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2023 (5) TMI 1101 - AT - Income TaxTP Adjustment - Interest on delayed receivables - assessee is having some receivables outstanding from the AE and imputed interest @8% after considering 30 days grace period as per the terms of payment allowed by the assessee to its AE - HELD THAT - Average realization period of the assessee is (-)47 days which would mean that on an average, the realization happens well before the due date. We also notice that only two instances where there has been a marginal delay of 60 days and 26 days. Considering the nominal delay in the realization period and the overall average realization period being well before the grace period, in our view, there is no requirement to charge any interest towards receivables and, therefore, we hold that the TP adjustment made in this regard should be deleted. This ground is allowed in favour of the assessee. Interest on share application money - TPO charged interest @8% on the share application money - HELD THAT - As relying on assessee own case 2022 (4) TMI 543 - ITAT MUMBAI we hold that no interest shall be imputed on the share application money. It is ordered accordingly. Imputing commission with respect to Corporate Guarantee - HELD THAT - We direct the TPO to recompute the guarantee commission @0.5% for the year under consideration - assessee has raised specific objection before the Ld.DRP with regard to Stripes Farmaceutica Participacoes Ltd, Brazil that the guarantee was provided only in the next year and not in the year under consideration. DRP has not given any specific finding in this regard. We therefore direct the TPO to examine factually as to the year in which the guarantee was provided to Stripes Farmaceutica Participacoes Ltd, Brazil while recomputing the guarantee commission. Plea of the assessee before the DRP that the guarantee commission should be restricted for the period of guarantee has not been considered and the TPO in the case of Starmore Ltd has computed the adjustment for the entire year though guarantee was provided only on 17th March, 2010. We direct the TPO to consider period of guarantee while re-computing the guarantee commission as per the directions in this order. Upward adjustment to the consideration received towards sale of investments to AE - HELD THAT - TPO while arriving at the value of the shares had not given any working as to how the value as arrived at but has just stated that the value is based on the financials as of 31st December 2010. DRP has proceed to compute the value of shares by applying a DCF method by stating that the DCF is the most appropriate method. Valuation method adopted by the assessee cannot be rejected without scrutinizing the valuation done by the assessee though the DRP is well within its rights to examine the methodology adopted by the assessee and/or underlying assumptions and if not satisfied, it can challenge the same and suggest necessary modifications/alterations provided the same are based on sound reasoning and rationale basis. No such specific findings is given by the DRP - remit the issue back to the AO/TPO with a direction to examine the NAV method of valuation as adopted by the assessee afresh excluding the revaluation reserve for the year ended 31st December 2009 and decide in accordance with law. Disallowance of deduction claimed u/s 10B - assessee's activity for area of work comprises of development of generic version of products by reformulating an existing innovative product - HELD THAT - Assessee is entitled for deduction under section 10B of the Act in respect of STAR division. Disallowance of FCCB Premium - HELD THAT - The deduction claimed by the assessee for the year under consideration is a continuation of 1/5th of FCCB premium as claimed in AY 2008-09 and therefore the issue is covered by the above decision of the coordinate bench. DRP in assessee s case for AY 2013-14 has directed the AO to allow the premium on redemption of FCCB of USD 100 Mn as a deduction provided the assessee withdraws the claim in 2009-10 to 2013-14. Direct the AO allow the deduction claimed by the assessee towards FCCB premium u/s. 37(1) of the Act taking into consideration the directions of the DRP for AY 2013-14. Disallowance of FCCB issue expenses - included as part of FCCB premium expenses - HELD THAT - We notice that the issue of disallowance of FCCB issue expenses have also been considered by the co-ordinate bench in assessee s own case for A.Y. 2008-09 and the relevant part of the decision have been extracted in the earlier part of this order. Respectfully following the same, we hold that the FCCB issue expense is allowable. Disallowance u/s 14A - HELD THAT - AO and the DRP have not considered the submissions of the assessee and fact being identical to AY 2008-09 we remit the issue back to the AO for a fresh consideration. AO is directed to keep in mind the decisions of Delhi International Airport 2022 (10) TMI 300 - DELHI HIGH COURT and Era Infrastructure 2022 (7) TMI 1093 - DELHI HIGH COURT after giving a reasonable opportunity of being heard to the assessee. MAT computation - DRP with respect to adjustments made in the book profits with respect to disallowance made u/s 14A and leave encashment, gave a direction to AO to exclude the component of leave encashment from the workings of the profit for the purpose of MAT computation, which was not followed - HELD THAT - We direct the Assessing Officer to consider the directions given by the DRP and recompute the book profits accordingly. Disallowance of weighted deduction u/s 35(2AB) - HELD THAT - As assessee should be allowed the weighted deduction as has been claimed in the return of income and accordingly direct the assessing officer to delete the disallowance made in this regard. Disallowance u/s 14A while computing book profits computed u/s 115JB - HELD THAT - As we direct the AO to delete the addition of disallowance under section 14A while computing book profit under section 115JB of the Act.
