PARLE BISCUTS P. LTD, MUMBAI V. DCIT RG 9(2), MUMBAI

ITA 9010/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6643 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 20-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: MADHAV KHANDELWAL
• Keywords: Transfer pricing; Share purchase agreement; International transaction
• Section: 143(3); 244A

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI .. , , BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIJAY PAL RAO, JM ./ I.T.A. NO.9010 /MUM/2010 ( / ASSESSMENT YEAR : 2006-2007 PARLE BISCUITS PVT. LTD., NORTH LEVEL CROSSING, VILE PARLE (EAST), MUMBAI 400 057. / VS. DY. COMMISSIONER OF INCOME TAX 9(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020. ./ PAN : AAACP0485D ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) A PPELLANT BY SHRI GIRISH DAVE & SHRI MADHAV KHANDELWAL R E SPONDENT BY : SHRI AJ E ET KUMAR JAIN ' ( / DATE OF HEARING : 20-02-2014 ' ( / DATE OF PRONOUNCEMENT : 11-04-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF DCIT 9(2), MUMBAI (ASSESSING OFFICER) DATED 18-10-2010 P ASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 IN PURSUANCE TO THE DIRECTION GIVEN BY THE DISPUTE RESOLUTION PANEL (DRP) II MUMBAI U/S 144C(5) OF TH E ACT. 2. THE ISSUE INVOLVED IN GROUND NO. 1 OF THIS APPEA L RELATES TO THE ADDITION OF RS. 92,02,660/- MADE BY THE A.O. TO THE TOTAL IN COME OF THE ASSESSEE ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL. ITA 9010/M/10 2 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING BISCUITS UNDER THE NAME O F PARLE-G, KRACKJACK, MONACO, NIMKIN ETC. BESIDES HAVING ITS OWN MANUFA CTURING UNIT AT BAHADURGARH, NEEMRANA AND RUDRAPUR, THE ASSESSEE AL SO GETS THE MANUFACTURING DONE THROUGH ITS VARIOUS CONTRACT MAN UFACTURING UNITS (CMUS) WHICH MANUFACTURE PARLE-G, CREAM BISCUITS AN D MARIE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 30-11-2006 DECLARING TOTAL INCOME OF RS. 76,96,42,872/-. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT ADDITION WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE IN THE EARLIER YEA RS ON ACCOUNT OF DIFFERENCE BETWEEN ACTUAL CONSUMPTION OF RAW MATERIALS AND THE STANDARD CONSUMPTION TREATING THE SAME AS EXCESS CONSUMPTION. HE THEREF ORE PROCEEDED TO EXAMINE THE CONSUMPTION OF RAW MATERIALS CLAIMED BY THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION AND FOUND THAT THE STANDARD FOR MULA FOR WORKING OUT THE CONSUMPTION OF RAW MATERIALS WAS TAKEN BY THE ASSES SEE FOR ITS CMUS AT 110.607 KG FOR 100 KG OF FINAL PRODUCTS AS AGAINST THE STANDARD FORMULA OF 108.19 KG FOR 100 KGS OF FINAL PRODUCT TAKEN FOR IT S OWN UNITS AT BAHADURGARH, NEEMRANA AND RUDRAPUR. IN THIS REGARD , THE EXPLANATION OFFERED BY THE ASSESSEE THAT THE HIGHER RATIO OF 11 0.607 KGS