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2024 (12) TMI 1056 - AT - Income TaxTP adjustment - interest on outstanding receivables from the Associated Enterprises (AEs) - HELD THAT - We find that the decisions relied upon by the Learned AR squarely applies to the facts of the instant case before us. On perusal of financials of the assessee, it is seen that there is no interest expenditure expended by the assessee, which goes to prove that the assessee company is a debt free company. The reliance on the decision of Boeing India Pvt limited 2022 (10) TMI 498 - DELHI HIGH COURT is well placed wherein it was held that where Assessing Officer had made adjustment in hands of assessee-company on account of interest on outstanding receivables, since assessee-company was a debt free company and no interest was paid to creditor/supplier nor any interest had been earned from unrelated party, question of receiving any interest on receivables did not arise. DRP had directed the Learned TPO to grant working capital adjustment on the provision of services segment, which was not given by TPO, which results in violation of provisions of section 144C(10) of the Act. In any event, once the same is granted, there is no need to separately impute interest on outstanding receivables as it would get subsumed in the working capital adjustment itself. This proposition has been accepted in Kusum Health Care Private Limited 2017 (4) TMI 1254 - DELHI HIGH COURT Hence we hold that there is no need to impute any interest on outstanding receivables separately in the peculiar facts and circumstances of the case of the assessee company herein. Accordingly, the Ground Nos. 1 2 raised by the assessee are allowed. Rejection of claim made towards deduction of expenditure u/s 35DD based on the assessment order for Assessment Year 2017-18 - assesee sought to claim one-fifth as eligible for deduction under section 35DD of the Act vide letter dated 2-8-2021 as time limit for filing revised return for Assessment Year 2018-19 had already expired - HELD THAT - We find that the last paragraph of the said Supreme Court decision in Goetze India Limited 2006 (3) TMI 75 - SUPREME COURT clearly specifies that the restriction does not apply to appellate authorities especially the Tribunal. Hence, we direct AO to grant deduction under section 35DD of the Act for 1/5th portion of amalgamation expenditure while giving effect to this order. Accordingly, the Ground No. 3 raised by the assessee is hereby allowed. Levy of interest u/s 234B is consequential in nature. Levy of interest u/s 234C should be charged only on the returned income and not on the assessed income.
Issues:
1. Challenge to transfer pricing adjustment on interest on outstanding receivables from Associated Enterprises (AEs). 2. Rejection of claim for deduction under section 35DD of the Act. 3. Challenge to levy of interest under section 234B and 234C of the Act. Transfer Pricing Adjustment on Interest on Outstanding Receivables: The appeal concerned the challenge to a transfer pricing adjustment of Rs 10,34,642 made on interest on outstanding receivables from AEs. The Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) for benchmarking international transactions. The TPO proposed an upward adjustment on interest on delayed receivables from AEs, which was reduced to Rs 10,34,642 by the Dispute Resolution Panel (DRP). The argument that interest on outstanding receivables could not be considered a separate international transaction was rejected, citing the decision of the Madras High Court. The appellant contended that interest income is not associated with sales and highlighted the absence of interest expenditure in the financials, indicating a debt-free status. The Tribunal held that no separate imputation of interest on outstanding receivables was required, especially in light of the debt-free status and non-granting of working capital adjustment by the TPO. Rejection of Deduction Claim under Section 35DD: The appellant challenged the rejection of a claim for deduction under section 35DD of the Act. The claim was based on an additional deduction sought for the second year of deduction under section 35DD, related to amalgamation expenditure disallowed in the previous assessment year. The authorities denied the claim, relying on a Supreme Court decision. The Tribunal noted that the restriction did not apply to appellate authorities, directing the Assessing Officer to grant the deduction for the eligible portion of amalgamation expenditure. Consequently, the appeal on this issue was allowed. Levy of Interest under Sections 234B and 234C: The appellant contested the levy of interest under sections 234B and 234C of the Act. The Tribunal held that interest under section 234C should be charged only on the returned income, not the assessed income. The challenge to the levy of interest under section 234B was considered consequential in nature. Ground number 5 was disposed of accordingly. In conclusion, the Tribunal partly allowed the appeal, ruling in favor of the appellant on the issues related to transfer pricing adjustment on interest on outstanding receivables and the rejection of the deduction claim under section 35DD. The challenge to the levy of interest under sections 234B and 234C was also addressed, with specific directives provided by the Tribunal.
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