PFS SHIPPING (I) LIMITED, MUMBAI V. DCIT CC 1(2), MUMBAI

ITA 1347/MUM/2019

AI Insights

The case involves cross appeals by PFS Shipping (I) Ltd. and the Deputy Commissioner of Income Tax, Central Circle \\u2013 1(2), Mumbai, concerning the assessment year 2013-14. The primary issues revolved around the classification of interest income and expenses, transfer pricing adjustments, and the treatment of certain loans as unexplained cash credits under Section 68 of the Income Tax Act. The Tribunal examined whether the interest income should be considered part of the Assessee's shipping business under the tonnage tax scheme and whether the expenses related to these incomes were deductible. Additionally, the Tribunal addressed the transfer pricing adjustments made by the TPO and the subsequent appeal by the Revenue against the CIT(A)'s decision to delete certain additions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113558 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: K
• Next Hearing Date: 12-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 06-03-2019
• Other Referred Cases: Vodafone India Services Pvt. Ltd. vs. Union of India, DIT, International Taxation \\u2013 II, Mumbai vs. Besix KierDabhol SA, Everest Kento Cylinders Ltd. vs. ITO, Topsgrup Electronic Systems Ltd. vs. ITO 8(3)(3), Mumbai
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Transfer pricing; Principle of natural justice; International transaction; Source of fund; Notional interest
• Section: 143(3); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1347/MUM/2019 (Assessment Year: 2013-14) PFS Shipping (I) Ltd., 3rd Floor, Lloyds Centre Point, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025 [PAN: AADCA8387L] Deputy Commissioner of Income Tax, Central Circle – 1(2), Mumbai, Old CGO Building, Room No. 906, Annexe 9th Floor, Maharishi Karve Marg, Mumbai - 400020 .................. Vs ................ Appellant Respondent ITA No. 1462/MUM/2019 (Assessment Year: 2013-14) Deputy Commissioner of Income Tax, Central Circle – 1(2), Mumbai, 906, 9th Floor, Pratishtha Bhavan, Old CGO Building, (Annexe), M.K. Road, Mumbai - 400020 PFS Shipping (India) Ltd., 5th Floor, Bhupati Chambers, 13 Mathew Road, Opera House, Mumbai - 400004 [PAN: AADCA8387L] .................. Vs ................ Appellant Respondent Appearances For the Appellant/Assessee For the Respondent/Department : : None Dr. Yogesh Kamat Date of conclusion of hearing Date of pronouncement of order : : 13.02.2023 28.02.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are cross appeals arising out of the order, dated ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 2 31.12.2018, passed by the Ld. Commissioner of Income Tax (Appeals)-57, Mumbai [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2013-14, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 31.01.2017, passed under Section 143(3) read with Section 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). When the appeal was taken up for hearing, none appeared for the Assessee. Perusal of the order sheet shows that none has been appearing for the Assessee for the last many hearings. On perusal of record, we proceeded to hear the appeal to adjudicate the issues raised therein on merits on the basis of material on record and after hearing the Ld. Departmental Representative. ITA No. 1347/MUM/2019 2. We would first take up appeal preferred by the Assessee wherein following grounds have been raised: “1. On the facts and circumstances of the case and in law, the learned CIT (A)-57, Mumbai [hereafter, "CIT (A)"] erred in confirming the addition made by the Assessing Officer [hereafter, "AO" in treating interest income of Rs. 41,12,92,370/- on loans advanced to subsidiary companies and on deposit with banks as Income from Other Sources, ignoring the fact that such advances and deposits were made during the course of appellant's shipping business and hence interest earned was part of tonnage activity/income. 2. Without prejudice to the Ground No. 1, the learned CIT (A) erred in not allowing appellant's claim of interest income as tonnage income, i) Rs. 9,94,221/- on Security Deposit kept with Hon'ble Bombay High Court, ii) Rs. 17,64,630/- on deposit kept with State Bank of India as per instructions of Hon'ble Madras High Court, iii) Rs. 3,31,544/- on deposits as a margin money for bank/bid bond guarantee, and iv) Rs.62,74,567/- for maintaining minimum margin account as ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 3 Debt Service Reserve Account (DSRA) with bank, to avail loan. 3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the contradictory approach of AO in treating interest income of Rs. 41,12,92,370/- separately as income from other sources, while treating the interest expenses of Rs. 22,82,90,284/- as part of tonnage activity, which is unjustified and bad in law. 4. Without prejudice to the above, on the facts and circumstances of the case and in law, the learned CIT (A) erred in not allowing appellant's claim for set-off of interest expenses of Rs.22,82,90,284/- u/s 57 against the interest income of Rs. 41,12,92,370/- assessed under the head Income from Other Sources. 