2024 (12) TMI 1341 - AT - Income Tax

TP Adjustment - international transaction on outstanding due receivable beyond the credit period - Characterization of transaction of overdue receivable - contention of assessee that if there is no policy of charging interest from non-AE and therefore from AE such interest cannot be imputed. Separate international transaction - HELD THAT - As at the point credit period ends the transaction of sales or services ends and in substances the further credit allowed to the other party becomes transaction of providing finance unless some other material is shown. There is no such material placed before us. Therefore we uphold the finding of the learned lower authorities that the outstanding dues beyond an agreed credit period in the case of the assessee are separate international transaction requires to be benchmarked separately and cannot be clubbed together with other transaction mentioned in para 11 B of form number 3CEB and therefore the learned that lower authorities have correctly benchmarked them separately. Period for which interest has been calculated is to be limited to the year under consideration as interest accrued in other years cannot be taxed in this year - Only interest the extent of the financial year have been made by the learned TPO. Looking at the last 4 entries of the computation it is clear-cut that the addition had been made of Rs. 5.65 crores. The adjustment should have been restricted only up to 365 days. Therefore there is a computational error in the addition made by the learned transfer pricing officer. Measures taken by the reserve bank of India for dealing with the Covid 19 pandemic - The financial year for which the relevant relaxation is made by the RBI starts from 1 April 2020. Here in impugned appeal financial year is 1-4-2019 to 31-3-2020. Therefore for the financial year before us the above relaxation by Reserve Bank of India does not apply. Therefore the circular cited of the Reserve Bank Of India does not help the case of the assessee. Thus we reject reliance on extended time period for this AY is not relevant at all. Even otherwise RBI circular has extended the time limit as per exchange control manual and may or may not have any impact on determination of arm s length price to be determined as per the Act off Course considering special effects of COVID -19. Recharacterisation of the transaction - It is not related to the transfer pricing issues. Here the learned transfer pricing officer has also not recharacterised the transaction but has merely applied the law and benchmarked the arm s-length price of the international transaction of overdue receivable from associated enterprises. Commercial expediency in keeping the outstanding receivable - no facts are produced before the Ld. lower authorities or before us that there is any commercial expediency from the side of the assessee to keep the outstanding receivable from the associated enterprises beyond the due dates. This is also apparent from the fact that there are almost 216 entries listed by the learned TPO delay ranging from 61 to 548 days. Argument rejected. Setting off and netting of the outstanding receivable with outstanding payables - We fully agree with the learned authorized representative that if the sum is receivable from associated enterprises A and sum is also payable to the associated enterprises A then the outstanding receivables should be net of first against the outstanding payable provided there are no contrary agreements facts and circumstances. It is for the assessee to show that the outstanding receivable is not received by the assessee beyond the credit period from associated enterprises for the reason that there is an outstanding payable to the same party. Such facts are required to be demonstrated the learned TPO is directed to look into these facts if placed before him. Instant adjustment was not proposed in show cause notice no addition could have been made in the draft and final assessment order - The purpose of show cause notice is to make assessee aware about the likely step by the ld. AO and ld. TPO. Thus assessee has been made aware about the issue in TP Assessment proceedings. If the outstanding dues are considered in margin of the assessee in working capital adjustment it would have also given a better margin to the assessee compared to the comparable margins - We restore this issue back to the file of the learned transfer pricing officer/learned assessing officer with a direction to the assessee to show before the TPO / AO that if the working capital adjustment is made if allowable in accordance with the law the above adjustment of interest on overdue realization of trade receivable would not be required. MAT computation u/s 115JB - HELD THAT - The book profit income has been taken by the learned AO at Rs. 4, 664, 431, 180/ against Rs. 4, 262, 848, 182/ shown by the assessee. We do not find any adjustment made to the book profit in the assessment order. Therefore apparently there is an error which needs to be rectified. Therefore the learned assessing officer is directed to compute the correct book profit u/s 115JB and consequent tax thereon. Accordingly ground number 7 of the appeal is allowed. Non-grant of advance tax tax deduction at source tax collection at source credits and foreign tax credit - We find that if the above credit is not given to the assessee the learned assessing officer is directed to grant the same after proper verification.

Summary

Issues Involved:

1. Adjustment of Arm's Length Price for Overdue Receivables from Associated Enterprises.
2. Legal Validity of the Assessment Order.
3. Corporate Tax Computation under Section 115JB.
4. Non-grant of Advance Tax, TDS, TCS Credits, and Foreign Tax Credit.
5. Initiation of Penalty Proceedings under Section 270A.
6. Interest under Section 244A and Levy of Interest under Section 234C.

Detailed Analysis:

1. Adjustment of Arm's Length Price for Overdue Receivables from Associated Enterprises:

The primary issue revolved around the adjustment of Rs. 14,05,46,884 made by the Transfer Pricing Officer (TPO) for overdue receivables from Associated Enterprises (AEs). The assessee argued that these receivables were interlinked with the main international transactions and should not be benchmarked separately. The TPO, however, treated these as a separate international transaction, applying interest based on LIBOR plus 450 basis points. The Dispute Resolution Panel (DRP) upheld this view, rejecting the assessee's contention that no interest should be imputed due to the absence of a policy of charging interest from unrelated parties. The Tribunal agreed with the lower authorities that the outstanding receivables beyond the agreed credit period constituted a separate international transaction requiring independent benchmarking. However, it noted a computational error in the TPO's calculation and directed the TPO to consider netting off outstanding receivables with payables where applicable. The Tribunal also remanded the issue back to the TPO to consider the assessee's argument regarding working capital adjustments potentially negating the need for the interest adjustment.

2. Legal Validity of the Assessment Order:

The assessee challenged the assessment order's validity, claiming it was time-barred under Section 153 of the Income-tax Act. However, the Tribunal did not find merit in this argument, as the assessee did not substantiate the claim during the proceedings. Consequently, this ground was dismissed.

3. Corporate Tax Computation under Section 115JB:

The assessee contested the computation of book profits under Section 115JB, arguing that the Assessing Officer (AO) erroneously considered assessed profits as book profits without any adjustments reflected in the assessment order. The Tribunal found merit in this contention, noting discrepancies in the computation of book profits and directed the AO to rectify the error and compute the correct book profit and consequent tax.

4. Non-grant of Advance Tax, TDS, TCS Credits, and Foreign Tax Credit:

The assessee argued that credits for advance tax, TDS, TCS, and foreign tax were not granted, particularly concerning the merger with Biocon Research Limited. The Tribunal directed the AO to verify and grant the credits after proper verification, thus allowing this ground of appeal.

5. Initiation of Penalty Proceedings under Section 270A:

The Tribunal dismissed the ground concerning the initiation of penalty proceedings under Section 270A, considering it premature and consequential, as the primary issues were still under consideration.

6. Interest under Section 244A and Levy of Interest under Section 234C:

The Tribunal found the grounds relating to interest under Section 244A and the levy of interest under Section 234C to be consequential or premature, thus dismissing them.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, providing directions for specific issues while dismissing others based on the merits and procedural aspects.