2019 (8) TMI 512 - HC - Income Tax

High Court Rules Notional Income Excluded in Transfer Pricing

Pr. Commissioner Of Income Tax, Udaipur Versus M/s Secure Meters Ltd.

The High Court considered whether notional amounts could be attributed in income and adjusted in Arm's Length Price (ALP) determination under Section ... TP Adjustment - Arm’s Length Price (ALP) determination u/s 92CA(3) - absence of interest, claimed from an Associated Enterprises, (A.E.) notional amounts could be attributed in the income - HELD THAT:- In B.C. Management Services (P) Ltd [2017 (12) TMI 255 - DELHI HIGH COURT] the Court had held following Principal CIT vs. Bechtel India (P) Ltd. [2016 (9) TMI 196 - DELHI HIGH COURT] that such notional income on account of delayed payment by the A.E. cannot be treated as part of the income and made the subject matter of the adjustments. This Court is of the opinion that since no amounts were advanced in the instant case, rather the adjustments made on account of TPO that ought to have been recovered from the notional interest, on a subjective assessment of the manner in which the businesses run, no question of law arises for consideration. Issues:1. Whether notional amounts could be attributed in the income and adjusted to the assessee’s accounts in the Arm’s Length Price (ALP) determination under Section 92CA(3) of the Income Tax Act, 1961.Analysis:1. The High Court dealt with two appeals by the Revenue against the same assessee, focusing on the question of attributing notional amounts in income and adjusting them in ALP determination. The core issue was whether, in the absence of interest claimed from an Associated Enterprise (A.E.), such notional amounts could be included in the income.2. The assessee's income tax returns underwent ALP determination by the Transfer Pricing Officer (TPO), resulting in additions in two assessment years. The assessee contended that a similar challenge in a previous year had led to relief being granted by the Appellate Commissioner, which was upheld by the ITAT. The Revenue's appeal was rejected.3. The Revenue argued that the TPO's adjustments in the draft order should impact the assessee's income. However, the assessee relied on judgments from different High Courts, emphasizing that notional income due to delayed payments by the A.E. cannot be considered part of the income for adjustments.4. The Court referenced judgments like Pr. CIT vs. B.C. Management Services and Pr. CIT, Alwar Vs. M/s. Gillette India Ltd., highlighting that notional income from delayed payments should not be subject to adjustments. The absence of advanced amounts in the present case led the Court to conclude that no question of law arose for consideration.5. The Court determined that as no amounts were advanced, and the adjustments were based on TPO's assessments, notional interest recovery was not applicable. Consequently, the Court found the appeals lacking merit and dismissed them.