2021 (12) TMI 92 - AT - Income Tax

TP Adjustment - adjustment of notional interest on loans and advances - Interest is charged on the outstanding debit balance of debtors with AE - HELD THAT - As borne out on the record and not disputed that the AE company went into liquidation due to heavy losses and was dissolved as per the Governing Laws of the USA. The explanations were filed with documentary evidence in respect of liquidation of the company in USA - We are of the view that in such circumstances, the recovery of the amount due is doubtful and the TPO charging interest on such outstanding balances and advances cannot be treated as prudent practice. Therefore we considering the overall facts and the circumstances direct the TPO not to charge interest in respect of balance of advances and outstanding receivables of Peacock Diamond System Inc.USA and partly allow the grounds of appeal of the assessee. Additional claim of bad debts written off during the year - AO has not granted the deduction of bad debts written off as it is a fresh claim made in the assessment proceedings without fallowing proper remedy - HELD THAT - We find as per the explanations submitted, the assessee should not be denied legitimate claim if supported with proper evidences and has to fallow due process of Law. Therefore we considering the facts direct the Assessing officer to verify the claim and examine the evidences. Accordingly, we restore this issue to the file of the A.O. with the above directions and to adjudicate on merits. The assessee should be provided adequate opportunity of hearing and shall cooperate in submitted the information. As in respect of setoff of brought forward losses and unabsorbed depreciation. We find there are conflicting calculations of the assessee which goes back to A.Y. 2008-09 and accumulated business losses and depreciation in the subsequent years which requires proper verification of facts and figures carried forwarded. Accordingly, we remit this disputed issue to the file of the Assessing officer to check and verify the accumulated brought forward claims and grant the setoff in the current year and allow the ground of appeal for statistical purpose. Non grant of TDS credit - HELD THAT - We direct the A.O. to consider the information of tax credit as reflected in Form no 26AS and grant the TDS credit as per the law. Whereas, the charging of interest u/s 234B of the Act is consequential and requires no adjudication.

Summary

Issues involved:
1. Challenge to the order passed by the Assessing Officer, DRP, and TPO.
2. Determination of total income by the AO.
3. Consideration of evidence and submissions by the AO, DRP, and TPO.
4. Adjustment towards notional interest on loans and advances.
5. Adjustment towards notional interest on outstanding AE debtors.
6. Claim on account of advances written off.
7. Disallowance of brought forward business losses and unabsorbed depreciation.
8. Non-granting of TDS credit.
9. Levying of interest under section 234B of the Income Tax Act.

Analysis:
1. The appeal was filed against the order of the Assessing Officer under sections 143(3) and 144C(13) of the Income Tax Act, 1961, following the directions of the Dispute Resolution Panel (DRP) under section 144C(5) of the Act. Various issues were raised challenging the legality of the orders passed by the AO, DRP, and TPO.

2. The assessee, engaged in manufacturing and sale, declared a total loss in the return of income. The AO referred the matter to the Transfer Pricing Officer (TPO) due to international transactions with its Associate Enterprises (AE). The TPO made adjustments, including notional interest on loans and advances, based on Form.no.- 3CEB for the financial year 2011-12.

3. The AO passed a draft assessment order, making various adjustments, which led to the final assessment order with a total income determination. The DRP's directions were considered in the final order, leading to the assessment of total income. The appellant challenged these orders before the Tribunal.

4. The Tribunal considered the arguments regarding notional interest on loans and advances provided to AE, especially in cases where the AE had gone into liquidation. The Tribunal directed the TPO not to charge interest on outstanding balances in such cases.

5. The Tribunal directed the AO to verify and examine the additional claim of bad debts written off during the year, emphasizing the need for proper evidences and following due process of law.

6. Regarding the setoff of brought forward losses and unabsorbed depreciation, the Tribunal remitted the issue to the AO for proper verification of accumulated claims and granting setoff in the current year.

7. The Tribunal directed the AO to consider TDS credit as per Form no 26AS and grant the credit accordingly. The issue of interest under section 234B was considered consequential.

8. The appeal was partly allowed for statistical purposes, with the Tribunal providing directions on various issues and remitting some back to the AO for proper examination.

This detailed analysis covers the various issues raised in the judgment, outlining the legal arguments and decisions made by the Tribunal.