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TMI Blog2023 (6) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... onds (FCCB) disallowed by the AO on the ground that there is no provision under section 35D for amortization of the said issue expenses on FCCB over a period and since expenses are not incurred during the year under consideration no deduction in respect of the issue expenses can be allowed - HELD THAT:- We have perused in [ 2022 (9) TMI 1594 - ITAT MUMBAI ] which is on the identical facts and grounds deleted the said disallowances. Disallowance u/s 14A r.w.r.8D and adjustment to book profit u/s 115JB - suo-moto addition made by assessee - HELD THAT:- As in case of CIT vs. Prithvi Brokers and Shareholders Pvt. Ltd [ 2012 (7) TMI 158 - BOMBAY HIGH COURT ] and decision of Gujarat Gas Company Ltd. [ 2000 (4) TMI 19 - GUJARAT HIGH COURT ] AO is directed to delete the addition made by him as well as suo-moto disallowance made by the assessee and reduce the same while determining the taxable income as no exempt income has been derived by the assessee during the year under consideration. Similarly when there could be no disallowance under section 14A no adjustment could be made to the book profit computed in terms of section 115JB of the Act with respect to disallowance under section 14A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / Transfer Pricing Officer be directed to delete the aforesaid adjustment of imputing additional interest on the share application money paid to the subsidiaries and to re-compute its total income and tax thereon accordingly. Corporate-tax grounds 3:0 Re: Disallowance of premium payable on redemption of Foreign Currency Convertible Bonds ('FCCBS') (with respect to FCCBs of 100 million USD): 3:1 The Assessing Officer and the Dispute Resolution Panel have erred in disallowing the premium payable on redemption of FCCBS. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the Appellant submits that FCCB premium claimed by it is revenue in nature and the Assessing Officer and the Dispute Resolution Panel I ought to have held as such. 3:3 The Appellant submits that the Assessing Officer be directed to delete the disallowance of the FCCB premium and to re-compute its total income and tax thereon accordingly. 4:0 Re: Allowability of the premium on FCCBs in the year of redemption (with respect to FCCBs of 40 million USD): 4:1 The Assessing Officer and the Dispute Resolution Panel have erred in not granting a dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts' and to re-compute its total income and tax thereon accordingly. 8:0 Re: Credit for foreign taxes paid: 8:1 The Assessing Officer erred in not granting full credit of foreign taxes amounting Rs. 4,76,36,414/- as claimed in the return of the income. 8:2 The Appellant submits that the Assessing Officer be directed to grant full credit for the foreign taxes paid by it and to re-compute its tax liability accordingly. 9:0 Re: Credit for tax deducted at source [ TDS ] granted short: 9:1 The Assessing Officer has erred in not granting full credit of TDS as claimed by it the return of income. 9:2 The Appellant submits that considering the facts and circumstances of its case it is entitled to full credit of TDS as claimed by it and the stand taken by the Assessing Officer in this respect is misconceived, incorrect, erroneous and illegal. 9:3 The Appellant submits that the Assessing Officer be directed to grant full credit for TDS and to re-compute its tax liability accordingly 10:0 Re: Levy of interest u/s, 234B of the Act: 10:1 The Assessing Officer erred in levying excessive interest u/s. 2348 of the Act. 10:2 The Appellant submits that considering the facts and circumstances of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the law prevailing on the subject, brought forward long term capital loss can be set off against the income from long term capital gains and the action of the Assessing Officer in this regard is incorrect, erroneous and not in accordance with the law. 1:3 The Appellant submits that the Assessing Officer be directed to setoff brought forward long term capital loss of earlier years against the income from long term capital gains of the captioned year and to recompute its total income and tax thereon accordingly. The Appellant craves leave to add, alter, amend, substitute and / or modify in any manner whatsoever all or any of the foregoing additional ground of appeal at or before the hearing of the appeal. IV. Additional grounds of appeal raised vide letter dated 19.06.2023: 1:0 Re: Disallowance of Rs. 58,53,114/- made u/s. 14A suo-moto while computing the total income: 1:1 The Assessing Officer and the Dispute Resolution Panel have erred in confirming the disallowance made u/s. 14A suo-moto by the Appellant while computing its total income. