2019 (3) TMI 1810 - AT - Income Tax

Rectification u/s 154 - adjustment on account of loans given by assessee to its AE - recoverability of the interest as well as the loans given to its AE - HELD THAT - We find that only a principle has been drawn on the strength of statutory provisions to arrive at a conclusion that so long as the transactions is an international transaction within the framework of law the computation of income there-from has to be on the basis of arm s length principle. While arriving at such a conclusion strength has been drawn from the cited decision of the special bench rendered in Instrumentation Corporation Ltd. 2016 (7) TMI 760 - ITAT KOLKATA . This being the case the submission that the cited decision was factually different and distinguishable in our opinion carry no weight. Matter of quantification of appropriate applicable rate has been remitted back to the file of Ld. AO / TPO with certain observations in the light of additional evidences submitted by the assessee. It is made clear that the Arm s Length Price of the stated transactions shall be determined within the framework of law keeping in view the principle laid down in para 5.6 of the said order. Needless to add that the assessee is free to agitate the applicable rate of stated transactions. MA dismissed.

Summary

Issues:
Rectification sought in Tribunal order for Assessment Year 2012-13 regarding Transfer Pricing adjustment on loans given to AE.

Analysis:
1. The assessee filed a Miscellaneous Application seeking rectification in the Tribunal order dated 14/11/2018 for Assessment Year 2012-13. The Authorized Representative for Assessee argued that the loans given to its AE were based on commercial exigencies, and interest was not charged due to the weak financial position of the AEs. Various documents were presented to show that the recoverability of interest and loans given to the AE were doubtful. The AR contended that non-charging of interest was at arm's length due to commercial expediency and real-income theory. The AR also argued that the benchmarking of interest should consider loans given by banks that have turned into stressed assets, as the AE had not repaid any debts and the loans were converted into equity later. The AR sought to distinguish a Special Bench decision cited in the Tribunal's order, stating that the decision was not considered in its entirety, and the order required rectification.

2. The Departmental Representative opposed the assessee's arguments, stating that the assessee was merely seeking a review of the order. The Tribunal carefully considered the arguments presented. It noted that the cited Special Bench decision was used to establish the principle that income from international transactions must be computed based on the arm's length principle. The Tribunal found that the arguments to distinguish the cited decision were not substantial, as the conclusion was drawn based on statutory provisions and the special bench decision.

3. The Tribunal further addressed the quantification of the applicable rate in the matter, remitting it back to the file of the Assessing Officer/Transfer Pricing Officer with certain observations based on additional evidence submitted by the assessee. It was clarified that the Arm's Length Price of the transactions should be determined within the legal framework, considering the principle laid down in the Tribunal's order. The assessee was given the liberty to challenge the applicable rate of the transactions. The miscellaneous application was dismissed except for the rectification indicated in the preceding paragraphs.

4. The Tribunal pronounced the order in the open court on 12th March 2019, concluding the proceedings related to the Miscellaneous Application seeking rectification in the Tribunal order for the Assessment Year 2012-13 concerning Transfer Pricing adjustments on loans given to the AE.