2020 (4) TMI 706 - AT - Income Tax

TP Adjustment - Interest on receivables due from the AE - TPO benchmarked the transaction of interest receivable from the AE applying CUP method as most appropriate method and adopted interest rate as 6 months LIBOR rate 400 basis point - HELD THAT - We find that Hon ble Delhi High Court in the case of Bechtel India Private Limited 2016 (9) TMI 196 - DELHI HIGH COURT held that when the assessee is a debt free company the question of receiving any interest on receivable did not arise. The assessee is a debt free company has not been disputed by the learned Departmental Representative after verification of the financial statements of the assessee. In the circumstances, in view of the binding precedents, the transfer pricing adjustment on account of the interest receivables in the case of the assessee cannot be sustained. The other arguments of the learned counsel of the assessee challenging the transfer pricing adjustment are rendered merely academic and accordingly, we are not giving our finding in respect of those arguments. The transfer pricing adjustment on account of the receivables is accordingly deleted. - Decided in favour of assessee. Disallowance of commission expenses - HELD THAT - Assessee has failed to produce documentary evidence to support that Mr. Pandey provided any kind of services to the assessee. Merely providing some email exchange between him and the assessee is not sufficient to support that Mr. Pandey provided any kind of services in relation to the contracts for which he has been paid commission expenses - During the course of the hearing, the learned counsel of the assessee was asked whether similar commissions have been given in case of the contracts received from private parties, he clearly admitted that no such commission expenses have been paid for executing the contract of the private parties. This fact also support the finding of AO that the commission was given only for procuring contracts from the railway and such kind of commission for procuring contracts from government is not permissible as per the government rules. No documentary evidences to support the service rendered by Mr. Pandey, the reliance placed on the decision in the case of CIT Vs. Conimeters Electricals (P) Ltd. 2009 (8) TMI 1236 - DELHI HIGH COURT is of no help to the assessee.- Decided against assessee.

Summary

Issues:
1. Transfer pricing adjustment on outstanding receivables.
2. Disallowance of commission expenses.

Transfer pricing adjustment on outstanding receivables:

The appeal was against the order passed by the Assistant Commissioner of Income-tax, confirming the action of the Transfer Pricing Officer (TPO) in re-characterizing outstanding receivables as short term loans and advances, resulting in a transfer pricing adjustment of INR 803,801. The TPO applied the Comparable Uncontrolled Price (CUP) method for benchmarking, ignoring internal comparables. The Dispute Resolution Panel directed the TPO to re-compute the interest liability. The Tribunal held that as the assessee was a debt-free company, no adjustment on account of receivables was necessary. The transfer pricing adjustment was deleted, and the appeal was allowed.

Disallowance of commission expenses:

The assessee claimed commission expenses of INR 49,54,459 paid to a third party for administrative and professional support related to railway contracts. The Assessing Officer disallowed the expenses, stating lack of specific services in the agreement and non-allowability of commission for government contracts. The Dispute Resolution Panel upheld the disallowance. The Tribunal noted the absence of evidence supporting services rendered by the third party. The counsel failed to prove the necessity of the commission for government contracts. As no documentary evidence was provided, the disallowance was upheld, and the appeal on this issue was dismissed.

The Tribunal partially allowed the appeal, deleting the transfer pricing adjustment on outstanding receivables but upholding the disallowance of commission expenses. The decision was pronounced on 18th February 2020.