ARIES AGRO LTD, MUMBAI V. DCIT 14(1)(1), MUMBAI

ITA 1452/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1267 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: FIROZE B ANDHYARWJINA
• Keywords: Transfer pricing; International transaction; Source of fund; Arm length price; Notional interest
• Section: 92C; 92D; 92B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.1452/M/2017 ASSESSMENT YEAR: 2012-13 M/S. ARIES AGRO LTD., PLOT NO.24, ARIES HOUSE, DEONAR, GOVANDI, MUMBAI 400 043 MAHARASHTRA. PAN: AAACA5035G VS. DY. COMMISSIONER OF INCOME TAX 14(1)(1), 460, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI FIROZE B. ANDHYARWJINA, A.R. REVENUE BY : SHRI AKHILENDRA YADAV, D.R. DATE OF HEARING : 14.09.2018 DATE OF PRONOUNCEMENT : 28.11.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 20.12.2016 OF THE DISPUTES RESOLUTION PANEL [HEREINAFTER REFERRED TO AS THE DRP] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THE APPEAL. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAINST T HE ORDER OF DRP CONFIRMING THE ACTION OF TRANSFER PRICING OFFICER ( TPO) IN ADDING A SUM OF RS.62,77,368/- ON THE GROUND THAT THE INTE REST CHARGED BY THE ASSESSEE FROM AE ON THE LOAN ADVANCED TO IT WHICH IS NOT AT ARM LENGTH PRICE WHICH WAS BORROWED BY THE ASSES SEE FROM ICICI BAHRAIN. 2 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A LI STED COMPANY INCORPORATED IN MUMBAI AND IS ENGAGED IN THE BUSINE SS OF, MANUFACTURING, EXPORTING AND TRADING OF MULTI-MICRO NUTRIENT FERTILIZERS, OTHER NUTRITIONAL PRODUCTS AND MAJOR F ERTILIZERS. IT HAS FIVE SUBSIDIARIES VIZ. ARIES AGRO CARE PVT. LTD ., ARIES AGRO EQUIPMENTS PVT. LTD., ARIES AGRO PRODUCE PVT. LTD., GOLDEN HARVEST MIDDLE EAST FZC AND AMARAK CHEMICALS FZC. SINCE THE ASSESSEES TRANSACTION WITH THESE AES EXCEEDED RS.1 5 CRORE, A REFERENCE TO TPO WAS MADE AND TPO MADE THE SOME ADJUSTMENTS AS MENTIONED HEREINAFTER AND THEREFORE THE DRAFT ASSESSMENT WAS FRAMED VIDE ORDER DATED 28.03.2016 W HICH WAS CHALLENGED BEFORE THE DRP AND DRP ALSO CONFIRMED TH E SAID ADDITIONS/ADJUSTMENTS IN THE ASSESSMENT. FINALLY AS SESSMENT ORDER WAS FRAMED ON 17.01.2017. AGGRIEVED BY THE S AID ORDER THE ASSESSEE HAS CHALLENGED IT BEFORE THE TRIBUNAL US. 4. THE FIRST ISSUE AGITATED IS AGAINST THE CONFIRM ATION OF ACTION OF THE TPO IN MAKING INTEREST ADJUSTMENTS I N THE INTEREST CHARGED FROM THE AE ON THE LOAN ADVANCED BY MAKING EXTERNAL COMMERCIAL BORROWING TO THE TUNE OF RS.62,77,368/-. THE ASSESSEE DECIDED TO SET UP A MANUFACTURING FACILITY AT FUJAIRAH. ACCORDINGLY FOR SETTING UP THE SAID FACILITY, THE FUNDS WERE REQUIRED BY GOLDEN HARVEST AN AE OF THE ASSESSEE. WHEN IT WAS NOT POSSIBLE FOR THE GOLDEN HARVEST TO RAISE THE FU NDS FROM THE BANKS ON ITS OWN, THE ASSESSEE, A HOLDING COMPANY OF GOLDEN HARVEST, BORROWED THE FUNDS FROM ICICI BANK BAHRAIN WITH A SPECIFIC OBJECTION OF FUNDING THE SETTING OF MANUFA CTURING FACILITY BY THE GOLDEN HARVEST ON THE GROUND THAT MAJORITY O F THE PRODUCTION WILL BE SOLD TO THE ASSESSEE BY THE SAID SUBSIDIARY 3 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. AND IT WILL REALISE THE BENEFIT OF COST ECONOMY IN THE PRODUCTION. THE LOAN ARRANGED BY THE ASSESSEE WAS ADVANCED TO T HE GOLDEN HARVEST AND INTEREST WAS CHARGED BY THE ASSESSEE TO THE SUBSIDIARY WAS SAME RATE AS HAS BEEN CHARGED BY TH E ICICI BANK FROM THE ASSESSEE I.E. LIBOR PLUS 250 BASIS P OINTS MEANING THEREBY THAT ASSESSEE FULLY RECOVERED THE I NTEREST PAID TO ICICI BANK FROM THE GOLDEN HARVEST AND NO COST W AS BORNE BY IT. HOWEVER, ACCORDING TO THE TPO, THE SAID LOAN A RRANGED BY THE ASSESSEE WAS A SECURED LOAN WHEREAS THE MONEY ADVAN CED TO THE SUBSIDIARY WAS UNSECURED AND WITHOUT A SECURITY AND THEREFORE THERE WAS AN ATTENDANT RISK IN ADVANCING THE SAID LOAN. ACCORDING TO THE TPO THE ASSESSEE SHOULD HAVE BEEN COMPENSATED FOR THE ADDITIONAL RISK BORNE BY THE AS SESSEE REASONING THAT HAD THE SAID LOAN BEEN ADVANCED TO T HE THIRD PARTY, THE TRANSACTION WOULD HAVE GOT MARKED UP OV ER AND ABOVE THE INTEREST PAID TO ICICI BANK AND THEREFORE REACHED TO A CONCLUSION THAT INTEREST CHARGED FROM THE SUBSIDIAR Y I.E. LIBOR PLUS 250 BASIS POINTS IS NOT AN ARM LENGTH PRICE. T HEREFORE, FOR THE PURPOSE OF BENCH MARKING THE LOAN TRANSACTION, A SEARCH WAS UNDERTAKEN ON THE BLOOMBERG DATABASE TO BENCHMA RK THE LOAN TRANSACTION AND ON THE BASIS OF SAID SEARCH, INTEREST RATE WAS FIXED AT 5.82% AND ACCORDINGLY A SHORTFALL OF R S.62,77,368/- IN THE INTEREST CHARGED FROM THE AE WAS ADDED TO TH E INCOME OF THE ASSESSEE TO MAKE THE INTEREST FROM AE AT ARM LENGTH. . THE DRP AFFIRMED THE ACTION OF THE TPO BY OBSERVING AND HOLDING AS UNDER: 2.16 WE HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE ASSESSEE. THE ASSESSEE HAS TAKEN LOAN FROM ICICL BA HRAIN AND GIVEN LOAN TO ITS AE, GOLDEN HARVEST IN ORDER TO FUND WORKING CAPITAL REQ UIREMENT OF THE AE. THE ASSESSEE PAID THE INTEREST DUE ON THE LOAN TO THE B ANK AND THE SAME WAS RECOVERED FROM AE, GOLDEN HARVEST AT THE SAME RATE OF INTERES T. THE ASSESSEE HAS 4 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. BENCHMARKED THIS TRANSACTION BY ADOPTING CUP AS THE MOST APPROPRIATE METHOD. THE ASSESSEE HAS COMPARED THE INTEREST PAID TO THE BANK WITH THE INTEREST CHARGED FROM AE AND STATED THAT THE TRANSACTION IS AT ALP. THE ASSESSEE FURTHER REFERS TO PARA 1.65 OF THE OECD GUIDELINES (JULY 2010) AND SU BMITTED THAT THE ANALOGY TAKEN BY THE TPO IS NOTHING BUT RE-CHARACTERIZATION OF IN VESTMENT INTO LOAN. 2.17. IN THIS REGARD, WE NOTE THAT THE LOAN OBTAIN ED FROM ICICL BAHRAIN IS SECURED IN NATURE WHILE THE LOAN ADVANCED TO THE AE IS UNSE CURED IN NATURE. HOWEVER, THE ASSESSEE HAS CHARGED SAME RATE OF INTEREST FROM ITS AE AS IT HAS PAID TO ICICL BAHRAIN. ACCORDINGLY, IT IS INFERRED THAT SINCE THE ASSESSEE IS RISK BEARING, IT SHOULD COMPENSATED FOR THE ADDITIONAL RISK BORNE. THE ABOV E CONTENTION OF THE ASSESSEE THAT THE ADVANCING OF LOAN CONSTITUTES A SHAREHOLDE R ACTIVITY IS NOT JUSTIFIED BECAUSE IN CASE OF UNCONTROLLED TRANSACTION WITH ANY THIRD PARTY, IT WOULD HAVE BEEN REMUNERATED FOR THE ADDITIONAL RISK BORNE. CONSIDER ING A SCENARIO THAT THE ASSESSEE ADVANCES SAME LOAN TO A THIRD PARTY, IT WOULD HAVE DEFINITELY CHARGED SOME MARK UP FOR COVERING ITS ADMINISTRATIVE EXPENSES AND RIS K BORNE BY IT. MOREOVER, THE ASSESSEE HAS ALSO BORNE HEDGING LOSS ON ITS LOAN TA KEN FROM ICICI BAHRAIN, WHICH ITSELF JUSTIFIES THE POINT THAT THE LOAN IS RISK BE ARING AND THE ASSESSEE NEEDS TO BE COMPENSATED FOR THE SAME. ACCORDINGLY, IN THE PRESE NT CASE ALSO, THE ASSESSEE SHOULD HAVE RECEIVED MARK UP OVER AND ABOVE THE INT EREST PAID TO ICICI BAHRAIN. ACCORDINGLY, IT IS HELD IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, THAT THE INTEREST RATE OF LIBOR PLUS 2.5% IS NOT AT ARM'S LENGTH. THE INTEREST WORKING ON THE BASIS OF ARM'S LENGTH INTEREST RATE OF 5.82% IS FOUND TO BE IN ORDER. HENCE, THE ACTION OF THE TPO IS UPHELD. THE OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 5. THE LD. COUNSEL SUBMITTED BEFORE THE BENCH THAT THE DRP HAS GROSSLY ERRED ON FACT AND LAW IN UPHOLDING THE ORDER OF TPO IN MAKING AN ADDITION OF RS. RS.62,77,368/- TO BENC HMARK THE LOAN TRANSACTION WHICH IS AGAINST THE DECISION OF T HE JURISDICTIONAL HIGH COURT AND VARIOUS OTHER DECISIO NS. