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2022 (2) TMI 1402 - AT - Income TaxTP Adjustment - adjustment of notional interest in respect of delayed receivable from its AEs - rate of interest adopted by the TPO - LIBOR + 2% - DRP rejected the contention of the assessee that the adjustment is not required in this regard, since it is not an international transaction - HELD THAT:- As in case of Swiss Re Global Business Solutions India Pvt. Ltd. [2022 (1) TMI 1275 - ITAT BANGALORE] by following the judgment of AMD (India) Pvt.Ltd. [2018 (8) TMI 2094 - KARNATAKA HIGH COURT] held that deferred revenue from AE would constitute independent international transaction and the same needs to be benchmarked independently. Further, it was held by the Tribunal that the rate of interest to be adopted is at LIBOR + 2%. Thus we direct the A.O. to calculate the interest rate on outstanding receivable from AE by adopting LIBOR + 2% TP Adjustment to be confined to International transaction only - AR stated that the revenues from the international transaction constitute only 29.85% of the total revenue, therefore, as submitted that the TP adjustment if at all ought to be restricted to that extent - HELD THAT:- The action of the TPO is wholly erroneous and contrary to the provisions of the Act and the Rules made there under. A.O. has to refer the matter to the TPO for computation of ALP only in relation to the international transactions and the TPO is empowered to compute ALP only in respect of the said international transactions. In the case of IKA India (P.) Limited [2018 (10) TMI 49 - ITAT BANGALORE] had decided an identical issue and held that the transfer pricing adjustment is to be limited only to the international transactions entered by the assessee with its AEs. In the instant case, the assessee claims that the revenue from the international transactions constitute only 29.84% of the total revenue. TPO is directed to rework the TP adjustment only in respect of the international transaction undertaken by the assessee with its AEs. Disallowance u/s 14A - assessee had made sou moto disallowance for expenditure attributable to earning of exempted income - HELD THAT:- AO has not recorded his dissatisfaction as regards the correctness of the claim made by the assessee. The working of suo moto disallowance is on record. AO has not pointed out any specific reasons having regard to the accounts of the assessee for rejecting the suo moto disallowance by the assessee. Assessee has sufficient own funds and borrowed funds were not used for the purpose of making investment. As per the statutory Auditors report (clause No.16 and 17), all the borrowed funds have been utilized for the purpose for which it has been borrowed. Further, on perusal of the financials, it is clear that the assessee has sufficient own funds which exceeds the investments. Therefore as placing reliance on Reliance Industries Ltd. [2019 (1) TMI 757 - SUPREME COURT] and Microlabs Ltd. [2016 (4) TMI 219 - KARNATAKA HIGH COURT] we hold that disallowance u/s 14A r.w.Rule 8D(2)(ii) is not warranted in the facts of the instant given case. Nature of expenditure - Expenditure incurred for treatment of products registration - revenue or capital expenditure - HELD THAT:- As decided in own case, [2021 (12) TMI 1467 - ITAT BANGALORE] the expenses incurred by assessee in respect of Dolenio during the years under consideration towards Mutual recognition process variation, Patent and Trade mark and other registration expenses, are be considered as revenue expenditure, allowable u/s 37(1). In respect of the Annual fee/license fees paid the ledger account revels that these are recurring in nature, and hence cannot be treated to be one time payment. These are in respect of renewal of licence with the drug authorities in respective countries to continue to hold the licence to export and sell the products developed by assessee. Accordingly no infirmity in the observation of Ld. CIT(A) to treat the payments to be revenue expenditure allowable u/s 37(1) - Decided in favour of assessee. Non grant of entire credit of MAT paid by the assessee u/s 115JAA - HELD THAT:- The assessee is entitled to the entire credit available to it as per law. Therefore, the A.O. is directed to grant the appropriate credit available to the assessee.
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