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TMI Blog2015 (7) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... fit, cannot be nil. As for the intent of the assessee to treat this loan as investment, nothing turns on it either. Whether assessee wanted to treat this loan as an investment or not does not matter so far as determination of arm’s length price of this loan is concerned; what really matters is whether such a loan transaction would have taken place, in an arm’s length situation, without any interest being charged in respect of the same. As for the contention regarding crucial role being played by, or visualized for, this AE, there is no material on record to demonstrate the same or to justify that even in an arm’s length situation, a zero interest rate loan would have been justified to such an entity. A lot of emphasis has also been placed on the fact that the loan was out of the GDR funds, and, for this reason, the interest free loan was justified. We are unable to see any logic in this explanation either. Even when the loan is given out of the GDR funds held abroad, the arm’s length price of the loan is to be ascertained. The source of funds is immaterial in the present context. We have also noted that the assessee has not offered any assistance on the quantum of ALP adjustment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon’ble Supreme Court judgments relied upon by the learned counsel, namely CIT Vs Woodward India Limited [2009 (4) TMI 4 - SUPREME COURT ] and Oil and Natural Gas Corporation Vs CIT [2010 (3) TMI 81 - SUPREME COURT], the additional liability had arisen in rupee terms since the funds were brought into India but, on account of fluctuation in exchange value, making the repayment of these loans required higher rupee payments. In the present case, however, since the amount is lying abroad in foreign exchange denominated accounted, the exchange rate fluctuation has no additional liability for repayment. There is no real loss as such. The loss is purely an accounting loss due to conversion of foreign currency obligations on the basis of different rates. In the light of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter.- Decided against assessee. - I.T.A. No.: 262 (Ahd) of 2012 - - - Dated:- 7-7-2015 - Pramod Kumar and S.S. Godara, JJ. For The Appellant : Gyan Pipara For The Respondent : Sonia Kumar ORDER Per Pramod Kumar: 1. By way of this, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs before the TPO, the basic contention of the assessee has been that the entire amount of ₹ 16.75 crore advanced to the Soma Textiles FZE was out of the foreign exchange proceeds of assessee s Global Depository Receipts (GDRs) issue and that it was in nature of contribution towards quasi capital of the said company . The commercial expediency of this interest free loan was also pointed out. None of these arguments, however, impressed the Assessing Officer. He was of the view that commercial expediency of the transaction was not relevant inasmuch as what is to be examined, while ascertaining the arm s length price, is the price at which such transactions would have been entered into by the parties if these parties were independent enterprises. As regards the claim for the advance being in the nature of quasi capital, the TPO referred to, and relied upon, a coordinate bench s decision in the case of Perot Systems TSI Vs DCIT [(2010) 130 TTJ 685 (Del)]. In the said case, it was held that the argument that the loans were in reality not loans but quasi capital cannot be accepted because the agreements show them to be loans and there is no special feature in the contract to trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of concept of quasi capital also. As in the case of the super profits, to quote the words of Their Lordships, many decisions of different benches of the ITAT indicate a rote repetition (in the words of Felix Frankfurter J, quoted in the beginning of this judgment a lazy repetition ) of this reasoning, without an independent analysis of the provisions of the Act and the rules , the same seems to be the position with regard to quasi capital . There are several decisions of this Tribunal, including in the cases of Perot Systems TSI Vs DCIT [(2010) 130 TTJ 685 (Del)] ., Micro Inks Ltd Vs ACIT [(2013) 157 TTJ 289 (Ahd)] , Four Soft Pvt Ltd Vs DCIT [ (2014)149 ITD 732 (Hyd)], Prithvi Information Solutions Pvt Ltd Vs ACIT [(2014) 34 ITR (Tri) 429 (Hyd)], which refer to the concept of quasi capital but none of these decisions throws any light on what constitutes quasi capital in the context of transfer pricing and its relevance in ascertainment of the arm s length price of a transaction. Lest we may also end up contributing to, as Hon ble Delhi High Court put it, rote repetition of this reasoning without an independent analysis of the provisions of the Act and the Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses referred to the situations in which (a) advances were made as capital could not subscribed to due to regulatory issues and the advancing of loans was only for the period till the same could be converted into equity, and (b) advances were made for subscribing to the capital but the issuance of shares was delayed, even if not inordinately. Clearly, the advances in such circumstances were materially different than the loan transactions simplicitor and that is what was decisive so far as determination of the arm s length price of such transactions was concerned. The reward for time value of money in these cases was opportunity to subscribe to the capital, unlike in a normal loan transaction where reward is interest, which is measured as a percentage of the money loaned or advanced. 10. Learned counsel wants to take the concept of quasi capital to a different level now. His contention is that whenever it can be said that the loan transaction is in the nature of quasi capital, its arm s length price should be nil rate of interest, and to decide what is quasi capital , he refers to the academic literature on the issue. Learned counsel has taken pains to explain that the gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the LIBOR + 2% interest rate. In this view of the matter, no interference is warranted on the quantum of the ALP adjustment either. In view of these discussions, we confirm the stand of the authorities below on this issue and decline to interfere in the matter. 12. Ground nos. 1 and 2 are thus dismissed. 13. Ground no. 3 is not pressed. 14. In ground no. 4, the assessee has raised the following grievance: The ld. CIT (A) has erred in law and ion facts in confirming the addition of ₹ 15,02,592/- made by the AO on account of disallowance of 1/5th of GDR Issue expenses claimed by the company as allowable deduction u/s. 35D of the Act on the ground that the expenses incurred for issue of share capital is capital loss to the company. In view of facts and submissions filed as well as legal position, the impugned addition of ₹ 15,02,592/- requires to be deleted. 15. So far as this grievance of the assessee is concerned, the relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noted that the assessee has incurred expenses of ₹ 75,12,960 on GDR issue and the treated the same as preliminary expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Mahindra Ltd Vs JVIT [(2010) 36 SOT 348 (Bom)], this decision was in the context of foreign currency convertible bonds which were debt instruments, though convertible into equity at a later stage. That decision has no bearing on the facts of this case. In view of these discussions, we see no merits in this grievance of the assessee either. The stand of the authorities below does not call for any interference. 18. Ground no. 4 is also dismissed. 19. In ground no. 5, the assessee has raised the following grievance: The Ld. CIT (A) has erred in law and on facts while giving a finding that the loss due to foreign fluctuation amounting to ₹ 2,73,28,718/- is a capital loss as against revenue loss claimed by the company. In view of the legal position and facts of the case, the said loss requires to be considered in revenue in nature. 20. The relevant material facts are like this. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has shown an amount of ₹ 2,73,28,718 as a loss as extraordinary item. This debit, as the Assessing Officer noted, was for exchange rate fluctuation on account of funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange is brought in India which is required to be repatriated in terms of higher rupee value. In both the Hon ble Supreme Court judgments relied upon by the learned counsel, namely CIT Vs Woodward India Limited [(20009) 312 ITR 254 (SC)] and Oil and Natural Gas Corporation Vs CIT [(2010) 322 ITR 180 (SC)] , the additional liability had arisen in rupee terms since the funds were brought into India but, on account of fluctuation in exchange value, making the repayment of these loans required higher rupee payments. In the present case, however, since the amount is lying abroad in foreign exchange denominated accounted, the exchange rate fluctuation has no additional liability for repayment. There is no real loss as such. The loss is purely an accounting loss due to conversion of foreign currency obligations on the basis of different rates. In the light of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 24. Ground no. 3 is also, therefore, dismissed. 25. In the result, the appeal is dismissed. Pronounced in the open court today on 7th day of July, 2015. - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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