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS OBTAINED LOAN FROM ICICI BANK BAHRAIN IN ORDER TO SET UP A PRODUCTION UNIT I N FUJAIRAH BY SUBSIDIARY COMPANY NAMELY GOLDEN HARVEST WHICH W AS NOT ABLE TO RAISE THE FUNDS FROM THE BANKS. THE ASSESS EE FULLY RECOVERED THE INTEREST FROM THE SUBSIDIARY I.E. LIB OR PLUS 250 BASIS POINTS AND NO COST WAS INCURRED BY IT. THE LD AR SUBMITTED THAT THE INTEREST CHARGED FROM AE WAS AT ARMS LENG TH AND IN AND IN DEFENSE OF HIS ARGUMENTS THE LD AR RELIED ON THE FOLLOWING DECISIONS: 5 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. III. CIT VS TATA AUTOCOMP SYSTEMS LTD - [2015] 56 TAXMAN N.COM 206 (BOM) IV. MARICO LTD V ACIT- (2016) 70 TAXMANN.COM 214 (M UMBAI) V. IL & FS MARITIME INFRASTRUCTURE CO LTD V ACIT - ( 2015) 62 TAXMANN.COM 233 (MUMBAI) VI. HINDUJA GLOBAL SOLUTIONS LTD V ACIT - (2013) 145 ITD 0361 (MUMBAI) VII. DCIT V INDIAN HOTELS CO LTD - [2014] 46 TAXMANN.C OM 261 (MUMBAI) VIII. INDEGENE LIFESYSTEMS P LTD V ACIT- (2015) 60 TA XMANN.COM 28 (BANGALORE) IX. TOOLTECH GLOBAL ENGINEERING P LTD V DCIT-(2014) 51 TAXMANN.COM 336 (PUNE) X. EVEREST KANTO CYLINDER LTD. V. ACIT (2014) 52 TAX MANN.COM 395 (MUMBAI) THE LD. A.R. SUBMITTED THAT IN VIEW OF THE RATIO LA ID DOWN BY THE VARIOUS DECISIONS THE APPEAL OF THE ASSESSEE ON THI S GROUND BE ALLOWED BY DIRECTING THE AO TO DELETE THE ADDITION. 6. THE LD. D.R. HEAVILY RELIED ON THE ORDER OF AUTH ORITIES BELOW BY SUBMITTING THAT THE ASSESSEE HAS NOT RECOVERED A NYTHING FOR THE RISK TO WHICH THE ASSESSEE WAS EXPOSED BY WAY O F RAISING LOANS FROM THE ICICI BANK OUTSIDE INDIA AND ADVANCI NG THE SAME TO THE FOREIGN SUBSIDIARY WITHOUT SECURITY. THE LD . A.R. SUBMITTED THAT HAD IT BEEN A LOAN TO THE THIRD PART Y THE ASSESSEE WOULD HAVE DEFINITELY CHARGED A MARK UP ON THE SAI D INTEREST PAID TO THE BANK AND THEREFORE PRAYED BEFORE THE BE NCH THAT ORDER OF THE DRP SHOULD BE AFFIRMED AS THE SAME AT ARMS LENGTH. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE DE CISIONS CITED BY THE ASSESSEE. THE ASSESSEE HAS ADVANCED LOAN TO ITS SUBSIDIARY GOLDEN HARVEST TO SET UP A PLANT AT FUJA IRAH BY BORROWING THE SAME FROM THE ICICI BANK ABROAD . TH E ASSESSEE HAS CHARGED THE SAME RATE FROM THE AE AT WHICH THE LOAN WAS BORROWED FROM ICICI BANK I.E. LIBOR PLUS 250 BASIS POINTS. IN 6 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. OUR VIEW THE ISSUE IS SQUARELY COVERED BY THE VARIO US DECISIONS AS REFERRED TO HEREINABOVE WHEREIN IT HAS BEEN HELD THAT LOAN TRANSACTIONS TO THE AR HAVE TO BE BENCHMARKED ON T HE BASIS OF LIBOR. IN THE PRESENT CASE THE TRANSACTION IS BENC HMARKED BY THE ASSESSEE BY FOLLOWING CUP METHOD BY CHARGING LI BOR PLUS 250 BASIS POINTS I.E. THE SAME RATE OF INTEREST WH ICH IS CHARGED BY THE ICICI BANK FROM THE ASSESSEE AND IT IS FOR T HIS REASON WE ARE NOT IN AGREEMENT WITH THE DIRECTION OF THE DRP ON THIS ISSUE. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY TH E DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF EV EREST KANTO CYLINDER LTD. V. ACIT (SUPRA). THE RELEVANT OBSERV ATION OF THE TRIBUNAL IS REPRODUCED AS UNDER: 11. WE HAD CONSIDERED RIVAL CONTENTIONS AND GONE T HROUGH THE ORDERS OF LOWER AUTHORITIES. AS PER OUR CONSIDERED OPINION, APPROPR IATE INTERNATIONAL RATES SHOULD BE USED FOR THE PURPOSE OF THE COMPARABILITY ANALYS IS. FOR THIS PURPOSE, THE LONDON INTER BANK OFFER RATE (LIBOR) IS AN INTERNATIONALLY RECOGNIZED RATE FOR BENCHMARKING LOANS DENOMINATED IN FOREIGN CURRENCY. FOR THIS PUR POSE, RELIANCE MAY BE PLACED ON THE FOLLOWING DECISION OF THE COORDINATE BENCH : (I) GREAT EASTERN SHIPPING CO. LTD. [IT APPEAL NO 397 (M) OF 2012, DATED 10-1- 2014] (II) MAHINDRA & MAHINDRA LTD. [IT APPEAL NO 7999/M/2011, DATED 8-6-2012]; (III) HINDUJA GLOBAL SOLUTIONS LTD. V. ADDL CIT [2013] 145 ITD 361/35 TAXMANN.COM 348 (MUM. TRIB.) (IV) AURIONPRO SOLUTIONS LTD. V. ADDL. CIT[2013] 33 TAXMANN.COM 187 (MUM. - TRIB.); (V) AUROBINDO PHARMA LTD, V. ASSTT. CIT [2014] 42 TAXMARM.COM 556/62 SOT 214 (HYD.) (VI) COTTON NATURALS (I) (P.) LTD. V. DY. CIT [2014] 146 ITD 662/32 TAXMANN.COM 219 (DELHI) (VII) SIVA INDUSTRIES AND HOLDINGS LTD. V. ASSTT. CIT [2014] 46 SOT 112 (URO)/11 TAXMANN.COM 404 (CHENNAI) (VIII) BHARTI AIRTEL LTD. (SUPRA) (IX) INFOTECH ENTERPRISES LTD. V. ADDL CIT [2014] 63 SOT 23/41 TAXMANN.COM 364 (HYD) (X) KOHINOOR FOODS LTD. [IT APPEAL NOS. 3688-3691 & 3868-3869 (DELHI) OF 2012 & DATED 21-7-2014]; AND (XI) FOUR SOFT LTD. V. DY. CI T [IT APPEAL NO. 1495 OF2011] 7 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. 12. IN LIGHT OF THE ABOVE DECISIONS, THE RATE TO BE USED FOR UNDERTAKING AN ADJUSTMENT SHOULD BE LIBOR AND NO T THE AVERAGE YIELD RATES CONSIDERED BY THE LEARNED TPO. THE LIBOR RATE FOR MARCH 2008 WAS 2.67 98%. HOWEVER THE ASSESSEE HAS CHARGED 7% FROM ITS AE AS PER THE INTERNAL CUP AVAILABLE. THUS, THE ASSESSEE HA S CHARGED INTEREST TO EKC DUBAI AND EKC CHINA AT THE RATE HIGHER THAN EXISTING LIBOR RATES. ACCORDINGLY, THE SAID TRANSACTION OF PROVID ING LOAN TO EKC DUBAI AND EKC CHINA IS AT ARM'S LENGTH. ADDITIONS MADE BY THE AO ARE ACCORDINGLY SET ASIDE. WE ,THEREFORE , RESPECTFULLY FOLLOWING THE RATIO , SET ASIDE THE DRP DIRECTION AND DIRECT THE AO TO DELETE THE ADDITION. THE GROUND NO. 1 IS RESULTANTLY ALLOWED. 8. