2023 (6) TMI 258 - AT - Income Tax

Transfer-pricing matter returned to AO for reconsideration to allow extra evidence; LIBOR plus 200 bps interest on receivables accepted

ITAT restored the transfer-pricing issue to the file of the AO for further adjudication to allow the taxpayer to file additional documentary evidence, ... Arm's length price - international transaction - definition of international transaction under section 92B of the Act - transfer pricing adjustment - benchmarking of interest on intercompany receivables - use of LIBOR+200 basis points as benchmark for foreign currency receivables - remand for factual verificationRemand for factual verification - global/regional management overhead allocation fee - arm's length price - Whether the payment for global/regional management overhead allocation fee required adjudication on merits or factual verification by the Assessing Officer/Transfer Pricing Officer. - HELD THAT: - The Tribunal observed that identical factual and documentary issues on the global/regional management overhead allocation fee had arisen in earlier assessment years and had been remitted by Coordinate Benches for the assessee to file additional documentary evidence and for factual verification by the AO/TPO. On the similarity of circumstances, and noting no opposition from the Revenue to remand, the Tribunal concluded that the interest of justice requires restoration of this issue to the file of the Assessing Officer/Transfer Pricing Officer for fresh factual verification and consideration of relevant material to determine the arm's length treatment of the allocation fee. [Paras 5]Issue remanded to the Assessing Officer/Transfer Pricing Officer for fresh factual verification and consideration of documentary evidence; grounds 4 to 12 allowed for statistical purposes.Benchmarking of interest on intercompany receivables - international transaction - definition of international transaction under section 92B of the Act - use of LIBOR+200 basis points as benchmark for foreign currency receivables - Whether interest on trade receivables from an associated enterprise constitutes an international transaction requiring separate benchmarking and, if so, the appropriate benchmark rate to be applied. - HELD THAT: - Relying on the retrospective amendment to the definition of international transaction and on judicial authorities, the Tribunal held that the assessee cannot dispute that interest on outstanding receivables from an AE is an international transaction requiring separate benchmarking. The Tribunal surveyed tribunal and High Court decisions which have endorsed computing notional interest on overdue foreign currency receivables by reference to LIBOR (or the market rate for the currency concerned) and accepted the reasoning that currency specific market rates determine the return on funds. Applying these precedents, the Tribunal concluded that for the purpose of transfer pricing adjustment the ends of justice are met by adopting LIBOR plus 200 basis points as the benchmark rate for similar foreign currency receivables/advances and directed the AO/TPO to adopt the same. [Paras 9, 12]Assessee's appeal on this issue partly allowed by directing the Assessing Officer/Transfer Pricing Officer to adopt LIBOR+200 basis points as the benchmark rate for interest on foreign currency intercompany receivables.Final Conclusion: Appeal partly allowed: the allocation fee issue is remanded to the Assessing Officer/Transfer Pricing Officer for fresh factual verification; interest on intercompany receivables to be benchmarked at LIBOR+200 basis points and adopted by the AO/TPO. Issues involved:The issues involved in the judgment are the payment for global/regional management overhead allocation fee and interest on trade receivables.Payment for global/regional management overhead allocation fee:The appellant appealed against the order of the Deputy Commissioner of Income Tax regarding adjustments suggested by the Transfer Pricing Officer. The Appellate Tribunal decided to send the issue back to the Assessing Officer for factual verification based on the need for additional evidence, following the precedent set in earlier assessment years. The Tribunal considered it necessary for the assessee to submit all relevant material for fresh verification.Interest on trade receivables:The Tribunal considered whether interest on trade receivables should be benchmarked separately as an international transaction. The appellant argued that the interest rate should be based on LIBOR+200 points, citing precedents. The Tribunal referred to decisions by the Bombay High Court and various Tribunals, concluding that the interest rate on similar foreign currency receivables should be accepted as LIBOR+200 points. The Tribunal directed the Assessing Officer to adopt this rate, partly allowing the grounds of appeal.Separate Judgment:No separate judgment was delivered by the judges in this case.