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Before the Tribunal in [2023] 32 ITR (Trib)-OL 253 (ITAT[Mum]) the bench had to decide whether the share application money outstanding in the books could be treated as loan to AE and could be subjected to the transfer pricing provisions as in this case the TPO attempted to make an addition of Rs.3,11,09,890/- on account of notional interest on share application money for delayed allotment of shares. In their categorical stand the Tribunal held that AO or the TPO are not empowered to convert and recharacterise a transaction of share application into a loan transaction

Further in this case the assessee did not report share application money held in associated enterprise for the reason that it did not give rise to any income.

Following the Bombay High Court view in Vodafone India Services P. Ltd. v. Union of India [2014] 368 ITR 1 (Bom) the Tribunal held that non reporting of international transaction is a straight non-compliance of the TP law. At the same time the bench held that mere not filing of form 3CEB on the part of the petitioner would not however give jurisdiction to the Revenue to tax an amount which it does not have jurisdiction to tax by any re-characterisation.

Thus on merits the bench following Vodafone case decision held that the jurisdiction to apply Chapter X of the Act would occasion only when income arises out of international transaction and such income is chargeable to tax under the normal provisions of the Act and not otherwise as in present scenario.

FIRCs stating purpose of remittance and RBI approvals have come to the defence of the assessee.


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