[formerly Logix Microsystems Ltd.], of Income Tax, 177/2C, Bilekahalli Industrial Area, Circle 3(1)(1), Bannerghatta Road, Bangalore. Bangalore 560 076. PAN: AAACL 3000E APPELLANT RESPONDENT Appellant by : Shri L. Bharath, CA Respondent by : Shri Muzaffar Hussain, CIT(DR)(ITAT), Bengaluru. Date of hearing : 09.01.2020 Date of Pronouncement : 29.01.2020 ORDER Per N.V. Vasudevan, Vice President IT(TP)A No.453/Bang/2015 This is an appeal by the assessee against the final order of assessment dated 30.1.2015 passed by the DCIT, Circle 3(1)(1), Bangalore u/s. 143(3) r.w.s. 144C of the Incometax Act, 1961 [the Act] in relation to assessment year 201011. IT(TP)A No.453/B/2015 & IT(TP)A No.186/B/2016 Page 2 of 28 2. Ground No.1 raised by the assessee is general in nature and calls for no adjudication. Ground Nos. 2 to 4 by the assessee reads as follows: "2. In relation to the share application money remitted by the Appellant to its subsidiary companies, the Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO. which held that, a. Share application money remitted by the Appellant to its associated enterprises ('AEs'), IZMO Inc., US, and IZMO Europe BVBA constitutes an international transaction involving provision of an interest free loan. b. The Appellant should have earned an interest on the funds remitted towards the share application money. 3. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which had held that receivables due to it from its AE, Homestar LLC, US, and outstanding beyond 6 months constitutes a loan and a notional interest has to be charged on the same. 4. Without prejudice to the above grounds, the Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO, which has wrongly computed the arm's length interest amount on the receivables due to it from its AE and outstanding beyond 6 months: a. By computing the interest at the rate of 14.74% as satisfying the arm's length principle instead of adopting the LIBOR rate. b. Computing the interest on the impugned advances by applying the rate of interest on the amount of aggregate of funds for the year, without appreciating that the funds have been remitted or are due during the course of the year and interest should be computed from the day of its remittance to AE. c. By considering the amount remitted assumes the characteristic of a loan from the day of remittance." IT(TP)A No.453/B/2015 & IT(TP)A No.186/B/2016 Page 3 of 28 3. The assessee is engaged in the business of rendering software development services to its Associated Enterprise (AE) in the United States of America (US). During the previous year, the assessee paid a sum of Rs.27,44,91,560 towards share application money pending allotment to its foreign subsidiaries Logix America Inc. US and IZMO Europe BVBA. According to assessee, the aforesaid payment towards share application money was not an international transaction and the assessee therefore did not undertake any transfer pricing (TP) analysis u/s. 92 of the Act. As per the provisions of Sec.92 of the Act, income from an international transaction has to be determined having regard to the Arm's Length Price (ALP). The AO was of the view that it was an international transaction and made a reference to the Transfer Pricing Officer (TPO) u/s.92CA of the Act, for determination of ALP. According to the TPO, the share application money pending allotment was nothing but in the character of an interest free loan by the assessee to its AE. 4. Similarly there were trade receivables from the AE to the extent of Rs.11,62,16,761 for more than six months. The AO was of the view that giving a long period o