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2019 (11) TMI 341 - HC - Income TaxTP Adjustment - adjustment on account of overdue receivables - HELD THAT - No merit in the present appeal. This is for the reason that the perusal of the transactions undertaken by the assessee with the associated enterprise in respect whereof the TPO sought to make an addition towards interest on delayed payment, shows that no pattern is discernible which would suggest any arrangement or understanding between the assessee and its associated enterprise, that would qualify the said transaction as an international transaction. In fact, the pattern which emerges from several invoices examined by the TPO, is that more often than not, the payment was made by the associated enterprise even before the expiry of the credit period of thirty days. Thus, on facts, there was no basis to make the said addition. The grounds of challenge urged are all factual.
Issues Involved:
1. Condonation of delay in re-filing the application. 2. Transfer Pricing Adjustment on account of AMP expenses. 3. Deduction under Section 10A of the Income Tax Act. 4. Adjustment on account of interest on delayed receivables. Issue-wise Detailed Analysis: 1. Condonation of Delay in Re-filing the Application: The court addressed the application for condonation of delay of 54 days in re-filing the application. The delay was condoned based on the reasons stated in the application, and the application was disposed of accordingly. 2. Transfer Pricing Adjustment on Account of AMP Expenses: The Revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT), which had rejected the appeal concerning Transfer Pricing Adjustment on account of AMP expenses. The ITAT had relied on the Coordinate Bench decision in the assessee’s own case for the assessment year 2010-11, which was upheld by the High Court. The court confirmed that the Tribunal's decision, which deleted the addition on the ground that the Transfer Pricing Officer (TPO) wrongly invoked the provisions of Chapter X of the Act for the AMP spent, stands concluded by the High Court. Special Leave Petitions on this issue are pending before the Supreme Court. 3. Deduction under Section 10A of the Income Tax Act: The ITAT had ruled in favor of the assessee regarding the eligibility for deduction under Section 10A, following its own decision in the assessee’s case for the assessment year 2009-10. This decision was also upheld by the High Court. The Revenue acknowledged that these issues are concluded by the High Court, and Special Leave Petitions are pending before the Supreme Court. 4. Adjustment on Account of Interest on Delayed Receivables: The ITAT followed its decision for the assessment year 2009-10 and invoked the High Court's decision in Principal Commissioner of Income Tax v. Kusum Healthcare Pvt. Ltd. to delete the addition. The TPO had undertaken a study of transactions with the associated enterprise and sought to make an addition of ?8,98,683/- for interest on delayed receivables. The Tribunal noted that the benchmarking of the main international transactions using the transactional net margin method was accepted by the TPO. The Tribunal cited the Mumbai ITAT's decision in Rusabh Diamonds, stating that interest income is part of PBIT and no separate adjustment for interest income on delayed realization is required if the profitability as per PBIT is comparable. The Tribunal also discussed the applicability of the Explanation to Section 92B, introduced by the Finance Act, 2012, which states that capital financing, including deferred payment or receivables, constitutes an international transaction. However, it was emphasized that anti-abuse legislation, such as this, is prospective and cannot be applied retrospectively. The Tribunal concluded that the amendment is effective from April 1, 2012, and does not apply to the assessment year in question. The High Court found no merit in the Revenue's appeal, noting that the transactions did not indicate any arrangement or understanding that would qualify them as international transactions. The pattern showed that payments were often made before the expiry of the credit period. Consequently, the court dismissed the appeal, stating that no question of law arises. Conclusion: The High Court dismissed the Revenue's appeal, upholding the ITAT's decisions on all issues, including the condonation of delay, Transfer Pricing Adjustment on AMP expenses, deduction under Section 10A, and adjustment for interest on delayed receivables. The court emphasized the need for a proper inquiry and analysis by the TPO and confirmed that the amendments to Section 92B are prospective.
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