Issues Involved:
1. Transfer Pricing Adjustments 2. Corporate Tax Disallowances 3. Adjustments to Book Profits under Section 115JB 4. Additional Grounds and Issues Raised by the Assessee Summary: 1. Transfer Pricing Adjustments: Interest on Delayed Receivables: The TPO imputed interest @8% on delayed receivables from AE, considering a 30-day grace period. The Tribunal found that the average realization period was well before the grace period, with only two instances of marginal delay. Therefore, it held that no interest should be charged on receivables, deleting the TP adjustment. Interest on Share Application Money: The TPO charged interest @8% on share application money given to AEs, treating it as a loan. The Tribunal, following its own decisions in earlier years, held that the transaction should not be re-characterized as a loan and deleted the imputed interest. Guarantee Commission: The TPO charged a 1.75% guarantee commission on corporate guarantees provided to AEs. The Tribunal directed the TPO to recompute the guarantee commission @0.5%, following its earlier decision and considering the period for which the guarantee was operative. Upward Adjustment on Sale of Shares: The TPO revalued shares sold to AE using financials from a later period, leading to an upward adjustment. The Tribunal remitted the issue back to the AO/TPO to examine the NAV method of valuation as adopted by the assessee, excluding the revaluation reserve for the correct period. 2. Corporate Tax Disallowances: Disallowance of Deduction u/s 10B: The AO denied the deduction on the grounds that the preparation of dossiers did not amount to manufacture or production. The Tribunal, following its earlier decision, held that the assessee is entitled to the deduction as the creation of dossiers involves production activities. Disallowance of FCCB Premium: The AO disallowed the premium on redemption of FCCBs, treating it as a contingent liability. The Tribunal, following its earlier decision, allowed the deduction, noting that the liability was crystallized in the year of issue. Disallowance of FCCB Issue Expenses: The AO disallowed FCCB issue expenses. The Tribunal, following its earlier decision, allowed the deduction. Disallowance u/s 14A: The AO made a disallowance under section 14A despite the assessee not earning any exempt income. The Tribunal remitted the issue back to the AO for fresh consideration, directing to follow the principles laid down in earlier decisions and relevant High Court rulings. 3. Adjustments to Book Profits under Section 115JB: The Tribunal directed the AO to exclude the provision for leave encashment from the book profits computation, following the DRP's directions. 4. Additional Grounds and Issues Raised by the Assessee: Weighted Deduction u/s 35(2AB): The AO disallowed the weighted deduction due to the lack of expenditure approval from DSIR. The Tribunal held that the assessee should be allowed the weighted deduction as claimed, following earlier judicial pronouncements. Credit for Advance Tax: The Tribunal directed the AO to examine and allow credit for advance tax as claimed by the assessee. Interest u/s 234C: The Tribunal directed the AO to charge interest u/s 234C on the returned income only. Disallowance u/s 14A in Book Profits: The Tribunal directed the AO to delete the addition of disallowance under section 14A while computing book profit under section 115JB, following earlier decisions. Conclusion: The appeal was allowed in favor of the assessee, with directions for fresh consideration and adjustments by the AO/TPO based on the Tribunal's findings and earlier judicial precedents.
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