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2022 (11) TMI 1365 - AT - Income TaxTP adjustment - IT and Management Support Charges - HELD THAT - We hold that the issue of administrative and marketing support services is part of the operating cost and no separate adjustment is warranted. Interest charged on outstanding receivable - HELD THAT - As relying on own case 2022 (7) TMI 1417 - ITAT BANGALORE for the purpose of interest on delayed receivables, it would be appropriate to direct the AO to consider LIBOR 3%. For this purpose, we place reliance on case of Xchanging Solutions Ltd. 2022 (8) TMI 1388 - ITAT BANGALORE Non-consideration of setoff of brought forward depreciation loss from prior year - HELD THAT - AO is directed to verify and allow the same in accordance with law.
Issues Involved:
1. Disallowance of depreciation on assets leased out under finance lease arrangement. 2. Transfer pricing adjustment on account of recharacterization of payment made for administration support services. 3. Benchmarking of administrative and marketing support services. 4. Interest charged on outstanding receivables. 5. Non-consideration of setoff of brought forward depreciation loss from prior year. Detailed Analysis: 1. Disallowance of Depreciation on Assets Leased Out Under Finance Lease Arrangement: The TPO proposed a disallowance of depreciation claimed by the Assessee on assets leased out under finance lease arrangement amounting to INR 73,92,55,536. The DRP, following the decision of the Hon'ble High Court of Karnataka in the Assessee's own case for AY 2008-09, directed to allow depreciation in the hands of the Assessee, thereby providing relief on the corporate tax adjustment. 2. Transfer Pricing Adjustment on Account of Recharacterization of Payment Made for Administration Support Services: The TPO treated the payment for administrative support services to Cisco Systems India Private Limited (Cisco India) as an international transaction under section 92B of the Act. The Assessee argued that the agreement for availing of administrative support services was a bona fide arrangement and should not be treated as an international transaction. The TPO, however, concluded that the services rendered by Cisco India were related to Cisco products manufactured by CSI BV/Cisco Systems Inc (CSI), disregarding the intermediary entity, Cisco Capital. 3. Benchmarking of Administrative and Marketing Support Services: The TPO benchmarked the administrative support services on a standalone basis, identifying 13 comparable companies and arriving at an arm's length margin of 19.42%, proposing a TP adjustment of INR 10,66,48,586. The Assessee contended that the bundled approach of aggregation of payment of fees for administrative support services should be accepted, as it had been in preceding years. The Tribunal upheld the bundled transaction approach, following the decision in the Assessee's own case for AY 2017-18, and held that the issue of administrative and marketing support services is part of the operating cost, and no separate adjustment is warranted. 4. Interest Charged on Outstanding Receivables: The TPO treated the receivables transaction as a separate international transaction and re-characterized such receivables as unsecured loans given to AEs, computing interest on delayed receivables. The DRP upheld the delayed receipt of receivables as an international transaction, granting a credit period of 60 days and adopting the SBI short-term deposit rate. The Tribunal, following the decision in the Assessee's own case for AY 2017-18, directed the AO to consider LIBOR + 3% for the purpose of interest on delayed receivables. 5. Non-Consideration of Setoff of Brought Forward Depreciation Loss from Prior Year: The AO was directed to verify and allow the setoff of brought forward depreciation loss from prior year in accordance with law. Conclusion: The appeal was partly allowed, with the Tribunal upholding the bundled transaction approach for benchmarking administrative and marketing support services, directing the AO to consider LIBOR + 3% for interest on delayed receivables, and instructing the AO to verify and allow the setoff of brought forward depreciation loss from prior year.
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