2019 (6) TMI 1092 - AT - Income Tax

Tribunal grants deduction for voluntary transfer pricing adjustment and allows set off of losses and MAT credit.

The Tribunal allowed the assessee's appeal, directing the AO to grant the deduction under Section 10A for voluntary transfer pricing adjustment, ... Deduction under section 10A - voluntary transfer pricing adjustment - proviso to section 92C(4) - arm's length price - transfer pricing adjustment - notional interest on delayed receivables - set off of brought forward business loss - set off of MAT credit - remand to Transfer Pricing Officer for fresh adjudicationDeduction under section 10A - voluntary transfer pricing adjustment - proviso to section 92C(4) - arm's length price - Allowability of deduction under section 10A on income declared by assessee on account of suo moto (voluntary) transfer pricing adjustment - HELD THAT: - The Tribunal followed coordinate-bench precedents and the Karnataka High Court in I-Gate to hold that the first proviso to section 92C(4) applies to situations where the Assessing Officer/TPO/DRP enhances income by computing ALP, and not to voluntary suo moto adjustments made by the assessee and disclosed in the return. Since the assessee had offered the additional income voluntarily on the basis of ALP, that income was not an enhancement effected by the AO under section 92C(4) and therefore could be considered for computing profits for deduction under section 10A. The Tribunal directed deletion of the disallowance and grant of 10A benefit on the voluntary TP adjustment, noting that the departmental reliance on contrary authority was distinguishable and that the Tribunal is bound by the jurisdictional High Court decision and coordinate-bench precedents it followed. [Paras 5]Disallowance deleted; deduction under section 10A allowed on the voluntary transfer pricing adjustment and Assessing Officer directed to grant benefit.Transfer pricing adjustment - notional interest on delayed receivables - arm's length price - remand to Transfer Pricing Officer for fresh adjudication - Validity and quantum of transfer pricing adjustment made by TPO by imputing interest on delayed receivables - HELD THAT: - The Tribunal found that the TPO and DRP had not adequately considered factual aspects: the assessee's asserted normal credit period (90 days) versus the TPO's assumption (30 days), the need to net outstanding receivables with outstanding payables to associated enterprises, and the appropriate market interest benchmark (contention as to LIBOR plus spread versus SBI PLR plus points). Given these unaddressed anomalies and factual disputes, the Tribunal declined to decide the issue on merits and restored the matter to the file of the TPO for fresh adjudication after considering the Tribunal's observations and giving the assessee an opportunity to be heard. [Paras 5]Issue remanded to the TPO for fresh adjudication in accordance with Tribunal observations.Set off of brought forward business loss - Allowability of set off of brought forward business loss claimed by the assessee - HELD THAT: - The Tribunal directed the Assessing Officer to allow the set off of the brought forward loss after due verification, thereby remitting the matter for compliance with the statutory entitlement subject to verification of facts and records by the AO. [Paras 5]Assessing Officer directed to allow set off of brought forward loss after verification.Set off of MAT credit - Allowability of set off of available MAT credit - HELD THAT: - The Tribunal directed the Assessing Officer to give effect to the assessee's claim for set off of available MAT credit in accordance with law, leaving the mechanical compliance and verification to the AO. [Paras 5]Assessing Officer directed to allow set off of MAT credit as per law.Interest under sections 234B and 234D - penalty under section 271(1)(c) - Consequential nature of grounds relating to interest and initiation of penalty proceedings - HELD THAT: - The Tribunal observed that the pleas concerning interest under sections 234B/234D and initiation of penalty under section 271(1)(c) are consequential upon the primary adjudications and therefore required no separate substantive adjudication in this appeal. [Paras 5]No separate adjudication required as these grounds are consequential.Final Conclusion: Appeal allowed: deduction under section 10A upheld on voluntary transfer pricing adjustment; transfer pricing adjustment on notional interest remanded to TPO for fresh adjudication; Assessing Officer directed to allow set off of brought forward loss and MAT credit after verification; interest/penalty grounds treated as consequential. Issues Involved:1. Deduction under Section 10A of the Income Tax Act.2. Transfer Pricing Adjustment - Provision of IT Enabled Services.3. Transfer Pricing Adjustment - Interest on outstanding receivables.4. Set off of brought forward loss.5. Set off of Minimum Alternate Tax (MAT) credit.6. Levy of interest under Sections 234B and 234D.7. Initiation of penalty proceedings under Section 271(1)(c).Issue-wise Detailed Analysis:1. Deduction under Section 10A of the Income Tax Act:The core issue was whether the assessee was eligible for claiming a deduction under Section 10A on a voluntary transfer pricing adjustment. The assessee made a voluntary transfer pricing adjustment amounting to Rs. 1,96,45,478/- and claimed a deduction of Rs. 1,69,61,565/- under Section 10A, which was denied by the Assessing Officer (AO) and upheld by the Dispute Resolution Panel (DRP). The Tribunal held that the proviso to Section 92C(4) is applicable only to adjustments made by the AO/TPO and not to voluntary adjustments made by the assessee. The Tribunal relied on the precedents set by various High Courts and ITAT Benches, including the Karnataka High Court in I-Gate Global Solutions Ltd. vs. ACIT, which allowed the deduction under Section 10A on voluntary transfer pricing adjustments. The Tribunal directed the AO to grant the benefit of deduction under Section 10A on the amount of voluntary TP adjustment made by the assessee.2. Transfer Pricing Adjustment - Provision of IT Enabled Services:The AO and DRP enhanced the income of the assessee by INR 943,747, holding that the international related party transaction pertaining to IT enabled Services did not satisfy the arm’s length principle. The Tribunal noted that the issue was already resolved in favor of the assessee via a rectification order passed under Section 154 by the AO.3. Transfer Pricing Adjustment - Interest on outstanding receivables:The TPO made an adjustment of Rs. 45,36,868/- by applying the SBI prime lending rate of 14.88% to impute notional interest on outstanding receivables over 30 days. The Tribunal observed that the TPO did not consider the assessee's policy of allowing a 90-day credit period and failed to adjust for outstanding payables to the AE. The Tribunal directed the TPO to re-adjudicate the issue, considering the specific facts and the assessee's arguments, including the application of LIBOR plus 150 basis points as the interest rate.4. Set off of brought forward loss:The AO did not allow the set off of brought forward loss of Rs. 53,89,388/-. The Tribunal directed the AO to allow the set off after due verification.5. Set off of Minimum Alternate Tax (MAT) credit:The AO did not allow the set off of available MAT credit. The Tribunal directed the AO to allow the set off as per law.6. Levy of interest under Sections 234B and 234D:The Tribunal noted that the levy of interest under Sections 234B and 234D was consequential and did not require specific adjudication.7. Initiation of penalty proceedings under Section 271(1)(c):The Tribunal noted that the initiation of penalty proceedings under Section 271(1)(c) was consequential and did not require specific adjudication.Conclusion:The appeal of the assessee was allowed in terms of the Tribunal's observations. The AO was directed to grant the deduction under Section 10A on the voluntary TP adjustment, re-adjudicate the transfer pricing adjustment on outstanding receivables, and allow the set off of brought forward loss and MAT credit after due verification. The levy of interest and initiation of penalty proceedings were deemed consequential.