2023 (11) TMI 190 - AT - Income Tax

TP Adjustment - interest on delayed receivables - Assessee pleaded that the deferred receivables do not constitute a separate international transaction requiring benchmarking and such a treatment is bad under law and working capital adjustment would take into account the impact of outstanding receivables and no need to impute any interest on receivables - HELD THAT - TPO in unequivocal terms noted that even in respect of such sample evidence, no ledgers of the parties, confirmation that no interest was charged, any agreement in that respect, or any other evidence to prove that what was mentioned as terms of payment on invoices was not followed was not submitted. Furnishing of mere invoices and calculations is not sufficient compliance with the directions of the learned DRP. If the assessee substantiates the invoices, the supporting evidence like ledgers confirmations etc., at least to the tune of Rs. 18.46 lakhs, such sample evidence would have been sufficient. But it is not so in this case. We, therefore, do not find any merits in the contention of the assessee. Suffice it to say that the interest shall be charged only at 6% p.a. in respect of the receivables outstanding for more than 30 days. Issues No. 3 to 8 area allowed in the above terms. Deduction u/s 10AA - Assessee filed rectification application and the CPC allowed the deduction u/s 10AA - Subsequently, in the draft assessment order AO did not make any disallowance on this account and, therefore, there is no occasion for the assessee to carry this to the learned DRP- HELD THAT - AO missed this aspect while passing the final assessment order dated 18/01/2022 and added the sum by way of disallowance of deduction under section 10AA - These are all undisputed facts. It is not the case of the Revenue that for any reason, the order passed u/s 154 cannot be acted upon - we see no reason not to accept the action of AO while passing the draft assessment order and the order u/s 154 allowing the deduction u/s 10AA of the Act. We, therefore, direct the AO to delete the addition made on this account

Summary

Issues Involved:
1. Determination of Arm's Length Price (ALP) of international transactions.
2. Deduction under Section 10AA of the Income Tax Act.
3. Education cess and secondary and higher education cess.

Summary:

Issue 1: Determination of Arm's Length Price (ALP) of international transactions

The assessee, M/s. Corteva Agriscience Services India Private Limited, filed an appeal against the final assessment order dated 18/01/2022, which incorporated an upward adjustment of Rs. 18,46,834/- suggested by the Transfer Pricing Officer (TPO) for interest on delayed receivables. The Dispute Resolution Panel (DRP) held that deferred receivables constitute a separate international transaction requiring benchmarking. The DRP directed the assessee to submit complete information relating to payables to AEs and non-AEs, which the assessee failed to fully comply with. The Tribunal upheld that outstanding receivables are an international transaction requiring separate benchmarking and agreed that a 6% interest rate on such receivables is fair and reasonable. The Tribunal found no merit in the assessee's contention and ruled that the interest should be charged at 6% p.a. for receivables outstanding for more than 30 days.

Issue 2: Deduction under Section 10AA of the Income Tax Act

The assessee claimed a deduction under Section 10AA amounting to Rs. 6,79,99,896/-. Initially, the CPC did not allow this claim, but later rectified it. The Assessing Officer missed this aspect in the final assessment order and added the disallowed amount. The Tribunal directed the Assessing Officer to delete the addition, as there was no reason to disregard the rectification order allowing the deduction.

Issue 3: Education cess and secondary and higher education cess

The grounds related to education cess and secondary and higher education cess were not pressed by the assessee during the arguments and were dismissed as not pressed.

Conclusion:

The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the deduction under Section 10AA and upholding the DRP's decision on the interest adjustment for delayed receivables. Other grounds were deemed consequential and required no adjudication.