5. On the facts and circumstances of the case and in law, the learned CIT (A) erred in adopting a contradictory approach in treating interest income of Rs. 41,12,92,370/- as Income from Other Sources and not allowing deduction of interest expenses of Rs. 22,82,90,284/- u/s 57, which is unjustified, and bad in law. 6. Without prejudice to Ground No.4 & 5, on the facts and circumstances of the case and in law, the learned CIT (A) erred in not allowing the deduction of expenses u/s 57 of Income Tax Act, having direct nexus with the earning of interest income, inter alia, (i) Rs.4,20,79,532/- interest expenses towards earning of interest from subsidiary companies; (ii) Rs.4,36,31,599/- interest expenses for maintaining Debt Service Reserve Account (DSRA) for availing loan from banks; (iii) Rs. 1,88,831/- interest expenses related to Security Deposit kept with Hon'ble Bombay High Court; (iv) Rs.17,64,630/- interest expenses incurred on deposit kept with State Bank of India as per instructions of Hon'ble Madras High Court; (v) Rs.3,85,953/- interest on deposits as a margin money for bank/bid bond guarantee and; (vi) Rs.3,17,28,146/- being 25% 25% of salary and establishment/general expenses of Rs. 12,69,12,583/- . ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 4 7. On the facts and circumstances of the case and in law, the learned CIT (A) erred in sustaining the amount of Rs. 3,43,27,500/- on a/c of Guarantee Commission @ 0.5%, without appreciating the fact the appellant has not charged any commission on corporate guarantees provided by the appellant to its subsidiaries, and the notional income of Rs. 3,43,27,500/- wrongly offered @ 0.05% in the Return of Income, merit to be deleted. 8. Under the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the addition of Rs. 53,19,90,430/-u/s 68 as unexplained cash credit on account of loan taken form M/s. One Ocean Shipping Pvt. Ltd.(OOSPL), relying on the enquiry made by the Assessing Officer in the case of ABG International Pvt. Ltd (ABGIPL) for AY 2012-13, without providing to the appellant documents relating to enquiry made, which is against principles of natural justice. 9. Without prejudice to Ground No. 8, under the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the addition of Rs. 53,19,90,430/- u/s 68 as unexplained cash credit on assumptions and surmises, without appreciating that- i) Out of the loan amount of Rs.53,19,90,430/-, Rs. 20.40 Crs. was directly received form OOSPL, Rs. 19.19 Crs. and Rs. 13.58 Crs. was received respectively from PRP International, and Nissim Traders Pvt. Ltd., on behalf of OOSPL. ii) OOSPL is assessed to income tax with the same assessing officer as the appellant and the loan given to the appellant is duly reflected in the financial statements of OOSPL.” 3. The relevant facts in brief are that the Assessee is a company engaged in the business of ship owing and chartering. The Assessee has opted tonnage tax scheme for computation of its income from the business of operating qualifying ship, which has been duly approved. Ground No 1 to 6 4. Ground No. 1 to 6 pertains to interest income/expenses claimed ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 5 by the Assessee to be forming part of the tonnage activity/income. 5. The relevant facts for adjudication the issue for consideration are that during the relevant previous year, the Assessee had earned interest income of INR 40,19,27,408/- from its three subsidiaries exclusively engaged in the shipping business. Therefore, the Assessee claimed that the loans in respect of which interest was earned by the Assessee were advanced to subsidiaries with the intention to provide business support to the subsidiaries; to tap the overseas market in shipping industry and in turn, enhance the shipping business of the Assessee. Therefore, the interest income from loans advanced to subsidiaries should be treated as part of the Assessee‟s shipping business/tonnage income. 6. Further, the Assessee also contended that the following interest income were very much shipping income of the Assessee forming part of tonnage activity/business. (a) interest income of INR 9,94,221/- on account of security deposit of INR 1,05,20,364/- placed with Hon'ble High Court, Bombay in the ongoing dispute with Jotun India Pvt. Ltd related to non-payment of dues for purchases of paint materials for the Assessee‟s is vessel, (b) interest income of INR 17,64,630/- earned from term deposits with State Bank of India, maintained by the Assessee in compliance with the instructions of the Hon'ble Madras High Court in the ongoing dispute with Poomphar Shipping Ltd relating to the possession of Assessee‟s vessel (Vamana] chartered to Poomphar Shipping Ltd under contract, (c) interest of INR 3,31,544/- earned on margin money against Bank Guarantees as per the requirements of the tender, and ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 6 (d) interest of INR 62,74,567/- on Debt Service Reserve Account (DSRA) maintained by the Assessee with Standard Chartered Bank for repayment of loan taken for the purpose of building vessels is very much shipping income of the Assessee forming part of tonnage activity/business. 