ITAT justified TP adjustment as assessee failed to prove that sum given advanced to AE was quasi-capital in nature

Case Details: Kalpataru Power Transmission Ltd. v. DCIT - [2022] 142 taxmann.com 428 (Ahmedabad-Trib.)

Judiciary and Counsel Details

• • Ms Annapurna Gupta, Accountant Member & T.R. Senthil Kumar, Judicial Member
  • Milin Mehta, AR for the Appellant.
  • Mohd. Usman, CIT/DR for the Respondent.

Facts of the Case

Assessee-company was engaged in the business of designing high-end transmission lines, and towers and providing turnkey solutions. During the relevant year, it had given some advances to two of its associated enterprises (AEs).

No interest was charged by the assessee on these advances contending that they were not loans but were quasi-capital in nature and were given interest-free out of commercial expediency. However, Assessing Officer rejected the contentions of the assessee and benchmarked the transaction for interest to be charged thereon at a rate of 4.16 percent and 4.03 percent, respectively, proposing adjustment for two loans.

CIT(A) upheld the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that assessee was asked at bar to demonstrate with evidence as to how the loan given would qualify as quasi-capital and or given for commercial expediency of the assessee. However, assessee was unable to convincingly demonstrate the same.

Since the assessee was unable to demonstrate with evidence that advances were not in nature of loan/advance but were quasi-capital in nature, advances were to be treated as loans. Accordingly, transfer pricing adjustment made by charging interest applying LIBOR was justified.

List of Cases Reviewed

• • Micro Inks Ltd. v. Asstt. CIT [2013] 36 taxmann.com 50/144 ITD 610 (Ahd. – Trib.) (para 11) distinguished.

List of Cases Referred to

• • Perot Systems TSI (India) Ltd. v. Dy. CIT [2010] 37 SOT 358 (Delhi) (para 6)
  • Soma Textile Industries Ltd. v. Addl.CIT [2015] 59 taxmann.com 152/154 ITD 745 (Ahd. – Trib.) (para 7)
  • Micro Inks Ltd. v. Asstt. CIT [2013] 36 taxmann.com 50/144 ITD 610 (Ahd. – Trib.) (para 8)
  • Godrej & Boyce Manufacturing Co. Ltd. v. Dy. CIT [2017] 81 taxmann.com 111/247 Taxman 361/394 ITR 449 (SC) (para 18)
  • Maxopp Investments Ltd. v. CIT [2018] 9 taxmann.com 154/254 Taxman 325/406 ITR 640 (SC) (para 24)
  • Alembic Ltd. v. Dy. CIT [IT Appeal No. 1912 (Ahd.) of 2012, dated 9-12-2016] (para 42)
  • Jt. CIT v. Kalpataru Power Transmission Ltd. [IT Appeal Nos. 1462 & 1463 (Ahd.) of 2016, dated 10-5-2019] (para 47)