Delay In Allotting Shares No Basis To Treat Share Application Money In Hands Of Overseas AE As 'Loan': Mumbai ITAT Deletes Notional Interest
The Mumbai ITAT held that when no income had accrued from the transaction of remittance of share application money by assessee to its overseas AE, then such transaction cannot be subjected to the transfer pricing provisions The ITAT deleted a transfer pricing addition made by the TPO on account of notional interest on share application money paid by assessee to...
The Mumbai ITAT held that when no income had accrued from the transaction of remittance of share application money by assessee to its overseas AE, then such transaction cannot be subjected to the transfer pricing provisions
The ITAT deleted a transfer pricing addition made by the TPO on account of notional interest on share application money paid by assessee to its AEs.
Transaction between assessee/ Appellant and its AE was in the nature of remittance towards share application money and not in the nature of a loan transaction, accepted the Division Bench comprising Narendra Kumar Billaiya (Accountant Member) and Rahul Chaudhary (Judicial Member).
Facts of the case:
During transfer pricing assessment, the TPO found that assessee had advanced funds to its overseas AE under the garb of share application money. As per the TPO, since there was inordinate delay in allotment of shares, the TPO imposed notional interest on the share application money received by AEs.
Observations of the Tribunal:
The Bench observed that assessee had remitted funds to AE as share application money to be utilized for setting up a manufacturing plant in SAIF Zone at Sharjah.
Referring to assessee's own cases for AYs 2012-13, 2013-14 & 2014-15, the Bench found that identical transfer pricing adjustments were deleted holding that no income had accrued from remittance of share application money.
The Bench found that right from the very beginning, the assessee had contended that the sole reason for delay in allotment of shares was attributable to non-receipt of approval from SAIF Zone Authority, even though an application was made by AE for seeking such approval.
The TPO did not bring anything on record to dispute the contention of assessee that shares could have been allotted without seeking approval from the SAIF Zone Authority, added the Bench.
Since no inquiry was conducted seeking any information regarding delay in allotment of shares to AE, from the SAIF Zone Authority, the ITAT concluded that delay in allotment of shares cannot be attributed to assessee.
Thus, the ITAT deleted the transfer pricing addition and allowed Assessee's appeal.
Counsel for Appellant/ Assessee: Senior Advocate Firoze B. Andhyarujina along with Advocate Sandeep Sheth
Counsel for Respondent/ Revenue: Uodal Raj Singh
Case Title: Aries Agro Limited vs Assessment Unit, NFAC
Case Number: ITA No. 4731/MUM/2023