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE ACTION OF DRP DIRECTION UPHOLDING THE ORDER OF AO D ISALLOWING THE HEDGING LOSS OF RS.61,63,000/- FOR HEDGING TRAN SACTION WITH THE AE. THE AO AFTER PERUSING THE ANNUAL REPORT OF THE ASSESSEE OBSERVED THAT A HEDGING LOSS OF RS.61,63,000/- WAS INCURRED BY THE ASSESSEE AND ACCORDINGLY DETAILS WERE SOUGHT FR OM THE ASSESSEE WHICH WAS REPLIED BY THE ASSESSEE VIDE LET TER DATED 08.01.2016 SUBMITTING THAT IT HAD INCURRED HEDGING LOSS IN CONNECTION WITH THE LOAN WHICH WAS ADVANCED TO THE FOREIGN SUBSIDIARY GOLDEN HARVEST AND IT WAS ALSO STATED TH AT THE SAID LOSS WAS NOT RECOVERED FROM THE AE AND BORNE BY THE ASSESSEE ONLY . THE TPO ACCORDINGLY MADE AN ADJUSTMENT ON A CCOUNT OF INTERNATIONAL TRANSACTION TO THE TUNE OF RS.61,63,0 00/-. THE LD. DRP UPHELD THE ADDITION ON ACCOUNT OF HEDGING LOSS BY OBSERVING AND HOLDING AS UNDER: 2.20 WE HAVE CONSIDERED THE SUBMISSION OF THE ASSE SSEE. THE ASSESSEE ARGUED THAT THE SAID TRANSACTION IS NOT AN INTERNATIONAL T RANSACTION AS PER SECTION 92B OF THE INCOME TAX ACT, 1961. IN THIS REGARD, WE HAVE REFERRED TO SECTION 92B OF THE INCOME TAX ACT, 1961. SECTION 92B STATES AS UNDER: MEANING OF INTERNATIONAL TRANSACTION. 92B. (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 9 2, 92C, 92D AND 92E, 'INTERNATIONAL TRANSACTION' MEANS A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDEN TS, IN THE NATURE OF PURCHASE, 8 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. SALE OR TEASE OF TANGIBLE OR INTANGIBLE PROPERTY, O R PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, TOSSES OR ASSETS OF SUCH ENTERPRISES, AND S HALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTER PRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WIT H A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES OF SU B-SECTION (1), BE [DEEMED TO BE A TRANSACTION] ENTERED INTO BETWEEN TWO ASSOCIATED EN TERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSACTION B ETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELE VANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSO CIATED ENTERPRISE [WHERE THE ENTERPRISE OR THE ASSOCIATED ENTERPRISE OR BOTH OF THEM ARE NON-RESIDENTS IRRESPECTIVE OF WHETHER SUCH OTHER PERSON IS A NON- RESIDENT OR NOT]. [EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HERE BY CLARIFIED THAT-(I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE- (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF T ANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINERY, EQUIPMENT, TOOLS , PLANT, FURNITURE, COMMODITY OR ANY OTHER ARTICLE, PRODUCT OR THING; (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF I NTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISION OF USE OF RI GHTS REGARDING LAND USE, COPYRIGHTS, PATENTS, TRADEMARKS, LICENCES, FRANCHIS ES, CUSTOMER LIST, MARKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW-HOW, INDUST RIAL PROPERTY RIGHT, EXTERIOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUS INESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABL E SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; (D) PROVISION OF SERVICES, INCLUDING PROVISION OF M ARKET RESEARCH, MARKET DEVELOPMENT, MARKETING MANAGEMENT, ADMINISTRATION, TECHNICAL SERVICE, REPAIRS, DESIGN, CONSULTATION, AGENCY, SCIENTIFIC RESEARCH, LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REOR GANISATION, ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE, IRRESPECT IVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT, INCOME, LOSSES OR ASSETS OF SUCH ENT ERPRISES AT THE TIME OF /THE TRANSACTION OR AT ANY FUTURE DATE; 2.21 SECTION 92B AS STATED ABOVE CLEARLY EXPLAINS THE TE RM 'INTERNATIONAL TRANSACTION', WHICH MEANS A TRANSACTION B ETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDEN TS............ IN THE NATURE OF LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTIO N HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES. IN THE INSTANT CASE, THE ASSESSEE HAS BORNE HEDGING LOSS ON LOAN AVAILED FRO M ICIC1 BAHRAIN. THE SAID LOAN IN-TURN WAS DIVERTED TO AE FOR MEETING ITS FUND REQ UIREMENTS. HENCE, LOOKING INTO THE SUBSTANCE OVER FORM, HEDGING LOSS IS DIRECTLY A TTRIBUTABLE TO THE LOAN AVAILED FROM ICICI BAHRAIN FOR THE BENEFIT OF THE AE. THERE FORE, WE ARE OF THE CONSIDERED OPINION THAT THE SAID TRANSACTION IS AN INTERNATION AL TRANSACTION AS PER SECTION 92B 9 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS ALSO REFERRED TO ANNEXURE 2, AGREEMENT ON HEDGING CONTRACT, OF HIS SUBMISSION DA TED 02.05.2016. AS PER THE AGREEMENT ON HEDGING CONTRACT, THE ASSESSEE HAS ENT ERED INTO CONTRACT WITH ICICI BANK LTD FOR PAYMENTS: NEW YORK, MUMBAI, BAHRAIN. I N THIS REGARD, REFERENCE IS MADE TO THE ORDER OF THE TPO, WHEREIN, TPO HAS STAT ED THAT THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF THE HEDGING LOSS {I.E. AMO UNT, NATURE OF TRANSACTION ON WHICH LOSS IS BEING INCURRED AND HEDGING AGREEMENT) . THE ASSESSEE VIDE SUBMISSION DATED 8 JANUARY 2016 SUBMITTED THAT THE ASSESSEE HA D INCURRED HEDGING LOSS AMOUNTING TO INR 6,163,000 AND THE SAME WAS ON ACCO UNT OF INTEREST ON LOAN TAKEN BY THE ASSESSEE FROM ICICI BANK, DUBAI WITH AN INTE NT TO PROVIDE LOAN TO THE AE IN DUBAI. 2.22 IN VIEW OF THE AFORESAID REASONS, WE ARE OF TH E CONSIDERED OPINION THAT THE ASSESSEE SHOULD HAVE RECOVERED THE HEDGING LOSS PER TAINING TO THE AMOUNT OF ECB LOAN AVAILED AND DIVERTED TO AE IN THE FORM OF LOAN . THIS, THE ASSESSEE HAS FAILED TO DO. THEREFORE, THE ADJUSTMENT MADE BY THE TPO OF RS .61,63,0007- IS HELD TO BE IN ORDER. THE OBJECTION FILED BY THE ASSESSEE IS DISMI SSED. 9. THE LD. A.R. VEHEMENTLY SUBMITTED BEFORE US THAT ASSESSEE HAS HEDGED THE RISK RESULTING FROM THE FLUCTUATION IN FOREIGN CURRENCY/EXCHANGE AND THUS COVERED THE INTEREST PAY MENT ON ECB LOAN BY WAY OF DERIVATIVE CONTRACT ENTERED WITH THE ASSESSEE AND THIRD PARTY I.E. AUTHORISED DEALER I.E. ICICI B ANK INDIA AT MUMBAI. THE ASSESSEE HAS INCURRED LOSS OF RS.61,63 ,000/- WHICH WAS DEBITED TO FINANCE CHARGES ACCOUNT IN THE P&L ACCOUNT AND WAS FULLY BORNE BY THE ASSESSEE. THE L D. A.R. ALSO REFERRED TO THE PARA 5.5 OF THE LOAN AGREEMENT BETW EEN ASSESSEE AND THE GOLDEN HARVEST COPY OF WHICH IS PLACED AT P AGE NO.32 TO 45. THE LD. A.R. ALSO SUBMITTED THAT NO SUCH DISAL LOWANCE WAS MADE IN THE EARLIER ASSESSMENT YEARS. THE LD. A.R. PRIMARILY HARPED ON THE REASONING THAT HEDGING AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE ICICI BANK , MUMB AI AND CLAIMED THAT THE PROFIT ON HEDGING, IF ANY, WOULD ALSO HAVE BEEN OFFERED TO