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2022 (12) TMI 1203 - AT - Income TaxTP adjustment made in respect of interest on delayed receivables - As submitted that the assessee has received advances from the AE in some cases, which should have been netted off - HELD THAT - We are of the view that there is merit in his contentions. As rightly submitted by Ld A.R, the Arm s Length Price of transactions have to be determined by following any one of the methods prescribed under the Income tax Rules. Admittedly, the TPO/DRP, in the instant case, has not followed the same. Accordingly, we deem it proper to restore this issue to the file of AO/TPO for determining the ALP, i.e., interest on delayed receivables by following the rules. The assessee is free to raise all the contentions before the AO/TPO. Appeal filed by the assessee is treated as allowed for statistical purposes.
Issues:
Transfer pricing adjustment on interest for delayed receivables. Analysis: The appellant challenged the assessment order for the assessment year 2016-17, specifically disputing the transfer pricing adjustment made in relation to interest on delayed receivables. The appellant, a software development services provider, received payments from its Associated Enterprise (A.E.) for various services. The Transfer Pricing Officer (TPO) determined that delayed receivables constituted an international transaction, proposing an interest rate adjustment. The TPO calculated the interest on delayed receivables at Rs.1,17,60,075/- using a specific interest rate. The Dispute Resolution Panel (DRP) directed the TPO to adopt a different interest rate, resulting in a revised interest amount of Rs.1,91,11,071/-. The appellant contended that the TPO did not conduct a proper benchmarking analysis as required by transfer pricing provisions. The appellant also argued that certain advances received from the A.E. should have been considered, and interest should have been charged based on the actual delay period. Consequently, the appellant requested a fresh examination of the issue by the AO/TPO. The Tribunal acknowledged the appellant's arguments, noting that the determination of the Arm's Length Price (ALP) for transactions must adhere to prescribed methods under the Income Tax Rules. In this case, the TPO and DRP failed to follow the prescribed methods, leading the Tribunal to remand the issue back to the AO/TPO for a proper determination of the ALP for interest on delayed receivables. The Tribunal granted the appellant the liberty to present all contentions before the AO/TPO for reconsideration. The Tribunal considered the other grounds raised by the appellant as consequential and allowed the appeal for statistical purposes. In conclusion, the Tribunal set aside the transfer pricing adjustment on interest for delayed receivables, directing a fresh examination by the AO/TPO in accordance with the prescribed methods under the Income Tax Rules. The appellant was granted the opportunity to raise all relevant contentions before the tax authorities. The appeal was treated as allowed for statistical purposes, emphasizing the need for a proper benchmarking analysis and adherence to transfer pricing provisions in determining the Arm's Length Price for international transactions involving interest on delayed receivables.
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