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, no disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order passed by the Ld. DRP the assessee has come up before the Tribunal by way of filing present appeal. 6. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. Ground No. 1 7. Ground No. 1 is general in nature which does not require any specific discussion. Ground No. 2: 8. Undisputedly during the year under consideration the assessee invested its funds to the tune of Rs. 498.85 crores and Rs. 641.96 crores first in its overseas AEs namely M/s. Strides Acrolab International, UK(SAIL) and M/s. Starsmore Ltd. respectively but shares were not allotted in the year under consideration rather shown as share application money pending allotment. It is also not in dispute that the Ld. TPO has treated these transactions as loan transactions and charged interest @ 8% and thereby proposed the TP adjustment of Rs. 17,36,13,067/- towards interest amount on share application money invested by the assessee in its AEs. It is also not in dispute that the Ld. DRP upheld the proposed adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal. As such, there is no dispute to the fact that the amounts paid were on account of investment in share capital of the associates or subsidiaries. We further note that even otherwise the transaction of issue of shares is a capital account transaction and not a revenue account transaction and therefore could not be said to result in any income per se. We further notice that the co-ordinate benches of the Tribunal have also taken a view that no imputation of interest could be made on a transaction of share application money paid to subsidiaries. The coordinate bench of Mumbai Tribunal in the case Agro Ltd. v/s DCIT - ITA No. 1452 / Mum / 17 (supra) has held as follows: 18. We have heard the rival submissions of both the parties 3nd perused the material on record. The undisputed facts are that the assesses has advanced money as share application money to Golden Harvest a foreign AE to set up a plant in free trade zone in Shafjah. It is also undisputed that the AE could not convert the share application money into share capita/ by issuing shares to the assassee as the permission from the free trade zone authorities with whom the AE was registered was pending and this was the only so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact done by the petitioners in Vodafone IV. This stand by the Revenue is a little curious as in Vodafone IV the Revenue contended that as the petitioners therein had filed Form 3CEB in respect of issue of shares to its associated enterprise, they had submitted to the jurisdiction of Chapter X of the Ac! and cannot now contend that the proceeding to tax such shortfall on capital account is without jurisdiction, in this case, an exactly opposite stand is being taken by the State. The State is expected to be consistent and not change its stand from case to case. Be that as it may, the petitioner herein had not disclosed the transaction in Form 3CEB as, according to the petitioner, it was not an international transaction for the reason that it did not give no rise to any income. The fact that the petitioner chose not to declare issue of shares to its non-resident associated enterprises in Form 3CEB as in its understanding it fell outside the scope of Chapter X of the Act now stands vindicated by the decision of this court in Vodafone IV. If the petitioner did not file a particular transaction in Form SCEBwhen so required to be filed, the consequences of the same as provided in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equivalent to the arm's length price by the petitioner on issue of equity shares. It is further clarified that the petitioner's objection before the Dispute . Resolution Panel filed on April 25, 2013, on all issues save and except the issue covered by this order would be considered by the Dispute Resolution Panel on its own merits. 19. The Hon'ble Bombay High Court further in the case of Equinox Business Parks (P.) Ltd. vs. Union of India has held as under: This has been accepted by the Revenue and is evident from the order of DRP dated 30 October 2014 in Petitioner's case for A.Y. 2010-11. In the A. Y.2010-11 also the Petitioner had issued CCDs and equityshares and the basis was identical to the present Petition. The Revenue sought to tax the Petitioner in terms of Chapter X of the Act. However, the Petitioner objected to the Draft Assessment order before DRP. On 30 October 2014. DRP issued directions under Section 144C(5) of the Act to the Assessing Officer for the A.Y. 2010-11 and on identical facts qua equity shares and CCDs holding as under: 3.4 We find that the issue under consideration of applying Transfer Pricing Provisions on 'issue of shares' has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the share application money. It is ordered accordingly. 