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2021 (8) TMI 1362 - AT - Income TaxTP Adjustment - Comparable selection - Computation of margin of the comparable companies adopted by the TPO - HELD THAT - On perusal of the financial it is clear that comparable company namely Priya International Limited is having three segments for the relevant assessment year also. Out of the total revenue for the relevant assessment year the sale of software/electronics is only to the tune - AO/TPO is directed to adopt the margin of Priya International Limited with regard to the segment of electronics alone. TP adjustment by directing the TPO to re-compute the arm s length price in the case of the Appellant at entity level - HELD THAT - Bangalore Bench of the Tribunal in the case of IKA India Private Limited 2018 (10) TMI 49 - ITAT BANGALORE had held that as per section 92 the transfer pricing adjustment has to be made with reference to the international transactions the assessee had undertaken with its AEs. In view of the clear directions of the Co-ordinate Bench order of the Tribunal in the case of IKA India Private Limited v. DCIT (supra) that the transfer pricing adjustment should be restricted to AEs related transaction we direct the AO/TPO to re-compute the arm s length price of the assessee in respect of the international transaction it had entered with its AEs. Disallowance of interest expenses - allowable business expenditure - AO erred in disallowing the interest paid on account of statutory payments - CIT(A) erred in not deleting the said disallowance - HELD THAT - The assessee had claimed as deduction in the Profit and Loss Account interest expenditure on account of delayed payment of statutory dues - Whether the statutory payment are routed through the Profit and Loss account or not is immaterial for deciding the issue whether interest paid for the belated payment of statutory dues is compensatory or not (if the same is compensatory the interest expenditure is allowable deduction u/s. 37 of the I.T. Act). Mumbai Bench of the Tribunal in the case of Chander K. Raichandani 2013 (2) TMI 713 - ITAT MUMBAI had clearly held that the simple interest paid for belated payment of statutory dues is nothing but compensatory and allowable deduction u/s. 37 - we hold that the sum paid as interest for belated payment of statutory dues is an allowable deduction. Working capital adjustment - HELD THAT - In terms of Rule 10B(1)(e)(iii) of the I.T. Rules the net margin arising in comparable uncontrolled transactions should be taken into account the differences if any between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the TPO/DRP that differences in working capital requirements of the international transactions and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by the Revenue Authorities working capital adjustment cannot be allowed to the profit margin then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the I.T. Rules. Assessee in the present case has given all the details required for working capital adjustment. Therefore the Revenue Authorities were not justified in denying the claim of the assessee for deduction. Hence the AO/TPO is directed to allow the working capital adjustment in the light of the material placed on record after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly. Corporate Guarantee Commission - HELD THAT - The corporate guarantee is an international transaction and there is no doubt that the arm s length price has to be computed with reference to the said transaction. However in the instant case it is the case of the assessee that amount of the subsidiary is lying with the assessee on account of advance for which no interest was being charged by the subsidiary. This factual aspect has not been examined neither by the AO/TPO nor by the DRP - We are of the view that the matter needs to be examined afresh by the AO/TPO and we remit the issue to the files of the AO/TPO. It is ordered accordingly.
Issues Involved:
1. Transfer Pricing Adjustment (Ground Nos. 12, 14, 15) 2. Corporate Tax Issue (Disallowance of Interest Expenses) (Ground Nos. 16 & 17) 3. Working Capital Adjustment (Ground No. 10) 4. Corporate Guarantee Commission (Ground Nos. 11 to 13) Detailed Analysis: Transfer Pricing Adjustment (Ground Nos. 12, 14, 15) Ground No. 12: Computation of Margin of Comparable Companies - The assessee challenged the margin computation of Priya International Limited by the TPO, arguing it should only consider the electronics segment. - The DRP had previously directed the AO to rectify this for the assessment year 2012-2013. - The Tribunal directed the AO/TPO to adopt the margin of Priya International Limited for the electronics segment alone for the assessment year 2013-2014. Ground Nos. 14 and 15: Enhancement of Transfer Pricing Adjustment - The CIT(A) had directed the AO to re-compute the arm's length price at the entity level, which the assessee contested, arguing that TP adjustments should be restricted to transactions with Associated Enterprises (AEs) only. - The Tribunal referred to the case of IKA India Private Limited v. DCIT, which held that TP adjustments should be restricted to AE transactions. - The Tribunal directed the AO/TPO to re-compute the arm's length price for transactions with AEs only. Corporate Tax Issue (Disallowance of Interest Expenses) (Ground Nos. 16 & 17) - The AO disallowed ?15,16,748 as interest expenditure on delayed statutory payments, considering it non-allowable business expenditure. - The CIT(A) upheld this, noting that such payments were not included in the Profit & Loss account but only in the Balance Sheet. - The Tribunal, referencing the case of Chander K. Raichandani v. ACIT, held that interest on delayed statutory payments is compensatory and allowable under Section 37 of the I.T. Act. - The Tribunal allowed the deduction of ?15,16,748 as interest expenditure. Working Capital Adjustment (Ground No. 10) - The TPO denied the working capital adjustment, claiming lack of accurate details. - The Tribunal noted that the assessee had provided detailed working capital adjustment workings, which were not disputed by the AO/TPO. - Citing the case of Yahoo Software Development India Pvt. Ltd. v. JCIT, the Tribunal held that the Revenue Authorities were not justified in denying the adjustment. - The Tribunal directed the AO/TPO to allow the working capital adjustment based on the material on record. Corporate Guarantee Commission (Ground Nos. 11 to 13) - The assessee provided a corporate guarantee to its AE, arguing it was a shareholder/stewardship activity and not an international transaction under Section 92B(1). - The AO/TPO computed a 2% tax on the corporate guarantee, which the DRP reduced to 1.6%. - The Tribunal acknowledged the corporate guarantee as an international transaction but noted the assessee's claim that it had advances from its AE exceeding the corporate guarantee amount. - The Tribunal remitted the issue back to the AO/TPO for fresh examination, considering the advances from the AE. Conclusion: The Tribunal allowed the appeals partly for statistical purposes, directing the AO/TPO to re-compute and re-examine various issues based on the provided evidence and judicial precedents. The Tribunal emphasized the need for accurate adjustments and adherence to the principles laid out in relevant case laws.
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