2022 (9) TMI 1083 - AT - Income Tax

TP Adjustment - Interest on delayed receivables - AO treated interest on delayed receivables as a separate international transaction and called on the assessee to furnish invoice-wise details of all trade receivables from AE during the year - HELD THAT - As considering the decision of the of the coordinate bench of the Tribunal and the judgment in the case of AMD (India) Pvt. Ltd. 2018 (8) TMI 2094 - KARNATAKA HIGH COURT we hold that the treatment of interest on deferred receivables is rightly considered as an independent international transaction and benchmarked separately by the revenue authorities. Calculation of interest we notice that the assessee had submitted the invoice wise details before the AO. In respect of the services rendered by the Assessee to its AE, it raises invoices, under which the AE is granted 90 days time to make payment. During the course of hearing the AR brought to our attention that the TPO in assessee s own case for the assessment year 2014-15 has allowed the credit period of 90 days and prayed that the same may be allowed for the year under considered. Since the TPO has not done a separate bench marking for the interest on delayed receivables, we remit the issue back to the TPO for fresh consideration. TPO is directed to consider the payables by the assessee to AEs and also the fact that TPO in the AY 2014-15 has given a credit period of 90 days while computing the interest on receivables. Needless to say that the assessee may be given reasonable opportunity of being heard. Depreciation on networking equipment - HELD THAT - We find that the issue is no longer res-integra and has been decided in the case of Mphasis Ltd. 2021 (3) TMI 1072 - KARNATAKA HIGH COURT wherein held that computer accessories such as switches and routers form part of peripherals of computer system and hence entitled to depreciation at 60%. Following the same, we allow this ground by the assessee. Disallowance u/s. 14A - HELD THAT - In the instant case, the AO has considered the entire investments for the purpose of arriving at the average investments, which is not in conformity with the ratio laid down by the decision of VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI - Respectfully following this decision of the Special Bench, we remit the issue back to the AO to recompute the disallowance u/s. 14A r.w.r.8D(2)(iii) taking into account only those investments for computing average value of investment which yielded exempt income during the year. Non-granting of deduction u/s. 80G - We direct the AO to verify and allow deduction u/s. 80G towards the donations made by the assessee in accordance with law after giving reasonable opportunity of being heard. MAT credit - AO is directed to grant relief of additional MAT credit on the recomputed income as per the directions given above. Short credit of TDS - As submitted that the AO has not given the credit for TDS as has been claimed by the assessee. We therefore direct the AO to verify the claim of the assessee and allow the tax credit in accordance with law.

Summary

Issues Involved:
1. Transfer Pricing adjustment towards interest on outstanding receivables from AE.
2. Restriction of depreciation on computer server and networking equipment to 15%.
3. Disallowance under Section 14A.
4. Non-grant of deduction under Section 80G.
5. MAT credit not granted.
6. Short credit of TDS.

Detailed Analysis:

Transfer Pricing Adjustment Towards Interest on Outstanding Receivables from AE:
During the TP proceedings, the AO treated interest on delayed receivables as a separate international transaction. The TPO applied an interest rate of 6 months LIBOR + 400 basis points, which the assessee contested, arguing that the interest is subsumed in working capital adjustment and that no separate adjustment is required. The DRP upheld the TPO's calculation. The Tribunal referenced the case of Swiss Re Global Business Solutions India Pvt. Ltd., noting that deferred receivables constitute an independent international transaction and must be benchmarked independently. The Tribunal remitted the issue back to the TPO for fresh consideration, directing the TPO to consider the payables by the assessee to AEs and the credit period of 90 days allowed in the previous assessment year.

Restriction of Depreciation on Computer Server and Networking Equipment to 15%:
The assessee argued that networking equipment, including servers and routers, forms an essential part of the computer system and should be eligible for 60% depreciation. The Tribunal cited the Karnataka High Court decision in Mphasis Ltd., which held that computer accessories such as switches and routers are part of the computer system and thus entitled to 60% depreciation. The Tribunal allowed this ground in favor of the assessee.

Disallowance under Section 14A:
The AO made a disallowance under Section 14A r/w Rule 8D, which the DRP directed to be recomputed. The Tribunal noted that the AO did not consider the suo motu disallowance made by the assessee and took the entire investments instead of only those yielding exempt income. The Tribunal referenced the ITAT Delhi Special Bench decision in Vireet Investment (P.) Ltd., which held that only investments yielding exempt income should be considered. The issue was remitted back to the AO to recompute the disallowance accordingly.

Non-Grant of Deduction under Section 80G:
The Tribunal directed the AO to verify and allow the deduction under Section 80G for donations made by the assessee in accordance with the law after providing a reasonable opportunity for a hearing.

MAT Credit Not Granted:
The Tribunal directed the AO to grant additional MAT credit on the recomputed income as per the directions given.

Short Credit of TDS:
The Tribunal instructed the AO to verify the assessee's claim for TDS credit and allow the tax credit in accordance with the law.

Additional Ground - Educational Cess and Secondary & Higher Education Cess:
The assessee did not press for this ground in view of the recent amendment to the statute, and thus, it was dismissed as not pressed.

Conclusion:
The appeal was partly allowed, with specific directions given for each issue to ensure compliance with the law and proper reassessment of the contested points. The Tribunal's decision emphasized the importance of adhering to established legal precedents and ensuring fair treatment of the assessee's claims.