TPO couldn't re-characterize share application money as loan even if there was delay in allotment of shares

Facts

a)    Assessee entered into a transaction with its wholly owned subsidiary (‘SGPL’) to contribute further to its share capital and, accordingly, paid share application money to SGPL. However, SGPL issued shares to assessee belatedly.

b)    Transfer Pricing Officer (TPO) held that since shares were allotted belatedly, the transaction was that of a loan under the garb of share application money.

c)    TPO contended that since shares were not issued to assessee during the relevant assessment year, the assessee did not derive any benefit from its investment and, therefore, addition should be made to assessee’s income on account of notional interest.

Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

1)    In the instant case, allotment of shares did not make any change to the position of the assessee, as the SGPL was admittedly a wholly owned subsidiary of the assessee. Therefore, a delay in allotment of shares by SGPL did not prejudice the interests of the assessee.

2)    Whether the new shares are allotted at x point of time or y point of time, does not make any difference to the position of the shareholder so far as the subsidiary is wholly owned by a single shareholder.

3)    It was, therefore, wrong to even allege that assessee did not behave in a commercially rationale manner, when it did not ask for payment of interest for the period of delay in allotment of shares.

4)    Therefore, the adjustment on account of notional interest on the share application money, which had been re-characterized as loan, was not sustainable in law- [2016] 67 taxmann.com 2 (Mumbai - Trib.)