INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Computation of arm's length price - Re-characterizing the closing balance of preferential shares -

Assessee had subscribed to non-cumulative preference shares of AE abroad. The shares were redeemable at par without dividend and some of shares had been redeemed also. TPO noticed that assessee had a running account with AE, in terms of which monies were being advanced as and when need arose. Considering the nature and frequency of transactions therein, TPO inferred that subscription and redemption of preference shares was in the nature of loan and not as subscription for investment in shares and applied the arm's length rate of interest chargeable on the amount alleged to have been lent to AE in the shape of preference shares Held: TPO could not disregard any apparent transaction and substitute it, without any material of exceptional circumstance highlighting that assessee has tried to conceal the real transaction or some sham transaction was unearthed. It was a case of investment in shares and in the absence of any evidence circumstance giving rise to any doubt, the investment could not be given different colour so as to expand the scope of transfer pricing adjustments by re-characterizing it as interest free loan

Followed:Pr. CIT v. M/s. Aegis Ltd. [Income Tax Appeal No. 1248 of 2016, dt. 28-1-2019] CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC) Aegis Ltd. v. Dy. CIT [ITA No. 7348/Mum/2017, dt. 6-2-2019] : 2019 TaxPub(DT) 1045 (Mum-Trib)

REFERRED :

FAVOUR : in assessee's favour

A.Y. :

INCOME TAX ACT, 1961

Section 92C

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