Voltas Limited Vs ACIT (ITAT Mumbai)
Share application money cannot be treated as Loan unless Transaction is bogus
We shall first deal with the claim of the revenue that the CIT(A) had erred in vacating the transfer pricing adjustment as regards charging of notional interest on the share application money that was given to its wholly owned subsidiary company viz. Saudi Ensas Company for Engineering Services WLL, UAE, for which allotment of shares was pending on 31.03.2012. In order to appreciate the nature of the controversy involved in the present appeal, the narration of the facts would be instructive. As is discernible from the records, the assessee company had during the year ended 31.03.2011 paid an amount of Rs. 23,01,70,000/- as share application money to its WOS viz. Saudi Ensas Company for Engineering Services WLL, UAE. It was the claim of the assessee, that the share capital was infused to revive the company foreseeing the business opportunities available in Saudi Arabia. Observing, that the issue of share application money to the AES pending allotment of shares beyond the reasonable period of time as described under the FEMA Act had to be looked into from the Transfer Pricing angle, the TPO holding a conviction that as the money was given to the AE in the preceding year but no shares were allotted, thus computed the interest @7.61% on the said amount for the whole year and quantified the same at Rs. 1,81,20,323/-. On appeal, the CIT(A) relying on the judgment of the Hon‟ble High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. Vs. Addl. CIT (2014) 368 ITR 1 (Bom) observed, that as a transaction of investment in share capital of subsidiaries outside India was not in the nature of a transaction referred to in Sec. 92B of the Act, therefore, the transfer pricing provisions were not applicable. It was submitted by the ld. A.R that the Tribunal in its consolidated order for A.Y 2009- 10 and A.Y 2010-11 in ITA No. 2822/Mum/2017 and ITA No. 2823.Mum/2017, had vacated the additions that were made by the A.O towards charging of notional interest on the share application money that was given to its wholly owned subsidiary company viz. Saudi Ensas Company for Engineering Services WLL, UAE.
It is not open to the revenue authorities to recharacterize the transaction unless it is found to be a sham or bogus transaction. While there are no specific powers vested in the TPO to recharacterize the transaction, even under the judge made law, such rechracterization can be done by the revenue authorities when the transactions are found to be substantially at variance with the stated form. In the present case, there cannot even a suggestion to hold that this is a bogus transaction because admittedly the subscribed shares capital has indeed been allotted to the assessee. The transaction is thus accepted to be genuine in effect.
In view of these discussions, as also bearing in mind entirety of the case, we are of the considered view that the authorities below were in error in treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was indeed devoid of legally sustainable merits.
We find, that the fact situation pertaining to the issue under consideration viz. transfer pricing adjustment as regards charging of notional interest on the share application money that was given by the assessee to its wholly owned subsidiary company viz. Saudi Ensas Company for Engineering Services WLL, UAE, for which allotment of shares was pending on 31.03.2012, remains the same as was there before the Tribunal in the assesse‟s own case for A.Y 2009-10 and A.Y 2010-11 in ITA No. 2822/Mum/2017 and ITA No. 2823.Mum/2017. Finding ourselves to be in agreement with the aforesaid view of the Tribunal, we respectfully follow the same. Accordingly, in terms of our aforesaid observations we uphold the deletion of the addition of Rs. 1,81,20,323/- that was made by the A.O/TPO towards charging of notional interest on share application money pending allotment of shares with its wholly owned subsidiary company viz. Saudi Ensas Company for Engineering Services WLL, UAE.
