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TMI Blog2014 (9) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... ength rate of interest to bench-mark the international transactions of the assessee company with its AE involving giving the loans on interest - the AO/TPO is directed to re-compute the TP adjustment to be made in respect of the loan transactions by applying the arm's length rate of interest of LIBOR plus 200 basis point – Decided partly in favour of assessee. - IT Appeal No. 9010 (Mum.) of 2010 - - - Dated:- 11-4-2014 - P.M. JAGTAP AND VIJAY PAL RAO, JJ. For the Appellant : Girish Dave and Madhav Khandelwal. For the Respondent : Ajeet Kumar Jain. ORDER:- PER : P.M. JAGTAP This appeal filed by the assessee is directed against the order of DCIT 9(2), Mumbai (Assessing Officer) dated 18-10-2010 passed u/s 143(3) of the Income tax Act, 1961 in pursuance to the direction given by the Dispute Resolution Panel (DRP) -II Mumbai u/s 144C(5) of the Act. 2. The issue involved in ground No. 1 of this appeal relates to the addition of ₹ 92,02,660/- made by the A.O. to the total income of the assessee on account of excess consumption of raw material. 3. The assessee in the present case is a company which is engaged in the business of manufacturing biscuits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25% for wastages etc., the net excess consumption of raw materials was arrived at by him at ₹ 92,02,660/- and addition to that extent was made by him to the total income of the assessee. Before the DRP, it was pointed out on behalf of the assessee that the ITAT has already allowed relief to it on the issue of excess consumption of raw materials. However, keeping in view that this issue was being contested before the Hon'ble Bombay High Court, the DRP directed the A.O. to make the addition of ₹ 92,02,660/- to the total income of the assesse as proposed in the draft assessment order. 4. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that although the issue decided by the Tribunal in assessee's own case for the years prior to A.Y.2000-01 was in respect of excess consumption of raw materials of assessee's own manufacturing units and not in respect of CMUs as rightly observed by the A.O. in the assessment order, the issue in respect of excess consumption of raw materials of the CMUs came for consideration of the tribunal in A.Ys. 2000-01 to 2003-04 and vide its common order dtd. 31-8-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of assessment years 2000-01 to 2003-04, we respectfully follow the order of the Tribunal for the said year and restore this issue to the file of the A.O. for deciding the same afresh as per the same direction as given in assessment years 2001-01 to 2003-04. Ground No. 1 of assessee's appeal is accordingly treated as allowed for statistical purpose. 6. The issue raised in ground No. 2 relates to the addition of ₹ 5,45,840/- made by the A.O. and sustained by the ld. CIT(A) on account of TP adjustment made in respect of various international transactions of the assessee company with its AEs. 7. In the T.P. study report filed along with the its return of income, the assessee had reported three international transactions involving loans given by it to the AEs on interest. When the reference was made by the A.O. u/s 92CA(1) of the Act for determining the Arm's Length Price (ALP) of these transactions, the TPO found that there are certain more international transactions of the assessee company with its AEs which were not reported in the TP study repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow: Sr. No. Nature of transaction AE Para Amount (Rs) 1. Share Application money Nigeria 5.1 69,843 Interest on loan Nigeria 5.2 2,39,062 2. Share Application money Cameroon 6 9,733 3. Share Application money Bangladesh 7.1 4,74,263 Interest on loan Bangladesh 7.2 89,916 Adjustment 8,82,817 8. When the above TP adjustments suggested by the TPO were proposed by the A.O. in the draft assessment order, the assessee company raised its objections before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP did not find merit in the first seven of the eight points raised by the assessee. The DRP, however, found merit in the point No. 8 raised by the assessee and taking the LIBOR plus 200 basis point as the arm's length of interest, he directed the A.O.to reduce the TP adjustment of ₹ 8,82,817/- to ₹ 5,45,814/- thereby giving a relief of ₹ 3,36,977/-. 10. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the TP adjustments of ₹ 8,82,817/- proposed by the A.O./TPO in respect of various international transactions have been restricted by the ld. CIT(A) to ₹ 5,45,814/- as under: Sr. No. Nature of transaction AE TP adjustment by AO/TPO(Rs) TP adjustment restricted by CIT(A) (Rs) 1. Share Application money Nigeria 69,843 60,264 Interest on loan Nigeria 2,39,062 2,30,062 2. Share Application money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an on the ground that there has been a delay in allotment of shares. On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of 'inordinate delay' and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares. That aspect of the matter is determined by the relevant statute. This situation is not in pari materia with an interest free loan on commercial basis between the share applicant and the company to which capital contribution is being made. On these facts, it was unreasonable and inapp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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