High Court affirms ITAT on income treatment of deposits & ALP adjustment, citing accounting principles & precedent

The High Court upheld the ITAT's decisions on both issues, regarding the treatment of non-refundable deposits as income and ALP adjustment on interest for inter-corporate deposits. The Court emphasized the reasonableness and consistency of the ITAT's rulings, finding no legal grounds for interference as the practices were aligned with accounting principles and previous assessments. The Court cited precedent to support its decision and concluded that no questions of law arose from the judgments.

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Issues:
1. Treatment of non-refundable deposits as income by the AO.
2. ALP adjustment on account of interest on inter-corporate deposit.

Analysis:
1. The first issue revolves around the treatment of non-refundable deposits totaling Rs. 3,46,00,000 as income by the AO. The ITAT accepted the assessee's argument that the amount should be amortized over the estimated customer churn period, aligning with accounting principles. The Court noted that this practice was consistently followed by the assessee and accepted by the revenue in previous years. Citing the decision in CIT Vs Excel Industries Ltd, the Court upheld the ITAT's decision, emphasizing the inappropriateness of reconsidering an issue when the fundamental aspect remains consistent across assessment years.

2. The second issue concerns the ALP adjustment of Rs. 10,11,786 on interest for inter-corporate deposits. The TPO directed adjustments based on lower interest rates, transaction costs, and lack of security. However, the ITAT ruled in favor of the assessee, highlighting that interest rates on foreign currency loans differ significantly from rupee loans. The ITAT emphasized the irrelevance of transaction costs for overseas subsidiaries borrowing in foreign currency and rejected the TPO's adjustments. Additionally, the ITAT noted that the assessee's advances to subsidiaries under its control reduced risks, justifying no adjustment on a higher basis.

In conclusion, the High Court upheld the ITAT's decisions on both issues, emphasizing the reasonableness and justification of the ITAT's rulings. The Court found no legal grounds for interference, indicating that no questions of law arose from the judgments.

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