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2023 (2) TMI 195 - AT - Income TaxTP Adjustment - addition being interest imputed by TPO on outstanding receivables from the Associated Enterprises (AE) - whether delay in receivable would fall within definition of international transaction ? - assessee is a non resident corporate entity engaged in the business of providing consultancy and advisory services (including project construction and execution thereof) in the field of water management industry and in the year under dispute the assessee entered into various international transactions with its overseas Associated Enterprises (AE s) - HELD THAT - In the facts of the present appeal on perusal of material available on record it is evident in a number of instances the delay in receiving outstanding amounts against the invoices raised varied between minimum of 17 days to maximum 334 days. Thus in our view by permitting the AE to hold on to the payments the assessee has allowed the AE to reap financial benefit at the cost of assessee as the assessee is incurring interest cost. Therefore interest cost has to be imputed on delay in receiving outstanding invoice amounts. We find merit in the alternative submissions made by the assessee as regards non charging of interest beyond 31.03.2013 and charging interest after allowing normal credit period of 60 days. This is so because the assessee has demonstrated before us that it has allowed credit period of 60 days to non AE s and other customers. Before us the assessee has furnished the computation of interest charged for delays relating to the period 01.04.2010 to 31.03.2013 considering normal credit period of 60 days. As per the said computation the total interest chargeable on six months LIBOR 400 basis points works out to Rs.2, 25, 276/. We direct the Assessing Officer to factually verify the aforesaid computation furnished by the assessee and restrict the addition to Rs.2, 25, 276/-. The ground is partly allowed. Addition to the contract revenue - adopting accounting policy as per accounting standard (AS)-7 the assessee recognized contract revenue from construction contract on percentage of completion basis - HELD THAT - Assessing officer estimated the budgeted contract cost in an indirect manner by adopting gross margin of 6.9% with regard to all activities of the assessee including all contracts. While deciding the objections on the issue Ld. DRP directed the Assessing Officer to adopt the budgeted contract costs by reducing from the contract the gross profit based on the gross margin of 6.9% alongwith other operating expenses. Before us it is a common point between the parties that the issue is squarely covered by the decision of the Tribunal in assessee s own case in assessment year 2011-12. 2019 (10) TMI 1261 - ITAT DELHI wherein as held Assessing Officer has been consistent in accepting the methodology of the assessee adopted consistently following AS-7. Considering the facts of the case in totality in the light of the orders mentioned hereinabove we do not find any merit in the appeal filed by the Revenue. We also do not find any merit in the methodology adopted by the DRP while dismissing the appeal of the revenue. We direct the Assessing Officer to delete the addition. Disallowance u/s 43B - leave encashment benefit paid to employees during the previous year relevant to assessment year under dispute - deduction was not claimed by the assessee in the return of income - HELD THAT - Departmental authorities have refused to entertain assessee s claim simply on the ground that the assessee had not claimed the deduction by way of a revised return of income. Now it is fairly well settled that a claim not made by the assessee in the return of income due to inadvertence can be claimed at appellate stage. In view of the aforesaid we are inclined to restore the issue to the AO for examining the claim on merits and decide it in accordance with law. We make it clear we have not expressed any opinion in so far as the merit of the issue is concerned. Assessing Officer must afford a reasonable opportunity of being heard to the assessee while deciding the issue. This ground is allowed for statistical purpose.
Issues:
1. Addition of interest on outstanding receivables from Associated Enterprises (AE). 2. Addition to contract revenue. 3. Disallowance of leave encashment benefit paid to employees. Issue 1: Addition of Interest on Outstanding Receivables from AE: The appeal challenges the addition of interest on outstanding receivables from Associated Enterprises (AE) by the Transfer Pricing Officer (TPO). The TPO found that certain AEs did not remit the amount receivable by the assessee within the agreed credit period, treating it as a loan facility extended to AEs. The TPO determined the arm's length rate of interest on outstanding receivables and suggested an adjustment, which was upheld by the Learned Dispute Resolution Panel (DRP). The assessee argued that outstanding receivables should be considered as closely linked transactions and no further adjustment is required. The tribunal held that the delay in receiving outstanding receivables is a credit facility to the AE, falling under the definition of an international transaction. The tribunal allowed interest calculation only for delays up to a certain period, partially allowing the ground. Issue 2: Addition to Contract Revenue: The dispute involves the addition of a specific amount to the contract revenue recognized by the assessee from construction contracts based on the percentage of completion method. The Assessing Officer rejected the assessee's accounting method and estimated revenue by reducing the gross profit based on a fixed margin. The DRP directed the AO to adopt budgeted contract costs by reducing the gross profit based on a specific margin. The tribunal referred to a previous decision in the assessee's case for a similar issue in a previous assessment year and directed the AO to delete the addition, aligning with the prior decision. Issue 3: Disallowance of Leave Encashment Benefit: The challenge involves the disallowance of a specific amount under section 43B of the Act representing leave encashment benefit paid to employees. The assessee did not claim the deduction in the return of income but later claimed it during assessment proceedings. The AO and DRP rejected the claim due to the absence of a revised return. The tribunal noted that a claim not made in the return due to inadvertence can be claimed at the appellate stage and directed the issue to be examined on merits by the AO, allowing the ground for statistical purposes. The tribunal's judgment addressed the issues comprehensively, considering legal precedents and interpretations of relevant provisions. The decision provided detailed reasoning for each issue, aligning with legal principles and prior rulings. The appeal was partly allowed, with specific directions given for each issue, ensuring a fair and thorough analysis of the contentions raised by the assessee.
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