HBL POWER SYSTEMS LIMITED,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(2), HYDERABAD

We notice at the outset that the assessee’s former substantive grievance that the learner lower authorities have erred in law and on facts in making Arm’s Length Price (ALP) adjustment of Rs.1,03,63,734/- pertaining to international transactions with its overseas Associated Enterprises (AEs), does not require to delve much deeper on facts. It is an admitted fact that the learned lower authorities have computed interest on the alleged receivables qua overseas AEs M/s.Gulf Battery Co. Ltd., HBL America Inc. and HBL Germany, GmBH @6.5% involving corresponding sums of Rs.83,17,047/-, Rs.3,800/- and Rs.20,42,887/-; respectively.

Learned departmental representative fails to dispute that the Transfer Pricing Officer’s (TPO’s) order dt.26-10-2016 had computed the impugned interest @14.45% going by the SBI’s domestic term deposits rates only which stood restricted in the DRP’s directions to the extent of 6.5% in issue. This is what leaves the assessee aggrieved.

We have given our thoughtful consideration to the rival contentions. It emerges from a perusal of the TPO’s order that he has neither finalised the corresponding comparables in the very segment forming a mandatory condition for making any ALP adjustment under chapter-X of the Act nor has he taken into consideration yet another equally important aspect that the domestic banking rates do not apply case of international transactions which are to be benchmarked as per ‘LIBOR’ rates in international currency only. The Revenue’s case before us is that the impugned banking rate has been rightly adopted since the interest on receivables as per Section 92B Explanation-C involves adoption of similar CUP method only. We find no merit in the instant argument since the foregoing latter aspect has also nowhere been considered in either of the lower authorities’ orders. We accordingly delete the impugned ALP adjustment for this precise reason alone.

Next comes Section 14A r.w.s.115JB MAT computation involving sum of Rs.6,76,51,670/-. Suffice to say, this tribunal’s Special Bench’s decision in ACIT Vs. Vireet Investment P. Ltd., (2017) [165 ITD 27] (Delhi) (SB) has already settled the issue that such a disallowance does not form part of book profits computed u/s.115JB of the Act. Ordered accordingly.

This assessee’s appeal is allowed in above terms.