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2023 (8) TMI 377 - AT - Income TaxTP adjustment - corporate guarantee - international transaction or not? - as alleged standby letter of credit given by the assessee on behalf of its associate enterprise (AE) - AO was of the view that the transactions in relation to Corporate Guarantee (CG) and standby letter of credit (SBLC) were international transactions and proceeded to make a reference to the ld. TPO for determining the arm s length price - HELD THAT - CG and SBLC was intended to be issued only from 01.04.2011 which falls in AY 2012-13. Hence, this fact goes to prove categorically that no guarantee/SBLC was neither intended nor given by the assessee on behalf of the aforesaid two parties upto 31.03.2011. Hence, there is no international transaction at all carried out by the assessee. In any case, only in the event of acquisition of the aforesaid two overseas entities by the assessee, they would become Associated Enterprises in the capacity of subsidiaries. We hold that the assessee including these transactions of CG and SBLC intended to be issued as an international transaction in its transfer pricing study report, is only as a matter of abundant caution and hence the argument of the assessee in this regard holds lot of force. In the absence of any international transaction and in the absence of any existence of AE, there is no requirement of any benchmarking. Hence, the transfer pricing adjustment made on the alleged issuance of CG and SBLC is hereby directed to be deleted for the AY 2011-12. Accordingly, grounds No.2 to 4.5 raised by the assessee are allowed on merits. TP Adjustment made on account of interest on outstanding receivables from AE - In the instant case, the assessee is exporting goods to its AEs as well as to its Non-AEs. It has been the argument of the assessee that it is not charging interest on delayed receivables from both AEs and Non-AEs. In order to give the true weightage to the provisions of Chapter X of the Act, every transaction carried out with the AE is to be benchmarked if it falls within the ambit of an international transaction as defined in Section 92B of the Act read with Explanation thereon. Hence interest on delayed receivables from AEs would have to be benchmarked separately by the assessee. TPO, in the instant case, had granted credit period of 70 days to the assessee to recover its dues from its AEs. Hence, the ld. TPO is directed to look into the following - (a) In respect of bills raised on or after 01.04.2010 to its AEs, what was the date of realization and whether the same has been realized within the credit period allowed of 70 days. If not, interest is to be imputed on those bills also. (b) In respect of outstanding bills as on 01.04.2010 (i.e., opening balance) from these AEs, what was the date of realization thereof and if the bills are realized beyond the granted credit period of 70 days, interest is to be imputed on those bills also. The aforesaid directions to ld. TPO to recompute the interest on outstanding receivables would meet the ends of justice as it would be in true spirit of the decision of the Hon ble Delhi High Court and also the provisions of Explanation (iii) to section 92B of the Act. With these directions, ground Nos.5 and 5.1 raised by the assessee are allowed for statistical purposes.
Issues Involved:
1. Transfer pricing adjustment on account of corporate guarantee and standby letter of credit. 2. Transfer pricing adjustment on account of interest on outstanding receivables from associated enterprises (AEs). 3. Set-off of brought forward losses and credit for advance tax. 4. Interest levied under section 234D and non-granting of interest under section 244A. 5. Initiation of penalty proceedings under section 271(1)(c). Summary: 1. Transfer Pricing Adjustment on Account of Corporate Guarantee and Standby Letter of Credit: The assessee challenged the transfer pricing adjustment related to the corporate guarantee (CG) and standby letter of credit (SBLC) given on behalf of its associate enterprises (AEs). The Tribunal noted that the transactions were intended but not materialized, and thus, no actual international transaction occurred. The Tribunal held that since the acquisition of the overseas entities was called off, there were no AEs and no international transaction warranting benchmarking. Consequently, the transfer pricing adjustment for CG and SBLC was deleted for AY 2011-12 and AY 2012-13. 2. Transfer Pricing Adjustment on Account of Interest on Outstanding Receivables from AEs: The assessee argued that the working capital adjustment granted by the TPO subsumed the interest on outstanding receivables. The Tribunal directed the assessee to furnish detailed data on bill-wise outstanding receivables for preceding and subsequent years to establish a pattern of realization. The TPO was instructed to recompute the interest on outstanding receivables, considering the credit period of 70 days. The Tribunal emphasized that the interest on delayed receivables must be benchmarked separately, and the directions were given to ensure compliance with the provisions of Explanation (iii) to section 92B and the Delhi High Court's decision in Kusum Healthcare Pvt. Ltd. 3. Set-off of Brought Forward Losses and Credit for Advance Tax: The Tribunal remanded the issue of set-off of brought forward losses and credit for advance tax to the Assessing Officer (AO) for factual verification and denovo adjudication in accordance with the law. 4. Interest Levied Under Section 234D and Non-Granting of Interest Under Section 244A: The Tribunal directed the AO to verify the facts regarding the levy of interest under section 234D and the non-granting of interest under section 244A. The AO was instructed to charge interest under section 234D, if applicable, and grant interest under section 244A in accordance with the law if the order results in a refund. 5. Initiation of Penalty Proceedings Under Section 271(1)(c): The Tribunal deemed the initiation of penalty proceedings under section 271(1)(c) as premature and dismissed the ground at this stage. Conclusion: Both appeals of the assessee were partly allowed for statistical purposes, with specific directions for the AO and TPO to follow for accurate adjudication. The decision emphasized the importance of detailed verification and adherence to legal provisions in transfer pricing and related tax matters.
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