whom the AE was registered was pending and this was the only sole reason for not issuing the shares in favour of the assessee. Now the issue before us is whether the share application money could be treated as loan and could be subjected to the transfer pricing provisions. After perusing the facts on record and going through the decision relied on by the Ld. A.R., we find that no income has accrued from the share application money to the assessee and therefore such transactions could not be subjected to transfer pr....
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....te stand is being taken by the State. The State is expected to be consistent and not change its stand from case to case. Be that as it may, the petitioner herein had not disclosed the transaction in Form 3CEB as, according to the petitioner, it was not an international transaction for the reason that it did not give no rise to any income. The fact that the petitioner chose not to declare issue of shares to its non-resident associated enterprises in Form 3CEB as in its understanding it fell outside the scope of Chapter X of the Act now stands vindicated by the decision of this court in Vodafone IV. If the petitioner did not file a particular transaction in Form 3CEBwhen so required to be filed, the consequences of the same as provided in the Act would follow. However, the mere not filing of Form 3CEB on the part of the petitioner would not give jurisdiction to the Revenue to tax an amount which it does not have jurisdiction to tax. Therefore, we do not find any substance in this objection also. 11. The last objection taken by the Revenue was that in view of the variation in the shareholding pattern amongst different shareholders of the petitioner during the year clearly brought th....
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....of India has held as under : "This has been accepted by the Revenue and is evident from the order of DRP dated 30 October 2014 in Petitioner's case for A.Y. 2010-11. In the A.Y.2010-11 also the Petitioner had issued CCDs and equity-shares and the basis was identical to the present Petition. The Revenue sought to tax the Petitioner in terms of Chapter X of the Act. However, the Petitioner objected to the Draft Assessment order before DRP. On 30 October 2014, DRP issued directions under section 144C(5) of the Act to the Assessing Officer for the A.Y. 2010-11 and on identical facts qua equity shares and CCDs holding as under : "3.4 We find that the issue under consideration of applying Transfer Pricing Provisions on 'issue of shares' has been decided in favour of the assessee by the Hon'ble Bombay High Court in the case of M/s Vodafone India Services Private Limited in Writ Petition number 871 of 2014 dated 10th October 2014. The honorable High Court has held that the amounts received on issue of shares is a capital account transaction not separately brought within the definition of 'income' as per the provisions of section 2(24) as well as sections 4 & 5 o....
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....d AO to delete the adjustment on account of interest imputed on share application money. Accordingly, ground number 2 of the appeal of the assessee is allowed. 17. Ground number 3 of the appeal of the assessee is against the interest imputed by the learned transfer-pricing officer on advance recoverable from associated enterprises. The assessee submitted that this issue is decided in favour of the assessee by the coordinate bench in case of the assessee itself for earlier years in ITA number 7370/M/2018 for assessment year 2014 - 15 and in ITA number 7992/M/2019 for assessment year 2015 - 16. Therefore, the issue is squarely covered in favour of the assessee and there is no change in the facts and circumstances of the case. 18. The learned departmental representative vehemently supported the order of the learned transfer-pricing officer and the direction of the learned dispute resolution panel. 19. We have considered the rival contention, perused the order of the lower authorities, and considered the decision of the coordinate bench in assessee's own case for the above to assessment year cited before us. We find that coordinate bench has dealt with this issue in paragraph number....
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....record. We find that the Co-ordinate Bench of the Tribunal in assessee's own case in StridesPharmaScienceLtd. (supra) has decided the issue by holding that the interest on advances recoverable from the A.Es to be calculated by applying LIBOR plus 300 basis points by observing as under :- '19. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. On consideration of the facts of the case, we notice that similar issue has been decided by the ITAT in the earlier years in ITA 8540/Mum/2010 and 8614/Mum/11, where it was held that in order to compute interest on receivable from AE,s LIBOR + 300 Basis points is appropriate rate for benchmarking TP adjustment. The relevant part of the order is reproduced below : "46. The learned Counsel for the assessee stated that this issue is covered in regard to adjustment of such notional interest and according to him the same cannot exceed the LIBOR plus 300 in view of assessee's own case of ITAT's for AY 2004-05 in ITA No. 4063/Mum/2010 and CO. No. 61/Mum/2010 order dated 29-4-2016, wherein Tribunal at page 29 paras 39 and 40 has directed the AO to apply LIBOR rate....
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.... the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; 40. On a plain reading of clause (c) of Explanation-(i) to section 92B, it is evident that any type of advance payment or deferred payment or receivable or any other debt arising during the course of business including capital financing would come within the scope of ?International Transaction?. Thus, the assessee having incurred expenditure on behalf of its overseas A.Es which are receivables from the A.Es comes within the meaning of ?International Transactions?. Therefore, contention of the learned Authorised Representative that receivables on account of expenditure incurred on behalf of A.E. are not international transaction or no computation can be made is not acceptable in view of specific statutory provisions. The next contention of the learned Authorised Representative is, the assessee has long standing business relation with the subsidiary and as a result of investment/advances made, assessee has derived benefit as substantial sales have been recorded from the geographical locations where the subsidiaries are IT A No. 8 6 14/Mu m/....
