The Tax Publishers2020 TaxPub(DT) 3912 (Mum-Trib)

INCOME TAX ACT, 1961

Section 92B

Where advances given to AE were more in the nature of capital contribution and by advancing the same, assessee had protected its own business interest, such advances could not be put in the category of loans as done by TPO and, therefore, no ALP adjustment was called for interest on advances given to AE.

Transfer pricing - Determination of ALP - Interest on business advances given to AE -

Assessee entered into transactions with its AE abroad. TPO suggested ALP adjustment on account of interest on business advances given by assessee to its AE. Assessee's case was that Advances were given to AE, namely, EJP KEC Joint Venture, South Africa in various tranches during year under consideration, the joint venture (JV) faced cash crunch due to huge operational losses in the project and funds were advanced to meet deficit in cash flow while executing projects in South Africa. The advancement was nothing but a matter of commercial prudence primarily to protect business interest of assessee in projects of JV. This was just a fulfilment of obligation of being a JV partner as any financial incapacitation of JV would adversely the continuation of project and ultimately jeopardize the interest of the assessee. Since advances were purely in the nature of business advances to fulfil obligations of assessee as a JV partner, assessee had not charged any interest on said advance. Held: There was pre-existing liability to make advances to JV and business interest of assessee would have been adversely impacted by not making such advances. Advances were more in the nature of capital contribution and by advancing the same, assessee had protected its own business interest. The advances were towards fulfilment of assessee's obligation of being a JV partner as any financial incapacitation of JV would adversely affect continuation of project and ultimately jeopardize interest of assessee. Therefore, said advances could not be put in the category of loans as done by TPO. Further, it could not be said that JV entity derived/gained certain benefits out of such advances but rather it was assessee who would ultimately gain by continuing with projects and taste the fruits of success of project. Hence, no ALP adjustment was called for.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13


INCOME TAX ACT, 1961

Section 92C

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