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2023 (7) TMI 846 - AT - Income TaxTP Adjustment - Interest on receivable - TPO treated the receivable as a separate international transaction and stated that interest needs to be charged on the same - TPO on perusal of all the details furnished noticed that the assessee has not charged interest on the receivables though the same has been outstanding for more than 90 days - HELD THAT - It is a settled position now that interest on delayed receivables is a separate international transaction and has to be benchmarked accordingly. AO in the present case has applied a rate of 5.5% benchmarking the transaction against the rate at which the assessee is charging interest on the loan transactions with the AE. With regard to the submission of allowing credit period of 90 days, we notice that the TPO has excluded the receivables outstanding of a period of less than 90 days while arriving at the adjustment towards interest on delayed receivables which would mean that the TPO has allowed the credit period of 90 days. While calculating the interest for receivable outstanding for more than 90 days, the TPO has taken the entire period of outstanding without allowing any credit period. We, therefore, see merit in the submission of the Ld.AR that there should be uniformity in the stand taken by the TPO and accordingly credit period of 90 days should be applied while arriving at the interest on delayed receives on outstanding for more than 90 days. Accordingly, we direct the TPO / AO to revise the interest working after taking into consideration the credit period of 90 days as has been allowed in the case of invoices outstanding for less than 90 days. Interest on interest outstanding/interest receivable - TPO noticed that the assessee has given loans to its AE and has been charging interest @5.5% - HELD THAT - Assessee did not provide any details before the lower authorities to substantiate the said submissions. Further we notice that the assessee has also not shared any evidence or efforts made towards recovery of the interest amount. We, therefore, see merit in the argument of DR that the assessee has not properly substantiated the reasons for delay in interest receivables which has resulted in improving the liquidity position of the AE and that the assessee needs to be compensated accordingly. AR during the course of hearing argued that there is no provision to charge interest on interest since as per the loan agreement there are only interest terms agreed with the AEs. In our considered view, this contention cannot be accepted since in a transfer pricing transaction what needs to be looked into is that in an uncontrolled similar transaction whether the third party would charge such interest or not. The interest on a loan is a compensation received towards the utilisation of funds given by the assessee to its AE and the interest element on the said loan if not paid improves the liquidity position of the AEs and become part and parcel of the said loan transaction. Therefore, no infirmity in the action of the TPO in treating the interest receivable as a loan outstanding and charging interest on the same accordingly. We confirm the TP adjustment made and dismiss the ground raised by the assessee. Addition while computing the total income as any other addition u/s 28 to 44DA - HELD THAT - As in the final assessment order, it is noticed that the AO had retained the disallowance without any detailed discussion on the directions of the DRP. We, in this regard direct the AO to verify the submissions of the assessee in this regard and allow the claim in accordance with law. Prior period expenses - HELD THAT - We notice that the assessee has submitted additional evidences before the DRP and the DRP after perusing the details submitted, has given a clear direction to the AO to verify and allow the expenditure in accordance with law. However, the AO in the final assessment order did not consider the said directions of the DRP. We, therefore, remit the issue back to the AO with a direction to consider the evidences submitted and allow the claim of the assessee in accordance with law after giving a reasonable opportunity of being heard to the assessee.
Issues Involved:
1. Charging of interest on accounts receivable and interest receivable from Associated Enterprises. 2. Addition while computing total income under any other addition under sections 28 to 44 DA of the Act. 3. Additional claim of prior period expenses pertaining to A.Y. 2018-19. 4. Penalty proceedings under section 270A of the Act. Summary: Issue 1: Charging of Interest on Accounts Receivable and Interest Receivable from Associated Enterprises The TPO identified that the assessee had accounts receivable outstanding for more than 90 days without charging interest, treating it as a separate international transaction. The TPO calculated interest at 5.5%, resulting in a TP adjustment of Rs. 5,32,605/-. The assessee contended that benchmarking receivables as loans was incorrect and charging notional interest was hypothetical. The DRP upheld the TPO's decision, rejecting the assessee's entity-specific reasons for delays. The Tribunal directed the TPO/AO to revise interest calculations, considering a 90-day credit period. Issue 2: Addition While Computing Total Income Under Sections 28 to 44 DA of the Act The AO added Rs. 3,26,32,245/- to the total income, which the assessee claimed was already included in the ITR form. The DRP directed the AO to verify this claim. The Tribunal ordered the AO to verify the assessee's submissions and allow the claim in accordance with the law. Issue 3: Additional Claim of Prior Period Expenses Pertaining to A.Y. 2018-19 The assessee claimed prior period expenses amounting to Rs. 1,68,16,899/- for A.Y. 2018-19, which were adjusted in subsequent years' retained earnings. The DRP directed the AO to verify and allow these expenses if satisfactorily explained. The Tribunal remitted the issue back to the AO to consider the evidences and allow the claim after giving the assessee a reasonable opportunity of being heard. Issue 4: Penalty Proceedings Under Section 270A of the Act This issue was deemed consequential and did not warrant separate adjudication. Conclusion: The appeal was partly allowed, with directions for the AO to verify and adjust the claims as per the Tribunal's instructions.
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