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2017 (11) TMI 634 - AT - Income TaxTransfer pricing adjustment towards interest on receivables - whether ‘interest on receivables’ is an international transaction? - Held that:- As going by the ld. CIT(A)’s version, there would have been no transfer pricing addition if the assessee had received the amount from one AE and paid to other AE, which would have been only an internal arrangement between the AEs. Since the balances with these three AEs are, admittedly, on account of trading transactions, which belong to the same ‘class of transaction’, we fail to comprehend as to why transactions with AVL Fahrzeugdiagnose GmbH and AVL Zollner Marine GmbH should not be aggregated with transactions with AVL List Graz. When the ld. CIT(A) was satisfied that interest on payables to AVL List Graz called for set off against interest on receivables from the same party for the purpose of determining the amount of transfer pricing adjustment, which position has also been accepted by the Department, then he ought to have considered similar transactions with AVL Fahrzeugdiagnose GmbH and AVL Zollner Marine GmbH as also part of the same international transaction. We, therefore, set aside the impugned order on this score and hold that the international transactions of trade receivables and trade payables with all the three AEs should be aggregated and processed as a single transaction of interest on receivables/payables. If the position is viewed in such a manner, there remains no amount of interest receivable from the AE liable to be added to the assessee’s total income as a transfer pricing adjustment. Disallowance u/s 14A - Held that:- An admitted position that the assessee did not earn any exempt income during the year and, still, the disallowance has been made u/s 14A. The Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT), has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. In view of the binding precedents mandating for not making any disallowance u/s 14A of the Act in the absence of any exempt income, which are squarely applicable to the facts of the instant case, we overturn the view taken by the ld. CIT(A) and order for the deletion of disallowance sustained u/s 14A of the Act. International transaction of interest on receivables - Assessment Year 2010-11 - Held that:- We find from the assessee’s Profit & Loss Account there is an item of ‘Other income’ with the value of ₹ 22,33,35,416/-. The last item of this Schedule is ‘Interest.’ In addition to interest from bank, the assessee also declared to have earned interest from ‘Others’ to the tune of ₹ 37,95,288/-. This shows that the assessee did earn interest from ‘Others.’ It is not clearly borne out as to whether such interest was received on account of trade receivables from unrelated parties or on some other account. Under such circumstances, we are of the considered opinion that interest of justice would meet adequately if the impugned order is set aside and the matter is restored to the file of the Assessing Officer/TPO for benchmarking the international transaction of ‘Interest on receivables’ on the basis of the internal CUP as discussed above and thereafter, to determine the amount of transfer pricing adjustment, if any. Needless to say, the assessee will be allowed a reasonable opportunity of hearing.
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