7. Without prejudice to the above, the Assessee claimed that in case interest income is treated as income chargeable under the head income from other sources, deduction under Section 57 of the Act should be allowed for the interest expenses of INR 2,82,90,284/- incurred by the Assessee. The Assessee claim that some amounts were advanced to subsidiaries directly from various loans availed by the Assessee and therefore, interest expenses of INR 4,20,79,532/- incurred by the Assessee had direct nexus with the interest earned from subsidiary companies. The Assessee claimed that interest expenditure of INR 36,31,598/- was incurred in respect of commercial borrowing from the Standard Chartered Bank whereas interest income of INR 62,74,567/- was earned which was taxed as Income from Other Sources. In addition, the Assessee claim that deduction for at least 25% of salary, wages and establishment/general expenses be allowed as deduction under Section 57 of the Act based upon the assumption that the same have been incurred for earning interest income and to maintain the investments. 8. The Assessing Officer on perusal of Profit & Loss Account and details of interest expenses submitted by the Assessee found that Assessee has debited interest expense of INR 2,283 Lacs which has been considered for the purpose of computation of relevant shipping income. It is also seen from the details filed that the assessee company has received interest amounting to INR 4,019 Lacs on loans to subsidiaries during the year under consideration which has been credited to Profit & Loss Account of the Assessee ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 7 along with interest on deposit amounting to INR 94 Lacs. The Assessing Officer was of the view that interest income earned by the Assessee did not formed part of the profits arising from the core or incidental activities of the business of activities qualifying ships. Therefore, the interest income of INR 4,113 Lacs was brought to tax separately under the head Income from Other Sources. According to the Assessing Officer, the Assessee had failed to establish nexus between interest income and interest expenditure, the Assessing Officer concluded that interest expenses incurred by the Assessee would have to be taken as having been taken into consideration while computing the relevant shipping income in terms of Section 115V-I of the Act. 9. Being aggrieved, the Assessee carried the issue in appeal before CIT(A) who confirm the order passed by the Assessing Officer. 10. We are not inclined to accept the contention that the interest income earned by the Assessee can be regarded as income earned from activity incidental to shipping business. Section 115V-I provides that the relevant shipping income would mean profit from core activities. Section 115V-I (2) of the Act provides that core activities of a tonnage tax company shall be (i) its activities from operating qualifying ships , and (ii) Other ship- related activities. Section 115V-I(5) provides that the incidental activities shall be the activities which are incidental to core activities and which may be prescribed for the purpose. Rule 11R of the Income Tax Rules, 1962 provides a list of incidental activities being (i) Maritime consultancy charge; (ii) Income from loading or unloading of cargo; (iii) Ship management fees or remuneration received for manager vessels and (iv) Maritime education or recruitment fees. Therefore, on a co-joint reading of Section 115V-I of the Act and Rule 11R it is clear that the interest ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 8 income on loans to subsidiaries and the interest income earned from deposits do not form part of either core activities or the incidental or incidental activity. Therefore, we confirm the order passed by CIT(A) in this regard. Ground No. 1 to 3 raised by the Assessee are dismissed. 