2022 (1) TMI 1085 - AT - Income Tax

TP Adjustment - adjustment on receivables - arms length price adjustment in the assessment order going by S.B.I s 14.45% interest rate; and that too, without adopting any segmental comparable in the assessee s segment of business support services - HELD THAT - We note with able assistance of both the parties that the Transfer Pricing Officer s order has relied on assessee s alleged inter-company agreements executed with its associated enterprise only for determining the corresponding credit period in the business transactions as 30 days only. We thus make it clear that the learned lower authorities have not adopted any segmental comparable whilst arriving at the impugned adjustment. We quote Tecnimont Icb Pvt Ltd., Mumbai 2013 (9) TMI 595 - ITAT MUMBAI and Sabic Innovative Plastic India Pvt Ltd 2013 (9) TMI 596 - ITAT AHMEDABAD holding that an associate enterprise itself would not to be taken as a comparable since lacking the independent nature of an uncontrolled transaction in forming hallmark of Chapter X of the Act. We thus delete the impugned arms length price adjustment on receivables for this precise reason alone. Decided in favour of assessee.

Summary

Issues:
1. Challenge to arms length price adjustment in assessment order.
2. Adoption of segmental comparable in business support services.
3. Reliance on inter-company agreements for determining credit period.
4. Consideration of associate enterprise as comparable.
5. Deletion of arms length price adjustment on receivables.
6. Overall decision on merits.

Analysis:
The appeal for Assessment Year 2013-14 was brought before the Appellate Tribunal ITAT Hyderabad challenging the correctness of the arms length price adjustment of ?59,45,094 made in the assessment order. The primary grievance of the assessee was the lack of adoption of any segmental comparable in the business support services segment by the lower authorities. The Transfer Pricing Officer's order had relied on the inter-company agreements to determine the credit period, which was noted without the use of any segmental comparable in the adjustment.

In the judgment, reference was made to cases such as Tecnimont Icb Pvt Ltd., Mumbai Vs. ACIT and Sabic Innovative Plastic India Pvt Ltd Vs. DCIT, emphasizing that an associate enterprise cannot be considered as a comparable due to its lack of independence in transactions. Therefore, the impugned arms length price adjustment on receivables was deleted solely based on this reason.

The Tribunal found all other arguments on merits to be irrelevant in light of the above decision. Consequently, the appeal of the assessee was allowed based on the deletion of the arms length price adjustment on receivables. The order was pronounced in the Open Court on 26th November 2021, bringing the matter to a close.