WAS TAKEN IN CASE OF CMUS IN ORDER TO GIVE EFFECT TO THE BURNT BISCUI TS AS WELL AS EXCESS WEIGHT PACKED IN BISCUITS WAS NOT FOUND FULLY ACCEPTABLE B Y THE A.O. AS REGARDS THE RELIANCE PLACED BY THE ASSESSEE ON THE TRIBUNALS O RDER FOR A.Y. 1989-90 IN ITS OWN CASE, THE A.O. NOTED THAT THE LD. CIT(A) IN HIS APPELLATE ORDER FOR A.Y. 2003-04 PASSED IN ASSESSEES OWN CASE HAD HELD THAT THE ORDER OF THE TRIBUNAL WAS ONLY IN RESPECT OF EXCESS CONSUMPTION OF RAW MATERIALS OF ASSESSEES OWN UNITS AND NOT IN RESPECT OF CMUS. HE ALSO NOTED THAT IT WAS HELD BY THE LD. CIT(A) IN HIS APPELLATE ORDER FOR A .Y. 2003-04 THAT THE EXCESS/ SHORT CONSUMPTION IN CASE OF CMUS IS REQUIRED TO BE COMPUTED AFTER MAKING ADJUSTMENT ON ACCOUNT OF WASTAGES. ACCORDINGLY, TH E CONSUMPTION OF RAW MATERIALS OF CMUS WAS WORKED OUT BY THE A.O. AT RS. 2,69,43,415/- BY ITA 9010/M/10 3 ADOPTING THE CONSUMPTION RATIO OF 108.190 KGS INSTE AD OF 110.607 KGS AND AFTER ADJUSTING THE SHORT CONSUMPTION OF RAW MATERI AL OF ITS OWN UNITS AT RS. 1,46,73,200/-, THE EXCESS CONSUMPTION OF RAW MATERI AL OF THE ASSESSEE WAS WORKED OUT BY HIM AT RS. 1,22,70,215/-. AFTER GIVIN G DEDUCTION OF 25% FOR WASTAGES ETC., THE NET EXCESS CONSUMPTION OF RAW MA TERIALS WAS ARRIVED AT BY HIM AT RS. 92,02,660/- AND ADDITION TO THAT EXTENT WAS MADE BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. BEFORE THE DRP, IT W AS POINTED OUT ON BEHALF OF THE ASSESSEE THAT THE ITAT HAS ALREADY ALLOWED RELI EF TO IT ON THE ISSUE OF EXCESS CONSUMPTION OF RAW MATERIALS. HOWEVER, KEEP ING IN VIEW THAT THIS ISSUE WAS BEING CONTESTED BEFORE THE HONBLE BOMBAY HIGH COURT, THE DRP DIRECTED THE A.O. TO MAKE THE ADDITION OF RS. 92,02 ,660/- TO THE TOTAL INCOME OF THE ASSESSE AS PROPOSED IN THE DRAFT ASSESSMENT ORDER. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT ALTHOUGH THE ISSUE DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE YEARS PRIOR TO A.Y.2000-01 WAS IN RESPECT OF EXCESS CONSUMPTION OF RAW MATERIALS OF ASSESSEES OWN MANUFACTURING UNITS AND NOT IN RESPE CT OF CMUS AS RIGHTLY OBSERVED BY THE A.O. IN THE ASSESSMENT ORDER, THE I SSUE IN RESPECT OF EXCESS CONSUMPTION OF RAW MATERIALS OF THE CMUS CAME FOR C ONSIDERATION OF THE TRIBUNAL IN A.YS. 2000-01 TO 2003-04 AND VIDE ITS C OMMON ORDER DTD. 31-8- 2010 PASSED IN ITA NO. 5320/MUM/2006 AND OTHERS, TH E TRIBUNAL DECIDED THE SAME VIDE PARA 25 WHICH READS AS UNDER:- 25. AS REGARDS THE ISSUE RELATING TO THE MANUFACTU RING OF BISCUITS THROUGH CMUS IS CONCERNED, WE FIND THE ASSESSING OF FICER NOTED THAT THE INPUT-OUTPUT RATIO IN THE CMUS ARE SHOWN BY THE ASSESSEE AT 110.60:100 AS AGAINST 108.19:100 IN CASE OF OWN FAC TORY. WE FIND THE ASSESSING OFFICER REJECTED THE VARIOUS SUBMISSIONS GIVEN BY THE ASSESSEE AND APPLIED THE RATIO OF 108.19:100 