Case Law Details
Assessee has challenged the addition made by the A.O. and sustained by the ld. CIT(A) by way of TP adjustment on account of interest chargeable on the amount of share application money paid to its AE and lying unutilized for a period beyond 60 days treating the same as loan. As agreed by the ld. Representatives of both the sides, the common issue involved in ground No. 2 of the assessee’s appeals for both the years under consideration is squarely covered in favour of the assessee by the latest decision of Delhi Bench of ITAT in the case of Bharti Airtel Ltd., vs. ACIT rendered vide its order dated 11-3-2014 passed in ITA No. 58 16/Del/ 12 wherein a similar issue was decided by the Tribunal in favour of the assessee holding that the transactions involving payment of share application money could not be treated as international transactions of loan given by the assessee company to its AE merely because there was a delay in allotment of shares. A copy of the said order of the tribunal is also placed on record before us and perusal of the same shows that a similar issue has been decided by the Tribunal in favour of the assessee vide para No. 47 of its order which reads as under:-
“47. We find that in the present case the TPO has not disputed that the impugned transactions were in the nature of payments for share application money, and thus, of capital contributions. The TPO has not made any adjustment with regard to the ALP of the capital contribution. He has, however, treated these transactions partly as of an interest free loan, for the period between the dates of payment till the date on which shares were actually allotted, and partly as capital contribution, i.e. after the subscribed shares were allotted by the subsidiaries in which capital contributions were made. No doubt, if these transactions are treated as in the nature of lending or borrowing, the transactions can be subjected to ALP adjustments, and the ALP so computed can be the basis of computing taxable business profits of the assessee, but the core issue before us is whether such a deeming fiction is envisaged under the scheme of the transfer pricing legislation or on the facts of this case. We do not find so. We do not find any provision in law enabling such deeming fiction. What is before us is a transaction of capital subscription, its character as such is not in dispute and yet it has been treated as partly of the nature of interest free loan on the ground that there has been a delay in allotment of shares. On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of ‘inordinate delay’ and not the entire period between the date of making the payment and date of allotment of shares. Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares. That aspect of the matter is determined by the relevant statute. This situation is not in purl materia with an interest free loan on commercial basis between the share applicant and the company to which capital contribution is being made. On these facts, it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE. Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits.”
As the issue involved in ground No. 2 of the present appeals as well as all the material facts relevant thereto are similar to the case of Bharti Airtel Limited (supra) decided by the Tribunal, we respectfully follow the said decision of the co-ordinate Bench of this Tribunal and delete the addition made by the A.O./TPO and sustained by the ld. CIT(A) by way of TP adjustment on account of interest chargeable on the amount of share application money paid by the assessee and lying unutilized with its AE treating the same as the transaction of loan. Ground No. 2 of the assessee’s appeals for both the years under consideration is accordingly allowed.
