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2020 (1) TMI 1478 - ITAT HYDERABADTP Adjustment - incorrect adoption of the overall margin of the assessee - assessee submitted that instead of international transaction margin of the assessee, the TPO has adopted the entity level margin of the assessee - HELD THAT:- We are in agreement with the contention of the ld. counsel for the assessee that for TP adjustment, it is only the margin of the international transaction that has to be considered and not entity level margin of the assessee, particularly, when the assessee is having both domestic as well as international transactions with both AE and non-AE companies. Therefore, we direct the AO to consider only margins of the international transactions of the assessee with its AE and if it is found that the margin of the assessee at 37.54% is correct and if the negative working capital adjustment (-) 8.64% is given, the margin of the assessee would fall within +/- 3% of the margin of the comparables, then the international transaction of the assessee should be considered to be at ALP and no adjustment would be required. Ground of appeal as treated as allowed for statistical purposes Interest free loans given to its AE - assessee has given interest free loans, the interest rate should be considered on the basis of US Libor rates prevalent in the FY 2012-13 - HELD THAT:- We find that the inclusion of the Explanation by the Finance Act, 2012 is applicable for the AY before us, according to which, capital financing has become an international transaction and in such a case, the ALP has to be determined for such transaction. We find that the TPO has adopted LIBOR + basis points as reasonable rate of interest and since the loan is given to a foreign company, we do not see any reason to interfere with the rate of LIBOR + basis points for charging interest on the advances given by the assessee, which has later been converted into capital introduced by the assessee. Therefore, assessee’s ground against such addition is rejected. Disallowance being advances written off and claimed as business expenditure by the assessee - AO had disallowed the advances treating them as capital loss - HELD THAT:- We deem it fit and proper to hold that interest on receivables is an international transaction and credit period as agreed to by the parties should be allowed and on any receivables after such credit period, interest should be charged. If the receivables are in foreign exchange, the assessee is liable to charge interest on receivables at Libor + basis points for the relevant FY. However, if the working capital adjustment has taken into consideration, the interest on delayed receivables beyond the agreed credit period or ninety days from the date of the invoice, no separate adjustment is required. Further, in this case, the AO/TPO has granted credit period of only 30 days in the year. Therefore, the AO/TPO is directed to recompute the interest on such receivables which exceeded 90 days and by applying the rate of interest at LIBOR + basis points. Accordingly, the grounds raised on this issue are treated as allowed for statistical purposes. ALP adjustment towards interest on receivables - HELD THAT:- We find that this ground is also similar to the assessee’s grounds of appeal for the AY 2013-14 and for the detailed reasons given therein, interest on receivables is held to be an international transaction and after giving credit period of 90 days, the interest is chargeable at LIBOR + basis points as applicable to the relevant period. Thus, this ground of appeal is partly allowed. Disallowance of bad debts written off - HELD THAT:- As seen that the assessee has not filed any details before the AO/DRP, but, it has now filed a paper book containing additional evidence to explain the bad debts. We find that similar issue had arisen in AY 2013-14 and we have set aside the issue to the file of AO for reconsideration. Therefore, we deem it fit and proper to admit the additional evidence filed by the assessee and remand the issue to the file of AO for deciding the issue afresh in accordance with law. Thus, this ground is treated as allowed for statistical purposes. Disallowance u/s 14A - HELD THAT:- As observed that dividend income declared by a foreign company is not exempt from tax and therefore it will not be covered under the provisions of section 14A and therefore, the disallowance made u/s 14A is not warranted. Respectfully following the same, disallowance made u/s 14A is held to be not sustainable and accordingly, deleted. Disallowance of expenditure on ad-hoc basis - as assessee has been maintaining its books of account, which have duly been audited by the statutory auditors u/s 44AB and, therefore, the nature of expenses cannot be suspected - HELD THAT:- we find that the only reason given by the AO is that the assessee has not furnished its books of account along with bills and vouchers for verification. Before the DRP, the assessee had stated that all the books of account were produced before the AO and the DRP had directed the assessee to file the necessary evidence within 7 days of the receipt of the order before the AO, failing which, the disallowance made by the AO is sustained. The AO has observed that the assessee has not produced any bills and vouchers and supporting documents for verification. Since the assessee has failed to substantiate its claim by way of documentary evidence before the authorities below or before us, we see no reason to interfere with the order of the AO. Thus, the disallowance made by the AO is confirmed and this ground of the assessee is rejected.
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