ITAT deletes Notional Interest in Absence of Proof to Treat Share Application Money in Hands of Overseas AE as ‘Loan’

The Income Tax Appellate Tribunal (ITAT) in Mumbai deleted the notional interest added by the Transfer Pricing Officer (TPO) on share application money treated as a loan in the hands of overseas Associated Enterprises (AEs). The case involved Aries Agro Limited, which had remitted funds to its AE as share application money for setting up a manufacturing plant. The TPO had imposed notional interest due to delays in share allotment, treating the remittance as a loan. However, the ITAT ruled that no income had accrued from the transaction, and the delay was due to pending approval from the SAIF Zone Authority. The tribunal emphasized that the transaction was genuinely for share application and not a loan, thus deleting the transfer pricing adjustment. This ruling clarifies the treatment of share application money in transfer pricing cases.