2017 (9) TMI 1578 - AT - Income Tax

TPA - international transaction - Adjustment u/s 92CA(3) - interest on delay in recovering the outstanding trade receivables from the AE - Held that - No adjustment can be made on account of interest on receivables on credit granted by the Indian Subsidiary to its foreign AE. Respectfully following the decisions cited above, we hold that the TPO is not justified in making adjustment of interest on account of alleged delay in recovering the outstanding toward receivables from the AE as per the provisions of section 92CA(3) of the I.T. Act.See Kusum Healthcare Pvt. Ltd. 2017 (4) TMI 1254 - DELHI HIGH COURT . The first issue raised by the assessee in the grounds of appeal is accordingly allowed. Dividend distribution tax - taking the surcharge @ 10% instead of 7.5% on final dividend declared in June 2010 - Held that - The issue is restored to the file of the Assessing Officer with the direction to apply correct surcharge as per law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The additional ground raised by the assessee is allowed for statistical purposes.

Summary

Issues:
Adjustment of interest on outstanding trade receivables from Associated Enterprises.

Issue Analysis:

1. The only issue raised by the assessee pertains to the adjustment of interest on outstanding trade receivables from its Associated Enterprises (AE) under section 92CA(3) of the Income Tax Act, 1961 for the assessment year 2010-11.

2. The Transfer Pricing Officer (TPO) computed interest on outstanding debts and receivables from AEs, proposing an adjustment of ?6,36,894. The Assessing Officer made the adjustment in the final assessment order.

3. The assessee argued that based on precedents like the case of Bechtel India Pvt. Ltd., where the High Court held that a debt-free company need not receive interest on receivables, no adjustment was necessary. The Tribunal also cited the case of Kusum Healthcare Pvt. Ltd., emphasizing that no adjustment is warranted for delays in collecting payments beyond agreed terms.

4. The Tribunal analyzed the legal provisions and precedents cited, concluding that the TPO's adjustment was not justified. Citing the decisions of the High Court and Tribunal, it held that interest on outstanding receivables cannot be considered for adjustment under section 92CA(3) of the IT Act.

5. The Tribunal allowed the assessee's appeal on the ground of interest adjustment, stating that the TPO's action was not in line with legal principles and precedents, thereby directing the Assessing Officer to make corrections accordingly.

6. An additional ground related to the incorrect calculation of surcharge on dividend distribution tax was also raised by the assessee. The Tribunal admitted this ground for adjudication, directing the Assessing Officer to compute the correct surcharge as per law after providing the assessee with a fair hearing.

7. Ultimately, the Tribunal allowed the appeal filed by the assessee on both grounds for statistical purposes, emphasizing the importance of adhering to legal provisions and judicial precedents in tax assessments.

This detailed analysis covers the key issues raised in the legal judgment, providing a comprehensive overview of the arguments presented, legal interpretations applied, and the final decision rendered by the Tribunal.