2020 (9) TMI 1149 - AT - Income Tax

ITAT Hyderabad: No adjustment for interest on receivables from associated enterprises.

The ITAT Hyderabad ruled in favor of the assessee for the A.Y 2014-15, holding that no adjustment was necessary regarding interest on receivables from ... TP Adjustment - Addition relating to Arm’s Length Price Adjustment towards interest on receivables from AE’s - Finding on the No.of days delay in receivables - HELD THAT:- The assessee is following the TNMM method and there is no dispute with regard to the method followed by the assessee. TPO has made economic analysis and given a finding that no adjustment is required and the transactions were at ALP. On going through the order of the TPO, though it was stated that there were outstanding trade receivables TPO has not given any finding on the No.of days delay in receivables. As submitted by the learned AR, the delay was less than 90 days and the industry acceptable period of average is 90 days. The Coordinate Bench of the ITAT in assessee’s own case for the A.Y 2013-14 [2020 (7) TMI 282 - ITAT HYDERABAD] has taken view that no adjustment is required if the delay is between 90 to 120 days. As respectfully following the view taken by the Coordinate Bench in assessee’s own case for the earlier A.Y2013-14 we hold that no adjustment is required and accordingly we, set aside the order of the DRP/AO and delete the addition made by the Assessing officer. - Decided in favour of assessee. Issues:1. Arm's Length Price Adjustment of interest on receivables from AE.2. Application of TNMM method in determining ALP.3. Comparison with industry average for receivables delay.4. Reliance on previous Tribunal decisions.Issue 1: Arm's Length Price Adjustment of interest on receivables from AEThe assessee appealed against an order under section 143(3) read with 144C of the I.T. Act for the A.Y 2014-15. The appeal focused on an addition related to Arm's Length Price Adjustment of interest on receivables from associated enterprises (AE). The assessee contended that being a debt-free company with interest-free funds, it does not bear any interest risk and, therefore, does not charge interest on receivables. The assessee relied on the Supreme Court's decision in the case of Pr. CIT -2 vs. M/s. Bachtel India Pvt. Ltd to support its argument. The Tribunal considered the TNMM method followed by the assessee and the industry average for receivables delay, ultimately ruling in favor of the assessee by deleting the addition.Issue 2: Application of TNMM method in determining ALPThe learned AR representing the assessee argued that the TNMM method was correctly applied, and the profit margin of the assessee was more than comparable, aligning with the Arm's Length Price (ALP). The Tribunal reviewed the economic analysis conducted by the Transfer Pricing Officer (TPO) and found that no adjustment was required as the transactions were at ALP. The Tribunal also noted that the delay in receivables was within acceptable limits compared to the industry average, further supporting the decision to delete the addition.Issue 3: Comparison with industry average for receivables delayThe Tribunal considered the industry standard for receivables delay, with the delay in the assessee's case being less than 90 days, which was below the industry average of 90 to 120 days. Citing a previous Tribunal decision in the assessee's own case for the A.Y 2013-14, the Tribunal held that no adjustment was necessary if the delay fell within the range of 90 to 120 days. This comparison with industry practices and past decisions helped in determining that no adjustment was warranted in this case.Issue 4: Reliance on previous Tribunal decisionsThe assessee relied on a decision by ITAT, Vizag in the case of GVK Power & Infrastructure Ltd, which favored the assessee regarding charging interest on receivables. Additionally, the Tribunal referred to its own decision in the assessee's case for the A.Y 2013-14, where a similar issue was addressed, and no adjustment was deemed necessary. By considering and following these previous Tribunal decisions, the current Tribunal ruled in favor of the assessee and set aside the order of the DRP/AO, ultimately allowing the appeal.In conclusion, the ITAT Hyderabad, through a detailed analysis of the issues involved, upheld the assessee's appeal for the A.Y 2014-15 by ruling that no adjustment was required concerning interest on receivables from AE. The Tribunal's decision was based on the application of the TNMM method, comparison with industry standards, and reliance on previous Tribunal decisions, ultimately leading to the deletion of the addition made by the Assessing Officer.