2021 (2) TMI 1085 - AT - Income Tax

TP Adjustment - ALP adjustment regarding its international transactions - Inclusion/exclusion of misc. income - HELD THAT - We ex facie notice that assessee's misc. income is in no way related to its international transactions with overseas associated enterprise which would be liable to be considered for the purpose of arriving at ALP under Chapter X of the Act. There is no justification to include the same in this entire process therefore. We deem it appropriate to restore the instant first issue back to the Transfer Pricing Officer 'TPO' for his appropriate adjudication as per law with a specific direction that in case if it is found after verification of the relevant records coming from assessee's level that the impugned income is not relevant for determination of ALP pertaining to international transactions with the AE(s) it would not be considered in the said consequential computation exercise. Learned counsel has also placed on record the TPO's order for very next A.Y. 2015-16 stating he had himself excluded identical misc. income for the purpose of determining the ALP adjustment regarding its international transactions. Instant vth substantive ground (supra) is restored back to the TPO Addition of interest receivables - amounts due from overseas associate enterprises - taxpayer's plea was that its overseas receivables to its AE(s) were much more than amounting to ₹ 11.59 crores and therefore, even if it is held interest is to be charged from both ends, the net result would come in negative only - HELD THAT - We find no merit to sustain the impugned addition/adjustment. Suffice to say, neither the TPO's order nor DRP's directions forming subject matter of the instant issue make it clear as to how the alleged interest rate of 14.75% had been adopted by drawing support from the relevant market comparables. Learned counsel referred us to assessee's pleadings that the lower authorities have been guided by SBI's short term interest rates to arrive at this figure. We see no reason to concur with this bench mark since we are dealing with international transactions with overseas associate enterprises having receivables from both sides involving international currency denomination where as the authorities have gone by domestic deposit rates only. We thereby direct the TPO to delete the impugned addition on this count alone without deeming it proper to consider all other aspects. The assessee succeeds in the instant ixth substantive ground. Reimbursement of expenses - HELD THAT - We notice during the course of hearing that the TPO's observations in page 7 para 7.8 treating the impugned segment as covered under specified domestic transaction which stands repealed by the Finance Act, 2013. This tribunal decision in Texport Overseas Pvt. Ltd. vs. DCIT, Bangalore 2017 (12) TMI 1719 - ITAT BANGALORE holds that the necessary consequence that flows from legislative action; after repealing corresponding provision, is that the same never existed in the Act. reverse lower authorities action on this count alone. The assessee succeeds in the instant xth substantive ground.

Summary

Issues Involved:
1. Inclusion of miscellaneous income in commission from other liners.
2. Interest on receivables from overseas associated enterprises.
3. Reimbursement of expenses to Seaways Shipping and Logistics Ltd.

Detailed Analysis:

1. Inclusion of Miscellaneous Income in Commission from Other Liners:
The assessee contested the inclusion of gross miscellaneous income of ?6,48,39,254/- as part of the commission from other liners, arguing that this income does not relate to international transactions subject to Arm's Length Price (ALP) adjustment. The lower authorities included this amount, arriving at a total income of ?7,55,03,382/- from other liners. The Tribunal found that this issue required reconciliation rather than substantive adjudication. It observed that the miscellaneous income should not be included in the ALP determination if it is unrelated to international transactions with associated enterprises. The Tribunal restored this issue to the Transfer Pricing Officer (TPO) for appropriate adjudication, with instructions to exclude the income if it is found irrelevant to the ALP determination.

2. Interest on Receivables from Overseas Associated Enterprises:
The assessee challenged the addition of ?6,77,226/- as interest on receivables from overseas associated enterprises, where the TPO had adopted an interest rate of 14.75% based on SBI's short-term fixed deposit rates. The taxpayer argued that the receivables were much higher, and the net result would be negative if interest were charged from both ends. The Tribunal found no merit in the addition, noting that neither the TPO's order nor the DRP's directions clarified the basis for the 14.75% interest rate. It concluded that domestic deposit rates were inapplicable to international transactions involving foreign currency. Consequently, the Tribunal directed the TPO to delete this addition.

3. Reimbursement of Expenses to Seaways Shipping and Logistics Ltd.:
The assessee disputed the lower authorities' finding that the entire amount of ?6,05,53,454/- paid to Seaways Shipping and Logistics Ltd. did not represent mere reimbursement of expenses. The TPO had treated this segment as a "specified domestic transaction," which was repealed by the Finance Act, 2013. The Tribunal referred to a previous decision (ITA 2213/Bangalore/2018) and noted that the omission of the relevant provision meant it was never part of the statute. Therefore, the proceedings initiated under the omitted clause were invalid. The Tribunal set aside the lower authorities' actions and restored the matter to the Assessing Officer (AO) to adjudicate the issue of expenditure claims in accordance with the law, after providing an opportunity for the assessee to be heard.

Conclusion:
The Tribunal partly allowed the assessee's appeal, restoring certain issues to the TPO and AO for re-adjudication and deleting specific additions. The judgment emphasized the need for proper reconciliation and adherence to relevant legal provisions in determining ALP and reimbursement claims.