Transfer Pricing Officer: Quasi-capital are treated differently than normal loan transactions

Bilakhia Holdings Pvt. Ltd. Vs ACIT (ITAT Surat)

Facts- The Assessee Company being an investment company had received shares from its Promoters as a gift. The AO dismissed this claim stating that it was purchased by the assessee company at a discount from the said Promoters and that consideration was involved. Hence, AO disallowed the Long Term Capital Loss claimed by the assessee of Rs. 2 cr (approx). The Commissioner purports to treat the said transaction as a loan transaction and since the parties to the transaction are Associated Enterprise (AE), the interest rate should have been calculated at an Arm’s Length Price (ALP) for which the assistance of Learned Transfer Pricing Officer (TPO) was sought.

Conclusion- In the case of the assessee, the loan transaction is therefore, quasi-capital and substantive reward as interest thereon is opportunity to redeem its preferential shares capital and bring back the same into India.

Considering the facts and the decision of the Tribunal in assessee’s own case for the A.Y. 2008-09, 2010-11 and 201-12 and the fact that the same unsecured loan to Associated Enterprise is outstanding on which Arm’s Length Price for interest was computed by TPO in earlier years. We direct AO/ TPO to follow order of the Tribunal and re-compute the interest adjustment.

FULL TEXT OF THE ORDER OF ITAT SURAT

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