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2016 (2) TMI 699 - AT - Income TaxNotional adjustment of interest on delayed payment from Associated Enterprise - Held that:- Transaction relating to extended credit period provided to A.E. is required to be aggregated with other international transactions for computing ALP and cannot be done separately. For doing so rate of interest has to be on the basis of LIBOR+ basis point and not domestic PLR. As in the present case, TPO himself has worked out LIBOR rate of 2.69% same can be considered. As, neither the department nor the assessee has undertaken this exercise. We remit this issue to the file of the AO/TPO for verifying this aspect and determining the ALP of international transaction with A.E. after affording full opportunity to the assessee to establish its case. - Decided in favour of assessee for statistical purposes. Disallowance of interest under section 36(1 )(iii) - Held that:- The assessee during the course of assessment proceedings on its own offered the disallowance of interest expenditure attributable to interest free advances given to its AE. It is also a fact on record that before DRP, the assessee has not challenged the disallowance of the aforesaid interest expenditure. This fact clearly proves that the assessee had accepted the disallowance of interest expenditure of ₹ 94,44,829/- and that being the clear factual position, in our view, the assessee cannot raise this issue. Accordingly, we decline to entertain this ground raised by the assessee. Eligible deduction u/s 10AA - whether AO ought to have reduced not the gross interest income but the net interest income for qualifying the profits of the business for determining the eligible deduction u/ 10AA - Held that:- The assessee has fairly admitted that this issue was not raised before the DRP. Therefore, when the assessee has not raised any objection on this issue before the DRP, in our view, the assessee cannot raise such issue before us at this stage as the assessee has accepted the decision of the AO in the draft assessment proceedings, wherein he excluded the interest income while computing the deduction u/s 10AA of the Act. The final assessment order passed by the AO is only to give effect to the direction of DRP, wherein this issue was not raised by the assessee. As the DRP has not decided this issue and the final assessment order is only for implementing the direction of the DRP in terms of section 144C(13) of the Act, the assessee cannot raise this issue at this stage, Therefore, we decline to entertain with this ground Eligible deduction under section 10AA - whether A. O. Ought to have increase the profits of the business by the amount of interest disallowed under section 36(1)(iii) ? - Held that:- As can be seen the facts and material relating to the interest expenditure claimed by the assessee are available before the AO as the assessee itself disallowed interest expenditure relatable to interest free advances. Whether any statutory disallowance made by A.O. would enhance the profit of the assessee thereby making him eligible to claim deduction u/s 10AA on such enhanced profit is a purely legal issue. Therefore, assessee’s claim of deduction u/s 10AA has to be examined by keeping in view principle laid down in judicial precedents. However, considering the fact that this issue was neither raised before the AO nor before the DRP and has been raised for the first time before this forum, we deem it proper to remit the issue to the file of the AO for deciding the same after due opportunity of being heard to assessee. This ground of appeal is allowed for statistical purposes.
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