11. As regards, the alternative contention raised by the Assessee regarding allowance of deduction under Section 57 of the Act for interest expenses and other expenses incurred for maintaining the investment, we find some merits in the contention advanced by the Assessee before the CIT(A). The Assessee has earned interest income of INR 62,74,567/- on Debt Service Reserve Account (DSRA) maintained by the Assessee with Standard Chartered Bank for repayment of loan. Interest expenses incurred by the Assessee to the extent of aforesaid interest income of INR 62,74,567/- are therefore, allowable as deduction under Section 57 of the Act. In Ground No. 6(ii) raised in appeal the Assessee has claimed that interest expenses of INR 4,36,31,599/- has been incurred for availing loan. Accordingly, the Assessee is allowed to claim deduction of INR 62,74,567/- under Section 57 of the Act. As regards, all the other interest and other expenses in respect of which deduction under Section 57 of the Act has been claimed by the Assessee, we concur with the findings returned by the Assessing Officer and the CIT(A) that the Assessee has failed to establish nexus between the interest expenditure incurred and interest income earned and therefore, deduction of the said expenses cannot be allowed under Section 57 of the Act from the interest income held to be liable to tax under the head Income from Other Sources. In terms of the aforesaid, Ground No. 4 to 6 raised by the Assessee in appeal are partly allowed. ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 9 Ground No. 7 12. Ground No. 7 pertains to transfer pricing adjustment of INR.10,44,49,477/- on account of guarantee commission. 13. The Assessing Officer had made an addition of INR.10,44,49,477/- in respect of guarantee commission on account of upward transfer pricing adjustment proposed by the Transfer Pricing Officer (TPO) vide order dated 31.10.2016, passed under Section 92CA(3) of the Act by taking the rate of guarantee commission at 1.5%. 14. In appeal preferred by the Assessee, the CIT(A) reduced the rate of guarantee commission to 0.5% by relying upon the judgment of the Hon'ble Bombay High Court, in the case of Everest Kento Cylinders Ltd. (ITA 1165 of 2013). 15. Being aggrieved the Assessee carried the issue in appeal before us. We have perused the order passed by CIT(A) on this issue and the submissions made on behalf of the Assessee before the CIT(A). We find that before CIT(A) the Assessee has contended that corporate guarantee provided by the Assessee to its subsidiaries did not constitute an international transaction, and in alternate the Assessee had pleaded that rate of 0.5% be accepted as arm‟s length rate of commission by placing reliance upon the judgment of the Hon‟ble Bombay High Court in the case of Everest Kento Cylinders Ltd. (supra). We note that the CIT(A) has held that corporate guarantee provided by the Assessee to its subsidiaries constitutes an international transaction, and has accepted the contention of the Assessee of upholding guarantee commission rate of 0.5% as arm‟s length rate. We do not find any infirmity in the order of CIT(A) as the same has been passed by following the above judgment of Hon‟ble Bombay High Court ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 10 cited by the Assessee. Accordingly, Ground No. 7 raised by the Assessee is dismissed. Ground No. 8 & 9 16. Ground No. 8 and 9 pertain to addition of INR 53,19,90,430/- made by the Assessing Officer under Section 68 of the Act holding the amount of loan taken by the Assessee from M/s One Ocean Shipping Pvt. Ltd. as unexplained cash credit. 17. During the assessment proceedings the Assessing Officer had noted that the Assessee had taken unsecured loan of INR 5320 Lacs from M/s One Ocean Shipping Pvt. Ltd. (hereinafter referred to as „the Lender‟). The Assessee was asked to substantiate the genuineness of the transaction, and identity & creditworthiness of the Lender. In response the Assessee filed income tax return and financial statement of the Lender. The Assessing Officer noted that the Lender was also assessed in his charge. On verification of the financial statements of the Lender for the financial year ending 31.03.2010 to 31.03.2012, the Assessing Officer concluded that the Lender had no substantial business and has suffered consistent losses over the years. Thus, the Lender did not have net worth or financial resource to give huge loan to the Assessee. Therefore, the Assessee was confronted to explain the source of funds given by the Lender. The Assessing Officer, noted that his predecessor had, in the case of one of group company of the Assessee (i.e. ABG International Pvt. Ltd.) for the Assessment Year 2012-13, wherein the said company had received funds as share premium from the Lender, made an addition of INR 278 Crores under Section 68 of the Act in the hands of ABG International Pvt. Ltd. after conducting detailed enquiries. The Assessing Officer concluded that in the assessment proceedings ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 11 the Assessee has failed to establish the genuineness of the transaction as well as identity & creditworthiness of the Lender as the Assessee has failed to furnish any corroborating documents in support of the submissions and had only provided the basic details. Placing reliance on the aforesaid assessment order for the Assessment Year 2012-13 passed in the case of ABG International Pvt. Ltd., the Assessing Officer held that the loan