TAX BY THE ASSESSEE AND THEREFORE SUBMIT TED THAT THE LOSS WAS RIGHTLY CLAIMED BY THE ASSESSEE AND SHOULD BE ALLOWED BY REVERSING THE ORDER OF DRP. THE LD. A.R. SUBMIT TED THAT THE 10 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. HEDGING LOSS IS NOT AN INTERNATIONAL TRANSACTION WI TH THE AE AS THE CONTRACT IS BETWEEN THE ASSESSEE AND THE ICICI BANK, MUMBAI AND THEREFORE TRANSFER PRICING PROVISIONS WO ULD NOT APPLY. THE LD. A.R. FURTHER REFERRED TO PROVISIONS OF SECTION 92B OF THE ACT WHICH DEFINES THE INTERNATIONAL TRANSACT ION AS TRANSACTION BETWEEN THE TWO OR MORE AES WHEREAS THE HEDGING CONTRACT WAS ENTERED INTO BETWEEN THE ASSESSEE AND ICICI BANK, MUMBAI A INDEPENDENT THIRD PARTY NOT FALLING WITHIN THE DEFINITION OF AE. THE LD. A.R. ALSO MADE A WITHOUT PREJUDICE SUBMISSION THAT EVEN IF THE LOAN WAS GRANTED TO AN INDEPENDENT THIRD PARTY, THE LOSS ON ACCOUNT OF HEDGING WOULD N OT BE RECOVERED FROM SUCH INDEPENDENT THIRD PARTY AND THE REFORE THE QUESTION OF RECOVERING THE SAME FROM ITS AE OR MAKI NG AN ADJUSTMENT IN RESPECT THEREOF WOULD BE INCORRECT. 10. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF AUTHORITIES BELOW. THE LD. D.R. CONTENDED THAT SIN CE THE ASSESSEE HAS HEDGED THE PAYMENT OF INTEREST ON THE LOAN ADVANCED TO THE AES AND THEREFORE ANY EXPENSES/LOSS INCURRED IN CONNECTION THEREWITH IS LIABLE FOR TRANSFER PRIC ING ADJUSTMENT AND THEREFORE THE ARGUMENTS OF THE LD. A.R. THAT I T IS NOT INTERNATIONAL TRANSACTION BETWEEN THE TWO OR MORE A ES IN TERMS OF SECTION 92B THAT CARRIES NO WAIT. FINALLY, THE LD. D.R. PRAYED BEFORE THE BENCH THAT SINCE THE HEDGING LOSS WAS IN CURRED IN CONNECTION WITH THE HEDGING FOR FOREIGN CURRENCY TO PROTECT THE INTEREST PAYMENTS AND THEREFORE IT WAS RIGHTLY ADDE D TO THE INCOME OF THE ASSESSEE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE 11 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. THAT THE ASSESSEE HAS BORROWED MONEY FROM ICICI BAN K BAHRAIN FOR SPECIFIC PURPOSE OF ADVANCING THE SAME TO THE A E OF THE ASSESSEE TO SET UP A PLANT IN FUJAIRAH FOR THE REAS ON THAT MAJORITY OF THE PRODUCTION WOULD BE SOLD TO THE ASS ESSEE. NOW THE ISSUE BEFORE US WHETHER THE LOSS INCURRED BY TH E ASSESSEE IN CONNECTION WITH HEDGING OF THE FOREIGN EXCHANGE FO R PAYMENTOF INTEREST ON LOAN PROVIDED TO ITS AE BY WAY OF DERIV ATIVE CONTRACT ENTERED INTO BETWEEN THE ASSESSEE AND INDEPENDENT T HIRD PARTY I.E. ICICI BANK, MUMBAI IS LIABLE FOR TRANSFER PRIC ING ADJUSTMENT OR THE ASSESSEE IS NOT ENTITLED TO CLAIM THE SAID L OSS. THE UNDISPUTED FACT IS THAT THE CONTRACT IS BETWEEN THE ASSESSEE AND ICICI BANK, MUMBAI AND NOT WITH THE AE , THEREFORE WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE TH IS IS NOT AN INTERNATIONAL WITHIN THE MEANING OF SECTION 92C OF THE ACT. HAVING CONSIDERED THE FACTS OF THE CASE AND RIVAL S UBMISSIONS OF THE PARTIES WE ARE OF THE CONSIDERED VIEW THAT THE LOAN WAS TAKEN FOR THE PURPOSE OF ADVANCING IT TO THE FOREIGN SUBS IDIARY. THEREFORE, ANY EXPENSE OR LOSS INCURRED IN CONNECTI ON WITH THAT TRANSACTION WOULD NOT BE AN INTERNATIONAL TRANSACTI ON BETWEEN THE ASSESSEE AND THE AE AS THE SAID LOSS OR EXPENSE WAS INCURRED UNDER A CONTRACT BETWEEN THE ASSESSEE AND THE THIRD PARTY. SO UNDER THESE CIRCUMSTANCES, WE ARE INCLIN ED TO TAKE A VIEW THAT THE DRP HAS TAKEN A INCORRECT VIEW OF THE MATTER IN UPHOLDING THE ORDER OF AO ON THIS ISSUE. WE DEFINIT ELY FEEL THAT THE EXPENSES IN NOT IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE OR OUT OF COMMERCIAL AND BUSINESS EXPEDIEN CY OF THE BUSINESS BUT DISALLOWANCE BY MAKING TP ADJUSTMENTS IS NOT CORRECT . THE AO COULD MADE THE DISALLOWANCE U/S 37 OF THE ACT AS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BU SINESS. IN 12 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. VIEW OUR OBSERVATIONS , WE NOT SETTING ASIDE THE OR DER OF DRP ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOW ANCE. THE GROUND NO 2 IS ACCORDINGLY ALLOWED. 12. THE THIRD ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE DECISION OF THE DRP UPHOLDING THE ADDITION ON ACCOU NT OF NOTIONAL INTEREST BY TPO ON SHARE APPLICATION MONEY INVESTED BY THE ASSESSEE IN OVERSEAS SUBSIDIARY. THE TPO OBSER VED THAT ASSESSEE HAS REMITTED SHARE APPLICATION MONEY TO IT S AE GOLDEN HARVEST IN THE PREVIOUS F.Y. 2010-11 AND IN CURRENT F.Y. 2011- 12 AND THE SAME WAS DISCLOSED BY WAY OF NOTE IN FORM 3CEB AND ASSESSEE HAS NOT STATED ANYTHING IN THE TRANSFER PRICING STUDY REPORT TO THAT EFFECT. THE AO QUERIED THE ASSESSEE ABOUT THE SHARE APPLICATION MONEY REMITTED BY THE ASSESSE E TILL DATE AND DETAILS OF SHARE ALLOTTED AGAINST THE SAID SHA RE APPLICATION MONEY. THE ASSESSEE REPLIED THAT TILL DATE NO SHAR ES WERE ALLOTTED AND THE SHARES ARE PENDING ALLOTMENTS BEFO RE THE AO VIDE WRITTEN SUBMISSION DATED 22.01.2016 THAT GOLDE N HARVEST HAS SET UP A MANUFACTURING FACILITY IN FREE TRADE Z ONES AT SHARJAH WHICH WAS GOVERNED BY THE FREE TRADE ZONE R ULES. AS PER THE RULES INVESTMENTS IN ANY COMPANY SETTING UP PL ANT IN FREE TRADE ZONES AT SHARJAH REQUIRED THE APPROVAL OF FRE E TRADE ZONE AUTHORITIES. SINCE THE ASSESSEE HAS NOT RECEIVED T HE APPROVAL OF FREE TRADE ZONE AUTHORITIES, THE AE GOLDEN HARVEST COULD NOT ALLOT SHARES TO THE ASSESSEE. HOWEVER, THE EXPLAN ATION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE TPO WHO WAS O F THE OPINION THAT THE SHARES WERE NOT ISSUED TO THE ASSE SSEE WITHIN A REASONABLE PERIOD OF TIME AND ANY CAPITAL LOCKED UP DUE TO NON ISSUANCE OF SHARES FOR A LONGER PERIOD OF TIME HAS TO BE TREATED 13 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. IN THE NATURE OF LOAN AND ACCORDINGLY TREATED THE S AME AS INTEREST FREE LOAN EXTENDED TO AES. FINALLY THE TP O APPLIED INTEREST @ 12.06% ON THE SAID SHARE APPLICATION MON EY BY MAKING A UPWARD ADJUSTMENT OF RS.2,44,20,173/- IN R ESPECT OF SHARE APPLICATION MONEY PENDING ALLOTMENT OF SHARES . THE DRP DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING A ND HOLDING AS UNDER: 3.8 WE HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS MADE BY THE ASSESSEE. THE ASSESSEE HAS CONTENDED THAT THE MONEY WAS REMITTED AS SHARE APPLICATION MONEY AND CANNOT BE TREATED AS LOAN. HO WEVER, IT IS AN UNDISPUTED FACT THAT AGAINST THE MONEY SO REMITTED, NO SHARES HAVE BEEN ALLOTTED TO THE ASSESSEE EVEN TILL DATE. SUCH INORDINATE DELAY HAS NOT BEEN EXPLAINED BY THE