2020 (5) TMI 354 - AT - Income Tax

TP Adjustment - selection of MAM - Interest on receivables computed by Ld.AO/TPO - assessee has used TNMM to compute ALP of the transaction - HELD THAT - Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care 2015 (4) TMI 180 - ITAT DELHI the Hon ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions. We deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in conformity with the above referred judgment. Disallowances made towards provision of expenses and stamp duty paid for registration the lease deed - HELD THAT - Disallowance has resulted in enhancing the claim of deduction under section 80 IB (8A) - The disallowance has been made because of the statutory provisions under section 37 and as a consequence of such disallowance there is an increase in the income in the hands of assessee. We are therefore unable to accept the contentions of authorities below that in computing deduction under section 80 IB (8A) of the act in the hands of assessee the disallowance so made ought to be ignored. We direct the Ld.AO to compute the deduction under section 80 IB (8A) of the act in the hands of assessee in accordance with law having regard to ratio laid down by Hon ble Bombay High Court in case of CIT vs Gem Plus Jewellery 2010 (6) TMI 65 - BOMBAY HIGH COURT . Provision for expenses for computation of MAT under section 115JB - HELD THAT - AO has not verified the claim and has denied it to assessee. We direct Ld.AO to verify the claim of assessee and if found eligible the same should be granted to assessee in accordance with law. TDS credit - HELD THAT - Direct Ld.AO to verify and consider the claim of assessee based upon the documents filed in accordance with law.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on Account of Interest on Outstanding Receivables
2. Disallowance of Stamp Duty Paid on Lease Deed
3. Disallowance of Provision for Expenses
4. Credit of Tax Deducted at Source (TDS)

Detailed Analysis:

1. Transfer Pricing Adjustment on Account of Interest on Outstanding Receivables:
The appellant contested the determination of a transfer pricing adjustment amounting to ?3,25,37,057 on account of interest on outstanding receivables. The primary argument was that the outstanding receivables should not be considered as a loan transaction and should be seen as closely linked to the main transaction of providing services. The Tribunal noted that the issue has been consistently sent back to the Transfer Pricing Officer (TPO) to verify if the outstanding receivables have been subsumed in computing the working capital adjustment where the Transactional Net Margin Method (TNMM) was used. The Tribunal relied on the Special Bench decision in the case of Instrumentation Corpn. Ltd. v. Asstt. DIT, which held that outstanding receivables are akin to a loan advanced to the foreign Associated Enterprise (AE) and thus an international transaction under section 92B of the Act. The Tribunal directed the Assessing Officer (AO)/TPO to decide the issue in conformity with the referred judgments, allowing the grounds for statistical purposes.

2. Disallowance of Stamp Duty Paid on Lease Deed:
The appellant challenged the disallowance of ?5,13,360 towards stamp duty paid on the registration of a lease deed, arguing that it should be considered a revenue expenditure eligible for deduction under section 37 of the Act. The Tribunal observed that for the assessment year 2009-10, similar disallowances were made by the AO, but the deduction claimed under section 80-IB(8A) was not enhanced. The Tribunal referred to the decision of the Hon’ble Bombay High Court in the case of CIT vs Gem Plus Jewellery, which supported the appellant’s contention. The Tribunal directed the AO to compute the deduction under section 80-IB(8A) in accordance with the law, having regard to the ratio laid down by the Bombay High Court, thus allowing this ground.

3. Disallowance of Provision for Expenses:
The appellant argued against the disallowance of ?10,11,320 for provision of expenses, stating that the expenses were actually incurred during the assessment year and recorded under the mercantile system of accounting. The Tribunal noted that the AO had not verified the claim and directed the AO to verify the claim of the appellant and grant the same if found eligible, in accordance with the law. This ground was allowed for statistical purposes.

4. Credit of Tax Deducted at Source (TDS):
The appellant contended that the DRP declined to adjudicate the ground related to the denial of TDS credit amounting to ?2,61,461. The Tribunal directed the AO to verify and consider the claim of the appellant based on the documents filed, in accordance with the law, allowing this ground for statistical purposes.

Conclusion:
The appeal filed by the appellant was partly allowed. The Tribunal directed the AO/TPO to re-examine several issues, including the transfer pricing adjustment on outstanding receivables, the disallowance of stamp duty and provision for expenses, and the credit for TDS, in accordance with the law and relevant judicial precedents. The decision emphasized the need for proper verification and adherence to established legal principles in determining the appellant’s tax liabilities.