FOR TH E CMUS ALSO. WE FIND THE CIT(A) DIRECTED THE ASSESSING OFFICER TO M AKE THE SAME ADJUSTMENTS TO THE CMUS WHICH ARE APPLICABLE TO OWN FACTORY. BASED ON THE FIGURES GIVEN BY THE ASSESSEE, HE DIRECTED T HE ASSESSING OFFICER TO VERIFY THESE FIGURES SUBJECT TO THE CONDITION TH AT NO ADJUSTMENT IN ITA 9010/M/10 4 THE CASE OF LEFT OVER MAIDA IS TO BE MADE. ADMITTED LY, THE ASSESSEE HAS NO FULL CONTROL OVER THE CMUS. AT THE SAME TIME IT CANNOT BE BLINDLY ACCEPTED AS TO WHATEVER FIGURES GIVEN BY THE ASSESS EE ON ACCOUNT OF MANUFACTURING OF BISCUITS THROUGH THE CMUS HAS TO B E ACCEPTED. SOME SORT OF CONTROL, IN OUR OPINION, IS REQUIRED AS THE RE IS EVERY POSSIBILITY OF LEAKAGE OF REVENUE THROUGH EXCESS CONSUMPTION OF RA W MATERIAL IN ABSENCE OF ANY CONTROL MECHANISM. UNDER THE PECULIA R FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND MERIT IN THE SUB MISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IF THE INPUT- OUTPUT FORMULA OF 108.19:100 FOR THE CMIJS IS APPLIED THEN NECESSARY ADJUSTMENT WHICH ARE ALLOWED TO THE OWN MANUFACTURING UNITS SHOULD A LSO BE ALLOWED TO THE CMUS. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER DIRECTING HIM TO MAKE NECESSARY VERIFICATION AND GIVE APPROPRIATE RELIEF TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUN DS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PU RPOSES AND THE GROUNDS OF APPEAL NO. 2 BY THE REVENUE IS DISMISSED . 5. AS HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR ASSESSMENT YEARS 2000-01 TO 2003-04, IF THE FORMULA OF 108.190 IS TO BE APPLIED FOR THE CMUS, THEN IT IS NECESSARY THAT ADJUSTMENTS WHICH ARE ALL OWED IN CASE OF OWN MANUFACTURING UNITS OF THE ASSESSEE SHOULD ALSO BE ALLOWED IN CASE OF THE CMUS. THE ISSUE ACCORDINGLY WAS RESTORED BY THE TR IBUNAL TO THE FILE OF THE A.O. TO ALLOW SUCH ADJUSTMENTS AFTER MAKING NECESSA RY VERIFICATION. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS W ELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF ASSESSMENT YEARS 2000-01 TO 2003-04, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FO R THE SAID YEAR AND RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTION AS GIVEN IN ASSESSMENT YEARS 2001-01 TO 2 003-04. GROUND NO. 1 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 6. THE ISSUE RAISED IN GROUND NO. 2 RELATES TO THE ADDITION OF RS. 5,45,840/- MADE BY THE A.O. AND SUSTAINED BY THE LD . CIT(A) ON ACCOUNT OF TP ADJUSTMENT MADE IN RESPECT OF VARIOUS INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. ITA 9010/M/10 5 7. IN THE T.P. STUDY REPORT FILED ALONG WITH THE IT S RETURN OF INCOME, THE ASSESSEE HAD REPORTED THREE INTERNATIONAL TRANSACTI ONS INVOLVING LOANS GIVEN BY IT TO THE AES ON INTEREST. WHEN THE REFERENCE W AS MADE BY THE A.O. U/S 92CA(1) OF THE