2022 (3) TMI 1504 - AT - Income Tax

TP Adjustment - assessee has given loan to its A.E. and hence the TPO has adopted prime lending rate prescribed by the State Bank of India - HELD THAT - We notice that the TPO has adopted external CUP for making this transfer pricing adjustment. Before us the assessee could not furnish any material to controvert the reasoning given by the TPO. AO has computed interest on the closing balance - The ledger account of Eurocor - We notice that there was opening debit balance and during the year under consideration the assessee has advanced further amounts on various dates. Hence in our view the TPO should have computed interest on time basis. Accordingly he was not justified in computing interest for the entire year on the closing balance. Accordingly while upholding the view of TPO that transfer pricing adjustment is required to be made on the loan given to the AE we restore this issue to the file of AO/TPO for re-computing interest on time basis. Appeal filed by the assessee is treated as partly allowed for statistical purposes.

Summary

Issues:
1. Validity of reopening of assessment u/s 148 of the Act
2. Transfer pricing adjustments relating to payment made for services received
3. Transfer pricing adjustment made in respect of loans and advances given to A.E.

Validity of Reopening of Assessment:
The appeal challenged an assessment order passed under sections 143(3), 147, and 144C of the Income-tax Act, 1961. The assessee, a manufacturer and seller of electronic medical equipment, is a subsidiary of a US-based company and had international transactions with associated enterprises. The assessment was reopened by the Assessing Officer (A.O.) based on directions from the Dispute Resolution Panel (DRP). The issues raised were the validity of the reopening of assessment under section 148 of the Act.

Transfer Pricing Adjustment - Payment for Services Received:
The Transfer Pricing Officer (TPO) suggested transfer pricing adjustments for payments made for services received and interest on loans given to associated enterprises. Regarding the payment made for services received, the TPO determined the Arm's Length Price (ALP) at Nil due to the lack of documentation proving the receipt of services, resulting in a transfer pricing adjustment of the entire amount. The assessee argued that since the payment was capitalized as an intangible asset and not claimed as expenditure, it should not affect profits, thus no adjustment was necessary. However, the TPO contended that even if the payment was capitalized, any depreciation claimed should be disallowed. The Tribunal found discrepancies in the depreciation details and directed the AO to disallow depreciation if claimed on the intangible asset.

Transfer Pricing Adjustment - Loans and Advances Given to A.E.:
Regarding the transfer pricing adjustment for loans given to the associated enterprise, the TPO adopted the average prime lending rate for the adjustment. While upholding the need for the adjustment, the Tribunal found an error in the computation of interest on the closing balance, directing the AO/TPO to recompute interest on a time basis. The assessee did not press other grounds during the hearing, leading to their dismissal.

In conclusion, the appeal was partly allowed for statistical purposes, with the Tribunal addressing issues related to the validity of the assessment reopening, transfer pricing adjustments for services received and loans given to associated enterprises, and directing the AO/TPO to recompute interest on a time basis.