2023 (5) TMI 64 - AT - Income Tax

TP Adjustment - reimbursement of expenditure - assessee recovered the salary and travel related expenses incurred on certain employees working for Ocimum Biosolutions (Inc) which has been reimbursed on cost to cost basis - TPO, opined that no independent party would render such services without any markup, thus proceeded to make the addition on an estimate of 10% - HELD THAT - We are of the considered opinion that in case of reimbursement at cost of the expenditure on behalf of the AE, which does not form part of the expenditure claim as operating cost of the assessee, shall not be considered as assessee s business receipt. Whether or not this particular reimbursement amount was not routed through P L Account, but it remained only a balance sheet entry is a verifiable fact. If it is so, no addition could be made on the assumption that generally, the AE will not undertake such an exercise without any markup. We, therefore, direct AO to verify the facts and if this amount is not routed through the P L Account, and remained only a balance sheet entry, then the addition shall be deleted. Business advances - We agree with the DR and in the interest of justice, we set aside this issue to the file of the learned Assessing Officer/learned TPO for verification whether these trade advances are the result of the regular business transactions of the assessee with its AEs on account of any business expediency. We accordingly direct the learned Assessing Officer/learned TPO to cause such verification and if it is found to be so, then, no adjustment is warranted and the same has to be deleted. For this purpose, the issue under grounds No. 14 to 23 is restored to the file of the learned Assessing Officer/learned TPO. Corporate guarantee - As respectfully following the view taken in the case of Glenmark Pharmaceuticals Ltd. 2013 (11) TMI 1583 - ITAT MUMBAI we deem it just and proper to accept the ALP of corporate guarantee at 0.53%. we accordingly directing the learned Assessing Officer/learned TPO to adopt the same. Grounds answered accordingly. Disallowance of interest on TDS - As brought to our notice that in the decision in Taksheel Solutions Ltd 2016 (7) TMI 840 - ITAT HYDERABAD has taken a view that interest on TDS is not interest paid on income tax per se, and the same cannot be disallowed. Respectfully following the same, we direct the learned Assessing Officer/learned TPO to delete the same.

Summary

Issues involved:
The judgment involves issues related to transfer pricing adjustments, business advances, corporate guarantees, and disallowance of interest on TDS.

Transfer Pricing Adjustments:
The assessee challenged certain additions sustained by the DRP in respect of transfer pricing issues, specifically reimbursement of expenditure, interest on advances, and corporate guarantee. The TPO had made an upward adjustment based on the assumption that no independent party would render services without a markup. The Tribunal directed the AO to verify if the reimbursement amount was not routed through the P&L Account, in which case the addition should be deleted.

Business Advances:
The AO referred trade advances to AEs as lending and borrowing transactions, subject to ALP determination. The assessee argued that these advances were not covered under section 92B of the Act and were provided for administrative convenience. The DRP upheld the TPO's findings but directed the ALP to be computed at 5% instead of 12%. The Tribunal set aside the issue for verification of whether the trade advances were part of regular business transactions with AEs.

Corporate Guarantees:
The issue of corporate guarantees was contested, with the assessee arguing that it did not involve costs and did not fall under international transactions. The DRP determined the ALP for corporate guarantees at 1.75%, which the assessee contested as too high. The Tribunal, following relevant case law, set the ALP for corporate guarantees at 0.53% and directed the AO to adopt this rate.

Disallowance of Interest on TDS:
The last ground pertained to the disallowance of interest on TDS. Citing precedent, the Tribunal directed the AO to delete the disallowance, stating that interest on TDS is not interest paid on income tax per se. As a result, the appeal of the assessee was treated as partly allowed for statistical purposes.