ACT FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THESE TRANSACTIONS, THE TPO FOUND THAT THERE ARE CERTAIN MORE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES W HICH WERE NOT REPORTED IN THE TP STUDY REPORT. HE, ACCORDINGLY, PROCEEDED TO DETERMINE THE ALP OF THESE REPORTED AS WELL AS UN-REPORTED INTERNATIONAL TRANS ACTIONS. IN THIS REGARD, HE FOUND THAT THE ASSESSEE HAD PAID SHARE APPLICATION MONEY OF RS. 22,07,147/- TO ITS AE PARDEE FOODS NIGERIA LTD. ON 19-8-2005 WH EREAS THE SHARE CERTIFICATES WERE ACTUALLY ISSUED BY THE SAID COMPA NY ONLY ON 14-6-2006. AS THE EXPLANATION OFFERED BY THE ASSESSEE FOR THIS DE LAY IN ISSUE OF CERTIFICATES WHICH WAS NOT FOUND ACCEPTABLE BY THE A.O., HE TREA TED THE AMOUNT OF SHARE APPLICATION MONEY UP TO THE DATE OF ALLOTMENT OF CE RTIFICATES AS LOAN AND MADE TP ADJUSTMENT OF RS. 69,843/- ON ACCOUNT OF INTERES T ON SUCH LOAN CALCULATED AT LIBOR 4% PLUS 300 BASIS POINT FOR THE PERIOD FRO M 19-8-2005 TO 31-3- 2006. THE TPO HAS ALSO FOUND THAT THE ASSESSEE HAD EXTENDED A LOAN OF RS. 6,83,78,989/- TO ITS AE IN NIGERIA AT 6% INTEREST A ND TAKING LIBOR 4% PLUS 300 BASIS POINT AT ARMS LENGTH RATE, THE TP ADJUST MENT OF RS. 2,39,062/- WAS MADE BY THE TPO FOR THE DIFFERENCE AMOUNT. IN ANOT HER INTERNATIONAL TRANSACTION, THE ASSESSEE COMPANY HAD PAID SHARE AP PLICATION MONEY OF RS. 3,13,276/- TO ITS AE PARLITE FOODS SARL, CAMEROON O N 22-8-2005 WHEREAS THE SHARES WERE ISSUED BY THE SAID COMPANY ONLY ON 22-7-2007. THE SHARE APPLICATION MONEY PAID BY THE ASSESSEE THEREFORE WA S TREATED AS LOAN GIVEN TO ITS AE TILL THE DATE OF ISSUE OF SHARES AND TP ADJU STMENT OF RS. 9733/- WAS MADE BY HIM ON ACCOUNT OF INTEREST AT LIBOR PLUS 30 0 BASIS POINT FOR THE PERIOD 22-8-2005 TO 31-3-2006. SIMILARLY, THE SHAR E APPLICATION MONEY OF RS. 242.44 LACS PAID BY THE ASSESSEE FROM TIME TO TIME TO IS AE ARCTIC BISCUITS, BANGLADESH WAS TREATED BY THE A.O. AS LOAN AMOUNT G IVEN BY THE ASSESSEE COMPANY TO ITS AE TILL THE ISSUE OF RESPECTIVE SHAR ES AND TP ADJUSTMENT OF RS. ITA 9010/M/10 6 4,74,263/- WAS MADE BY THE TPO ON ACCOUNT OF INTERE ST ON SUCH LOAN CALCULATED AT LIBOR PLUS 300 BASIS POINT. THE ASSE SSEE COMPANY HAD ALSO GIVEN A LOAN TO ARCTIC, BANGLADESH AMOUNTING TO RS. 53,42,326/- ON INTEREST AT 5% AND TAKING LIBOR RATE OF 4% PLUS 300 BASIS PO INT AS THE ARMS LENGTH RATE OF INTEREST, THE TP ADJUSTMENT OF RS. 89,916/- WAS MADE BY THE TPO IN RESPECT OF ALL THESE INTERNATIONAL TRANSACTIONS. A CCORDINGLY, TOTAL ADDITION OF RS. 8,82,817/- WAS PROPOSED ON ACCOUNT OF TP ADJUST MENT IN RESPECT OF VARIOUS INTERNATIONAL TRANSACTIONS AS SUMMARIZED BE LOW:- SR. NO. NATURE OF TRANSACTION AE PARA AMOUNT (RS) 1 SHARE APPLICATION MONEY NIGERIA 5.1 69,843 INTEREST ON LOAN NIGERIA 5.2 2,39,062 2 SHARE APPLICATION