9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (3) TMI 1613 - AT - Income TaxTPA - Adjustment of interest on account of alleged delay in recovering the outstanding toward receivables from the AE as per the provisions of section 92CA(3) - Held that - Following the decision of the coordinate Bench of the Tribunal in Kadimi Tool Manufacturing Co. (P.) Ltd. (2017 (9) TMI 1578 - ITAT DELHI) which has been confirmed by the Hon ble High Court as well as Hon ble Apex Court we are of the considered view that when undisputedly the taxpayer is a debt free company there is no question of charging any interest on receivables by recharacterizing the transaction as loan from its AE and as such no adjustment on account of arm s length interest on receivables can be made. Consequently adjustment made by the TPO/DRP on account of arm s length interest on receivables is not sustainable in the eyes of law hence ordered to be deleted - decided in favour of assessee
Issues Involved:
1. Validity of the assessment order. 2. Arm's length principle for outstanding receivables. 3. Re-characterization of receivables as short-term loans. 4. Jurisdictional error in referring the matter to TPO. 5. Enhancement of income by the AO/TPO. 6. Disregard of judicial pronouncements in TP adjustments. 7. Notional addition under Section 14A. 8. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: GROUND NO.1: Validity of the Assessment Order The assessment order passed by the AO was challenged as being "bad in law and void ab initio." However, this ground was deemed general in nature and did not require specific adjudication. GROUNDS NO.2, 2.1, 2.2, 2.3, 2.4, 2.5, 3, 4 & 5: Arm's Length Principle for Outstanding Receivables The taxpayer entered into international transactions with its AEs, involving substantial outstanding receivables. The TPO re-characterized these receivables as short-term loans and proposed to charge interest at 14.88% for delays beyond 30 days, resulting in an addition of ?2,16,26,206. The taxpayer argued that: - The receivables should not be re-characterized as loans. - The business/commercial arrangement should be considered. - The Transactional Net Margin Method (TNMM) should be used for evaluating working capital investment. - The LIBOR rate should be applied instead of 14.88%. - The receivables were within the RBI-prescribed time limit. The Tribunal referred to previous decisions, including Kadimi Tool Manufacturing Co. (P.) Ltd. and Global Logic India Ltd., which held that outstanding receivables beyond 30 days should not be characterized as loans for interest purposes. It was emphasized that the taxpayer was a debt-free company, and thus, no interest on receivables should be charged. Consequently, the adjustment made by the TPO/DRP was deemed unsustainable and was ordered to be deleted. GROUND NO.6: Disregard of Judicial Pronouncements This ground was also considered general in nature and did not require specific adjudication. GROUND NO.7, 7.1, 7.2 & 7.3: Notional Addition under Section 14A The AO made a notional addition of ?22,464 under Section 14A read with Rule 8D. The taxpayer initially contested this but later did not press these grounds due to the meager amount involved. Thus, these grounds were disposed of accordingly. GROUND NO.8: Initiation of Penalty Proceedings The initiation of penalty proceedings under Section 271(1)(c) was considered premature and did not require adjudication at this stage. Conclusion: The Tribunal ruled in favor of the taxpayer on the primary issue of re-characterizing outstanding receivables as loans and charging interest thereon. The adjustments made by the TPO/DRP were deleted, and other grounds either did not require specific adjudication or were not pressed by the taxpayer. The order was pronounced on March 6, 2018.
|
