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2015 (10) TMI 1387 - AT - Income TaxTransfer pricing adjustment - AO determining the Arms Length Price under CUP Method i.e. 11.40% in respect of interest free advance given to the Associated Enterprises of the assessee and in making addition of the same to returned income - Held that - It is a fact that there was international transaction between the assessee and Associate Enterprise during the year under consideration on which no interest has been charged on the loan given to the subsidiary company. The DRP applied 11.40% interest rate on international transaction on the basis of BBB Bond and considering the risk in case of loan given to the Associate Enterprise. The loan given to subsidiary company has a lower risk as the assessee has indirect control on it. Further LIBOR nominal adjustment has been upheld by various ITAT Benches as reasonable. Therefore, we find that interest rate proposed by the assessee @ 8.90% is reasonable as against 11.40% decided by DRP. - Decided partly in favour of assessee. Disallowance of belated payment of PF and ESI - Held that - Where the payments on account of contribution to the provident fund, employees State insurance, etc., are made within the due date of filing the return, such deductions are allowable - See CIT vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. 2014 (8) TMI 677 - RAJASTHAN HIGH COURT - Decided in favour of assessee. Restricting the brought forward business losses and unabsorbed depreciation - Held that - The DRP already directed the AO to verify the assessee s claim for brought forward unabsorbed depreciation on the basis of I.T. records or assessee s records and allow the same as per law. We are also of the considered view that this issue requires reconsideration by the AO and the AO is directed to very the assessment records of the assessee and allow unabsorbed depreciation as per law. The assessee is also directed to cooperate and produce the evidence before the AO to decide the issue afresh - Decided against assessee.
Issues involved:
1. Determination of Arms Length Price under CUP Method for interest-free advance to Associated Enterprises. 2. Disallowance of belated payment of PF and ESI contributions. 3. Disallowance of prior period expenses. 4. Restriction of brought forward business losses and unabsorbed depreciation. Analysis: Issue 1: Determination of Arms Length Price under CUP Method The appellant contested the AO's determination of Arms Length Price (ALP) at Rs. 35,88,640 under the Comparable Uncontrolled Price (CUP) Method for interest-free advances to Associated Enterprises. The AO considered the risk involved and set the interest rate at 14% per annum. The DRP reduced it to 11.40%, but the appellant proposed 8.9% based on AAA rated Corporate Bonds. The tribunal found the appellant's proposed rate reasonable, given the lower risk due to indirect control over the subsidiary, and granted partial relief. Issue 2: Disallowance of belated PF and ESI contributions The AO disallowed Rs. 5,00,941 for belated PF and ESI contributions. The appellant argued that the payments were made before the due date for filing returns under section 139(1) of the Income Tax Act. Citing relevant case law, the tribunal allowed the appellant's claim, considering recent judgments and allowing the ground in favor of the appellant. Issue 3: Disallowance of prior period expenses The appellant did not press this ground during the hearing, leading to its dismissal as not pressed. Issue 4: Restriction of brought forward business losses and unabsorbed depreciation The AO restricted the brought forward business losses and unabsorbed depreciation to Rs. 1,62,77,888, lower than the claimed amount of Rs. 1,92,95,972. The tribunal directed the AO to reexamine the issue based on available records and evidence, allowing the appellant to cooperate and present necessary evidence for reconsideration. In conclusion, the tribunal partly allowed the appeal, providing relief on the determination of Arms Length Price and disallowance of belated PF and ESI contributions, while dismissing the prior period expenses issue and directing a reexamination of the restriction on brought forward losses and unabsorbed depreciation.
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