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2019 (7) TMI 1439 - AT - Income TaxTP Adjustment - DRP has directed the TPO to allow 1% of total cost to the assessee as against 1% of corporate charges allowed by the TPO - HELD THAT - TPO should give effect to the directions of the DRP in letter and spirit. The direction of the DRP has been mentioned elsewhere and since the DRP has directed the TPO to compute the ALP at 1% of total cost the same should be followed. We accordingly direct the TPO / AO to follow the directions of the DRP and if found that after giving effect to the directions total cost of the assessee works out to be higher than what has been paid by the assessee towards corporate charges no adjustment on account of corporate charges need to made. Accordingly grounds No.2 to 2.7 are allowed. Transfer pricing adjustment on account of interest on foreign currency loan extended to AE - TPO applied rate of interest at 17.26% - HELD THAT - We find that the loan agreement with FSS, Japan clearly mentions that the borrower shall pay interest rate of 1.5% over prevailing LIBOR and the transaction is in US dollar. Similarly the agreement with FSS Beijing show interest at 150 basis points over prevailing LIBOR and the transaction is in US dollar. Considering the facts of the case in the light of the agreements and in the light of the decision of DRP in A. Y. 2012-13 wherein all the apprehensions raised by the DR has been duly considered by the DRP which is also under appeal before us in we are of the considered view that rate of interest at LIBOR 1.5% should be taken as the rate and since the assessee has already charged the interest on loan at LIBOR 150 basis points, the TP adjustment in interest on loan amounting to ₹ 2356249/- deserves to be deleted. TDS u/s 195 - Disallowance being expenses incurred on corporate charges u/s. 40a - HELD THAT - As given a thoughtful consideration to the nature of services provided by AE. In our considered view no such services make available technical knowledge etc to the assessee. No technical knowledge experience or skill as required by article 12 is acquired as a result of provision of the services by Aricent USA. In terms of the provisions of article 12 of the Indo US DTAA fees paid by the assessee to its AE Aricent USA would not be taxable in India and therefore, the assessee was not required to deduct tax at source. We accordingly direct the Assessing Officer to delete the disallowance. Depreciation on goodwill - scheme of amalgamation approved - assessee failed to claim depreciaion in the original ITR or revised ITR but claimed first time before the Tribunal - HELD THAT - A conspectus reading of the Judgment of SMIFS SECURITIES LTD. 2012 (8) TMI 713 - SUPREME COURT clearly show that the Hon ble Supreme Court was seized with the facts of amalgamation of one company with the assessee company and has held that the excess consideration paid by it over value of net asset acquired of the amalgamating company amounted to goodwill for which the depreciation was to be allowed. The Hon ble High Court of Delhi in the case of Hindustan Coca Cola Beverages Private Limited 2011 (1) TMI 138 - DELHI HIGH COURT has upheld the findings of the Tribunal that payments made towards business acquired on slum price and a part of the price so paid was allocated to the intangible asset covered under the head goodwill. Considering the settled position of law and in the light of the factual matrix of the assessee discussed elsewhere we direct the Assessing Officer to allow deprecation on goodwill as per rates applicable for the year under consideration.In the result, the additional ground raised by the assessee is allowed and appeal of the assessee is allowed. Non giving of the correct credit of prepared taxes, tax deducted at sources and MAT credit - HELD THAT - Assessing Officer should compute the correct tax liability and give all the credits of the prepaid taxes including credit of TDS. AO should also compute the MAT credit as per the provisions of the law. We direct accordingly. Transfer pricing adjustment on account of payment of corporate charges - HELD THAT - Transfer pricing report the assessee has treated payment of administrative corporate fees payment as part of operating expenses. The TPO has held that this transaction is having bearing on income of the assessee and hence to be analyzed separately. The undisputed fact is that the OPM of the assessee is @ 27.36% whereas that of all the comparable companies is @ 14.24%. As mentioned elsewhere the AE was created as a SPV for the purpose of giving services to the group companies for which the AE has charged cost 5% as a marker and the assessee is making such payment in lieu of receiving vide scope of services from its AE. We are of the considered view that these are all inter linked transactions and therefore, should not be evaluated on a separate basis. This is also supported by OECD guidelines which provide for evaluation of combined transactions where such transactions are closely linked or continues and cannot be evaluate separately. Technical know how fee paid by the assessee is to be benchmarked applying TNMM at the entity level - HELD THAT - We hold that TNMM is the most appropriate method for this international transaction and since the OPM of the assessee is higher than the OPM of the comparable companies, we are of the considered view that the benefit and the necessity test applied by the TPO/ DRP is uncalled for and accordingly direct the TPO/ AO to delete the addition Transfer pricing adjustment on account of reimbursement of expenses - HELD THAT - We are of the considered view that the transaction of reimbursement of expenses is closely linked with the entire business of the assessee. However, a careful perusal of the additional evidences shows that some of the evidences are not from third party. However, since the TPO has made the addition without offering any opportunity to the assessee, we