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TMI Blog2020 (1) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered view that since transactions are pertaining of business of shares/future/option of securities advances having been given on account of commercial expediency of the group companies, disallowance made by the AO and confirmed by the ld. CIT (A) u/s 36(1)(iii) is not sustainable, hence ordered to be deleted Disallowance on account of foreign tour and travel expenses - expenses incurred by Director of assessee company which are pertaining to his travel to Australia and New Zealand on the ground that Shri Saurav Arora is neither Director nor employee of the assessee company and assessee company has not conducted any transactions with Australia and New Zealand Stock Exchanges - HELD THAT:- From the perusal of the reply filed by the assessee company before the ld. CIT (A), extracted in para 7.2 of the impugned order, assessee company has failed to prove the purpose for which foreign tours have been carried out by Shri Saurav Arora. Emails brought on record by the assessee company also failed to explain the purpose of foreign visits. Perusal of the foreign detail given by the assessee company, available at page 50 of the paper book, also does not disclose the purpose and result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the disallowance of an amount of ₹ 55,73,9701- made by the AO invoking the provisions of Section 14A read with Rule 8D. (ii) That the learned CIT(A) has erred in confirming the disallowance rejecting the contention of the assessee that no expenditure on earning tax free income has been incurred by the assessee. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the shares having been held by the assessee as stock-in-trade for regular business of the assessee, the dividend income on such shares being incidental, the disallowance under Section 14A is not called for. 5. Without prejudice to the above and in the alternative, the learned CIT(A) has erred in rejecting the contention of the assessee that the investments being strategic in nature the dividend is only incidental, therefore disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above said addition without bringing any comparable on record to determine the arm's length price is bad in law. 11. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in jaw in rejecting the contention of the assessee that the transaction of providing equity to the AE is not an international transaction as defined under Section 92B of the Act. (ii) That the transaction of providing equity does not have any impact on profits or assets of the assessee, the same is not an international transaction. (iii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the AO has erred in recharacterizing the transaction of providing equity into a loan transaction. 12. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in treating the amount of ₹ 10,51,54,723/- standing in the name of the assessee in the last year as a loan given to the subsidiary during the current year also. 13. Without prejudice to the above and in the alternative, the learned CIT(A) has er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 7. Ground No.1 is general in nature, hence needs no adjudication. GROUNDS NO.2, 3 & 4 8. Grounds No.2, 3 & 4 are dismissed having not been pressed during the course of arguments. GROUNDS NO.5, 6, 7 & 8 9. Undisputedly, during the year under assessment, assessee company has earned dividend income of ₹ 1,36,19,200/- and claimed the same as exempt u/s 10(34) of the Act. Ld. AR for the assessee challenging the impugned order contended that the entire investment in the shares have been made by the assessee company out of its own funds and drew our attention towards balance sheet, available at page 16 of the paper book. Perusal of the balance sheet qua the year under assessment shows that the assessee company is having paid up share capital of ₹ 7,64,75,500/- with reserve and surplus of ₹ 3,17,17,14,177/- (total ₹ 3,24,81,89,677/-). These facts go to prove that as against the total inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of S.A. Builders Ltd. vs. CIT (2007) 158 taxman 74 (SC). So, in view of the financials brought on record by the assessee company discussed in the preceding para, we are of the considered view that since transactions are pertaining of business of shares/future/option of securities & advances having been given on account of commercial expediency of the group companies, disallowance made by the AO and confirmed by the ld. CIT (A) u/s 36(1)(iii) is not sustainable, hence ordered to be deleted. So, grounds no.5, 6, 7 & 8 are determined in favour of the assessee. GROUND NO.9 13. AO made disallowance of ₹ 4,48,911/- on account of foreign tour and travel expenses incurred by Shri Saurav Arora which are pertaining to his travel to Australia and New Zealand on the ground that Shri Saurav Arora is neither Director nor employee of the assessee company and assessee company has not conducted any transactions with Australia and New Zealand Stock Exchanges and ld. CIT (A) also confirmed the disallowance. 14. Challenging the impugned order, ld. AR for the assessee contended that disallowance has been made and confirmed by AO/ CIT (A) by recording incorrect facts and drew our atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, for the year under assessment, there is no loan outstanding against the subsidiary. When we examine Notes on Financial Statement ending 31.03.2013, available at page 21 of the paper book, it is proved that investment has been made in equity shares of subsidiary of the assessee, namely, Jaypee Singapore Pte. Ltd. by way of infusion of capital in accordance with the RBI Guidelines under automatic approval route. Moreover, Jaypee Singapore Pte. Ltd. has made final allotment to the assessee company in AY 2014-15. 20. Hon'ble High Court of Delhi in case of CIT vs. EKL Appliances Ltd. 345 ITR 241 held as under :- "17. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such restructuring as an arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of ₹ 9410 lacs. Thus, debt equity ratio worked out is to 248:1. 5) The respondent assessee paid interest of ₹ 5.73 crores on the aforesaid borrowing of ₹ 57.09 crores and ₹ 37.01 crores from NV Basix SA and Kier International (Investments) Limited respectively. However, the Assessing Officer disallowed the payment of interest in view of the Reserve Bank of India's approval letter dated 3/11/1998 granting approval to the assessee to do business in India. The approval letter dated 03/11/1998 specifically provided that India Branch Office will not borrow or lend from/to any person in India without specific permission of the Reserve bank of India. The Assessing officer further observed that in view of India Belgium Double Taxation Avoidance Agreement interest on monies paid by the Head Office to the branches was not allowable as a deduction. 6) In appeal, the Commissioner of Income Tax (Appeals) by an order dated 29/3/2007 upheld the order of the Assessing officer and disallowed the deduction on account of interest of ₹ 5.73 crores paid to Joint Venture Partners. The Commissioner of Income Tax (Appeals) held that Article 7(3)(b) of the Doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment based on that hypothesis is not legally sustainable". Operative part of the judgment is as under ;- "3.5.7 Upon careful consideration of factual matrix as enumerated by us in the preceding paragraphs, the undisputed position that emerges is the fact that the assessee has advanced Share Application Money to one of its AE situated in Saudi Arabia with a view to acquire further stake in that entity. The entity has become wholly owned subsidiary of the assessee company during the month of January, 2009. The financial health of its AE was not good and the money was advanced with a view to infuse further capital in the AE and with a view to acquire controlling stake in its AE. The money has been utilized by its AE to pay-off business debts and to meet working capital requirements. Another undisputed fact is that ultimately the shares have been allotted to the assessee during December, 2015 after getting the desired regulatory approvals from concerned authority i.e. SAGIA. It is also undisputed fact that there was delay in the legal process which has been substantiated by the assessee, inter-alia, by furnishing email correspondences etc. The entirety of the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee company that if the loan was given and later on converted into equity. This contention of the ld. DR is not tenable for the reason that it is categoric case of the assessee company since very outset that funds were given to the subsidiary for business purpose and to have control over it. Moreover it was investment in equity. 25. In view of the decisions rendered by Hon'ble High Courts and coordinate Bench of the Tribunal discussed in the preceding paras, we are of the considered view that firstly, AO has no authority to re-characterize the transaction of making investment by the assessee company in equity shares of subsidiaries as a loan; secondly, OECD Guidelines also discourage restricting of legitimate business transaction; thirdly, when the AO has not come up with specific finding that the transaction in question is a sham transaction, he cannot treat the transaction of "capital infusion" by the assessee company as a loan and to charge the interest thereon on notional basis; and fourthly, in the absence of any specific finding by the AO that any income has arisen from international transaction, TP provisions contained in Chapter-X of the Act do not apply. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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