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2017 (12) TMI 609 - AT - Income TaxTPA - ALP adjustment on account of interest on receivables - Held that - We see no reasons to take any other view of the matter than the view so taken by us in the case of Micro Ink 2015 (12) TMI 143 - ITAT AHMEDABAD . Respectfully following the same, we uphold the grievance of the assessee and delete the impugned ALP adjustment of ₹ 57,32,095/- on account of interest on receivables. The assessee gets relief accordingly.
Issues Involved:
1. Transfer Pricing Adjustment on Corporate Guarantee. 2. Transfer Pricing Adjustment on Notional Interest on Receivables. 3. Addition under Section 14A of the Income Tax Act. Detailed Analysis: 1. Transfer Pricing Adjustment on Corporate Guarantee: The assessee contested the Transfer Pricing adjustment of ?2,42,63,991 as commission on corporate guarantee under Section 92 of the Income-tax Act, 1961. The Assessing Officer (AO) had made this adjustment regarding the corporate guarantee provided by the assessee to the bank on behalf of its Associate Enterprise (AE). The AO argued that the provision of such a guarantee is a service that needs to be benchmarked and charged a fee. However, the assessee contended that the corporate guarantee is quasi-capital and does not fall under the purview of international transactions as per Transfer Pricing regulations. The Tribunal referenced the decision in the case of Micro Ink Ltd Vs ACIT, which noted that the determination of arm's length price can only be done in respect of an 'international transaction'. It was observed that the issuance of corporate guarantees, being in the nature of quasi-capital or shareholder activity, does not amount to a service requiring arm's length adjustment. The Tribunal concluded that the issuance of corporate guarantees was not in the nature of 'provision for services' and should be treated as shareholder participation in the subsidiaries. Consequently, the ALP adjustment of ?2,23,62,603 was deleted, and the relief granted by the CIT(A) was upheld. 2. Transfer Pricing Adjustment on Notional Interest on Receivables: The AO made a Transfer Pricing adjustment of ?57,32,095 for notional interest on the outstanding balance of receivables from the AE. The assessee argued that the outstanding balance of receivables is not an international transaction under Transfer Pricing regulations and that only real income can be subject to taxation, not notional income. The Tribunal referred to the decision in the case of Micro Ink, which stated that making an adjustment for interest on excess credit allowed on sales to AEs would vitiate the picture since the financial impact of the excess credit period allowed is already factored into the TNMM analysis. The Tribunal held that a separate adjustment for delayed realization of debtors could only be made if the credit period allowed to the AEs was more than that allowed to independent enterprises in similar transactions. Since no such comparison was made, the adjustment was deemed unsustainable. The Tribunal deleted the ALP adjustment of ?57,32,095 on account of interest on receivables and upheld the grievance of the assessee. 3. Addition under Section 14A of the Income Tax Act: The AO made an addition of ?2,14,139 under Section 14A read with Rule 8D of the Income Tax Rules. The assessee did not raise any objection before the DRP or advance any specific argument before the Tribunal. Consequently, the Tribunal treated these grievances as not pressed and dismissed them. Conclusion: The appeal was partly allowed. The Tribunal deleted the ALP adjustments related to the corporate guarantee and notional interest on receivables, upholding the assessee's grievances on these issues. However, the addition under Section 14A was dismissed as not pressed.
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