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2021 (1) TMI 124 - AT - Income TaxTP Adjustment - delay in realization of receivables from AE beyond credit period - indirect funding to AE which constitutes separate international transactions - appropriate rate for benchmarking international transactions for delay in realization of AE receivables - HELD THAT:- Once delay in realization of AE receivables constitute an international transaction, whether or not, assessee charges interest on receivables from AE or not, has no relevance because any understanding or arrangement between the assessee and its AE which is detrimental to Revenue and against the principles of scheme of Chapter X of the Act, cannot come to the rescue of the assessee. We further note that merely because there is no provision to chargeability of interest in the agreement between the assessee and its AE for delayed realization and merely because assessee does not pay any interest to the AE on the security deposit, the Revenue cannot be deprived on its legitimate share in accordance with the scheme of Chapter X of the Act and the purpose behind the Chapter X. Therefore, we are of the considered view that there is no error in the finding recorded by the AO as well as the TPO and the CIT(A) to come to the conclusion that delay in realization of receivables from AE beyond credit period tantamount to indirect funding to AE which constitutes separate international transactions. Impute interest on receivables - It would be most appropriate if the LIBOR rate is applied as most appropriate rate of interest for imputing interest on delay in receivables from AE. In this case, the AO has imputed notional interest by adopting PLR as the base rate whereas the ld.CIT(A) has directed the AO to adopt LIBOR rate as the base rate for imputing the interest with an appropriate spread befitting the credit standing of the AE. LIBOR + 200 basis point rate is most appropriate rate and hence, direct the AO/TPO to adopt LIBOR + 200 basis point for imputing interest on overdue receivable. As regards, the argument of ld.AR for assessee that the TPO has not given any credit period, we find that in any trade there is a credit period for payment to services or goods. Therefore the AO is directed to allow normal credit period allowed by the assessee, if any agreed credit period between assessee and AE. If there is no agreed credit period, then the AO is directed to allow standard credit period that the industry is allowing in this line of business. Disallowance of expenditure for earning exempt income u/s.14A - AO disallowed interest expenditure under Rule 8D2(ii) and other expenditure under Rule 8D2(iii) of the IT Rules, 1962 - HELD THAT:- There is no dispute with regard to the fact that the assessee has not earned any exempt income from investments for the year under consideration. It is a well settled principle of law from various decisions of High Court and Supreme Court that when there is no exempt income for the impugned assessment year then there cannot be any disallowance of expenditure in relation to said exempt income u/s.14A. CIT(A) after considering the fact that the assessee has not earned any exempt income for the year under consideration, by following the decision of the jurisdictional High Court of Madras in the case of Redington (India) Ltd [2017 (1) TMI 318 - MADRAS HIGH COURT] has deleted the addition made by the AO towards disallowance of expenditure u/s.14A of the Act. The Revenue has failed to bring on record any contrary judgment which is in favour of the Revenue to counter the findings of facts recorded by the CIT(A) in the light of binding decision of jurisdictional High Court of Madras. Therefore, we are of the considered view that there is no error in the findings recorded by the CIT(A) .
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