2021 (5) TMI 989 - AT - Income Tax

TP Adjustment - arm s length price ALP adjustment of 1, 20, 78, 616/- qua interest on receivables involving its overseas Associated Enterprise AEs - HELD THAT - We find no merit in the instant argument since such a short term deposit cannot be taken at par with an international transaction u/s.92B of the Act since the latter involves foreign currency and overseas market conditions. In addition to this learned lower authorities have also not adopted any comparable in the very segment as well so as to come to the conclusion that the assessee s receivables in case of overseas AEs involved more than the market practice of reasonable time period. We keep in mind all these clinching aspects and direct the TPO to delete the impugned ALP adjustment in issue. The assessee s former substantive ground stands accepted in the above terms Addition u/s 43B - disallowance pertaining to employees provident fund - HELD THAT - It is not in dispute that learned lower authorities held that the same had to be deposited before the due date prescribed in the corresponding statute than the due date for filing Section 139(1) return. The Revenue s case in tune thereof relies on Section 36(va) read with explanation thereto that it is not Section 43B but the former provision which is applicable in such an instance. We find no merit in the Revenue s foregoing stand. We take note of the explanatory memorandum to the Finance Act 2021 proposing amendment in both Section 36(va) as well as Section 43B by inserting corresponding Explanations that although the impugned employees provident fund comes under the former provision only the same is applicable from 01-04-2021 onwards. Meaning thereby that the legislature itself has condoned the impugned default before 01-04-2021. We thus delete the impugned employees provident fund disallowance for this precise reason alone. Assessee s appeal is allowed.

Summary

Issues:
1. Arm's length price adjustment on interest receivables involving overseas Associated Enterprises.
2. Section 43B disallowance related to employees provident fund.

Analysis:
1. The appeal for AY.2013-14 involves assessing the correctness of arm's length price (ALP) adjustment of ?1,20,78,616 on interest receivables with overseas Associated Enterprises. The Tribunal found that the adjustment was not made based on the LIBOR rate applicable to international transactions but on the State Bank of India's lending rate, which is not appropriate for foreign currency transactions. The TPO's decision to use the short term deposit rate was also deemed incorrect as it does not reflect international market conditions. As a result, the ALP adjustment was directed to be deleted.

2. The second issue pertains to a Section 43B disallowance of ?8,11,648 concerning employees' provident fund. The lower authorities argued that the fund had to be deposited before the due date prescribed by the statute, not the due date for filing the return under Section 139(1). The Revenue relied on Section 36(va) with an explanation, but the Tribunal disagreed, citing the explanatory memorandum to the Finance Act, 2021. The memorandum clarified that the impugned default before 01-04-2021 was condoned by the legislature. Consequently, the disallowance was deleted based on this legislative intent, and the necessary computation adjustments were directed to be made.

In conclusion, the Tribunal allowed the assessee's appeal, pronouncing the order on 19th May 2021.