2023 (2) TMI 445 - AT - Income Tax

TP Adjustment - International transaction - interest on delayed collection of receivables - assessee proposed adjustment in relation to interest on delayed collection of receivables by applying the 6 months LIBOR plus 400 basis points after granting credit period of 30 days - HELD THAT - This Bench in case of Instrumentation Corpn. Ltd. v. Asstt. DIT 2016 (7) TMI 760 - ITAT KOLKATA held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE. hence it is an international transaction as per explanation to section 92 B of the Act. Alternatively it also argued by the Ld.AR that in TNMM working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables as loans and advances to associated enterprise would amount to double taxation. We deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say the assessee will be allowed a reasonable opportunity of being heard in accordance with law. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration then the rate of interest to be charged must LIBOR 300 basis points in accordance with the principles laid down in case of CIT vs. Cotton Naturals (I) Pvt. Ltd 2015 (3) TMI 1031 - DELHI HIGH COURT by considering a credit of 90 days. Mistake in the computation of income - Computation of tax liability u/s 115JB - increase in book profit u/s 115JB and computation of tax liability - computational errors - adjustment on account of deferred tax - HELD THAT - As per explanation to Section 115JB(2) of the Act the amount of deferred tax if any credited to statement of profit and loss is to be reduced while calculating the amount of book profits as per MAT provisions.Accordingly in the instant case the deferred tax which has been credited to statement of profit and loss account was reduced while computing the book profits in the return of income filed by the Assessee. However the same is not considered in the computation sheet annexed to the Order passed by the Ld. AO. AO was not justified and has erroneously computed interest u/s. 244A thereby resulting in short grant of interest. Where an appeal is filed against an order passed by the Ld.CIT(A) any mistake that arises in the computation of income could be rectified only in an order passed by this Tribunal as the principle merger would be applicable. We therefore reject the argument advanced by Ld.DR. We direct the Ld.AO to compute the taxable income in the hands of the assessee in accordance with law by considering the objections raised by the assessee hereinabove in Grounds 3-6.

Summary

Issues Involved:
1. Transfer Pricing (TP) adjustments and determination of arm's length price (ALP) for outstanding receivables from associated enterprises (AEs).
2. Erroneous initiation of penalty under section 270A of the Income Tax Act.
3. Increase in book profits under section 115JB and computation of tax liability.
4. Erroneous computation of total income.
5. Shortfall in computation of interest under section 244A.

Detailed Analysis:

1. Transfer Pricing Adjustments:
The primary issue revolves around the TP adjustments made by the Assessing Officer (AO) and Transfer Pricing Officer (TPO), specifically regarding the outstanding receivables from AEs. The assessee argued that the outstanding receivables should not be considered a separate international transaction and that the ALP for the provision of services had already been determined. The TPO had proposed adjustments by applying the 6-month LIBOR plus 400 basis points after a 30-day credit period. The Dispute Resolution Panel (DRP) directed the TPO to use the SBI short-term deposit rates and a 45-day credit period. The Tribunal referred to various judgments, including those from the Delhi High Court, and concluded that the issue should be reconsidered, directing the AO/TPO to follow the principles laid down in relevant cases, specifically using LIBOR + 300 basis points for interest calculations if necessary.

2. Erroneous Initiation of Penalty under Section 270A:
The assessee contested the initiation of penalty proceedings under section 270A, arguing that there was no underreporting of income. The Tribunal did not provide a separate detailed analysis for this ground but included it in the overall directive to the AO to reconsider the computations and adjustments.

3. Increase in Book Profits under Section 115JB:
The assessee challenged the increase in book profits computed by the AO, arguing that the AO erroneously considered the book profit at INR 36,97,81,854 instead of INR 36,84,54,490. The Tribunal noted the computational errors, particularly the incorrect consideration of deferred tax and interest on delayed TDS remittance. The Tribunal directed the AO to recompute the book profits correctly, taking into account the adjustments mentioned by the assessee.

4. Erroneous Computation of Total Income:
The assessee pointed out an arithmetical error in the computation of total income as per the intimation under section 143(1). The Tribunal acknowledged the mistake and directed the AO to rectify the computation in accordance with the law.

5. Shortfall in Computation of Interest under Section 244A:
The assessee argued that there was a shortfall in the computation of interest under section 244A. The Tribunal directed the AO to recompute the interest correctly, addressing the shortfall.

Conclusion:
The Tribunal allowed the appeal partly, directing the AO/TPO to reconsider the TP adjustments for outstanding receivables, rectify computational errors in book profits and total income, and recompute interest under section 244A. The Tribunal emphasized the need for proper inquiry and adherence to legal principles in determining the ALP and other computations. The appeal was allowed for statistical purposes, with directions for the AO to provide a reasonable opportunity for the assessee to be heard.