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TMI Blog2022 (11) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... est on loan @ 12.83% - HELD THAT:- We find that the assessee company had provided equity to AE, whereas, the TPO treated it as loan transaction and recommended the addition on account of the Arm s Length interest on loan @ 12.83%. We find force in the arguments of Assessee that the TPO treated the equity fund to AE as a loan transaction. Respectfully following the decision of Coordinate Bench of the Tribunal in assessee s own case for the preceding A.Y. 2013-14 [ 2020 (1) TMI 858 - ITAT DELHI] we delete the addition made by the A.O. on account of Arm s Length interest on loan @ 12.83% and sustained by the CIT(A). Accordingly, the grounds of the assessee company on this issue are allowed. - ITA No.6046/Del/2019 And ITA No.5169/Del/2019 - - - Dated:- 31-10-2022 - Shri Chandra Mohan Garg, Judicial Member And Shri Narendra Kumar Billaiya, Accountant Member For the Assessee : Shri Ved Jain, Advocate And Ms Supriya Mehta, CA For the Revenue : Shri Mrinal Kumar Das, Sr. DR ORDER PER CHANDRA MOHAN GARG, J.M. : These are cross appeals filed by the Revenue as well as the Assessee and are directed against the order dated 30.04.2019 of the CIT(A)-44, New Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 14A of the I.T. Act, 1961 and made addition accordingly to the return of income of the assessee company. 2.1. The A.O. further noted that the assessee company had made investment of Rs.59,70,996/- towards the equity of wholly own foreign subsidiary company in USA i.e., Jaypee International Inc (USA) and Rs.5,97,40,706/- in Singapore i.e., Singapore Pte Ltd. The A.O. noted that the assessee company has not obtained or filed a report from the Auditor in Form No.3CEB in respect of the above international transactions for the impugned assessment year. Therefore, the A.O. referred the matter to TPO under section 92CA(1) of the I.T. Act, 1961 for determining the Arm s Length Price [ ALP ] of the international transactions with the prior approval of PCIT, Central-3, New Delhi. The TPO recommended an addition of Rs.1,34,91,351/- on account of ALP @ 12.83% for the loan advanced by the assessee with it s foreign AE. The said order of the TPO was confronted to the assessee company for its comments. Since the assessee company did not file any reply, the A.O. made addition of Rs.1,34,91,351/- on account of interest on loan to its foreign AE viz., Jaypee Singapore Pte Ltd. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on facts and in law 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. (iii) That the addition has been confirmed despite that the fact that addition has been made without bringing any comparable on record to determine the arm s length price is bad in law. 4. On the facts and circumstances of the case, the learned CIT(A) has erred in rejecting the contention that AO has erred both on facts and in law in referring the case to the TPO u/s 92CA(1) despite the fact that transaction of providing equity to the AE is not an international transaction as defined under Section 92B of the Act. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the fact that transfer pricing provision cannot override the provision of charging section 4 of the Act to bring to tax fictional/assumed or hypothetical income, where no income otherwise results. 6. 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 TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent financiars. The assessee company had not claimed any interest while computing total income to comply with provisions of Section 14A read with Rule 8D of the I.T. Rules. Despite of the fact that assessee had not claimed any expenditure that was relatable for earning exempt income, the A.O. made the addition on surmises and conjectures and the Ld. CIT(A) partly sustained the addition by directing the A.O. to restrict the disallowance under section 14A of the I.T. Act, 1961 to the amount of dividend earned by the assessee company. 5.1. The Learned Counsel for the Assessee drew the attention of the Bench to the paper book pages 1 to 160 which are acknowledgment of return of income along with computation of income, audited financial statements, copy of reply dated 29.11.2016 filed before A.O, copy of reply dated 30.08.2017, 06.09.2017 filed before TPO, copy of Financial statements of Jaypee Singapore Pte Ltd., for the A.Y. 2014-15, copy of Financial statements of the assessee company for the A.Y. 2013-14, Copy of Order of ITAT in assessee s own case for the A.Y. 2013-14 in ITA.No.1384/ Del./2017 and copy of written submissions filed before the Ld. CIT(A). 5.2. The Learned Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet, 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 Rs.7,64,75,500/- with reserve and surplus of Rs.3,17,17,14,177/- (total Rs.3,24,81,89,677/-). These facts go to prove that as against the total investment of Rs.2,97,33,89,709/-, assessee company was having its own share capital and surplus reserves to the tune of Rs.3,24,81,89,677/-. It is settled principle of law that in case the assessee company is having sufficient own interest free funds, it is to be presumed that the investment is not made out of borrowed funds but out of its own interest free funds. Reliance in this regard is placed on the decision rendered by Hon'ble Supreme Court in case of CIT vs. Reliance Industries Ltd. in Civil Appeal No.10 of 2019 dated 02.01.2019 and decision rendered by Hon'ble High Court of Punjab Haryana in CIT vs. Max India Ltd. in ITA No.186 of 2013 dated 06.09.2016. 10. More-so, before invoking the provisions contained u/s 14A of the Act, AO has not recorded his satisfaction as required u/s 14A(2) that the working given by the assessee is not correct. Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to AE as a loan transaction. On identical facts, the Tribunal in assessee s own case for the preceding A.Y. 2013-14 vide order dated 17.01.2020 (supra), decided the issue in favour of the assessee by deleting the addition made by the lower authorities. The relevant findings of the Tribunal are as under : 24. Ld. DR for the Revenue by relying upon the order passed by the AO/CIT (A) contended that health of the AE needs to be looked into and it is not disclosed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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