TaxTMI 
TaxTMI 
2023 (7) TMI 1654
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.... time have not been pressed; therefore, same are dismissed as not pressed. 3. The brief facts qua the aforesaid issue are that, Assessee Company is engaged in providing IT enabled business process and outsourcing services to its Associated Enterprises ("AEs) and third parties. As on 01/04/2017, the assessee had an outstanding balance of investment in redeemable preference shares of its AE, Essar Services Mauritius (ESM") amounting to Rs. 5,84,92,51,884/- However, the assessee did not additionally subscribe to or redeem preference shares in ESM during the said year and thus, there was no international transaction reported or benchmarked in TP study for this year. 4. The TPO following the approach of his predecessor for A.Y. 2009-10 (in which year assessee had made subscription and also revealed such preference shares in TPSR and had then benchmarked the same), held that outstanding balance of preference shares should be considered as outstanding loan, upon which notional interest is to be imputed and charged. Before the TPO it was placed on record that, this issue has been decided in favour of the assessee by the Tribunal as well as by the Hon'ble High Court in assessee....
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....s can be re- characterized as Loan transaction. The TPO/Assessing Officer cannot disregarded any apparent transaction and substitute it without any material of exception circumstance highlighting that assessee has tried to conceal the real transaction or some sham transaction has been unearthed. The TPO cannot question the commercial expediency of the transaction entered into by the assessee unless there are evidence and circumstances to doubt. Here it is a case of investment in shares and it cannot be given different colour so as to expand the scope of transfer pricing adjustments by re-characterizing it as interest free loan. Now whether in a third party scenario, an independent enterprise subscribes to a share, can it be characterize as loan. If not then this transaction also cannot be inferred as loan. The contention of the Ld Counsel is also supported by the Hon'ble jurisdictional High Court in the case of Bexiskier Dhboal SA, ITA No. 776 of 2011 order dated 30th August 2012 and by various other decisions, as cited by him. The Co-ordinate Benches of the Tribunal have been consistently holding that subscription of shares cannot be characterizes as loan and therefore no inte....
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....ch of ITAT in the assessment years 2010-11to 2014-15, in favour of the assessee. 11. Since the facts being identical following the consistent view of the Tribunal and the Hon'ble Jurisdictional High Court we hold that re-characterization of preferential shares as interest free loan is invalid. Accordingly, we delete the addition made on account of the said adjustment" 11. Further, following the ITAT order for AY 2009-10, the addition on account of imputing notional interest on account re- characterizing subscription and redemption of preference shares as loan has also been deleted by Hon'ble ITAT in assessee's own cases for following assessment years :- ⮚ AY 2010-11 in ITA No. 7694/Mum/2015 and 1209/Mum/2015 dated 8 February 2017 ⮚ AY 2011-12 (ITA No 962/Mum/2016) and AY 2012-13 (ITA No 1556/Mum/2016) dated 12 May 2017 ⮚ AY 2013-14 (ITA No 7438/Mum/2017) dated 6 February, 2019 and ⮚ AY 2014-15 (ITA No 125/Mum/2019) dated 30 April, 2019. 12. Since this issue is squarely covered by the earlier decision of the Tribunal and the facts of the case have not changed in the relevant assessment year vi....
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....bsp; 7 Essar Services (Mauritius) (B) 7,26,53,192.00 17,79,54,895.00 INTEREST RECOVERED AT 9% and ACCEPTED at ALP by TPO (refer TP order at page 111-112 of appeal set) Total (A+B) 62,82,48,770.00 2,27,64,78,976.00 17. It has been stated that, the sums which were advanced to sister concerns/ subsidiaries were utilised by these companies for payment of tax, salary and other staff welfare expenses. Further, the monies advanced by the assessee to its sister concerns / subsidiaries, have been shown to have been made from its own funds, and no borrowed funds were used in this case. 18. The assessee has debited the following as interest cost in the profit & loss account for year 2017-18: Sr. No Name of the party Amount in INR Interest disallowed by AO u/s 36(1)(iii) 1 Axis Bank Cash Credit Interest 3,48,79,568 2 Hewlett Packard 95,44.61 1 3 Yes Bank Ltd 1,82,42,339 4 Interest -Others 1,87,05,294 Interest disallowed by AO u/s 36(1)(iii) (A) 8,13,71,812 Interest on loan taken for specific purpose 5 Cisco System ....
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....under section 36(1)(iii) of the Act of Rs. 8,13,71,812. 19. Before us, ld. Counsel submitted that assessee had sufficient own funds, then the loans/advances to sister concerns cannot be assumed to be made out of borrowed funds. He submitted that the assessee has own funds to the tune of Rs 1420.5 crores out of which amount has been lent to sister concern s/subsidiaries. We find that the material on record factually demonstrates that the assessee was directly in possession of own cash funds for onward lending to sister concerns/ subsidiaries. Summary of which as submitted before us is as under: Particulars March 31, 2018 (A) March 31, 2017 (B) Source of Funds Share Capital 2,82,73,44,510 2,82,73,44,510 Other Equity Retained Earnings 3,19,26,48,904 2,81,88,92,792 Other Reserves 8,18,63,58,543 8,18,66,58,542 Net worth - Own Fund 14,20,63,51,956 13,83,28,95,844 Application of Fund Investments [Current & Non Current] 10,36,13,70,625 9,36,84,08,640 Loans and Advances to Group Concern (Refer note 1) 2,27,64,78,976 62,82,48,770 Funds Availabl....