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TMI Blog2025 (3) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground of appeal of the assessee is hereby dismissed as not pressed. 4. The issue raised by the assessee through ground Nos. 2 to 3 of its appeal pertains to the TP adjustment made by the AO to Software Development Services and IT Enabled Services for Rs. 29,03,39,555/- and Rs. 9,08,96,274/- respectively without following the direction of learned DRP. 5. The Briefly stated facts are that the assessee is a private limited company and during the year under consideration, the assessee provided Software development and IT Enable services to the associated enterprises along with other international transactions. 5.1 The assessee was selected for complete scrutiny under CASS to examine the various issues. During the scrutiny assessment reference under section 92CA(1) of the Act was made, for the computation of Arm's length price in relation to international transactions. 5.2 The TPO in his order passed under section 92CA(3) of the Act dated 11/05/2023 proposed upward adjustment of Rs. 35,58,85,941/- and Rs. 11,21,05,193/- towards software development services and IT Enabled services respectively. 6. The aggrieved assessee preferred to file objection before the learned DRP. 6.1 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustments to Rs. 29,03,39,555/- and Rs. 9,08,96,274/- only. Subsequently, the assessee filed a rectification application under Rule 13 of the DRP Rules, 2009, which was accepted, leading to the learned DRP passing a rectification order on 9th July 2024. Consequently, the TPO, in the revised giving effect order dated 10th July 2024, eliminated the entire TP adjustment. 11. Despite this, the AO failed to incorporate the revised directions of the learned DRP and the corresponding effect given by the TPO in the final assessment order. This omission has resulted in an unwarranted addition on account of TP adjustments, which is contrary to the rectified position. 11.1 It is pertinent to note the final assessment order was passed by the AO as on 26th June 2024 whereas the ld. DRP revised its direction dated 7th July 2024. Likewise, the time limit as per section 144C(13) for passing the final assessment order in compliance with original direction was expiring on 30th June 2024 which was also before passing of revised direction of ld. DRP. Therefore, in our view there is no error in the final assessment order to this extent. 11.2 However, it is also imperative for the AO to revise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the taxpayer did not do. Hence, the TPO rejected the set-off argument and treated the delayed receivables as a separate International Transaction requiring an ALP determination. 12.4 As a result, the TPO, worked out the delayed period in excess to 90 days of agreed credit period for each and every invoice and applying interest rate as SBI-PLR i.e. 13.27%. The TPO calculated the ALP of interest on outstanding receivable at Rs. 3,14,25,633/- only. Accordingly, the TPO proposed the final TP adjustment of Rs. 3,14,25,633/-. 13. Being aggrieved the assessee preferred to file objection before the learned DRP. 14. The learned DRP vide direction dated 22nd May 2025 rejected the objection raised by the assessee that such outstanding receivable is not an internation transaction, the TP adjustment shall be made where there is real income arises, the assessee being debt free have not incurred borrowing cost, therefore interest on outstanding receivable was not required to be charged etc. The learned DRP in rejecting the assessee's ground of objection referred the various case laws. 14.1 Based on learned DRP direction, the TPO passed giving effect order, and the AO passed final assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. In our considered opinion, to the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt and therefore, for such credit allowed to AE, it cannot be said that this is an independent international transaction. But when extra credit is allowed beyond the agreed credit period, the same is a subsequent independent event and. interest for such extra credit period cannot be factored in the price agreed. Only because the agreed price without considering extra credit period is in excess of the ALP, it cannot be said and held that for such independent subsequent event of allowing extra credit also, the agreed prices takes care and this is not an independent international transaction requiring separate benchmarking. In transfer pricing analysis, the purpose is not to compare profit of the tested party with that of the comparables but the purpose is to compare the prices charged by the tested, party with the prices charged by the comparables although when TNMM is adopted as MA.M, the process of such price comparison is by comparing profits of tested party with that of the comparables and therefore, if the profit of the tested pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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. In this regard, we find pertinent to refer the order of this Tribunal in the case of DCIT Vs. Hewlett Packard India Software Operations Private Limited (2022) 149 taxmann.com 280 (Bang. Trib.) wherein it was held as under: 37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly." 18.3 The above finding was further followed by coordinate bench of this tribunal in case of M/s IHS Global Pvt Ltd vs. ACIT bearing IT(TP) No. 1424/Bang/2024. Thereby respectfully following th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the AO should have deleted the wrong disallowances made in the intimation generated under section 143(1) of the Act. 21. However, the learned DRP dismissed the objection filed by the assessee holding that the DRP can only consider issues arising from the draft assessment order under section 144C(1) of the Act, not adjustments made by the CPC in the intimation order u/s 143(1) of the Act. 21.1 The learned DRP also differentiated the case law relied by the assessee by observing that that in those cases issue was involved about a merger of 143(1) and 143(3) orders, while in the present case, the assessee had filed objection against a draft order under section 144C(1) of the Act. 21.2 The Panel also cited a decision from the Bangalore ITAT in the case of M/s. Areca Trust v. CIT in ITA No. 433/Bang/2023, which stated that appeals against intimation order under section 143(1) of the Act should be filed separately. Once a regular assessment is completed under section 143(3) or 144 of the Act, the tax paid under 143(1) is considered part of that assessment, but this does not mean a merger of the two orders. 22. Being aggrieved the learned DRP's direction and final assessment order b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the income reported and the details in Form 26AS, AIS, or TDS certificates may be adjusted. 6. Disallowance of Exempt Income - If any income claimed as exempt does not meet the required conditions. 7. Mismatch in Tax Payments - Adjustments for advance tax, TDS, or self-assessment tax discrepancies. 25.1 The taxpayer is notified of any adjustments via an intimation under section 143(1) of the Act, and they are given an opportunity to respond before any demand is raised. 25.2 However, an intimation under Section 143(1) is not an assessment. It is merely a preliminary check of the return filed by the taxpayer and is done through an automated process. 25.3 In contrast, the Scrutiny Assessment under Section 143(3) is a detailed examination of the income tax return (ITR) by the AO to verify its correctness and ensure there is no understatement of income, overstatement of deductions, or tax evasion. To assess the correctness of income, deductions, exemptions, and tax liability, the AO issues several notices to the assessee in the form of questionnaire, show cause etc. The assessee is required to provide supporting documents, explanations, and evidence as demanded by the AO. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Areca Trust v. CIT in ITA No. 433/Bang/2023, we note that the assessee in the said case has preferred an appeal before the learned CIT(A) against the adjustment made under section 143(1) of the Act which was subsequently withdrawn by the assessee as the case of the assessee was picked up under scrutiny. In this background the Tribunal, has denied accepting the issue raised in the intimation under section 143(1) of the Act. It is because, once the assessee has withdrawn the appeal filed before the learned CIT(A), the issue arises from the intimation under section 143(1) of the Act reached to the finality. However, the facts of the case on hand are different in as much as the assessee has not filed any appeal before the learned CIT(A) under the bona fide belief that the matter may picked up under scrutiny. Furthermore, the assessee has brought to the notice of the NFAC about the adjustment made under section 143(1) of the Act which can be verified from the details available on pages 367 to 371 of the appeal set. 25.9 We further find that the Jodhpur Tribunal in the case of Akbar Mohammad vs. ACIT bearing ITA No. 108 & 109/Jodh/2021 in the identical facts and circumstances he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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