11. The Ld. D.R. for the Revenue has not brought on record any fact or law to controvert the argument addressed by the Ld. A.R. for the assessee that the issue is not entirely covered in assessee s favour in A.Y. 2008-09 and 2015-16. 12. In view of the matter we are of the considered view that the addition made by the Ld. TPO/DRP/AO on account of notional interest is not sustainable hence AO is directed to delete the same. Accordingly, ground No. 2 is allowed Ground Nos.3 4 13. Ground Nos.3 4 are dismissed having not been pressed by the Ld. A.R. for the assessee. Ground No. 5 14. Assessee s claim of 1/5th issue expenses of foreign currency convertible bonds (FCCB) to the tune of Rs. 1,50,83,420/- under section 35D of the Act have been disallowed by the AO on the ground that there is no provision under section 35D for amortization of the said issue expenses on FCCB over a period and since expenses are not incurred during the year under consideration no deduction in respect of the issue expenses can be allowed. The Ld. DRP upheld the disallowance made by the AO by following earlier year order for A.Y. 2009-10 2010-11. 15. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31 December 2005 the additional amount (including exchange fluctuation) which is payable on redemption was provided for under Debenture Redemption Reserve with a corresponding adjustment to Securities Premium Account . Further, none of the bonds were offered for conversion as on 31st March 2007. Further, the FCCB issue expenses have been allowed as a deduction in the Company's own case for the AY 2006-07. Based on GAAP principles and the relevant Accounting Standards , the premium needs to be accrued; consequently the liability has been accrued in the books in the year of receipt of FCCB funds. Premium on redemption amounting to USO 16 Million has been accrued in the financials for the year ending 31 December 2005 based on the office circular. The liability is crystallized in the year of issue; however, it is discharged in the year of redemption.During the course of hearing, the learned A.R. submitted that identical issue was decided in favour of the assessee by the Co ordinate Bench of the Tribunal in assessee‟s own case for the preceding assessment year. 054. The learned D.R. vehemently relied on the orders passed by the lower authorities. 055. We have considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in case of Orix Auto Infrastructure Services Ltd. (supra) decided the identical issue where the assessee has not earned any exempt income but made suo-moto disallowance, come to the conclusion that no disallowance is required to be made in this case. Though the assessee has not earned any exempt income but made suo-moto disallowance of Rs. 58,53,114/- as a precautionary measure and requested that the same should be reduced while determining the taxable income as there was no exempt income derived by the assessee. The co-ordinate Bench of the Tribunal after following the decision rendered by Hon ble Bombay High Court in case of CIT vs. Prithvi Brokers and Shareholders Pvt. Ltd. 349 ITR 336 (Bom.) held that no disallowance under section 14A of the Act could be made when there is no exempt income. Operative part of the findings returned by the co-ordinate Bench of the Tribunal in case of Orix Auto Infrastructure Services Ltd. (supra) by returning following findings: 3.2. We find that assessee had made suomoto disallowance under Rule 8D(2)(iii) of Rs. 33,62,493/- and had indeed pleaded before the lower authorities that the same should be reduced while determining taxable incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of Rs. 58,53,114/- made by the assessee and reduce the same while determining the taxable income as no exempt income has been derived by the assessee during the year under consideration. Similarly when there could be no disallowance under section 14A no adjustment could be made to the book profit computed in terms of section 115JB of the Act with respect to disallowance under section 14A. Consequently ground Nos.6 7 and additional ground No. 1 are allowed. Ground Nos.8 9 22. The Ld. A.R. for the assessee brought on record the fact that the relief sought for by the assessee by virtue of ground Nos.8 9 has already been granted by the AO by passing order dated 13.07.2021 18.07.2022. In view of the matter ground Nos.8 9 are dismissed having been become infructuous. Ground No. 10 23. Ground No. 10 is consequential in nature, hence needs no finding. Ground No. 11 24. No interest under section 234C is liable to be levied when there is no shortfall in the payment of tax by the assessee. The Ld. A.R. for the assessee contended that there is no shortfall in the payment of tax by the assessee, hence no tax can be levied under section 234C. So ground No. 11 is allowed and the AO is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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