MONEY CAMEROON 6 9,733 3 SHARE APPLICATION MONEY BANGLADESH 7.1 4,74,263 INTEREST ON LOAN BANGLADESH 7.2 89,916 ADJUSTMENT 8,82,817 8. WHEN THE ABOVE TP ADJUSTMENTS SUGGESTED BY THE T PO WERE PROPOSED BY THE A.O. IN THE DRAFT ASSESSMENT ORDER, THE ASSE SSEE COMPANY RAISED ITS OBJECTIONS BEFORE THE DRP BY MAKING THE FOLLOWING S UBMISSION:- I. SHARE APPLICATION MONEY REMITTED TO THE SUBSIDIARIE S CANNOT PARTAKE THE CHARACTER OF INTEREST-FREE LOAN. II. THE INTEREST CHARGED BY PARLE TO ITS SUBSIDIARIES O N THE LOANS GRANTED ARE AT ARMS LENGTH. III. THE TPO HAS ERRONEOUSLY CONTENDED THAT THE SHARE AP PLICATION MONIES REMITTED BY PARLE AND INTEREST FREE LOANS GIVEN TO THE SUBSI DIARIES. IV. THE TPO FAILED TO CONSIDER THE SUBMISSIONS MADE BY PARLE THAT INTEREST CHARGED TO SUBSIDIARY IN BANGLADESH WERE DETERMINED NOT ONL Y TAKING INTO CONSIDERATION THE LIBOR PREVAILING ON THE DATES BUT ALSO OTHER BU SINESS CONSIDERATIONS LIKE THE LOCAL LAWS IN THE COUNTRY, ABILITY TO PAY, FUTU RE BENEFITS THAT THE COMPANY FORESEES FROM THE SUBSIDIARY ETC. V. THE TPO REJECTED THE PARLES CONTENTION THAT THE IN TEREST CHARGED ON LOANS TO SUBSIDIARY IN BANGLADESH AND NIGERIA ARE AT ARMS L ENGTH. VI. PARLE SUBMITS THAT IF AT ALL ADJUSTMENT NEEDS TO BE DONE, LIBOR BEING AN INTERNATIONAL STANDARD, BE USED INSTEAD OF TAKING A N ADHOC NUMBER OF 4%. ITA 9010/M/10 7 VII. THERE WAS ONLY A PROCEDURAL DELAY IN ISSUANCE OF PH YSICAL SHARE CERTIFICATES BY THE COMPANY. THE TPO HIMSELF HAD ACCEPTED THE FACT THAT THE DATE OF ALLOTMENT OF SHARES WAS PRIOR TO THE DATE OF REMITTANCE OF MO NIES BY PARLE. VIII. THUS ASSUMING (BUT DENYING) THAT ADJUSTMENT NEED TO BE DONE ON ACCOUNT OF DELAYED ALLOTMENT /ISSUE OF SHARES, THAT ADJUSTMENT RECOMPUTED USING LIBOR AS ON THE RELEVANT DATED AND THE SPREAD OF 200 BPS AND CONSIDERING THE EFFECT OF SUBMISSION OF SHARE CERTIFICATES WOULD WORK OUT TO THE FOLLOWING: SUBSIDIARY AS COMPUTED BY TPO (4%+300 BPS) USING LIBOR+200 BPS DIFFERENCE (A-B) ARCTIC BISCUITS, BANGLADESH 474,263.61 150,820.98 323,442.63 PARDEE FOODS, NIGERIA 69,843 60,264.18 9,578.82 PARLITE FOODS, CAMEROON 9,733.01 5,777.07 3,955.94 TOTAL 336,977.39 THE PROPOSED TRANSFER PRICING ADJUSTMENT IS THUS OV ERSTATED TO THE TUNE OF RS.3,36,977/- BY THE TPO. 9. THE DRP DID NOT FIND MERIT IN THE FIRST SEVEN OF THE EIGHT POINTS RAISED BY THE ASSESSEE. THE DRP, HOWEVER, FOUND MERIT IN T HE POINT NO. 8 RAISED BY THE ASSESSEE AND TAKING THE LIBOR PLUS 200 BASIS PO INT AS THE ARMS LENGTH OF INTEREST, HE DIRECTED THE A.O.TO REDUCE THE TP ADJU STMENT OF RS. 8,82,817/- TO RS. 5,45,814/- THEREBY GIVING A RELIEF OF RS. 3,36, 977/-. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE TP ADJUSTMENTS OF RS. 8,82,817/- PROPOSED BY THE A.O./TPO IN RESPE CT OF VARIOUS INTERNATIONAL TRANSACTIONS HAVE BEEN RESTRICTED BY THE LD. CIT(A) TO RS. 5,45,814/- AS UNDER:- ITA 9010/M/10 8 SR. NO. NATURE OF TRANSACTION AE TP ADJUSTMENT BY AO/TPO(RS) TP ADJUSTMENT RESTRICTED BY CIT(A) (RS) 1 SHARE APPLICATION MONEY NIGERIA 69,843 60,264 INTEREST ON LOAN NIGERIA 2,39,062 2,30,062 2 SHARE APPLICATION MONEY CAMEROON 9,733 5,777 3 SHARE APPLICATION MONEY BANGLADESH 4,74,263 1,50,821 INTEREST ON LOAN BANGLADESH 89,916 89,916 ADJUSTMENT 8,82,817 5,45,840 11. AT THE TIME OF HEARING BEFORE US, THE CONTENTIO N RAISED BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE CLEAR TRANSACT IONS INVOLVING PAYMENT OF SHARE APPLICATION MONEY CANNOT BE TREATED AS INTERN ATIONAL TRANSACTIONS OF LOANS GIVEN BY THE ASSESSEE COMPANY TO ITS AE MEREL Y BECAUSE THERE WAS A DELAY IN ALLOTMENT OF SHARES. IT IS OBSERVED THAT THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS DULY SUPPORTED BY THE L ATEST DECISION OF DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF BHARATI AIRTE L LTD. VS. ACIT RENDERED VIDE ITS ORDER DATED 11-3-2014 PASSED IN ITA NO. 58 16/DEL/2012 WHEREIN A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN F AVOUR OF THE ASSESSEE VIDE PARA 47 WHICH READS AS UNDER:- 47. WE FIND THAT IN THE PRESENT CASE THE TPO HAS NO T DISPUTED THAT THE IMPUGNED TRANSACTIONS WERE IN THE NATURE OF PAYMENTS FOR SHA RE APPLICATION MONEY, AND THUS, OF CAPITAL CONTRIBUTIONS. THE TPO HAS NOT MAD E ANY ADJUSTMENT WITH REGARD TO THE ALP OF THE CAPITAL CONTRIBUTION. HE HAS, HOW EVER R, TREATED THESE TRANSACTIONS PARTLY AS OF AN INTEREST FREE LOAN, FO R 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 TRANS ACTIONS CAN BE SUBJECTED TO ALP ADJUSTMENTS, AND THE ALP SO COMPUTED CAN BE THE BAS IS OF COMPUTING TAXABLE BUSINESS PROFITS OF THE ASSESSEE, BUT THE CORE ISSU E BEFORE US IS WHETHER SUCH A DEEMING FICTION IS ENVISAGED UNDER THE SCHEME OF TH E 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 ITA 9010/M/10 9 SUBSCRIPTION, ITS CHARACTER AS SUCH IS NOT IN DISPU TE AND YET IT HAS BEEN TREATED AS PARTLY OF THE NATURE OF INTEREST FREE LOAN ON THE G ROUND 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 ALLO TMENT 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 TREA TED AS AN INTEREST FREE LOAN FOR SUCH A PERIOD OF INORDINATE DELAY AND NOT THE ENT IRE 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 F REE LOAN ON ALLOTMENT OF SHARES UNDER THE CUP METHOD, AS HAS BEEN CLAIMED TO HAVE B EEN 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 T HE PAYMENT OF SHARE APPLICATION MONEY, THE APPLICANT IS NOT ALLOTTED THE SHARES. TH AT ASPECT OF THE MATTER IS DETERMINED BY THE RELEVANT STATUTE. THIS SITUATION IS NOT IN PARI 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 TRANSAC TION 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 PA ID ANY INTEREST FOR THE PERIOD BETWEEN MAKING THE SHARE APPLICATION PAYMENT AND AL LOTMENT OF SHARES, THE VERY FOUNDATION OF IMPUGNED ALP ADJUSTMENT IS DEVOID OF LEGALLY SUSTAINABLE MERITS. