Itxa/341/2017 Of Pr.commissioner Of Income Tax-13 v. M/S Sterling Oil Resources Ltd

SKN IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 341 OF 2017 Pr.Commissioner of Income Tax-13. V/s.M/s.Sterling Oil Resources Ltd. …Appellant. …Respondent. Mr.N.C.Mohanty for the appellant.Mr.B.M.Chatterji, Senior Advocate with Mr.Shreyas Shah, Mr.SankalpSharma, Mr.Pritish Chatterjee and Mr.Upendra Lokegaonkar i/b. Mintand Confreres for the respondent. CORAM :AKIL KURESHI AND S.J.KATHAWALLA, JJ.DATE :1st July 2019. P.C.: This appeal is filed by the Revenue to challenge the judgmentof the Income Tax Appellate Tribunal (“Tribunal” for short) to raise thefollowing question for our consideration: “Whether on the facts and in the circumstances of the caseand in law, the Tribunal was justified in deleting theadjustment and confirming the stand of the DRP withoutappreciating the fact that this transaction is clearly hit by theprovisions of Section 92(2) of the Income Tax Act, 1961?” 2.The respondent- assessee had filed the return of income forthe assessment year 2009-10. During the course of assessment of suchreturn, it was noticed that the assessee had applied for allotment of sharesof its Associated Enterprise (“AE” for short). Such shares were,eventually allotted but after a gap of more than two years. TheDepartment holds a belief that for the period during which the share SKN application money remained parked with AE, the same should be broughtto tax on notional interest basis. The Tribunal made an interim judgmentdeleting the addition on the ground that the Assessing Officer cannot re-characterize the transaction. It was held that in the present case therewas no interest free loan by the assessee to its AE. 3.The learned counsel for the Revenue vehemently contendedthat the Tribunal has committed serious error. He pointed out that asimilar question has been admitted by this Court in Income Tax AppealNo.1583/2016. 4.On the other hand, the learned counsel for the assesseeopposed the appeal contending that this issue has already been examinedby this Court in Income Tax Appeal No.1248/2016 filed by the Revenue.The said appeal came to be dismissed by order dated 28[th] January 2019. 5.The facts as noted, are not seriously in dispute. Theassessee’s share application money remained with its AE for aconsiderable period of time before the shares were allotted. TheAssessing Officer, therefore, treated this transaction as one of loans. Itwas under similar circumstances that this Court dismissed Revenue’sIncome Tax Appeal No.1248/2016 vide order dated 28[th] January 2019making following observations: “2.The respondent- assessee is a Company registered underthe Companies Act. For the Assessment Year 2009-10, theassessee was subjected to transfer pricing regime. Questionno.1 arises out of the action of the Revenue to tax notionalinterest in the hands of the assessee through transfer pricing.The facts are that, during the period relevant to theassessment year in question, the assessee had subscribed to redeemable preferential shares of its Associated Enterprises("AE" for short) and redeemed some of its shares at par. TheTransfer Pricing Officer ("TPO" for short) held that thepreference shares were equivalent to interest free loansadvanced by the assessee and accordingly charged the intereston notional basis. The Tribunal by the impugned judgment,deleted the addition observing that the TPO had re-characterised the transaction of subscription of shares intoadvancing of unsecured loans. The Tribunal did not acceptsuch conclusion, inter-alia on the grounds that the TPO cannotdisregard the apparent transaction and substitute the samewithout any material of exceptional circumstances pointingout that the assessee had tried to conceal the real transactionor that the transaction in question was sham. The Tribunalobserved that the TPO cannot question the commercialexpediency of the assessee entered into such transaction. 3.We are broadly in agreement with the view of theTribunal. The facts on record would suggest that the assesseehad entered into a transaction of purchase and sale of sharesof an AE. Nothing is brought on record by the Revenue tosuggest that the transaction was sham. In absence of anymaterial on record, the TPO could not have treated suchtransaction as a loan and charged interest thereon on notionalbasis. No question of law arises.” 6.Income Tax Appeal No.1583/2016 has been filed by theassessee. It is a case in which the Tribunal has taken a converse decisionand, therefore, the assessee is in appeal. Admission of the said appeal,therefore, would not persuade us to admit the Revenue’s appeal also. Inthe result, income tax appeal is dismissed. (S.J.KATHAWALLA, J.) (AKIL KURESHI, J.)