restore this issue to the files of the TPO. The assessee is directed to furnish all the related evidences and the TPO is directed to examine such evidences and decide the issue afresh as per the provisions of the law. Transfer pricing adjustment allegedly on account of re-characterizing the inter company receivables as unsecured loan extended by the assessee of its AE - HELD THAT - It is not the case of the revenue that the impugned transaction is sham or bogus transaction, therefore, the recharacterization of the receivables as unsecured loans is uncalled for. There is no dispute that remittances from unrelated third parties have also come with a time lag exceeding the agreed period and the undisputed fact is that the assessee has not charged any interest for delay in receipt of such remittances from unrelated parties. In the light of such undisputed fact any delay in remittances from associated enterprises should not be re-characterized as unsecured loans There is no dispute that the OPM of the assessee @ 27.36% is higher than the average working capital adjusted margins of the comparable companies @12.97%, this being so no adjustment is called for in the light of the decision of Kusum Healthcare 2017 (4) TMI 1254 - DELHI HIGH COURT In our considered view since the receivables have been received by the assessee within ordinary time period it cannot be re-characterized as unsecured loans and accordingly no adjustment on account of delay in receipt of receivables can be made in the income of the assessee considering the fact that the similar delay is there in respect of receivables from unrelated third parties. Considering the facts of the case in hand in totality in the light of the factual matrix discussed here in above viz-a-viz judicial decisions on the point of issue we are of the considered view that resorting to Explanation (1)(c) to section 92B of the Act is uncalled for. We accordingly direct the Assessing Officer / TPO to delete the transfer pricing adjustment . Charging of interest u/s. 234B and 234C - HELD THAT - Levy of interest is mandatory though consequential. We direct the Assessing Officer/ TPO to levy interest as per the provisions of the law. Interest u/s. 234 C of the Act has to be charged on the returned income.
Issues Involved:
1. Transfer Pricing Adjustment for Corporate Charges 2. Transfer Pricing Adjustment for Interest on Foreign Currency Loan 3. Disallowance of Project Expenses 4. Disallowance of Corporate Charges under Section 40a 5. Additional Ground for Depreciation on Goodwill 6. Transfer Pricing Adjustment for Reimbursement of Expenses 7. Transfer Pricing Adjustment for Inter-Company Receivables 8. Charging of Interest under Sections 234B and 234C Detailed Analysis: 1. Transfer Pricing Adjustment for Corporate Charges The appellant challenged the TP adjustment of ?24,022,522/- for corporate charges. The TPO rejected the TNMM method applied by the assessee and separately benchmarked the transaction using the CUP method, concluding that the assessee did not receive any economic benefits from the payment. The DRP allowed an ad-hoc 1% of total costs to be considered for ALP. The Tribunal directed the TPO/AO to follow the DRP's directions and recompute the ALP accordingly. If the total cost is higher than the amount paid, no adjustment is needed. 2. Transfer Pricing Adjustment for Interest on Foreign Currency Loan The assessee earned interest income of ?23,56,249/- on loans to its AEs at LIBOR + 1.5%. The TPO applied a rate of 17.26%, but the DRP upheld an imputed rate of 13.25% (PLR of SBI). The Tribunal, following the Delhi High Court's decision in Cotton Naturals, accepted LIBOR + 1.5% and deleted the TP adjustment. 3. Disallowance of Project Expenses The AO disallowed ?17,16,17,599/- treating them as capital expenditure. The Tribunal noted that similar expenses were allowed as revenue expenditure in previous years by the Tribunal and affirmed by the Delhi High Court. The disallowance was directed to be deleted. 4. Disallowance of Corporate Charges under Section 40a The AO disallowed ?24,022,522/- for non-deduction of TDS on corporate charges paid to Aricent Inc USA. The Tribunal found that the services did not 'make available' technical knowledge under Article 12 of the Indo-US DTAA, and thus, the fees were not taxable in India. The disallowance was directed to be deleted. 5. Additional Ground for Depreciation on Goodwill The assessee raised an additional ground for depreciation on goodwill arising from amalgamation. The Tribunal admitted the additional ground, citing the Supreme Court's decision in NTPC Limited and Smifs Securities, and directed the AO to allow depreciation on goodwill. 6. Transfer Pricing Adjustment for Reimbursement of Expenses The DRP directed the TPO to treat the ALP of reimbursement of expenses at nil. The Tribunal found that the transaction of reimbursement of expenses is closely linked with the entire business. However, some evidences were not from third parties. The issue was remanded to the TPO for fresh adjudication. 7. Transfer Pricing Adjustment for Inter-Company Receivables The TPO re-characterized receivables as unsecured loans and imputed interest at 15.77%, resulting in an adjustment of ?97,78,0581/-. The Tribunal, following the Delhi High Court's decision in Kusum Healthcare, held that not every receivable is an international transaction and deleted the adjustment. 8. Charging of Interest under Sections 234B and 234C The Tribunal noted that the levy of interest under Sections 234B and 234C is mandatory, though consequential. The AO was directed to charge interest as per the provisions of the law. Conclusion The Tribunal allowed the appeals partly, directing the deletion of various TP adjustments and disallowances, and remanding certain issues for fresh adjudication. The decision emphasized adherence to judicial precedents and proper application of transfer pricing principles.
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