ASSESSEE. OTHER THAN STATING THAT THE SHARES COULD NOT BE ALLOTTED AS PERMISSION FROM THE SHARJAH AUTHORITIES HAS NOT BEEN OBTAINED. IT IS PERTINENT TO NOTE THAT IN AN ARM'S LENGTH SITUATION, NO THIRD PARTY WOULD EVER AGREE TO LET I TS SHARE APPLICATION MONEY TO BE RETAINED WITHOUT SHARES BEING ALLOTTED AGAINST SUCH MONEY FOR SUCH A LONG PERIOD OF TIME. IT IS CLEAR FROM THE FACTUAL INFORMATION DETA ILED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT EXPLAINED SATISFACTORILY AS TO WHY WHEN THE PAYMENTS WERE MADE SO MANY MONTHS/YEARS BEFORE, SHARES WERE STILL NOT ISSUED. IT HAS ALSO NOT BEEN EXPLAINED AS TO UNDER WHAT CIRCUMSTANCES THE A ES SOLICITED THE SHARE APPLICATION MONEY, WHY THE SHARES WERE NOT ALLOTTED WITHIN A REASONABLE TIME. THE ASSESSEE HAS ALSO NOT FURNISHED BEFORE US ANY EVIDE NCE TO SUBSTANTIATE ITS CONTENTIONS THAT IT WAS ON ACCOUNT OF DELAY IN THE SHARJAH AUTHORITIES GIVING APPROVAL THAT THE SHARES HAVE NOT BEEN ISSUED. NO D OCUMENTS/EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE OR ANY COMMUNICATION WITH THE SHARJAH AUTHORITIES TO SHOW THAT ANY EFFORT WAS BEING MADE BY THE ASSESSEE /ITS AES TO OBTAIN THE ALLEGED APPROVALS WHICH WOULD ENABLE THE AE TO ISSUE THE SH ARES TO THE ASSESSEE. 13.9 IN INDIA, THE DEPOSIT OF MONEY TOWARDS S HARE APPLICATION OF ANY COMPANY WAS GOVERNED BY THE RULES AND REGULATIONS UNDER THE COMPANIES ACT, 1956 (APPLICABLE FOR THE FINANCIAL YEAR IN QUESTION) AND REGULATIONS OF THE SEBI. THESE RULES AND REGULATIONS ARE INDICATIVE OF THE GOVERNM ENT INTENTION TO PROTECT THE INTEREST OF THE INVESTORS AND ENSURING EQUITY AND F AIR PLAY IN ALLOTMENT OF SHARES. SEC.73 OF THE COMPANIES ACT, 1956 LAYS DOWN THE PRO CEDURE FOR THE ALLOTMENT OF SHARES. THIS SECTION PROVIDES THAT IN EVENTUALITY O F MONEY BEING REFUNDED, IT HAS TO BE REFUNDED WITHIN 8 DAYS, FROM THE DAY THE COMPANY BECOMES LIABLE TO PAY IT, FAILING WHICH THE COMPANY WOULD BE LIABLE TO PAY IN TEREST UPTO @15% PER ANNUM. 3.10 FURTHER, THE SEBI REGULATIONS (18), 2009 (ISSU E OF CAPITAL AND DISCLOSURE REQUIREMENT) DATED 26-08-2009 LAYS DOWN THAT ALLOTM ENT OF SHARES AND REFUND OF MONEY HAS TO BE MADE WITHIN 15 DAYS WITHIN THE CLOS URE OF THE ISSUE AND IF THE SHARES ARE NOT ALLOTTED OR APPLICATION MONEY ARE NO T REFUNDED WITHIN 15 DAYS THEN ISSUER SHALL PAY INTEREST AT SUCH RATES AND WITHIN SUCH PERIOD AS DISCLOSED IN THE OFFER DOCUMENTS. REGULATIONS 69 OF SEBI (ICDR) LAYS DOWN THE GENERAL OBLIGATION OF 14 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. THE ISSUER AND INTERMEDIARIES WITH RESPECT TO PUBLI C ISSUE AND RIGHT ISSUE. IT PROVIDES FOR ENSURING PAYMENT OF INTEREST TO APPLIC ANTS FOR DELAYED DISPATCH OF ALLOTMENT LETTERS, REFUND ORDERS AS PER DISCLOSURE MADE IN THE OFFER DOCUMENTS. REGULATIONS 99 OF SEBI (ICDR) LAYS DOWN THE MINIMUM SUBSCRIPTION REQUIREMENTS IN THE RIGHTS ISSUE WHICH PRESCRIBES, UNDER CERTAIN CI RCUMSTANCES, TO REFUND THE SUBSCRIPTION AMOUNT TO THE SUBSCRIBER AT 15% PER AN NUM FOR THE PERIOD OF DELAY AFTER 60 DAYS. THE TPO HAS ALSO POINTED OUT TOWARDS CERTAIN REGULATIONS RELATING TO ISSUE OF PREFERENCE SHARES BY UNLISTED COMPANIES. 3.11 FROM THE AFORESAID PROVISIONS, IT IS CLEAR THA T THERE IS ENCUMBRANCE ON COMPANY ISSUING SHARES AND THAT IS IN THE SHAPE OF INTEREST BEING PAYABLE AFTER A CERTAIN PERIOD OF TIME. ACCORDINGLY, IT CAN BE SEEN THAT ON THE ONE SIDE, MERE DELAY IN ALLOTMENT OF SHARES CANNOT RE-CHARACTERISE THE T RANSACTION OF SHARE APPLICATION MONEY AS LOANS BUT DELAY IN ALLOTMENT OF SHARES DEF INITELY ENTITLES THE APPLICANT TO RECEIVE THE INTEREST AS PER RATES MENTIONED ABOVE. HENCE, THE ASSESSEE'S CONTENTION ON THIS POINT REGARDING RE-C CHARACTERIS ING THE SHARE APPLICATION MONEY AS LOAN DESERVES TO BE REJECTED AS THERE IS NOT ONL Y DELAY BUT ALSO NO ALLOTMENT OF SHARES TO THE ASSESSEE AGAINST CRORES OF MONEY ADVA NCED TO THE AE, ALLEGEDLY ON ACCOUNT OF SHARE APPLICATION MONEY. 3.12 WE ARE OF THE OPINION THAT SUCH PROVISIONS IN THE INDIAN RULES AND REGULATIONS OF THE REGULATORY AUTHORITY REFERRED TO HEREINABOVE ARE CLEAR INDICATORS OF THE FACT THAT IN THIRD PARTY SITUATION AND IN ARM'S LENGTH D EALING, INTEREST WOULD BE CHARGEABLE AGAINST THE SHARE APPLICATION MONEY TOWA RDS ANY DELAY ATTRIBUTABLE TO THE ISSUER COMPANY. THUS, THE APPLICATION OF ARM'S LENGTH PRINCIPLE CLEARLY EMPOWERS THE TPO TO TREAT THIS TRANSACTION OF SHARE APPLICATION MONEY AS LOAN FOR THE LIMITED PURPOSES OF THE TRANSFER PRICING PROVIS IONS. WE, HOWEVER, NOTE THAT ON CLOSE ANALYSIS OF THE TRANSACTION, WHAT HAS BEEN AD VANCED TO THE AE IS NOTHING BUT MONEY IN THE NATURE OF LOAN WHICH HAS BEEN ONLY CHA RACTERISED BY THE ASSESSEE AS SHARE APPLICATION MONEY. FURTHER, WITHOUT PREJUDICE TO THE ABOVE, EVEN IF FOR ARGUMENT SAKE, IT IS CONSIDERED THAT THE MONEY IS R EMITTED AS SHARE APPLICATION MONEY AND REMAINS SHARE APPLICATION MONEY, EVEN THE N, IN AN ARM'S LENGTH SITUATION, ASSESSEE IS ENTITLED TO INTEREST ON THE DELAYED DAYS FOR ALLOTMENT OF EQUITY. THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENT BEFORE US TO SHOW THAT IN SHARJAH, THE MONEY IN THE FORM OF SHARE APPLICATION MONEY CAN BE RETAINED BY A COMPANY WITHOUT ISSUING ANY SHARE FOR MONTHS AND YE ARS TOGETHER. 3.13 IN THE CASE OF M/S PEROT SYSTEMS TSI, THE HON'BLE DELHI ITAT HAS CONCLUDED THAT THE COST OF FUNDS TO THE TAXPAYER AND THE COMM ERCIAL EXPEDIENCY IS NOT AN ACCEPTABLE REASON IN INTERNATIONAL TRANSACTIONS BET WEEN THE ASSESSEE AND THE AE. THE ITAT HAS FURTHER OBSERVED THAT ONE HAS TO SEE W HETHER THE TRANSACTION IS AT ARM'S LENGTH UNDER THE TRANSFER PRICING PROVISIONS. HERE THE HON'BLE ITAT HAS ALSO DISREGARDED THE ARGUMENT THAT NOTIONAL INTEREST INC OME IS NOT ASSESSABLE TO TAX. THE HON'BLE ITAT REFERRING TO SEC.92(1) AND 92B(1) HAS ARRIVED AT THE CONCLUSION THAT IN CONSIDERING THE ARM'S LENGTH PRICE OF LOANS , THE RATE OF INTEREST HAS TO BE CONSIDERED AND THE INCOME ON ACCOUNT OF INTEREST CA N BE ATTRIBUTED. THESE ARE THE ASPECTS OF THE DECISION OF THE HON'BLE ITAT THAT AR E SQUARELY APPLICABLE TO THE FACTS OF THE CASE. HENCE, THE CONTENTION OF THE ASSESSEE REGARDING RE-CHARACTERISATION OF THE SHARE APPLICATION TRANSACTION AS LOAN IS REJECT ED. 15 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. 