transaction undertaken by the Assessee with the Lender was nothing but a planned device to avoid taxes and therefore, made an addition of INR 5,320 Lacs in the hands of the Assessee holding the same to be unexplained cash credit in terms of Section 68 of the Act. 18. Being aggrieved, the Assessee carried the issue in appeal before CIT(A) and contended that the documents/information on the basis of which conclusion has been arrived from the Assessing Officer were never furnished to the Assessee. It was contended that the entire loan amount was received through banking channels. The Assessee explained that loan amount of INR 2,040 Lacs was directly received from the Lender whereas the loan amount of INR 1,919 Lacs and INR 1,358 Lacs was received from PRP International and Nissim Traders Pvt. Ltd., respectively, on account of the Lender. It was submitted that the Lender was regularly being assessed to income tax and therefore the identity of the Lender was well established. Merely because the Lender had no net worth does not mean that the loan transaction was not genuine while the Assessing Officer has relied upon the assessment order passed in the case of ABG International Pvt. Ltd. for the Assessment Year 2012-13, the Assessing Officer has failed to appreciate that for the Assessment Year 2013-14, the Assessing Officer had assessed the Lender and made no additions by accepting the financial statement and return filed by the ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 12 Lender. The Assessee claimed that the findings returned by the Assessing Officer that the loan transaction was nothing but a circular trading of entries passed in the books of accounts was based upon conjecture and surmise as in the case of the Assessee there was actual movement of funds from banking channels. The aforesaid submissions made by the Assessee during the appellate proceedings did not find any favour with CIT(A) who confirmed the addition of INR 5,320 Lacs made by the Assessing Officer under Section 68 of the Act. 19. Being aggrieved, the Assessee preferred appeal on this issue before us. We have perused the material on record and taken into consideration the submission on behalf of the Assessee before Assessing Officer/CIT(A) as well as the submission of the Ld. Departmental Representative. We note that the Assessee has challenged the order passed by the CIT(A) on the ground that violation of principal of natural justice on the ground that relevant document/details relating to enquiry made by the Assessing Officer were not furnished to the Assessee. However, we note that the CIT(A) has while giving his decision on the issue recorded that the details asked for by the Assessee were provided to the Assessee by CIT(A). The CIT(A) also reiterated the finding returned by the Assessing Officer that the Appellant has not submitted any documentary evidence to substantiate its claim. However, we note that the submissions made by the Assessee before the CIT(A) have not been dealt with by the CIT(A) on the ground that the same are merely in the nature of narration of events. Further, it is not clear whether the Assessee was confronted with the documents/details on which reliance was placed by the Assessing Officer. The Assessee had specifically contended that for the Assessment Year 2013-14, the Lender has ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 13 been assessed to tax by the same Assessing Officer and the financial statement and returned filed by the Assessee for the Assessment Year 2013-14 have been accepted. We also note while making the addition of INR 5,320 Lacs the Assessing Officer has not taken into consideration the fact that a part of the loan was received from PRP International and Nissim Traders Pvt. Ltd. on account of the Lender which suggests that the aforesaid two entities were sourced of funds being lent to the Assessee by the Lender. This aspect has not been dealt with by the CIT(A). In view of the aforesaid facts and circumstances, we deem it appropriate to remand this issue back to the file of CIT(A) for fresh adjudication after taking into account all the details and documents already placed on record by the Assessee. The CIT(A) is directed to provide to the Assessee all the documents/details pertaining to ABG International Pvt. Ltd. and the Lender on which reliance was placed by the Assessing Officer, and consider the response/submissions, if any, furnished by the Assessee. The Assessee is directed to cooperate in the hearing and furnished details/documents, if any, requisition by the CIT(A). It is clarified that the onus to prove the identity & creditworthiness of the Lender as well as to prove genuine transaction undertaken by the Assessee with the Lender would vest with the Assessee. In terms of the aforesaid directions, Ground No. 8 and 9 raised by the Assessee are allowed for statistical purposes. ITA No. 1462/Mum/2019 20. Ground No. 1 to 15 raised in the present appeal by the Revenue pertain to the order of CIT(A) deleting the addition of INR 2,89,58,332/- made by the Assessing Officer on account of transfer pricing adjustment proposed by the TPO vide order, dated 31.10.2016, passed under Section 92CA(3) of the Act. ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 14 21. During the assessment proceedings, the TPO noted that the Assessee had paid INR 152,32,04,463/- as share application money to its Associate Enterprise (AE), namely Varada Marine Pte. Ltd. According to the TPO, there was a unreasonable in allotment of shares as no shares were allotted till the date of undertaking assessment proceedings in financial year 2016-17. Therefore, the TPO treated the transaction of giving share application money as transaction of giving interest free loan to the AE. Taking rate of 4.26% the TPO computed arm‟s length interest which should have been charged from AE at INR 2,89,58,332/- and proposed transfer pricing adjustment of the like amount which was incorporated by the Assessing Officer in the Assessment Order dated 31.01.2017, passed under Section 143(3) read with Section 144C(3) of the Act. 22. Being aggrieved, the Assessee carried the issue before CIT(A). The CIT(A) deleted the addition by following, inter alia, the decision of Hon‟ble Bombay High Court Vodafone India Services Pvt. Ltd. vs. Union of India :[2014] 368 ITR 1 (Bombay) and DIT, International Taxation – II, Mumbai vs. Besix KierDabhol SA : [2012] 210 Taxman 151 (Bombay) (Mag.)[30-08-2012]. 23. Being aggrieved, the Revenue has preferred the present appeal. 24. We have considered the submissions advanced by the Ld. Departmental Representative and perused the material on record. We note that in the case of Besix KierDabhol SA (supra) it was held by the Hon‟ble Bombay High Court that in absence of specific provisions contained in the Act it was not possible to re- characterized a transaction of granting loan to a transaction of subscribing to equity and thereby, disallowing the payment of interest. In the present case, the TPO/Assessing Officer has ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 15 sought to tax notional interest in the hands of the Assessee by re- characterizing the share application money as loan. The CIT(A) deleted the addition holding that the aforesaid re- characterization was not possible in view of the decision of Mumbai Bench of the Tribunal in the case of Topsgrup Electronic Systems Ltd. vs. ITO 8(3)(3), Mumbai:[2016] 48 ITR(T) 753 (Mumbai) wherein it was held that re-characterization of investment in share capital into loan is not possible under the Indian transfer pricing provisions by drawing support from the discussions of the Hon'ble Bombay High Court in the case of Besix Kier Dabhol SA (supra). We further note that in the case of Vodafone India Pvt. Ltd. (supra), it has been held by the Hon‟ble Bombay High Court that income arising from international transaction is a condition-precedent for computing arm‟s length price and in absence of such income, the Indian transfer pricing provisions would not apply. In the present case, the Assessee has given majority of share application money to its wholly owned subsidiary between during the financial year 2012-13. It was not the case of the TPO/Assessing Officer that there was a delay in allotment of shares as regards Assessment Year 2013-14 which is before us is concerned. There is nothing on record to attribute any reasons that the transaction was in the nature of debt. Accordingly, we do not find any reason to interfere with order passed by the CIT(A) by relying binding judicial precedents of the Hon‟ble Bombay High Court which are applicable in the facts and circumstances of the present case. Accordingly, Ground No. 1 to 15 raised by the Revenue are dismissed. 25. Ground No. 16 to 26 raised by the Revenue pertains to transfer pricing addition on account of guarantee commission. In paragraph 12 to 15 above while disposing of Ground No. 7 raised ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 16 in appeal preferred by the Assessee we have concluded that we do not find any infirmity in order passed by the CIT(A) as the same is in line with the judgment of the Hon‟ble Bombay High Court in the case of Everst Kento Cylinder Ltd. (supra). Therefore, Ground No. 16 to 26 raised by the Revenue seeking enhancement of guarantee commission rate from 0.5%, as determined by the CIT(A), to 2.08%, as determined by the Assessing Officer are dismissed. 26. In the result, the appeal preferred by the Assessee [ITA No. 1347/Mum/2019] is partly allowed whereas the appeal preferred by the Revenue [ITA No. 1462/Mum/2019] is dismissed. Order pronounced on 28.02.2023. Sd/- Sd/- (Prashant Maharishi) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 28.02.2023 Alindra, PS ITA. No. 1347 & 1462/Mum/2019 Assessment Year: 2013-14 17 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai