Tribunal Upholds Transfer Pricing Adjustments, Remits Rate Quantification

The Tribunal dismissed the assessee's Miscellaneous Application seeking rectification in the Tribunal order for Assessment Year 2012-13 regarding Transfer Pricing adjustments on loans given to the AE. The Tribunal upheld the principle that income from international transactions must adhere to the arm's length principle, rejecting the arguments presented by the assessee's Authorized Representative. The Tribunal remitted the quantification of the applicable rate back to the Assessing Officer/Transfer Pricing Officer for further consideration based on additional evidence submitted by the assessee. The miscellaneous application was dismissed except for the indicated rectification.

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Issues:
Rectification sought in Tribunal order for Assessment Year 2012-13 regarding Transfer Pricing adjustment on loans given to AE.

Analysis:
1. The assessee filed a Miscellaneous Application seeking rectification in the Tribunal order dated 14/11/2018 for Assessment Year 2012-13. The Authorized Representative for Assessee argued that the loans given to its AE were based on commercial exigencies, and interest was not charged due to the weak financial position of the AEs. Various documents were presented to show that the recoverability of interest and loans given to the AE were doubtful. The AR contended that non-charging of interest was at arm's length due to commercial expediency and real-income theory. The AR also argued that the benchmarking of interest should consider loans given by banks that have turned into stressed assets, as the AE had not repaid any debts and the loans were converted into equity later. The AR sought to distinguish a Special Bench decision cited in the Tribunal's order, stating that the decision was not considered in its entirety, and the order required rectification.

2. The Departmental Representative opposed the assessee's arguments, stating that the assessee was merely seeking a review of the order. The Tribunal carefully considered the arguments presented. It noted that the cited Special Bench decision was used to establish the principle that income from international transactions must be computed based on the arm's length principle. The Tribunal found that the arguments to distinguish the cited decision were not substantial, as the conclusion was drawn based on statutory provisions and the special bench decision.

3. The Tribunal further addressed the quantification of the applicable rate in the matter, remitting it back to the file of the Assessing Officer/Transfer Pricing Officer with certain observations based on additional evidence submitted by the assessee. It was clarified that the Arm's Length Price of the transactions should be determined within the legal framework, considering the principle laid down in the Tribunal's order. The assessee was given the liberty to challenge the applicable rate of the transactions. The miscellaneous application was dismissed except for the rectification indicated in the preceding paragraphs.

4. The Tribunal pronounced the order in the open court on 12th March 2019, concluding the proceedings related to the Miscellaneous Application seeking rectification in the Tribunal order for the Assessment Year 2012-13 concerning Transfer Pricing adjustments on loans given to the AE.

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