3.14 IN THE CASE OF BHARTI AIRTEL LIMITED (ITA NO.5 816/DEL/20L2) HAS OBSERVED AS FOLLOWS: - 'ON FACTS OF THIS CASE ALSO, THERE IS NO FINDING AB OUT 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 ALLO TMENT OF SHARES, THE CAPITAL CONTRIBUTION COULD HAVE, AT BEST, BEEN TREA TED 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 DEE MED 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 BA SIS AS TO WHAT WOULD HAVE BEEN INTEREST PAYABLE TO AN UNRELATED SHARE APPLICA NT IF, DESPITE HAVING MADE THE PAYMENT OF SHARE APPLICATION MONEY, THE AP PLICANT IS NOT ALLOTTED THE SHARES. THAT ASPECT OF THE MATTER IS DETERMINED BY THE RELEVANT STATUTE. THIS SITUATION IS NOT IN PAN MATERIAL WITH AN INTER EST FREE LOAN ON COMMERCIAL BASIS BETWEEN THE SHARE APPLICANT AND THE COMPANY T O 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 RE CORD ANYTHING TO SHOW THAT AN UNRELATED SHARE APPLICANT WAS TO BE PAID AN Y INTEREST FOR THE PERIOD BETWEEN MAKING THE SHARE APPLICATION PAYMENT AND AL LOTMENT OF SHARES, THE VERY FOUNDATION OF IMPUGNED ALP ADJUSTMENT IS DEVOI D OF LEGALLY SUSTAINABLE MERITS.' 3.15 FROM THE ABOVE, WE NOTE THAT THE HON'BLE TRIBU NAL HAS ITSELF HELD THAT IF IT WAS TO BE ASSUMED THAT THERE WAS AN UNREASONABLE DELAY IN THE ALLOTMENT OF SHARES, THE CAPITAL CONTRIBUTION COULD HAVE, AT BEST, BEEN TREA TED AS AN 'INTEREST-FREE LOAN' FOR SUCH A PERIOD OF INORDINATE DELAY. IT IS PERTINENT TO NOTE THAT IN SUCH CIRCUMSTANCES, THE HON'BLE TRIBUNAL IS NOT AVERSE TO RE-CHARACTERI ZING THE TRANSACTION A 'LOAN', ALBEIT AN INTEREST FREE LOAN. WE ARE, HOWEVER, OF T HE OPINION THAT THE MOMENT IT IS RE-CHARACTERIZED AS A LOAN FOR THE LIMITED PURPOSE OF TP PROVISIONS, IT WOULD BE COVERED BY THE TRANSFER PRICING PROVISIONS AND ALL THE PROVISIONS RELATING TO THE COMPUTATION OF ALP WOULD APPLY. 3.16 COMING TO THE FACTS OF THE PRESENT CASE, T HE ASSESSEE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE AES INTENDED TO ISSUE EQUITY SHARES TO THE ASSESSEE IMMEDIATELY AT THE TIME WHEN THE INVESTMEN TS TOWARDS THE SHARES BY WAY OF SHARE APPLICATION MONEY WAS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE. IT HAS NOT BEEN EXPLAINED AS TO WHY, IF THE MONEY TOWARDS THE SHARES WERE ACCEPTED BY THE AES, THEY DID NOT ISSUE THE SHARES TO THE ASSES SEE WITHIN A REASONABLE TIME, ESPECIALLY WHEN SHARES WERE TO BE ISSUED ONLY TO TH E HOLDING COMPANY AND NO ONE ELSE, AND ALL MATTERS WOULD HAVE BEEN DISCUSSED AND DECIDED BEFOREHAND. NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW AS TO THE TERMS OF THE ALLOTMENT OF THE SHARES. MERE ENTRIES IN THE BOOKS OF ACCOUNTS AND RECORDS O F THE COMPANY CANNOT BE ACCEPTED AS RELIABLE AND CONCLUSIVE EVIDENCE IN THE ABSENCE OF THE ASSESSEE SUBSTANTIATING THE SAME WITH THE DOCUMENTS RELATING TO THE TERMS OF THE ISSUE AND ALLOTMENT OF SHARES. AS STATED EARLIER, IT HAS NOT BEEN EXPLAINED SATISFACTORILY BY THE 16 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. ASSESSEE AS TO WHY SUBSTANTIAL AMOUNTS WERE ADVANCE D TO THE AES WITHOUT THE SHARES HAVING BEEN ALLOTTED FOR SUBSTANTIALLY LONG PERIODS OF TIME. IT WAS FOR THE ASSESSEE TO SHOW THAT AS PER THE APPLICABLE LAWS, T HE COMPANY SOLICITING SHARE APPLICATION MONEY COULD RETAIN THE FUNDS WITHOUT AC TUALLY ALLOTTING THE SAME FOR MONTHS/YEARS TOGETHER AND WITHOUT PAYING ANY COMPEN SATION FOR SUCH INORDINATE DELAY. THE ASSESSEE FAILED TO DO SO. 3.17 FROM THE ABOVE, THE ONLY CONCLUSION THAT CAN B E DRAWN IS THAT FUNDS WERE PROVIDED BY THE ASSESSEE TO THE AES INTEREST-FREE F OR A LONG PERIOD OF TIME WITH THE INTENTION TO FUND THE ACTIVITIES OF THE AES WITHOUT CORRESPONDING COMPENSATION TO ITSELF UNDER THE GARB OF SHARE APPLICATION MONEY. I T IS, THEREFORE, CLEAR THAT THE TRANSACTIONS WERE SUBSTANTIALLY AT VARIANCE WITH TH E STATED FORM. HENCE, THE ACTION OF THE TPO OF CHARACTERIZING THE NATURE OF THE TRAN SACTIONS AS LOAN FOR TRANSFER PRICING PURPOSES CANNOT BE FAULTED WITH. THE OBJECT IONS FILED BY THE ASSESSEE ARE, THEREFORE, DISMISSED. 3.18 THE ASSESSEE HAS ARGUED THAT THE MONEY IT REC EIVED FOR INVESTING IN THE SHARJAH COMPANY WAS ON ACCOUNT OF INTEREST FREE FUN DS RECEIVED FROM IPO AND OUT ITS OWN ACCRUALS. HOWEVER, WE HAVE TO APPRECIATE TH AT IN THE PRESENT PROCEEDINGS AND UNDER THE TP PROVISIONS, WE ARE NOT CONCERNED A BOUT THE SOURCE OF FUNDS TO THE ASSESSEE. RATHER, THE MANDATE IS TO EXAMINE THE TRA NSACTIONS BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENT AND TO COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION. HENCE, AS HELD EARLIER, OBJECTION NO. 3 IS DISMISSED. 13. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT SH ARE APPLICATION MONEY WAS ADVANCED FOR ALLOTMENT OF SHA RES AND TO FULFILL THE REQUIREMENT OF FUNDS BY THE AE FOR SET TING UP A PLANT IN FREE TRADE ZONE IN SHARJAH. THE SAID AE GOLDEN HARVEST COULD NOT ALLOT THE SHARE AS THE PERMISSION WAS NOT GIVEN BY THE FREE TRADE ZONE AUTHORITIES TO ISSUE SHARES AND THEREFOR E THIS WAS NOT IN THE HANDS OF EITHER THE ASSESSEE OR AE TO GET TH E SHARE APPLICATION MONEY CONVERTED INTO SHARES AS THE SAME ARE SUBJECT TO THE LOCAL RULES AND REGULATIONS OF THE FREE TRAD E ZONE. THE ASSESSEE ALSO CONTENDED THAT IN THE EARLIER YEARS T HE ASSESSMENT WAS FRAMED IN SCRUTINY PROCEEDINGS AND NO SUCH ADDI TION WAS MADE ON ACCOUNT OF INTEREST ON SHARE APPLICATION MO NEY. THE LD. A.R. STATED THAT THE ONLY PLEA ON THE BASIS OF WHICH THE SAID NOTIONAL INTEREST WAS ADDED BY THE TPO WAS THAT NO INDEPENDENT 17 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. ENTITY WOULD LEAVE THE MONEY IN THE HANDS OF THE O THER ENTITY WITHOUT SAME BEING CONVERTED INTO EQUITY WITHIN A R EASONABLE PERIOD AND IT IS ONLY ON THAT BASIS, THE SHARE APPL ICATION MONEY WAS TREATED AS INTEREST FREE LOAN. THE LD. A.R. FU RTHER STATED THAT IF THERE IS NO INCOME ARISING FROM THE INTERNA TIONAL TRANSACTIONS, THE TRANSFER PRICING PROVISION COULD NOT APPLY. THE LD. A.R. RELIED ON A SERIES OF DECISIONS IN DEFENCE OF HIS ARGUMENTS AS UNDER: 1. VODAFONE INDIA SERVICES (P) LTD. VS. ADD CIT - 368 ITR 001 ( BOM) 2. SHELL INDIA MARKETS(P) LTD VS. ASST. CIT 369 ITR 516 (BOM) 3. EQUINOX BUSINESS PARKS (P) LTD. VS. UNION OF IND IA - 230 TAXMAN 191 (BOM) 4. SG ASIA HOLDINGS (LNDIA)(P)LTD. VS. DCIT - 229 T AXMAN 452 (BOM) 14. THE LD. A.R. FURTHER STATED THAT THE CO-ORDINAT E BENCH OF THE TRIBUNAL HAS HELD IN A COUPLE OF DECISIONS THAT INVESTMENT IN SHARE APPLICATION MONEY/CAPITAL OF AE WHERE NO I NCOME ACCRUING FROM THE SAID INVESTMENTS; THE SAID TRANSA CTIONS ARE BEYOND THE SCOPE OF INDIAN TP REGULATIONS. IN DEFE NCE OF HIS ARGUMENT THE LD. A.R. RELIED ON THE FOLLOWING DECIS IONS: 1. HILL COUNTY PROPERTIES LTD. VS. ADD CIT 48 TAXMA NN.COM 94 (HYD) 2. VIJAI ELECTRICALS VS. ADD CIT - 60 SOT 77 (HYD) 15. THE ASSESSEE ALSO SUBMITTED THAT THE TRANSACTIO NS OF INVESTMENT IN SHARE CAPITAL SHOULD NOT BE TREATED A S LOAN AS THE CLEAR INTENTION BEHIND ADVANCING THE MONEY WAS THE ALLOTMENT OF SHARES. IN DEFENCE OF HIS ARGUMENT THE LD. A.R. RE LIED ON THE FOLLOWING DECISIONS: 1. DIT VS. BESIX KIER DABHOL SA TS-661-HC-2Q12 (B OM) 2. AEGIS LIMITED V ACIT [TS-342-ITAT-2015 (MUM) -TP ] 3. PARLE BISCUITS PVT LTD V DCIT [TS-127-ITAT-2014 (MUM) -TP] 4. MYLAN LABORATORIES LTD V ACIT [TS-399-ITAT-2015 (HYD) - TP] 5. ALLCARGO GLOBAL LOGISTICS V ACIT [150 ITD 651 (M UMBAI)] 6. TOOLTECH GLOBAL ENGINEERING PVT LTD V DCIT [51 T AXMANN.COM 336 (PUNE)] 18 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. 