2024 (10) TMI 239 - AT - Income Tax

TP Adjustment - benchmarking of interest on receivables - as argued bench marking the transactions of interest chargeable on delayed recoveries LIBOR rate may kindly be applied - revenue and requested the LIBOR 200 points may kindly be applied - HELD THAT - LIBOR is a rate applicable in the transactions entered into between banks and the loans advanced by these banks are secured by securities. However, in the case of assessee, the transaction is between the assessee and its AE and that too for delayed recoveries i.e. beyond the period agreed for credit. Further a reference can be made to the decisions of Coordinate Bench in the case of Albany Molecular Research 2020 (11) TMI 1018 - ITAT HYDERABAD wherein it is held that where assessee has to receive outstanding from its AE then LIBOR 200 points is the correct rate for determining ALP. We direct the AO to apply LIBOR 200 points adjustment without any further adjustment to benchmark the transaction of interest on receivables. Credit of tax may be given to the assessee, if the assessee would be able to prove before the AO that it has taken over all the assets and liabilities of the amalgamated company - We observe that this issue requires fresh adjudication at the end of AO and in case the assessee would be able to prove that all conditions of merger and acquisitions are fulfilled, i.e. all the assets and liabilities of the transferor company stand merged with assessee then the AO shall allow the claim of assessee in accordance with law. The AO would grant sufficient opportunities to the assessee before taking any view.

Summary

Issues:
1. Assessment under section 92CA (3) of the Income Tax Act, 1961 for the Assessment Year 2017-18.
2. Transfer Pricing Officer's order challenged by the assessee before the Dispute Resolution Panel.
3. Appeal before the Tribunal by the assessee against the order of the Transfer Pricing Officer.
4. Application for Bilateral Advance Price Agreement (BAPA) pending between the assessee and CBDT.
5. Benchmarking of interest on receivables using LIBOR rate.
6. Claim for credit of tax regarding assets and liabilities of an amalgamated company.

Analysis:
1. The appeal arose from the Assessing Officer's order under section 92CA (3) for the Assessment Year 2017-18. The assessee, engaged in software development services, filed its return of income declaring profits under normal provisions and book profits under section 115JB. The case underwent scrutiny, and the assessment was completed based on information submitted by the assessee.

2. The assessee challenged the Transfer Pricing Officer's order before the Dispute Resolution Panel, which partly affirmed the TPO's order. Subsequently, the assessee appealed to the Tribunal, raising 17 grounds of appeal. However, due to an impending Bilateral Advance Price Agreement (BAPA) with the CBDT, the assessee withdrew all grounds except Ground Nos. 4 & 13.

3. Regarding Ground No. 4, the assessee argued for benchmarking interest on receivables using only the LIBOR rate. The Revenue contended for LIBOR +200 points. The Tribunal observed that LIBOR is applicable in bank transactions secured by securities, whereas for transactions between the assessee and its Associated Enterprise (AE) for delayed recoveries, LIBOR +200 points was deemed appropriate based on precedent judgments.

4. Ground No. 13 pertained to the assessee's claim for tax credit related to assets and liabilities of an amalgamated company. The Tribunal directed the Assessing Officer to reexamine the issue, granting the assessee opportunities to prove fulfillment of merger conditions for granting the tax credit.

5. Consequently, the Tribunal partly allowed Ground 4 and allowed Ground 7 for statistical purposes, emphasizing fresh adjudication by the Assessing Officer on the tax credit issue. The order was pronounced on 9th September 2024.