HARSCO INDIA PRIVATE LIMITED,HYDERABAD vs. DCIT-8(1), HYDERABAD

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ITA 222/HYD/2021Status: DisposedITAT Hyderabad13 April 2022AY 2016-175 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that while interest on receivables constitutes an international transaction, the TPO/AO erred in benchmarking it using SBI deposit rates instead of segment-specific comparable instances or LIBOR rates. Consequently, the adjustment was deleted.

What were the facts?

The assessee's appeal concerns an adjustment of Rs. 10,55,739/- made by the TPO/AO towards interest on outstanding receivables from an associated enterprise. This adjustment was made without substantiating that the interest rate was not at arm's length.

What were the issues?

Whether interest on delayed receivables from an associated enterprise is an international transaction and how it should be benchmarked for transfer pricing purposes.

Which sections of the Income-tax Act were involved?

Section 92CA,Section 92B

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against the assessment order passed by the DCIT, National e- Assessment Centre, Delhi dated 26/03/2021 involving proceedings u/s 143(3) rws 144C(13) rws 143(3A) & 143(3B) of the Income Tax Act, 1961 ; in short “the Act”.

2.

The sole grievance of the assessee in this appeal is that imputing interest income to the assessee on the outstanding receivables from associated enterprise without

1.

:- 2 -: ITA-TP No. 222/Hyd/2021 Harsco India Pvt. Ltd., Hyd. substantiating the fact that the same is not as per arm’s length standards, thereby made the adjustment of Rs. 10,55,739/- towards interest on delayed receivables u/s 92CA of the Act.

3.

We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. As per the directions of the DRP, the TPO/AO revised the TP adjustment to Rs. 10,55,739/- towards interest on delayed receivables. Similar issue came up for consideration before the coordinate bench of this Tribunal in the case of ITO Vs. Pegasystems Worldwide India Pvt Ltd., in and others for AYs 2011-12, 2012-13 and 2013-14 vide order dated 09/06/2021, wherein the coordinate bench held as under:

“5. We notice at the outset that the DRP's directions in Revenue's Appeal (ITA 451/H/2016) have placed reliance on the tribunal's Order in assessee's appeal itself & 1936 /H/2014 deleting identical adjustment that there is no material on record about the impugned receivables to have arisen as a consequence to sales made to the AE(s) thereby forming an independent transaction u/s. 92B of the Act. We are further informed that the learned lower authorities have adopted State Bank of India's Short Term Deposit Rates between 4.7% and 7.25% in AY 2012-13 and 2013-14 whilst making the impugned adjustment.

6.

The first and foremost argument raised at both the party's behest is as to whether interest on receivables forms an international transaction or not u/s.92B of :- 3 -: ITA-TP No. 222/Hyd/2021 Harsco India Pvt. Ltd., Hyd.

the Act. Suffice to say, this tribunal's co- ordinate bench decision "Bechtel India Pvt Ltd" (2017) 85 taxmann.com 121 (Delhi) holds that interest on receivables indeed comes within the purview of section 92B Explanation (c) inserted vide Finance Act 2012 as applicable with retrospective effect from 1/4/2002. Hon'ble Madras high court's recent judgment in PCIT Vs Reddington India dated 10/12/2020 in Tax Appeals 590-591/2019 also holds the same view. We thus, accept the Revenue's arguments in principle that interest on receivables is indeed an international transaction U/s.92B of the Act.

7.

Next comes the adjudication of the impugned issue on merits. We notice with the able assistance of both the parties that neither of the TPO in these three assessment years has given any comparable instance in the very segment whilst charging the impugned interest on the assessee's receivables since he had adopted the SBI's term deposit rates only in benchmarking the same.

8.

The Revenue's endeavor before us supports the lower authorities' action on the pretext that such receivables are very much akin to a financial transaction to be benchmarked as per the SBI's short term lending or deposit rates. We find no merit in the Revenue's instant argument since Chapter -X of the Act is a special provision wherein each and every adjustment could only be made going by the uncontrolled market price of the transactions in the very segment; followed by benchmarking thereof as per the international currency "LIBOR" rates only. We, therefore, reverse the TPO's identical action in all these Assessment Years in view of the foregoing twin reasons regarding non- quantification of the impugned adjustment(s) segment wise and as per the LIBOR rates. Coupled with this, the fact also remains that the Assessee has already succeeded on the very issue in AY 2009-2010. We, thus, follow judicial consistency as whilst confirming the DRP's directions in A.Y: 2011-2012 to the Assessing Officer to delete the impugned interest adjustments on :- 4 -: ITA-TP No. 222/Hyd/2021 Harsco India Pvt. Ltd., Hyd.

receivables of Rs.2,30,25,260/- and further delete similar adjustments of Rs.12,12,62,138/- and Rs.12,71,68,334/- in assessee's appeals & 2196/H/2017 in AYs 2012-13 and 2013-14 (supra); respectively. 3.1 As the issue in the case under consideration is similar to the said decision, respectfully following the same, the addition of Rs. 10,55,739/- made by the AO on account of interest on delayed receivables by considering SBI Fixed deposit rate is hereby deleted and the grounds raised on this issue is allowed.

4.

In the result, appeal of the assessee is allowed in above terms. Pronounced in the open court on 13th April, 2022.

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