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2022 (6) TMI 1363 - AT - Income TaxTP Adjustment - referring the case to the transfer pricing officer to determine the arm’s length margin - AR S international transaction of ‘guarantee’ between assessee and its AE, does not fall under the transfer pricing risk parameter and therefore the reference to the TPO was bad in law - HELD THAT:- The case of assessee satisfies the requirement as stipulated therefore no fault can be found with the Ld.AO in referring the case to the transfer pricing officer to determine the arm’s length margin, as observed by the DRP while adjudicating the issue of the DRP direction. From the record it is evident that the assessee's case was selected for scrutiny for issues which also involve large international transaction (Form 3 CEB) which fall under the transfer pricing risk parameters. Thus, it is simply clear that the case was selected for scrutiny on transfer pricing risk parameters as well as non transfer pricing risk parameters. By no stretch of imagination, it can be said that the case was selected for scrutiny on non transfer pricing risk parameters only. Once it was evident that assessee's case was selected for scrutiny on the transfer pricing risk parameter, same fell under para 3.2 of circular dated 10-3-2016 which required reference to the TPO by the Assessing Officer mandatorily. There is no exception in this regard. Disallowance u/s. 40(a)(ia) - Scope of amendment inserted by Finance Act No. 2 to section 40(a)(ia) - HELD THAT:- In the present facts of the case, there is no dispute that assessee did not receive the invoice in respect of the total payment that was payable to its parent company. However, in the computation of income, assessee disallowed 30% of the provision which is in consonance with the amendment inserted by Finance Act No. 2 to section 40(a)(ia) w.e.f. 01.04.2015. We note that various benches of this Tribunal has held that this amendment is curative in nature and disallowance u/s. 40(a)(ia) of the Act is to be restricted to 30% as against 100%. The assessment years under consideration is 2016-17 and therefore the disallowance made by the assessee suo moto is in accordance with the provisions that are applicable at the relevant period of time. Addition of provision for bad and doubtful debts to the income computed under normal provisions of the Act and the book profits computed u/s. 115JB - HELD THAT:- It is a claim of the assessee that the effect of bad debts written off has been taken into consideration in the books of account whereas revenue contends that assessee did not credit the amount in relation to bad debts in the profit and loss account in any of the years preceding to the year under consideration. We are of the view that the issue needs verification by the Ld.AO of the books of account and the financial statements. The Ld.AO is directed to verify the amount of provision for doubtful debts in the books of account and the book profit as be computed as per explanation 1 to section 115JB of the Act. Disallowance of interest expenditure claimed u/s. 57(iii) - assessee received external commission borrowing loan from its parent company for setting up a new manufacturing facility - Same was kept in short term fixed deposit against which interest was received - HELD THAT:- Adverting to the facts of the present case, the ECB that was kept as fixed deposit against which interest was earned by assessee was set off against the interest paid by assessee on the ECB loan. Admittedly, it is not the case of the revenue that the ECB loan obtained by the assessee was not for the purpose of business. In fact, the loan was taken by assessee for setting up a new manufacturing facility in Gujarat. Thus the nexus in respect of the interest earned and interest paid stands automatically established with the business of the assessee. We note that assessee has raised an alternate plea wherein a prayer is made to consider the interest expenditure u/s. 37 of the Act. We are of the considered opinion that as the interest paid by the assessee is directly connected with the business activity, assessee succeeds on this ground. We therefore allow this claim of assessee as an allowable deduction u/s. 37 of the Act.
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