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF BHARATI AIRTEL (SUPRA) ON A SIMILAR ISSUE, WE DELETE THE ADDITION MADE BY THE A.O./TPO AND SUSTAINED BY THE LD. CIT(A) ON ACCOUNT OF T.P. ADJU STMENT TO THE EXTENT IT IS IN RELATION TO THE TRANSACTIONS INVOLVING SHARE APPLIC ATION MONEY GIVEN BY THE ASSESSEE COMPANY TO ITS AE WHICH WAS TREATED AS IN THE NATURE OF LOANS GIVEN BY THE ASSESSEE TO ITS AE TILL THE DATE OF ISSUE OF SHARES. 12. AS REGARDS THE TP ADJUSTMENT MADE IN RESPECT OF INTEREST BEARING LOAN GIVEN BY THE ASSESSEE TO ITS AE IN NIGERIA AND BANG LADESH, IT IS OBSERVED THAT THE TP ADJUSTMENT ON THIS COUNT WAS MADE BY THE A.O ./TPO BY TAKING THE ARMS LENGTH RATE OF INTEREST AT LIBOR OF 4% PLUS 3 00 BASIS POINT AS AGAINST 6% AND 5% CHARGED BY THE ASSESSEE COMPANY. WHILE D EALING WITH THE SIMILAR ADJUSTMENT MADE IN RESPECT OF SHARE APPLICATION MON EY TREATING THE SAME AS LOANS, THE LD. CIT(A) HAS ADOPTED THE ARMS LENGTH RATE OF INTEREST AT LIBOR PLUS 200 BASIS POINT AND THE SAME HAS NOT BEEN DISP UTED BY THE DEPARTMENT. ITA 9010/M/10 10 IN OUR OPINION, THE INTEREST RATE OF LIBOR PLUS 200 BASIS POINT THEREFORE SHOULD BE TAKEN AS ARMS LENGTH RATE OF INTEREST TO BENCH-MARK THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE INVOLVING GIVING THE LOANS ON INTEREST. ACCORDINGLY, WE DIREC T THE A.O./TPO TO RECOMPUTE THE TP ADJUSTMENT TO BE MADE IN RESPECT O F THE LOAN TRANSACTIONS BY APPLYING THE ARMS LENGTH RATE OF INTEREST OF LI BOR PLUS 200 BASIS POINT. GROUND NO. 2 OF THE ASSESSEES APPEAL IS ACCORDINGL Y TREATED AS PARTLY ALLOWED. 13. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3 RE LATING TO GRANTING SHORT CREDIT OF TDS OF RS. 59,91,009/-, THE LD. COUNSEL F OR THE ASSESSEE HAS SOUGHT ONLY A DIRECTION FROM THE TRIBUNAL TO THE A.O. TO G IVE SUCH CREDIT AFTER NECESSARY VERIFICATION. ACCORDINGLY, WE DIRECT THE A.O. TO GRANT CREDIT OF TDS, IF ANY, AFTER NECESSARY VERIFICATION. 14. THE ISSUE INVOLVED IN GROUND NO. 4 RELATING TO GRANTING INTEREST U/S 244A OF THE ACT IS CONSEQUENTIAL AND THE A.O. IS AC CORDINGLY DIRECTED TO GIVEN CONSEQUENTIAL RELIEF TO THE ASSESSEE. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2014. . ' . / 11-04-2014 ' SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; / DATED 1130432014 [ .../ RK , SR. PS ITA 9010/M/10 11 ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. 7 () / THE CIT/DIT. MUMBAI. 4. 7 / TPO/AO MUMBAI 5. '; , ( ; , / DR, ITAT, MUMBAI K BENCH 6. > / GUARD FILE. / BY ORDER, # ' //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI