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2016 (7) TMI 243 - AT - Income TaxTransfer pricing adjustment - Notional interest on sundry debtors - whether the amount advanced is for the purpose of equity or the amounts advanced originally as loans and later converted to equity? - Held that:- AO has to ascertain the nature of advances given to assessee whether it is loan or equity and how they are reflected in the respective accounts in the respective years. If assessee has invested them as investment in subsidiary they would be done under the head ‘investment’ otherwise, the same would figure under the head ‘loans and advances’. Likewise, if the amount is advanced as the share capital, the same would also be shown as share application money in the subsidiary hands. These require factual verification. It is also required to verify whether the funds provider or from Zero coupon bonds subscribed abroad or funds from India and necessary approvals from RBI, SEBI, Company Law Board and other statutory authorities governing these funds and finances. Consequently, AO is directed to examine assessee’s statements of accounts and also the necessary resolutions passed and information furnished to authorities to establish the nature of amounts advanced. If the amount is advanced towards loans, then, the transaction would be an international transaction and whether interest can be levied or not has to be examined in the light of the various decisions relied upon. What we also notice is that many of the decisions are not in the context of TP provisions but in the context of general income tax computation. Therefore, the issue is to be re-examined viz-a-viz case law relied upon and the applicable provisions of the Act. Then, the rate of interest would be an issue. In case interest is levyable, then, LIBOR+2% is generally accepted as the rate of interest to be levied on international transactions by various decisions of the Co-ordinate Benches. Therefore, without adjudicating the issue on this, we set aside the matter to the file of AO/TPO to re-examine the facts afresh and then decide the issue accordingly, keeping in mind the provisions and the case law relied upon. Assessee should be given an opportunity to substantiate the contentions. - Decided in favour of assessee for statistical purposes. Eligibility of claim of deduction u/s 10A - Held that:- As can be seen from the order of the DRP also, it has more or less accepted assessee’s contentions. But while implementing the orders of the DRP, AO did not examine the issues at all. Consequently, we are of the opinion that these issues require examination by the AO in detail and then assessee claim u/s. 10A should be allowed. May be because of lack of time, AO did not implement the directions. Be that as it may, we are convinced that assessee is entitled for various deductions on the basis of the provisions of the Act case law relied and therefore, AO is directed to verify the contentions and allow the same, keeping in mind the provisions of the Act and relevant case law relied upon. AO is directed to examine all the above issues afresh after giving due opportunity to assessee. - Decided in favour of assessee for statistical purposes. Interest charged on receivables - Held that:- As seen from assessee’s contentions, assessee is neither charging interest on any of the receivables outstanding. There is also no basis for adopting only two months as credit period. RBI itself allows an year for the amounts to be realised, if they are in foreign exchange. Whether it is AE or non-AE, it is in the interest of business that assessee receives the foreign exchange early so that it can claim deduction u/s. 10A. Therefore, in our view, putting a limit of two months of credit period itself is arbitrary. Moreover, as seen from the calculation provided in page 7 of the assessment order, the date of realization was shown as 02-02-2011 and interest was levied from 01-04-2010 to 02-02-2011 which is not pertaining to the year under consideration. As far as this year is concerned, the invoices raised on 31-12-2009 were outstanding only for a period of three months by the end of the accounting year. We are of the opinion that this period is reasonable and so no interest can be levied, just because amounts are shown as ‘outstanding’. Accordingly, we cancel the interest levied and allow assessee’s contentions.
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