ITAT grants Partial Tax Relief to Adani Power Ltd [Read Order]

The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) has recently granted partial tax relief to Adani Power Limited.

During the relevant assessment year, the assessee Adani Power Ltd has contributed a sum of rupees  135 crore to Adani Power Pte Ltd and a sum of rupees 289 core to Adani Shipping Pte Ltd, both being Associated Enterprises (AEs) of the assessee.

The assessee was of the view that the sums advanced by the assessee company to its AEs were in the nature of quasi equity and the assessee company in its transfer pricing report also reported the aforesaid transactions as quasi equity.

During the course of assessment, the Transfer Pricing Officer(TPO)  was of the view that the aforesaid amount advanced by the assessee company to its overseas AE’s were not in the nature of quasi capital but was in the nature of loan and the same was required to be benchmarked under section 92 of the Income Tax Act, 1961.

The TPO held that providing of loan by the assessee company to overseas AEs without charging any interest goes against the principal of arm’s-length price (A LP) since unrelated lenders do not provide interest free loans to independent unrelated Enterprises.

Before the TPO, the assessee submitted that the AE’s mentioned above were incorporated with the capital that the assessee company advanced sums towards its equity obligations.

TPO held that the nature of advances made by the assessee to the AE’s was in the nature of debt and had no character of equity funding  AO accordingly held that the assessee should have charged interest at the rate of 5.38% which was the prime lending rate-PLR prevailing in Singapore. When the matter was placed before the CIT (A) they reduced the addition from Rs/-23,11,66,577/- to 5, 10,53,900. Against the substantial relief revenue filed an appeal before the ITAT.

S.N. Soparkar, counsel for the assessee submits that sums advanced by the assessee company to its AEs were in the nature of quasi equity and the assessee company in its transfer pricing report also reported the aforesaid transactions as quasi equity.

Further before the bench assessee submitted that, the” AE’s mentioned above were incorporated with the capital that the assessee company advanced sums towards its equity obligations. M/s Adani Power Pte Ltd was incorporated with the object of investing in coal mines and also carry on the business of an investment holding company while M/s Adani Shipping Pte Ltd was incorporated with the object of carrying on business of chartering and owning of ships.”

 Mohd. Usman, confirmed the decision of the lower authorities.

After considering the contentions of the both parties the division bench of the ITAT comprising Annapurna Gupta, (Accountant Member)Siddhartha Nautiyal, (Judicial Member) dismissed the appeal filed by the revenue and confirmed the Order of CIT(A) and provided partial relief to the assessee company.

To Read the full text of the Order CLICK HERE

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