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2020 (9) TMI 153 - AT - Income TaxTP Adjustment - applicable rate for computing interest on outstanding receivables - interest shall be charged at LIBOR plus rate and not at the prevailing SBI Base rate as per held by the AO - HELD THAT - As observed that the submissions of the Ld. DR and the calculations given during the hearing are not tenable as it has not considered the calculations given by the assessee before the TPO/Assessing Officer/DRP. Calculations given by the Ld. DR at this juncture will not appropriate as the case of the assessee is regarding outstanding receivables and the principal of Techbooks International 2020 (7) TMI 620 - ITAT DELHI will not apply in the present case. In this present assessment, the assessee has given all the details which was reproduced by the Transfer Pricing Officer (TPO) it its order and without discussing calculations and the evidences produced by the assessee, simplicitor made adjustment. There was no contrary facts given by the TPO in consonance with the evidence produced by the assessee before the TPO. Calculation given by the DR in his submissions is not in-consonance with the actual figures and the calculations considered by the TPO as well as the DRP at the time of assessment proceedings. The facts of the assessee s case are identical in the present year to that of A.Y. 2010-11 which is already decided by the Hon ble Delhi High Court 2017 (4) TMI 1254 - DELHI HIGH COURT in assessee s favour. No distinguishing facts were pointed out by the Ld. DR. - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed by the Assessing Officer (AO) and Transfer Pricing Officer (TPO). 2. Enhancement of income by INR 19,221,882 due to interest chargeable on receivables. 3. Non-consideration of working capital adjustment analysis. 4. Initiation of penalty proceedings under section 271(l)(c) of the Income Tax Act. Detailed Analysis: 1. Validity of the Order: The assessee contested the validity of the order passed by the AO/TPO, claiming it was bad in law and void. The Tribunal dismissed this ground as general and academic in nature, without further elaboration. 2. Enhancement of Income by INR 19,221,882: The TPO recharacterized the outstanding receivables from the assessee's Associated Enterprises (AEs) as unsecured loans and imputed interest at LIBOR plus 400 basis points. The assessee argued that this recharacterization was incorrect, as the receivables were part of the overall commercial arrangement and not independent transactions. The assessee also contended that working capital adjustments already accounted for the impact of outstanding receivables, and no further interest imputation was necessary. The Tribunal agreed with the assessee, noting that the working capital adjustment should take into account the impact of outstanding receivables on profitability. The Tribunal also referenced the assessee's own case for AY 2010-11, where it was held that no adjustment on account of notional interest on outstanding receivables was warranted. Consequently, this ground was allowed in favor of the assessee. 3. Non-Consideration of Working Capital Adjustment Analysis: The assessee argued that the working capital adjustment should consider the impact of outstanding receivables on profitability, rather than viewing receivables independently. The Tribunal agreed, stating that the working capital adjustment yields a return resulting from higher sales prices or lower costs of goods sold, which would positively impact operational results. The Tribunal noted that the assessee had earned significantly higher margins than comparable companies, which more than compensated for the credit period extended to AEs. This ground was allowed in favor of the assessee. 4. Initiation of Penalty Proceedings: The AO proposed to initiate penalty proceedings under section 271(l)(c) of the Income Tax Act. The Tribunal found this ground to be consequential and did not provide a detailed analysis, ultimately allowing the appeal of the assessee partially. Conclusion: The Tribunal allowed the appeal of the assessee partially, dismissing the general and academic grounds but allowing the grounds related to the enhancement of income due to interest on receivables and the non-consideration of working capital adjustment analysis. The initiation of penalty proceedings was deemed consequential. The Tribunal's decision was influenced by the precedent set in the assessee's own case for AY 2010-11, where similar issues were decided in favor of the assessee.
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