International transaction not resulting into income to assessee not subject to TP regulations

Brief of the case:

• The ITAT bench of Mumbai in the above cited case held that investment in share capital of a subsidiary being an international transaction on capital account  does not result in income as defined under section 2(24) of the Act, the Transfer Pricing provisions a would not be applicable to such transaction.
• Further, in the absence of thin capitalization rules, re-characterization of debt capital into equity or vice versa not allowed.
  

Facts of the case:

• The assessee company, a wholly owned subsidiary of the Tops Securities Ltd. (TSL) is engaged in the business of providing security services. For AY 2009-10 the assessee filed its return of income on 23.09.2009 declaring total income of Rs.3,65,280/-.AO referred the case to Transfer Pricing Officer (TPO) for determining the arm length price (ALP) of the reported international transactions entered into by the assessee with its Associated Enterprises.
• In order to expand assessee’s group business of security on a global scale, the holding co. (TSL) proposed to invest in Shield Guarding Company Ltd., U.K. (‘Shield’), a private company engaged in the business of providing security services through assessee. Assessee’s holding co. raised Rs.140 crores and invested/subscribed to 12,46,010 shares of the assessee of face value of Rs.10/- plus premium of Rs.990/-; resulting in investment of Rs.124,60,14,673/-).
• The money of Rs.124,60,14,673/- received by the assessee from ‘TSL’ was invested by acquiring 7200 shares @ Euro 2,663.38 per share in Tops BV Netherlands, which then became a wholly owned subsidiary of the assessee , which was to be an intermediate holding company to acquire ‘Shield’.
• Assessee disclosed the investment made in shares of ‘Tops BV’ under notes to the Form 3CEB but did not benchmark to ALP as in its opinion subscription to equity capital did not have any bearing on profitability, TP regulations were not applicable.
• According to the TPO, the premium was nothing but a loan given by the assessee to its AE (vis. Tops BV) in the garb of share premium. The TPO then proceeded to compute the book value per share on the basis of Schedule III of the Wealth Tax Act, 1957 and accordingly made an addition of Rs.124,17,50,258/- . The TPO made a further adjustment/ addition of Rs.18,62,62,539/- being notional interest computed @15% on the aforesaid sum of Rs.124,17,50,258/-.
• As such, the TPO passed an order under section 92CA of the Act proposing an addition of Rs.142,80,14,163/- to mark the international transactions at ALP. The AO completed the assessment for A.Y. 2009-10 under section 143(3) read with section  144C of the Act incorporating the TPO’s proposed addition.
• Assessee’s appeal was rejected by CIT(A) appeal too who is in appeal before tribunal.
  

Contention of the Assessee: