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2015 (7) TMI 602 - AT - Income TaxTransfer pricing adjustment - adjustment by charging notional interest for delayed recovery of export receivables and delayed recovery of expenses from AE’s till the date of transfer pricing order - Held that:- The addition on account of interest should be computed only till the end of financial year (i.e. till 31 march 2009 and not till the date of passing of transfer pricing order (i.e. 28 January 2013). It is trite law that income tax has to be computed with reference to previous year and as per Section 5 of the Act explains the scope of total income to be considered earned by any person during the previous year. In the present case, the TPO has made addition of notional interest till the date of passing of order (i.e. 28 January 2013) which is incorrect and against the basic principle of taxation as laid down by Income Tax Act. Hence, interest adjustment on delayed accounts receivables, if any, should be computed only upto 31 March 2009. We also found that during the year under consideration, the assessee has received advances from AE's for the purpose of export, therefore computation of interest, if any, on delayed recovery of export receivables should be after reducing the advances received from AE's for the purpose of export. From the record, we found that so called delay repatriation from foreign AE's, TPO/ AO, while working out deemed notional interest has considered interest rate of 12.25% p.a. (SBI PLR). As per our considered view the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. Thus computation of interest is restored back to the file of AO for recomputing the interest on delayed payment of receivables, keeping in view our above observation. In respect of the expenditure incurred on behalf of the AEs and which was reimbursed by the AE, the AO also levied interest thereon. We found that the recovery of expenses was beyond the normal period of 60 days. Recovery of expenses beyond the normal period was in the nature of deemed loan in the hands of AEs and require transfer pricing adjustment. Accordingly, we do not find any infirmity in the transfer pricing adjustment made. However, we direct the AO to charge interest by applying LIBOR rate. - Decided partly in favour of assesse statistical purposes.
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