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2025 (3) TMI 526 - AT - Income TaxTP adjustment to Software Development Services and IT Enabled Services - outstanding receivables from Associated Enterprises (AEs) are an international transaction or not? - HELD THAT - As per the amendment to section 92B by way of Finance Act 2012 with retrospective effect from 01/04/2002 that the interest on outstanding receivables is an international transaction and it certainly requires separate benchmarking. Accordingly the extended credit period or credit allowed over and above the agreed period shall be considered as separate international transaction which would be required to be benchmarked. In holding so we refer to the decision of this Tribunal in case of AMD India Pvt Ltd. 2017 (10) TMI 1615 - ITAT BANGALORE Rate of interest - TPO has taken SBIL PLR at 13.27% whereas the assessee on the strength of case law argued that the rate of interest should be LIBOR 200 basis point - DRP in his direction originally has confirmed the action of the TPO. On rectification application filed by the assessee the learned DRP directed the TPO to calculate the interest on delayed period falling with the year under consideration only for the purpose of making addition to the total income of the assessee for the year. The revised direction of learned DRP was not considered in the final assessment order passed by the AO as the same was passed before the issue of revised direction. Therefore we direct the AO to compute the interest on delayed receivable as per revised direction of the learned DRP and after taking the interest at LIBOR 200 basis point. Hence the grounds of appeal raised by the assessee is partly allowed for statistical purposes. Scope of the provisions of section 143(1) - whether the adjustment made in the intimation order u/s 143(1) can be agitated in the proceedings u/s 143(3) or in the appeal proceeding arising out of assessment order u/s 143(3) - Disallowance of deduction u/s 43B - deduction on account of payment of bonus - HELD THAT - We are not inclined to encourage the assessee not to prefer separate appeal against the intimation generated u/s 143(1) but in the interest of justice and fair play we accept the issue arising from intimation under section 143(1) of the Act in the proceedings arising under the provisions of section 143(3) r.w.s. 144C of the Act. We note that the impugned issue raised u/s 143(1) of the Act has not been looked into by the lower authorities therefore in the interest of justice and fair play we are inclined to set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the ground of appeal of the assessee is hereby partly allowed for statistical purposes.
ISSUES PRESENTED and CONSIDERED
The Tribunal considered several core legal questions in this appeal:
ISSUE-WISE DETAILED ANALYSIS 1. TP Adjustments for Software Development and IT Enabled Services The relevant legal framework involves the computation of Arm's Length Price (ALP) under section 92CA of the Income Tax Act. The DRP initially granted partial relief to the assessee, reducing the TP adjustments. However, a subsequent rectification application led to a revised DRP order, which eliminated the adjustments. Despite this, the AO failed to incorporate these revised directions in the final assessment order. The Tribunal noted that the AO's final assessment order was passed before the revised DRP directions. However, the AO is bound to revise the assessment to comply with the DRP's rectified directions. Therefore, the Tribunal directed the AO to delete the entire TP adjustment concerning Software Development and IT Enabled Services. 2. Benchmarking Interest on Outstanding Receivables The TPO treated the delay in receivables from AEs as a separate international transaction under section 92B, requiring an ALP determination. The TPO rejected the assessee's contention that the receivables were part of an overall business arrangement and not subject to separate benchmarking. The TPO calculated interest on delayed receivables using the SBI-PLR rate. The Tribunal affirmed that outstanding receivables constitute an international transaction, requiring separate benchmarking. The Tribunal referred to the decision in AMD India Pvt Ltd, which supports this view. Regarding the interest rate, the Tribunal held that the appropriate rate should be LIBOR plus 200 basis points, aligning with precedents like Hewlett Packard India Software Operations Private Limited. The Tribunal directed the AO to compute interest on delayed receivables per the revised DRP directions and apply the LIBOR plus 200 basis points rate. 3. Disallowance of Deduction under Section 43B The assessee contested the disallowance of a deduction for bonus payments, initially disallowed by the CPC due to discrepancies between the ITR and the Tax Audit Report. The DRP dismissed the objection, stating it could only consider issues from the draft assessment order, not adjustments made by the CPC. The Tribunal clarified that adjustments under section 143(1) are not assessments and can be challenged via rectification applications or appeals. The Tribunal noted that the adjustment was incorporated in the assessment under section 143(3) and directed the AO to verify the claim for deduction under section 43B. 4. Levy of Interest and Penalty Proceedings The issues regarding the levy of interest under sections 234A, 234B, and 234C, and the initiation of penalty proceedings under section 270A, were deemed either consequential or premature. Therefore, these grounds were dismissed as infructuous. SIGNIFICANT HOLDINGS The Tribunal held that the AO must incorporate the rectified directions of the DRP and the revised TPO order, deleting the TP adjustments for Software Development and IT Enabled Services. It established that outstanding receivables from AEs are international transactions requiring separate benchmarking, with interest calculated at LIBOR plus 200 basis points. The Tribunal directed verification of the deduction claim under section 43B, emphasizing that adjustments under section 143(1) are not assessments and can be challenged separately. The appeal was partly allowed for statistical purposes, with specific directions for the AO to revise assessments per the Tribunal's findings.
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