2024 (10) TMI 772 - AT - Income Tax

TP Adjustment on Notional Interest on Share Application Money (TPO) treated the share application money as an interest-free loan to the Associated Enterprise (AE), citing an inordinate delay in the allotment of shares - inordinate delay in allotment of shares, and that the Appellant has failed to show that the delay was not on account of lapse of the Appellant - HELD THAT - Onus was on the Revenue to bring on record material to show that there was default on the part of the Appellant leading to inordinate delay in allotment of shares. In our view, the Revenue has failed to discharge the aforesaid onus and to controvert the contention of the Appellant that the delay in allotment of shares was on account of non-receipt of appropriate approval of SAIF Zone Authority despite appropriate application having been made. Accordingly, we accept the contention of the Appellant that the delay in allotment of shares cannot be attributed to the Appellant. Therefore, the transfer pricing addition which is based upon incorrect understanding that there was inordinate delay in allotment of shares cannot be sustained. Accordingly, the transfer pricing addition is deleted. Ground No. 1 raised by the Appellant is allowed. DRP not considering the rectification order passed by AO u/s. 154 regarding the intimation u/s 143(1)(a) and adding the income as per intimation u/s. 143(1)(a) - It is admitted position that the Assessing Officer had passed rectification order under Section 154 of the Act on 06/06/2023 revising/rectifying total income to INR 22,01,32,774/. Accordingly the Assessing Officer is directed to re-compute the income and tax liability of the Appellant after taking into consideration the aforesaid rectification order dated 16/06/2024. In terms of the aforesaid, Ground No. 2 and 3 raised by the Appellant are allowed for statistical purpose.

Summary

Issues Involved:

1. Transfer Pricing Adjustment on Notional Interest on Share Application Money.
2. Consideration of Rectification Order under Section 154.
3. Opportunity of Being Heard in the Assessment Process.

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment on Notional Interest on Share Application Money:

The primary issue in this appeal concerns the upward revision of INR 1,03,26,939/- to the Appellant's income due to the notional interest on share application monies invested in an overseas subsidiary. The Transfer Pricing Officer (TPO) treated the share application money as an interest-free loan to the Associated Enterprise (AE), citing an inordinate delay in the allotment of shares. The Appellant contended that the delay was due to regulatory requirements in the UAE's Free Trade Zone, which necessitated approval for share capital amounts. The Appellant argued that similar issues in previous assessment years (2012-13 to 2014-15) were resolved in their favor by the Tribunal, and no transfer pricing adjustments were made for subsequent years when returns were scrutinized. The Tribunal found that the Appellant had consistently maintained that the delay was due to the non-receipt of approval from the SAIF Zone Authority, and the Revenue failed to provide evidence to the contrary. Consequently, the Tribunal held that the transaction was not a loan and deleted the transfer pricing addition of INR 1,03,26,939/-, allowing Ground No. 1 of the appeal.

2. Consideration of Rectification Order under Section 154:

The second issue involved the failure of the Assessing Officer to consider a rectification order under Section 154, which revised the total income to INR 22,01,32,774/-. The Tribunal directed the Assessing Officer to re-compute the income and tax liability of the Appellant in light of this rectification order. Therefore, Grounds No. 2 and 3 were allowed for statistical purposes, requiring the income to be reassessed according to the rectified figures.

3. Opportunity of Being Heard in the Assessment Process:

The Appellant claimed that the Assessing Officer did not provide a proper opportunity to be heard before making the additions to income. The Tribunal acknowledged this procedural lapse and directed that the rectification order be considered, which implicitly addressed the concern of adequate hearing. This issue was subsumed under the directions given for Grounds No. 2 and 3.

Conclusion:

The Tribunal concluded by allowing the appeal in favor of the Assessee. The transfer pricing adjustment was deleted, and the Assessing Officer was instructed to re-compute the income considering the rectification order. Grounds No. 4 and 5 were dismissed as they were general in nature and did not require separate adjudication. The order was pronounced on 07.10.2024.