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2019 (5) TMI 1837 - AT - Income TaxTransfer pricing adjustment on account of interest charged on share application money forwarded to AE - applying LIBOR plus 300 BPS by assessee - HELD THAT:- Assessee has charged interest by applying LIBOR plus 300 BPS for immediately preceding year and such rate has been accepted by the Department without any further adjustment. The assessee has changed rate of interest to LIBOR plus 200 BPS without there being change in circumstances. Although, the assessee advanced rule of consistency, but yet it has failed to explain why rate of interest has been changed from LIBOR plus 300 BPS to LIBOR plus 200 BPS. Further, the assessee has failed to make out a sufficient reason for changing rate of interest applying on share application money forwarded to its AE. Considering the assessee’s own calculation of LIBOR plus 300 BPS for AY 2011-12 and 2013-14 and such rate has been accepted by the Department, we are of the considered view that assessee ought to have charged LIBOR plus 300 BPS on share application money forwarded to its AE. Therefore, we direct the AO/TPO to recalculate interest receivables on share application money forwarded to AE by applying LIBOR plus 300 BPS. Transfer pricing adjustment on outstanding export receivables - TPO has made an adjustment on all export invoice where export realization was beyond the period of 85 days by applying interest @ 4.5% being 200 BPS mark up on the interest taken on packing credit as availed on 2.5% by the assessee - HELD THAT:- There is no dispute with regard to the fact that the assessee has not charged any interest on receivables from both AE as well as Non-AE. Further, where there is complete uniformity in act of assessee in not charging interest from both AE and Non-AE debtors for delay in relation of export proceeds, therefore, the AO is not justified in making addition of notional interest to the assessee ALP on aforesaid ground in course of transfer pricing adjustment. As weighted average realization in case of AE was lesser than Non-AE, no TP adjustment should be made. This finding is fortified by the decision of Indo American Jewellery Ltd. [2013 (1) TMI 804 - BOMBAY HIGH COURT] where it was held that there was complete uniformity in act of assessee in not charging interest from both AE and Non-AE debtors for delay in realization of export proceeds, no adjustment to ALP in course of transfer pricing proceedings. Therefore, we are of the considered view that the AO/TPO was erred in making addition towards notional interest receivables on export receivables and hence direct the AO to delete the additions made towards interest on export receivables. Addition u/s 14A - Disallowance of expenditure incurred in relation to exempt income - assessee has earned exempt income being dividend which was claimed exempt u/s 10(34) - assessee has also made Suo-moto disallowance towards expenditure incurred in relation to exempt income - HELD THAT:- As decided in own case Tribunal deleted additions made by the AO towards further disallowances over and above suo-moto disallowances made by the assessee towards expenditure incurred in relation to exempt income on the ground that before invoking provisions of rule-8D, the AO required to record satisfaction having regard to the books of accounts of the assessee that suo-moto disallowance computed by the assessee is incorrect. Thus we direct the AO to delete further disallowance made towards expenditure incurred in relation to exempt income u/s 14A. Computation of book profit u/s 115 JB - by making adjustment towards disallowance of expenditure incurred in relation to exempt income - HELD THAT:- Issue is also squarely covered in favour of the assessee by the decision of the ITAT Delhi Special Bench in the case of ACIT vs Vireet Investment P. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] where the Tribunal categorically held that provision of clause (f) of Explanation 1 to section 115JB(2) is to be made without restoring to computation as contemplated under section 14A r.w.r. 8D. Therefore, we direct the AO/TPO not to make adjustment towards disallowance as computed u/s 14A of the Act read with Rule-8D while computing book profits.
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