2024 (6) TMI 879 - AT - Income Tax

TP Adjustment - corporate guarantee provided to AE - assessee by giving the corporate guarantee has exposed itself to a big risk for which nothing has been charged in return - HELD THAT - The facts of the case in hand suggest that assessee is not providing any corporate guarantee to any unrelated party thus this is not a business activity in the nature of financial services for the assessee. The security provided by the AE are sufficient in the event of any default giving immunity to the assessee company from any financial loss/burden. Net Profit Rate of AE is also a mere 1.58% thus not suggesting any possibility of shifting of profits or any effective benefit to AE out of this guarantee. Thus the facts of the case in hand are different thus the finding rendered in the case of PCIT Vs Redington (India) Ltd 2020 (12) TMI 516 - MADRAS HIGH COURT are not applicable. Therefore although the assessee has issued the corporate guarantee but the terms of guarantees and securities of the sanction letter of borrowing along with the financial position of AE suggest that there is not any financial burden to the assessee against said borrowing. As there is no bearing on profits income losses or assets of the assessee as a result of provision of guarantee and the judicial precedents cited by the assessee also support this view thus the adjustment made on account of corporate guarantee provided to AE is hereby deleted. Addition of interest on the receivables outstanding from these AEs for more than 60 days - applying rate of interest of 5.475% (based on 6 Month LIBOR plus a mark up of 400 basis points) which was confirmed by Dispute Resolution Panel - HELD THAT - Receivables which are outstanding beyond 60 days have been treated as unsecured loans advanced to AEs and accordingly interest has been imputed thereon. Further TPO has adopted a credit policy of 60 days and the outstanding beyond 60 days have been termed as unsecured loans advanced whereas assessee has been giving a standard credit period of 180 days to AEs as well as third parties. Moreover assessee is not charging any interest on payables too. The credit policy of the assessee is in line with RBI Guidelines on foreign exchange receivables thus there is no basis with the TPO in adopting credit period of only two months. Similar view has been expressed in the decision of GSS Infotech Ltd 2016 (7) TMI 243 - ITAT HYDERABAD which the assessee has relied upon. On the same credit terms export has been made to Non AEs by giving credit period of 180 days and no interest has been charged therefrom. Thus there is complete uniformity in the act of the assessee in not charging any interest from both the AE as well as Non AE debtors and on the same delay the assessing officer is not justified in making the addition of notional interest to the assessee s arm s length price. The ratio decided in the case of CIT Vs Indo American Jewellery Ltd 2013 (1) TMI 804 - BOMBAY HIGH COURT is applicable in the present case also and accordingly the adjustment of interest is deleted.

Issues Involved:
1. Assessment of Total Income
2. Transfer Pricing Adjustments
3. Ante-dated Assessment Order
4. Document Identification Number (DIN) Compliance
5. Consistency in Transfer Pricing Methodology
6. Rejection of Economic Analysis and Filters
7. Corporate Guarantee Adjustment
8. Interest on Receivables
9. Penalty Proceedings

Summary:

1. Assessment of Total Income:
The assessee contested the assessment of total income at Rs. 711,127,562/- as against the returned income of INR 194,976,120/-. The Tribunal found that the adjustment made by the Assessing Officer (AO) was not justified and directed the deletion of the transfer pricing adjustment of Rs. 48,31,00,309/-.

2. Transfer Pricing Adjustments:
The Tribunal addressed multiple grounds related to transfer pricing adjustments, including the use of the Berry Ratio and the rejection of the Cost Plus Method (CPM). The Tribunal held that the assessee's approach of using CPM with Gross Profit Margin/Cost of Production (GP/COP) as the Profit Level Indicator (PLI) was appropriate and directed the deletion of the transfer pricing adjustment.

3. Ante-dated Assessment Order:
The assessee argued that the assessment order was emailed after the due date, making it time-barred. The Tribunal noted that the issue was sub-judice before the Hon'ble Rajasthan High Court and dismissed the grounds without commenting on the merits.

4. Document Identification Number (DIN) Compliance:
The assessee contended that the assessment order was invalid due to the absence of a unique Document Identification Number (DIN). The Tribunal dismissed this ground as the issue was already sub-judice before the Hon'ble Rajasthan High Court.

5. Consistency in Transfer Pricing Methodology:
The Tribunal noted that the assessee's methodology for transfer pricing had been accepted in prior years and found no reason to deviate from it. The Tribunal directed the deletion of the transfer pricing adjustment, emphasizing the principle of consistency.

6. Rejection of Economic Analysis and Filters:
The Tribunal found that the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) had erred in rejecting the economic analysis and filters applied by the assessee. The Tribunal upheld the assessee's approach and directed the deletion of the transfer pricing adjustment.

7. Corporate Guarantee Adjustment:
The Tribunal addressed the adjustment of Rs. 95,29,675/- made on account of the corporate guarantee. The Tribunal found that the corporate guarantee did not have any bearing on the profits, income, losses, or assets of the assessee and directed the deletion of the adjustment.

8. Interest on Receivables:
The Tribunal addressed the addition of Rs. 2,35,21,454/- made to the income of the assessee by treating outstanding receivables as unsecured loans and charging notional interest. The Tribunal found that the assessee's credit policy was in line with RBI guidelines and that no interest was charged on payables to non-AEs. The Tribunal directed the deletion of the adjustment.

9. Penalty Proceedings:
The Tribunal found that the initiation of penalty proceedings u/s 270A r.w.s 274 was premature and rejected the ground.

Conclusion:
The Tribunal partly allowed the appeal, directing the deletion of significant transfer pricing adjustments and other contested additions, while dismissing some grounds as sub-judice or premature.

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