2020 (6) TMI 774 - AT - Income Tax

TP Adjustment - adjustment on account of purchase of medical equipments - Onus on the part of the tax payer to establish the cost of goods in the hands of the AE which exported it to the tax payer - HELD THAT - Since the assessee in the instant case has not filed the purchase bills of these assets in the hands of its AE and as to whether the AE has sold these assets to the assessee at the same price at which they were purchased by the AE or with any mark up value therefore we are of the considered opinion that the contention of the assessee that the purchase of medical equipments are at ALP cannot be accepted - considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the AO / TPO with a direction to give one more opportunity to the assessee to substantiate its case by filing some basic evidence regarding purchase cost in the hands of the AE or copy of the valuer s report etc regarding purchase of the assets from the AE s. Needless to say the AO/ TPO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The first issue raised by the assessee in the grounds of appeal is accordingly allowed for statistical purpose. Interest on outstanding receivables - HELD THAT - Working capital adjustment has been provided by the DRP for the services segment which already takes into account the impact of the outstanding receivables. Further in the impugned assessment year the outstandings payable are more than the outstandings receivable and average payment period to its AE is 176 days whereas the average collection period from its AE is only 19.55 days which is evident from page 331 of the paper book. Therefore in our opinion no adverse inference is warranted on account of receivables from the AE. No interest has been charged from third parties by the assessee on account of delay in payment. Under these circumstances and in the light of the decision of Hon ble Delhi High Court in the case of Kusum Health Care (P) Ltd. 2017 (4) TMI 1254 - DELHI HIGH COURT we are of the considered opinion that no adjustment on account of interest on receivables is called for. The AO is directed to delete the addition. We hold and direct accordingly. The second issue raised by the assessee in the grounds of appeal is accordingly allowed.

Summary

Issues Involved:

1. Adjustment on account of the purchase of medical equipment.
2. Adjustment on account of interest on outstanding receivables.
3. Initiation of penalty proceedings under section 271(1)(c) of the IT Act.
4. Levy of interest under section 234B of the IT Act.

Issue-Wise Detailed Analysis:

1. Adjustment on account of the purchase of medical equipment:

The assessee argued that the arm's length value of imported capital goods cannot be limited to customs duty and transportation costs alone. The TPO had determined the ALP of the purchase of fixed assets as nil, which was contested by the assessee. The assessee provided customs documentation but failed to provide contemporaneous evidence of the cost of the goods in the hands of the AE. The DRP held that the ALP and WDV for calculating depreciation should be limited to customs duty and transportation costs. The Tribunal restored the issue to the AO/TPO to allow the assessee another opportunity to substantiate its case with evidence regarding the purchase cost in the hands of the AE or a valuer's report.

2. Adjustment on account of interest on outstanding receivables:

The assessee contended that interest on outstanding receivables should be subsumed in the working capital adjustment provided. The DRP had previously deleted such adjustments in the assessee's own case for AY 2009-10. The Tribunal noted that the average payment period to AEs was significantly longer than the collection period, and no interest was charged from third parties for delayed payments. Citing the Delhi High Court decision in Kusum Healthcare Private Limited, the Tribunal held that no separate adjustment for interest on receivables was warranted, directing the AO to delete the addition.

3. Initiation of penalty proceedings under section 271(1)(c) of the IT Act:

The Tribunal found this ground to be premature and dismissed it at this juncture.

4. Levy of interest under section 234B of the IT Act:

The Tribunal noted that the levy of interest under section 234B is mandatory and consequential, thus dismissing this ground of appeal.

Conclusion:

The Tribunal partly allowed the appeal for statistical purposes, directing the AO/TPO to re-examine the purchase of medical equipment issue and delete the adjustment for interest on receivables. The grounds regarding penalty proceedings and interest levy were dismissed.