2023 (12) TMI 332 - AT - Income Tax

TP Adjustment - Interest on outstanding receivables due from AEs - Whether outstanding receivables is not covered in the definition of international transaction as defined u/s 92B? - HELD THAT - In the present case, DRP has not considered the submissions of the assessee on trade receivables and it is categorically mentioned that the period granted for furnishing the details was too short and therefore, there was violation of principles of natural justice and thereafter, DRP has directed the TPO to grant one more opportunity to the assessee to explain and decide the issue. TPO has passed the order pursuant to the direction of DRP on 22.06.2022 and thereafter, the AO has passed the order on 30.06.2022. In our view and in the light of the submissions made before us by AR that sufficient opportunity was not granted by the lower authorities, we are of the opinion that one more opportunity is required to be given to the assessee to explain its case before the TPO. We deem it appropriate to remand back the matter to the file of AO / TPO for passing a fresh order. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues involved:
The judgment involves issues related to imputing interest on outstanding receivables due from Associated Enterprises (AEs), erroneous initiation of penalty under section 274 r.w.s 270A of the Income Tax Act, 1961.

Imputing interest on outstanding receivables due from AEs:
The appeal was filed by the assessee against the assessment order passed by the Deputy Commissioner of Income Tax, challenging the imputation of interest on outstanding receivables due from AEs. The grounds raised by the assessee included arguments against the imputation of interest, stating that outstanding receivables were not covered under the definition of international transactions, and that they were closely linked to the principal transaction of services. The assessee contended that no separate benchmarking was required as the working capital adjustments already considered the impact of outstanding receivables. The issue also involved the applicability of interest rates prevalent in the international market for foreign currency loans, ad-hoc credit period considerations, and directions from the Dispute Resolution Panel (DRP).

Erroneous initiation of penalty under section 274 r.w.s 270A:
The judgment addressed the issue of the erroneous initiation of penalty under section 274 r.w.s 270A of the Act. The Assessing Officer was criticized for initiating penalty proceedings without justification, leading to errors in law and facts. The assessee argued that the penalty proceedings were unjustified, emphasizing the legal errors in the initiation of penalty under the specified sections of the Act.

Summary of Judgment:
The appellant, engaged in IT and IT Enabled Services, challenged the assessment order concerning international transactions with AEs. The Transfer Pricing Officer (TPO) made adjustments, leading to a draft assessment order with additional adjustments. Despite objections raised before the DRP, the TPO confirmed the adjustments related to interest on delayed receivables transactions. The appeal contended that the authorities failed to consider invoices and payments, leading to an unjust denial of relief to the assessee. The Tribunal noted discrepancies in the assessment process, highlighting violations of natural justice principles. Consequently, the matter was remanded for a fresh order, emphasizing the need for adequate opportunity for the assessee to present its case. The decision cited relevant legal precedents and directed the TPO to reevaluate the issue in compliance with the law. Ultimately, the appeal was allowed for statistical purposes, granting the assessee another chance to address the concerns raised during the assessment.