16. THE LAST WITHOUT PREJUDICE CONTENTION RAISED BY THE LD. A.R. WAS THAT EVEN IF THE SHARE APPLICATION MONEY IS STA TED AS INTEREST FREE LOANS, THE ARM LENGTH PRICE RATE OF NOTIONAL I NTEREST COULD NOT EXCEED THE LIBOR. THE LD. A.R. RELIED ON THE F OLLOWING DECISIONS: I. CIT V COTTON NATURALS INDIA PVT LTD - [2015] 55 TAXMANN.COM 523 (DELHI) A II. COTTON NATURALS INDIA PVT LTD V DCIT - (2014) 1 46 ITD 0662 (DELHI) III. CIT V TATA AUTOCOMP SYSTEMS LTD - [2015] 56 TA XMANN.COM 206 (BOM) IV. MARICO LTD V ACIT - (2016) 70 TAXMANN.COM 214 ( MUMBAI) V. IL&FS MARITIME INFRASTRUCTURE CO LTD V ACIT- (20 15) 62 TAXMANN.COM 233 (MUMBAI) VI HINDUJA GLOBAL SOLUTIONS LTD V ACIT - (2013) 145 ITD 0361 (MUMBAI) VII. DCIT V INDIAN HOTELS CO LTD - [2014] 46 TAXMAN N.COM 261 (MUMBAI) VIII. INDEGENE LIFESYSTEMS P LTD V ACIT- (2015) 60 TAXMANN.COM 28 (BANGALORE) IX. TOOLTECH GLOBAL ENGINEERING P LTD V DCIT - (201 4) 51 TAXMANN.COM 336 (PUNE) X. EVEREST KANTO CYLINDER LTD V ACIT - (2014) 52 TA XMANN.COM 395 (MUMBAI) XI. SIVA INDUSTRIES & HOLDING LTD V ACIT-[2011] 11 TAXMANN.COM 404 (CHENNAI) XII. SIVA VENTURES LTD V ACIT - (2013) 36 TAXMANN.C OM 498 (CHENNAI) XIII. APOLLO TYRES LTD V ACIT - (2014) 45 TAXMANN.C OM 337 (COCHIN) 17. THE LD. D.R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF DRP BY SUBMITTING THAT THE ASSESSEE HAS ADVANCED MONEY TO THE FOREIGN AE AS SHARE APPLICATION MONEY WHICH REM AINED UNADJUSTED FOR A VERY LONG PERIOD OF TIME DUE TO NO N ALLOTMENT OF SHARES. THE LD. D.R. CONTENDED THAT THE DRP HAS RI GHTLY UPHELD THE ORDER OF TPO MAKING ADJUSTMENT ON ACCOUNT OF N OTIONAL INTEREST ON THE SAID SHARE APPLICATION MONEY BY TRE ATING THE SAME AS INTEREST FREE LOAN AND THEREFORE CLEARLY FA LLS WITHIN THE AMBIT OF TRANSFER PRICING PROVISIONS. THE LD. D.R. ALSO TRIED TO DISTINGUISH VARIOUS DECISIONS RELIED UPON BY THE AS SESSEE AND SUBMITTED THAT ALL SAID DECISIONS WERE RENDERED ON DIFFERENT FACTS AND CIRCUMSTANCES AND ARE NOT APPLICABLE TO THE PRE SENT CASE. FINALLY, THE LD. D.R. PRAYED BEFORE THE BENCH THAT THE ORDER OF DRP SHOULD BE UPHELD. 19 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS ADVANCED MONEY AS SHARE APPLI CATION MONEY TO GOLDEN HARVEST A FOREIGN AE TO SET UP A PL ANT IN FREE TRADE ZONE IN SHARJAH. IT IS ALSO UNDISPUTED THAT THE AE COULD NOT CONVERT THE SHARE APPLICATION MONEY INTO SHARE CAPITAL BY ISSUING SHARES TO THE ASSESSEE AS THE PERMISSION FR OM THE FREE TRADE ZONE AUTHORITIES WITH WHOM THE AE WAS REGISTE RED WAS PENDING AND THIS WAS THE ONLY SOLE REASON FOR NOT I SSUING THE SHARES IN FAVOUR OF THE ASSESSEE. NOW THE ISSUE BE FORE US IS WHETHER THE SHARE APPLICATION MONEY COULD BE TREATE D AS LOAN AND COULD BE SUBJECTED TO THE TRANSFER PRICING PROV ISIONS. AFTER PERUSING THE FACTS ON RECORD AND GOING THROUGH THE DECISION RELIED ON BY THE LD. A.R., WE FIND THAT NO INCOME H AS ACCRUED FROM THE SHARE APPLICATION MONEY TO THE ASSESSEE AN D THEREFORE SUCH TRANSACTIONS COULD NOT BE SUBJECTED TO TRANSFE R PRICING PROVISIONS. THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF SHELL INDIA MARKETS PVT. LTD. VS. ACIT AND OTHERS HAS ALSO HELD THAT THE PROVISIONS OF CHAPTER 10 OF THE ACT WOULD APPLY ONLY WHEN INCOME ARISES FROM THE INTERNATION AL TRANSACTIONS. THE RELEVANT PORTION OF THE SAID ORD ER IS REPRODUCED AS UNDER: 9. WE SHALL NOW CONSIDER THE ABOVE SUBMISSIONS ON BEHALF OF THE REVENUE. SO FAR AS THE AVAILABILITY OF ALTERNATIVE REMEDY IS CONCER NED, THE PETITIONER HAS AT THE BEGINNING OF TODAY'S HEARING ITSELF UNDERTAKEN TO W ITHDRAW ITS OBJECTION ON THE ISSUE OF JURISDICTION BEFORE THE DISPUTE RESOLUTION PANEL. THIS WAS ACCEPTED BY US BEFORE CONSIDERING THE ISSUE ON THE MERITS. MOREOVE R, THIS PETITION WAS FILED ON APRIL 24, 2013, CHALLENGING THE IMPUGNED ORDERS DAT ED JANUARY 30, 2013, OF THE TRANSFER PRICING OFFICER AND THE DRAFT ASSESSMENT O RDER DATED MARCH 28, 2014, OF THE ASSESSING OFFICER, ON THE ISSUE OF JURISDICTION . THIS ISSUE HAS BEEN DECIDED IN VODAFONE IV AND WOULD BE BINDING ON ALL AUTHORITIES WITHIN THE STATE TILL THE APEX COURT TAKES A DIFFERENT VIEW ON IT. THEREFORE, IN V IEW OF THE FACT THAT THE REVENUE DOES NOT DISPUTE THAT THE ISSUE ON THE MERITS STAND S COVERED BY THE DECISION OF 20 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. VODAFONE IV IT WOULD SERVE NO USEFUL PURPOSE BY DIR ECTING THE PETITIONER TO PROSECUTE ITS OBJECTIONS BEFORE THE DISPUTE RESOLUT ION PANEL AND THE DISPUTE RESOLUTION PANEL DISPOSING OF THE SAME IN ACCORDANC E WITH VODAFONE IV. THUS, IN THE PRESENT FACTS THE DISTINCTION SOUGHT TO BE MADE ON THE GROUND OF ALTERNATIVE REMEDY IS NOT SUCH AS TO WARRANT NOT ENTERTAINING T HE PETITION. 