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2014 (2) TMI 981 - ITAT HYDERABADTransfer pricing adjustment – Interest received on loans given to Associated enterprises – Held that:- The decision in Siva Industries & Holdings Ltd. Versus Assistant Commissioner of Income-tax, Co. Circle VI(4), Chennai [2012 (10) TMI 890 - ITAT CHENNAI] followed – LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises - no addition on this count is liable to be made in the hands of the assessee - The AO is directed to examine whether the rate of interest received was at LIBOR + percentage points - The adoption of Prime lending rates is not approved in various coordinate bench decisions – thus, assessee lending at LIBOR plus rates can be considered as arm’s length provided there is no other expenditure on the borrowed funds - Since some of the loans are reflecting rate at ordinary percentage points, conversion to LIBOR plus is required –It can also be taken as arm’s length rate for the loans advanced during the year. AO is directed to examine – Decided in favour of Assessee. Claim of bad debts – Held that:- It is not necessary to prove that the debt has become irrecoverable and is enough if bad debt is written off in the accounts of the assessee - There is no dispute that the amount claimed is towards supplies made and the debtor company is not in the position to repay – the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] followed - the AO is directed to allow the amount as claimed – Decided in favour of Assessee. Disallowance made u/s 40(a)(ii) of the Act – Held that:- As decided in assessee’s own case for the previous assessment year, since no services are rendered in India, sales commission cannot be disallowed under the provisions of section 40(a)(ia) – the amounts covered by sales commission are not accruing or arising to the non-residents in India – thus, provisions of section 195 does not apply and, section 40(a)(ia) cannot be invoked. Product registration and filing fee – Held that:- Without examining the nature of the amount and whether the other non-resident has any permanent establishment in India or made available anything in India or rendered any services In India, the amount cannot be considered under the provisions of section 40(a)(ia) - Since complete details of the amounts and to whom they are paid are not forthcoming on record – thus, the matter is remitted back to the AO for fresh adjudication - If the non-resident has not rendered any services in India, or the amount paid is not taxable in India, provisions of section 195 does not apply and disallowance under section 40(a)(ia) does not arise – Decided in favour of Assessee. Disallowance of claim u/s 35D of the Act – Held that:- The assessee's contentions are to be accepted - Even though assessee made claim under section 35D, the claim is allowable under section 37(1) as in Mahindra & Mahindra Limited vs. CIT [2009 (10) TMI 639 - ITAT MUMBAI] – The assessee is eligible for deduction under section 37(1) - Since the issue of allowance under section 37(1) was not examined by the AO – thus, the matter remitted back to the AO – Decided in favour of Assessee. Disallowance of payment u/s 40(a)(ia) of the Act – Held that:- The order of the AO cannot be upheld which mainly focus on non-obtaining of TDS certificate and also there is no clarity in the order of the A.O. about nature of payments and its taxability under the IT Act - even the DRP also expressed difficulty to conclude whether the payments are in the nature of income or not - since the nature of payment and whether any services are rendered in India or not have not been examined in detail, item-wise along with the applicable DTAA provisions – The matter remitted back to the AO for fresh adjudication – Decided in favour of Assessee.
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