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....as to be quantified either with reference to LIBOR or EURIBOR depending upon the country and currency in which the transaction has taken place. Considering the facts of the present case, we are of the considered opinion that LIBOR rate of 1.698% plus 300 basis point would be the appropriate interest rate applicable to the international transactions relating to advancement of interest free loan/extended credit facility to the overseas A.E. Accordingly, we direct the Assessing Officer/Transfer Pricing Officer to compute the interest on the interest free advances paid to the A.E. Ground no. 5, is partly allowed." 47. The learned Departmental Representative has also stated that the issue is also been dealt with in earlier and exactly on the same lines, the directions can be given. 48. We find that the issue is squarely covered and respectfully following and taking a consistent view, we direct the AO to compute the IT A No. 8614/Mum/2011 disallowance by taking LIBOR rate plus 300 basis point. We direct the AO accordingly." 20. In this view of the matter and consistent with view taken by the coordinate bench, we direct the AO/TPO to consider LIBOR +300 basis point to benchmark inte....
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....f the assessee also and therefore no disallowance should be made. 22. The learned departmental representative vehemently submitted that argument raised placing reliance on the decision of the honourable Karnataka High Court does not have any relevance in the case of the assessee as the assessee has invested into various companies and is also nurture in and periodically reviewing the above investment and therefore that decision does not apply. 23. We have carefully considered the rival contention and perused the orders of the lower authorities. The learned authorized representative stated that identical issue arose in the case of the assessee for the earlier years. The latest year is assessment year 2015 - 16 wherein the coordinate bench has dealt with this issue as under:- "19. The issue arising in ground no. 4, raised in assessee's appeal is with regard to disallowance under section 14A of the Act r/w rule 8D of the I.T. Rules., 1962 ("Rules"). 20. During the relevant assessment year, the assessee has made suo motu disallowance of expenditure under section 14A of the Act to an extent of Rs. 46,77,100, while computing its income. During the course of assessment proceeding....
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....ing the year; and (iv) The disallowance under section 14A of the Act should not exceed the actual expenditure incurred by the assessee (and debited to Profit & Loss Account) for earning the exempt income. 25. We find that while making a further disallowance under section 14A of the Act, over and above suo motu disallowance offered by the assessee, the Assessing Officer has not considered any of the submissions made by the assessee which have bearing on the issue. We also noticed that the Co-ordinate Bench in assessee's own case in StridesPharmaScienceLtd. (supra) has restored the issue to the file of the Assessing Officer by observing as under :- "30. ........ The sum and substance of ratio laid down by above judgments is that only those investments which yield exempt income needs to be considered for computation of average value of investments. In this case, we notice that the Assessee has himself disallowed an amount of Rs. 21,27,797/- which has not been found to be accepted by the AO or the DRP. Further, the facts with regard to total investments and investments which yield exempt income is not readily available before us. We, therefore, are of the considered view that....
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....fund viz a viz investment in the non-interest-bearing investments, the theory of appropriation should be applied. 27. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that when the assessee is having higher non-interest-bearing funds available with the assessee in the form of share capital and interest free reserves, then the amount of investment made in the non-interest-bearing investments, no disallowance under section 14 A under section 36 (1) (iii) can be made. As the issue of disallowance under section 14 A of the act has been restored back to the file of the learned assessing officer with certain directions, the learned AO should also consider the above directions relevant for deciding this ground also. As this ground is a joint with the ground number 4 of the appeal of the assessee which has been set-aside to the file of the learned assessing officer in the interest of justice we have set-aside ground number 5 of the appeal back to the file of the learned assessing officer to decide it a fresh in accordance with the above observations. Accordingly, ground number 5 of the appeal is allowed with above directions. 28. ....
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....ials consumed in the process of conducting clinical trials et cetera that has not been considered by the DSIR, certain expenditure of conducting buyer study by week study for evaluating the safety of the drugs are not considered. There was also certain expenditure with respect to each of the process, which was not considered by DSIR while issuing form number 3CL. The reason being that that though this expenditure are classified in the financial statement of the assessee as capital expenditure but they pertain to various materials consumed in the research and development project and therefore those expenditure should also have been considered. Therefore, I it is apparent that as per appendix 8 the assessee has stated that the expenditure of Rs. 104,036,095/- pertaining to the Bangalore research and development unit has not been considered by the DSIR in the capital expenditure and simultaneously the revenue expenditure of Rs. 75,042,350/- has also been not considered. The learned authorized representative has stated that identical issue arose in the case of the assessee in ITA number 1903/M/2015 for assessment year 2000 - 11 which was decided by the coordinate bench and 23/5/2023 wh....