10. THE SECOND DISTINGUISHING FEATURE FROM THAT OF VODAFONE IV, AS CANVASSED BY THE REVENUE, IS THAT FORM 3CEB IN RESPECT OF THE TR ANSACTION OF ISSUE OF SHARES TO ITS ASSOCIATED ENTERPRISES, IS NOT DISCLOSED AS AN INTERNATIONAL TRANSACTION. THIS THE PETITIONER WAS OBLIGED TO DO AS THE TRANSACTION IS AN INTERNATIONAL TRANSACTION. THIS WAS IN FACT DONE BY THE PETITIONERS IN VODAFONE IV. THIS STAND BY THE REVENUE IS A LITTLE CURIOUS AS IN VODAFONE IV THE REVENUE CONTEN DED THAT AS THE PETITIONERS THEREIN HAD FILED FORM 3CEB IN RESPECT OF ISSUE OF SHARES TO ITS ASSOCIATED ENTERPRISE, THEY HAD SUBMITTED TO THE JURISDICTION OF CHAPTER X OF THE ACT AND CANNOT NOW CONTEND THAT THE PROCEEDING TO TAX SUCH SHORTFALL ON CAPITAL ACCOUNT IS WITHOUT JURISDICTION. IN THIS CASE, AN EXACTLY OPPO SITE STAND IS BEING TAKEN BY THE STATE. THE STATE IS EXPECTED TO BE CONSISTENT AND N OT CHANGE ITS STAND FROM CASE TO CASE. BE THAT AS IT MAY, THE PETITIONER HEREIN HAD NOT DISCLOSED THE TRANSACTION IN FORM 3CEB AS, ACCORDING TO THE PETITIONER, IT WAS N OT AN INTERNATIONAL TRANSACTION FOR THE REASON THAT IT DID NOT GIVE NO RISE TO ANY INCOME. THE FACT THAT THE PETITIONER CHOSE NOT TO DECLARE ISSUE OF SHARES TO ITS NON-RESIDENT ASSOCIATED ENTERPRISES IN FORM 3CEB AS IN ITS UNDERSTANDING IT FELL OUTSIDE THE SCOPE OF CHAPTER X OF THE ACT NOW STANDS VINDICATED BY THE D ECISION OF THIS COURT IN VODAFONE IV. IF THE PETITIONER DID NOT FILE A PARTI CULAR TRANSACTION IN FORM 3CEB WHEN SO REQUIRED TO BE FILED, THE CONSEQUENCES OF T HE SAME AS PROVIDED IN THE ACT WOULD FOLLOW. HOWEVER, THE MERE NOT FILING OF FORM 3CEB ON THE PART OF THE PETITIONER WOULD NOT GIVE JURISDICTION TO THE REVEN UE TO TAX AN AMOUNT WHICH IT DOES NOT HAVE JURISDICTION TO TAX. THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THIS OBJECTION ALSO. 11. THE LAST OBJECTION TAKEN BY THE REVENUE WAS THA T IN VIEW OF THE VARIATION IN THE SHAREHOLDING PATTERN AMONGST DIFFERENT SHAREHOL DERS OF THE PETITIONER DURING THE YEAR CLEARLY BROUGHT THE ISSUE OF SHARES WITHIN CLAUSE (E) OF THE EXPLANATION TO SECTION 92B OF THE ACT. IN TERMS OF THE ABOVE PROVI SION AN INTERNATIONAL TRANSACTION WOULD INCLUDE A TRANSACTION OF RESTRUCT URING ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE. MR. PARDI WALA, LEARNED COUNSEL APPEARING FOR THE PETITIONER, POINTS OUT THAT THERE HAS BEEN NO RESTRUCTURING OF THE ORGANISATION BUT THERE HAS BEEN A MERE CHANGE I N THE SHAREHOLDING OF DIFFERENT SHAREHOLDERS OF THE PETITIONER. HOWEVER, IN THE PRESENT FACTS WE NEED NOT EXAMINE THIS FOR THE REASON THAT EVEN IF IT IS ASSUMED THAT IT IS AN INTERNATIONAL TRANSACTION, THE JURISDICTIONAL REQUIREMENT FOR CHA PTER X OF THE ACT TO BE APPLICABLE IS THAT INCOME MUST ARISE. IN THIS CASE, ADMITTEDLY FOLLOWING VODAFONE IV NO INCOME HAS ARISEN. THUS, THE JURISDICTIONAL R EQUIREMENT FOR APPLICATION OF CHAPTER X OF THE ACT IS NOT SATISFIED. 12. AS HELD IN VODAFONE IV, THE JURISDICTION TO APP LY CHAPTER X OF THE ACT WOULD OCCASION ONLY WHEN INCOME ARISES OUT OF INTERNATION AL TRANSACTION AND SUCH INCOME IS CHARGEABLE TO TAX UNDER THE ACT. THE ISSU ES RAISED IN THE PRESENT PETITION ARE IDENTICAL TO THE ISSUES WHICH AROSE FO R CONSIDERATION BEFORE THIS COURT 21 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. IN VODAFONE IV. THEREFORE, FOLLOWING THE AFORESAID DECISION WE SET ASIDE THE ORDER DATED JANUARY 30, 2013, OF THE TRANSFER PRICING OFF ICER TO THE EXTENT IT HOLDS THAT THE ARM'S LENGTH PRICE OF ISSUE OF EQUITY SHARES IS RS. 183.44 PER SHARE AS AGAINST RS. 10 PER SHARE AS DECLARED BY THE PETITIONER AND CONSEQUENT DEEMED INTEREST BROUGHT TO TAX ON THE AMOUNT NOT RECEIVED WHEN BENC HMARKED TO THE ARM'S LENGTH PRICE. ACCORDINGLY, WE SET ASIDE THE DRAFT A SSESSMENT ORDER DATED MARCH 30, 2013, TO THE EXTENT IT SEEKS TO BRING TO TAX TH E ARM'S LENGTH PRICE OF THE SHARE ISSUED BY THE PETITIONER TO ITS NON-RESIDENT ASSOCI ATED ENTERPRISES AND ALSO DEEMED INTEREST WHICH IS SOUGHT TO BE BROUGHT TO TA X ON THE GROUND OF NON- RECEIPT OF THE CONSIDERATION EQUIVALENT TO THE ARM' S LENGTH PRICE BY THE PETITIONER ON ISSUE OF EQUITY SHARES. IT IS FURTHER CLARIFIED THAT THE PETITIONER'S OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL FILED ON APRIL 25, 2013, ON ALL ISSUES SAVE AND EXCEPT THE ISSUE COVERED BY THIS ORDER WOULD BE CON SIDERED BY THE DISPUTE RESOLUTION PANEL ON ITS OWN MERITS. 19. THE HONBLE BOMBAY HIGH COURT FURTHER IN THE CA SE OF EQUINOX BUSINESS PARKS (P.) LTD. VS. UNION OF INDIA HAS HELD AS UNDER: THIS HAS BEEN ACCEPTED BY THE REVENUE AND IS EVIDE NT FROM THE ORDER OF DRP DATED 30 OCTOBER 2014 IN PETITIONER'S CASE FOR A.Y. 2010-11. IN THE A.Y.2010-11 ALSO THE PETITIONER HAD ISSUED CCDS AND EQUITY-SHARES AN D THE BASIS WAS IDENTICAL TO THE PRESENT PETITION. THE REVENUE SOUGHT TO TAX THE PET ITIONER IN TERMS OF CHAPTER X OF THE ACT. HOWEVER, THE PETITIONER OBJECTED TO THE DR AFT ASSESSMENT ORDER BEFORE DRP. ON 30 OCTOBER 2014, DRP ISSUED DIRECTIONS UNDE R SECTION 144C(5) OF THE ACT TO THE ASSESSING OFFICER FOR THE A.Y. 2010-11 AND O N IDENTICAL FACTS QUA EQUITY SHARES AND CCDS HOLDING AS UNDER: '3.4 WE FIND THAT THE ISSUE UNDER CONSIDERATION OF APPLYING TRANSFER PRICING PROVISIONS ON 'ISSUE OF SHARES' HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S VO DAFONE INDIA SERVICES PRIVATE LIMITED IN WRIT PETITION NUMBER 871 OF 2014 DATED 10TH OCTOBER 2014. THE HONOURABLE HIGH COURT HAS HELD THAT THE A MOUNTS RECEIVED ON ISSUE OF SHARES IS A CAPITAL ACCOUNT TRANSACTION NO T SEPARATELY BROUGHT WITHIN THE DEFINITION OF 'INCOME' AS PER THE PROVISIONS OF SECTION 2(24) AS WELL AS SECTIONS 4 & 5 OF THE ACT. THEREFORE, SUCH CAPITAL ACCOUNT TRANSACTION NOT FALLING WITHIN A STATUTORY EXCEPTION CANNOT BE BROU GHT TO TAX. EVEN INCOME ARISING FROM INTERNATIONAL TRANSACTION BETWEEN AE M UST SATISFY THE TEST OF INCOME UNDER THE ACT AND MUST FIND ITS HOME IN ONE OF THE ABOVE HEADS I.E. CHARGING PROVISIONS. THERE IS NO CHARGING SECTION I N CHAPTER X OF THE ACT. ONLY IF THERE IS INCOME WHICH IS CHARGEABLE TO TAX UNDER THE NORMAL PROVISIONS OF THE ACT, THEN ALONE CHAPTER X OF THE ACT COULD BE INVOKED. FURTHER, SINCE THERE IS NO INCOME ARISING FROM THE TRANSACTION OF ISSUE OF SHARES, THE PROVISIONS OF CHAPTER X WOULD NOT APPLY . THE HONBLE BOMBAY HIGH COURT IN THE SAID CASE HAS QUASHED AND SET ASI DE AS BEING WITHOUT JURISDICTION, NULL AND VOID, THE REFERENCE MADE BY THE TPO, AND THE ORDER OF THE TPO MAKING A TRANSFER PRICING ADJUSTMENT ON ISS UE OF SHARES. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDIC TIONAL BOMBAY HIGH COURT, 22 ITA NO.1452/M/2017 M/S. ARIES AGRO LTD. THE ADJUSTMENT PROPOSED BY THE' TPO ON ACCOUNT OF I SSUE OF SHARES IS DELETED. ACCORDINGLY, GROUND OF OBJECTION NUMBER 16 OF THE ASSESSEE IS ALLOWED.' 20. WE, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT, REVERSE THE DIRECTIO N OF DRP AND DIRECT THE AO TO DELETE THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST OF RS.2,44,20,173/-. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.2018. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: .11.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.