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2022 (7) TMI 1401 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- Exclusion of companies as functionally dissimilar with that of assessee need to be deselected from final list. Adjustment on account of notional interest on outstanding receivables - Whether Outstanding receivables cannot be treated as a separate international transaction? - HELD THAT:- The assessee has provided IT enabled services to its AEs and amount outstanding as trade receivables merely represent the dues which are to be received by the Assessee against the services provided. As a business practice, the Assessee did not charge any interest on delayed realisation of invoice from AEs nor paid any interest on delayed payables. Early or late realization of service proceeds is incidental to the transaction of sale/ service, and not a separate transaction in itself. These represent the consequence of an international transaction and not an international transaction per-se. If the ALP in respect of an international transaction of service is determined, then there can be no question of treating non-receipt of interest in such transaction as separate international transaction warranting any further adjustment. Once ALP is determined in respect of the sale/ service transaction, it would be deemed to be covering all the elements and consequences of such transaction of sale/ service. Aggregation approach - All service related costs are embedded in the remuneration received from the AEs - It is to be appreciated that where companies are aware of the fact that customer will take longer than the agreed time to pay the outstanding dues, the same is factored in the price/ mark-up charged for the services rather than to levy of actual interest when the payment is eventually made by the customer. The principle of aggregation is well established rule in the transfer pricing analysis. This principle seeks to combine all functionally similar transactions wherein arm's length price can be conducted for a number of transactions taken together. The said principle is enshrined in the transfer pricing regulation itself. As per the Hon’ble DRP’s directions, the notional interest computation must be made on an Invoice-by-Invoice basis. The Hon’ble DRP directed the Assessee to furnish the TPO with InvoiceIT( wise details of period of delay for the computation of notional interest which was submitted with the TPO vide submission dated 23 April 2021. However, the TPO has not provided any workings for computation of the notional interest on delayed receivables to determine whether the directions of the DRP to compute interest on a Invoice-by-invoice basis has been followed and accordingly the Issue is remitted to AO/TPO for fresh consideration. Working capital adjustment appropriately takes into account the delayed/ outstanding receivable; separate TP adjustment is unwarranted - We direct the AO / TPO to redo the transfer pricing analysis in respect of interest on outstanding receivables by taking into account the directions of the Tribunal in assessee's own case. Deduction u/s 10AA - HELD THAT:- The claim of assessee to be verified by the AO/TPO in accordance with the return of income filed by the assessee. Accordingly, we direct the AO/TPO to consider claim of assessee u/s 10AA of the Act in accordance with law. The issue remitted to AO/TPO for fresh consideration
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