2017 (10) TMI 111 - AT - Income Tax

TPA - international transaction - Interest on receivables on the working capital - Held that - As decided in case of Kusum Health Care Pvt. Ltd 2017 (4) TMI 1254 - DELHI HIGH COURT there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterised the transaction - Decided in favour of assessee. Excess deprecation claim on fixed assets - Held that - Similar issue was raised in AY 2008- 2009 which was remanded back to the Assessing Officer to verify the claim of depreciation. Thus on similar line in the present Assessment year also the Assessing Officer is directed to verify the claim of the assessee as per law.

Summary

Issues:
1. Interest on receivable interest on credit period granted by the Company under normal trade practices.
2. Depreciation disallowance on fixed assets acquired.
3. Computation of demand by the Assessing Officer.

Interest on Receivable Interest:
The appeal contested interest on credit period granted by the company, treating outstanding receivables as separate international transactions. The Ld. AR argued against separate adjustments once working capital adjustment is granted. Citing the case of Kusum Health Care Pvt. Ltd, it was emphasized that interest on receivables should not be considered separately. The Tribunal upheld this view, stating that outstanding receivables should not distort pricing or profitability. Grounds 4 & 5 were allowed in favor of the assessee.

Depreciation Disallowance:
Regarding depreciation disallowance, the issue was previously remanded back to the Assessing Officer for verification in AY 2008-2009. The current appeal similarly directed the Assessing Officer to verify the depreciation claim as per law. Grounds 14 & 15 were partly allowed, remanding the matter for further examination.

Computation of Demand:
The Assessing Officer's computation of demand was challenged, with specific amounts disputed. However, no detailed analysis or resolution was provided in the judgment regarding this issue.

In conclusion, the judgment addressed the issues of interest on receivables and depreciation disallowance comprehensively, providing legal interpretations and references to relevant case laws. The decision favored the assessee on the interest issue based on the principles established in the Kusum Health Care Pvt. Ltd case. The matter of depreciation disallowance was partially allowed, with a remand for further verification by the Assessing Officer.