Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” : HYDERABAD
Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER S.S.GODARA, J.M. :
This assessee’s appeal for AY.2012-13 is directed against the DCIT, Circle-2(2)’s assessment dated 06-12-2016 framed in furtherance to the Dispute Resolution Panel (DRP)-1, Bengaluru’s directions in file No.85/DRP-BNG/2016-17, dt.31-10-2016, involving proceedings u/s.143(3) r.w.s.92CA r.w.s.144C of the Income Tax Act, 1961 [in short, ‘the Act’]. Heard both the parties. Case file perused.
The assessee has pleaded the following substantive grounds in the instant appeal:
1.The learned Assessing Officer (AO)/Dispute Resolution Panel (DRP) are erroneous in law and on the facts of the case. 2.The Ld.AO/DRP is not legally justified in making an adjustment of interest @12% amounting to Rs.1,69,22,957/- as arm’s length price on receivables from Gulf Batter Co. Ltd after allowing 60 days credit period and from HBL America Income. & HBL Germany GmBH after allowing 180 days credit period. 3.The Ld.AO/DRP ought to have appreciated that the receivables arise in the course of business and are not to be treated as loans for levy of interest. 4.The Ld.AO/TPO have erred by treating receivables from AEs as a separate international transaction. 5.The Ld.AO/TPO have erred by ignoring the fact that the assessee has earned higher margin than the unrelated third parties and hence any notional interest on the extended credit period is factored in the pricing itself and not to be charged additionally from the AE. 6.Without prejudice to our above grounds no.2 to no.6, as the receivables are in foreign currency the basis for benchmarking the notional loan transaction should be the LIBOR plus percentage rate. 7.The Ld.AO/DRP ought to have reduced the income by Rs.68,81,044/- in this assessment year since this income was already included in earlier year by the Ld.AO during scr5utiny proceedings then conducted, while reconciling income as per books vis-à-vis tax credit as per Form 26AS. 8.The Ld.AO is legally not justified in making an adjustment of Rs.6,72,77,273/- u/s.14A in the final order when the same was not part of draft order originally passed. 9.The Ld.AO ought to have appreciated the fact that there was no exempt income earned during the year and the disallowance u/s.14A as per normal provisions was based on Rule 8D which cannot be considered while computing book profits u/s.115JB. 10.Any other ground that may be urged at the time of hearing with the previous approval of the Hon'ble Member of the Dispute Resolution Panel
We now advert to the first issue of Arm’s Length Price (ALP) adjustment of Rs.1,69,22,957/- @12% qua receivables from Associated Enterprises (AEs), M/s.Gulf Batter Company Ltd., after allowing 60 days credit period and M/s.HBL America Inc. and HBL Germany, GmBH after allowing 180 days credit period; respectively.
Learned authorised representative vehemently submitted during the course of hearing that the learned lower authorities have erred in law and on facts in making impugned ALP adjustment @12% interest rate without benchmarking it with the corresponding comparables and also that such receivables do not form an international transactions within the meaning of Section 92B of the Act. The Revenue, on the other hand, strongly supported the impugned ALP adjustment. It quoted Section 92B Explanation(c) inserted vide Finance Act, 2012 w.e.f. 01-04- 2012 that such a transaction involving receivables involving are covered under the statutory expression “over receivable” or any other debt arising during the course of business only.
We have given our thoughtful consideration to rival pleadings against and in support of the impugned adjustment. It transpires from a perusal of the assessment order that the Assessing Officer has discussed the issue as under:
“5.00 Computation of Arm's Length Price U/s.92CA 5.1 During the previous year relevant to the assessment year 2012- 13, the assessee company had entered into international transactions for an amount of Rs.27,13,96,072/-. Hence, reference was made to the Transfer Pricing Officer with prior approval of Principal Commissioner of Income Tax-Z, Hyderabad for determining Arm's Length Price U/s.92CA of I.T. Act. The Deputy Commissioner of Income Tax (Transfer Pricing) vide his order dated 30.01.2016 has proposed an adjustment of Rs.2,08,01,135/- u/s.92CA of the IT. Act with regard to adjustments in respect of international transactions entered into by and between the taxpayer and its associated enterprises for Financial Year 2011-12. The provisions of Sec.92CA(4) are read as under: "On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the Arm's Length Price as so determined by the Transfer Pricing Officer". Therefore an amount of Rs.2,08,01,135/- is added to the total income of the assessee u/s.92CA of I.T Act. Addition: Rs.2,08,01,135/- 5.2 Aggrieved to the above order, the assessee filed an objection before the Hon'ble Dispute Resolution Panel, Bangalore. The Hon'ble DRP vide order in F.No.85/DRP-BNG/2016-17 dated 31-10-2016 directed the AO as under: ''However, with regard to the objection of the assessee regarding the rate of interest of 14.75% charged by the TPO is concerned, we are of the view, that the same can be equivalent to the average cost of the borrowed funds. This can be done only if the assessee produces the finance cost details. The reduction of adjustment on this account can only be considered, if the assessee produces the evidence before the AO within 15 days of receipt of this order, that the interest paid (weighted average rate of interest referred hereinafter as rate of interest) on the borrowings is less than the rate of 14.75% applied by the TPO. It the assessee fails to produce such evidence, there will be no variation to the adjustment proposed by the TPO; however, if it is found that rate of interest on borrowings of the assessee is lee, we direct the AO to apply the same for computation of ALP on advances, the objection is disposed off accordingly." Accordingly, the assessee vide letter dated 23-11-2016 submitted the details on the above objection.
In the table 2 annexed, the rate of interest is arrived at taking into actual utilisation, actual interest charged by the banks on daily product of loan outstanding which is more realistic average rate of interest. Therefore we request you to adopt interest at 12% as against.14.75% adopted by Transfer Pricing Officer as DRP has directed that the Assessing Officer may consider the weighted average rate worked out by the assessee vide para No.1 of page no.5 of the order and accordingly apply the same. Interest charged @14.75% - Rs.2,08,01,135 Interest of charged @12.00% - Rs.1,69,22,957 On perusal of the submission made by the assessee, the calculation made is found to be correct. Hence, the adjustment U/s.92CA(3) is restricted to Rs.1,69,22,957/- adhering the directions of the DRP. Addition of Rs.1,69,22,957/- It is sufficiently clear from a perusal of the assessment findings that the impugned ALP adjustment is based on the assessee’s details produced in its letter dt.23-11-2016 containing as well request to adopt the impugned interest rate @12% than 14.75% taken by the Transfer Pricing Officer (TPO). We observe in this backdrop of the facts as to how the assessee could not be taken as an aggrieved party once the impugned adjustment is based on its own computation submitted during the course of assessment.
5.1. Coupled with this, this tribunals decision in (2017) 85 taxmann.com 121 (Delhi-Trib) Bechtel India Pvt. Ltd. holds that such interest on delayed realisation on receivables is an international transaction in itself. We therefore find no reason to interfere with the impugned ALP adjustment of Rs.1,69,22,957/- in issue. The assessee’s former six substantive grounds to this effect are declined.
We next advert to the assessee’s 7th substantive ground challenging addition of Rs.68,81,044/- on account of mis- matching of tax credit as per form 26AS viz-a-viz its books of accounts. The assessee’s case is that the very income stands assessed in preceding assessment years and therefore, it amounts to double addition. We are of the opinion that in this backdrop of the facts about the instant issue requires factual verification at the Assessing Officer’s end so that the impugned sum does not suffer doble addition in different assessment years. This 7th substantive ground is taken as accepted for statistical purposes in foregoing terms.
Lastly comes Section 14A r.w.s.8D disallowance amount of Rs.6,72,77,273/- included in Section 115JB MAT computation. This tribunal in ACIT Vs.Vireet Investments P. Ltd., [165 ITD 267] (Del)(SB) holds that such Section 14A disallowance does not deserve to be included in Section 115JB MAT computation. We therefore direct the Assessing Officer to delete the impugned MAT addition in foregoing terms. Necessary computation to follow as per law.
This assessee’s appeal is partly allowed in above terms.
Order pronounced in the open court on 23rd April, 2021