2023 (6) TMI 275 - AT - Income Tax

Tax Dispute Panel affirms Section 147 reassessment, validates Section 92 adjustments

The Dispute Resolution Panel upheld the validity of reassessment proceedings under Section 147 of the Income Tax Act. The application of Section 92 was ... TP Adjustment - TO after applying the Profit Split Method had made the upward addition to the income of the assessee - Interest on delayed trade receivables - international transaction referred by the assessee in form 3CB was only linear agency services with Maxicon containers line Pte Ltd for which the assessee had shown the revenue - HELD THAT:- When though the assessee was carrying the composite business and the profit of the linear agency services and the corresponding expenditure can be worked out with precision, then it is easy for the lower authority to compare the prices charged by the assessee from its AE, with the other comparable company carrying the same/similarly situated activities with the unrelated parties. The above-mentioned aspect has not been considered by both the lower authorities. In the light of the above we are of the considered opinion that the matter is required to be sent back to the file of the Ld. TPO for fresh adjudication after affording opportunity of hearing to the assessee. While exercising the de novo assessment, the Ld. TPO shall keep in mind the profile and business activities of the assessee, the international transaction entered into by the assessee as mentioned in form 3CB. The above said exercise shall be carried out by the TPO, after following the due process of law and after affording opportunity of hearing to the assessee. TPO may apply any method as may be applicable in the facts of the present case after affording opportunity of hearing to the assessee as provided under Rule 10B of Income Tax Rules . As we are remanding back the TP adjustment to the file of the Ld. transfer pricing officer, we also deem it appropriate to remand back the addition on account of trade receivable to the file of the Ld. transfer of pricing Officer, with the direction to recompute the trade receivables in the light of our decision in the case of Apache Footwear India Pvt [2023 (4) TMI 521 - ITAT HYDERABAD]. We direct the AO to determine the ALP and compute the same by adding notional interest @ 6% on the receivable beyond a period of 60 days. This ground is partly allowed. Issues Involved:1. Validity of Reassessment Proceedings2. Application of Section 92 of the Income Tax Act3. Adjustment on Account of Arm's Length Price (ALP)4. Deferred Receivables as International Transactions5. Interest on Outstanding ReceivablesSummary of Judgment:1. Validity of Reassessment Proceedings:The assessee challenged the initiation of proceedings under Section 147 of the Income Tax Act, arguing that the notice was issued after a period of four years without any fresh material on record. The Hon'ble Dispute Resolution Panel (DRP) upheld the validity of the reassessment proceedings.2. Application of Section 92 of the Income Tax Act:The assessee contended that the provisions of Section 92 were incorrectly applied as the business activity resulted in a loss, and no income was derived from the transaction. The DRP confirmed the applicability of Section 92CA(3), noting that the margin of profit with non-AE was 18.22%, while the profit from AE segment was only 8.5%.3. Adjustment on Account of Arm's Length Price (ALP):The Transfer Pricing Officer (TPO) computed an adjustment of Rs. 9,44,43,459/- for the purpose of ALP, which was later reduced to Rs. 6,68,92,985/- by the DRP. The assessee argued that the Profit Split Method (PSM) was not appropriate, and the DRP's comparison of logistic division revenue with agency functions was erroneous. The Tribunal remanded the matter back to the TPO for fresh adjudication, emphasizing the need for a precise comparison with similar activities by unrelated parties.4. Deferred Receivables as International Transactions:The DRP held that deferred receivables constitute international transactions and directed the TPO to work out the rate of interest applicable to short-term deposits. The Tribunal upheld this view, directing the TPO to recompute interest adjustment based on the SBI short-term deposit rates.5. Interest on Outstanding Receivables:The assessee argued against the imputation of interest on receivables, stating that no interest was charged on non-AE outstandings. The DRP rejected this plea due to lack of evidence. The Tribunal directed the TPO to recompute the trade receivables, applying a notional interest rate of 6% on receivables beyond a period of 60 days, following the decision in the case of Apache Footwear India Pvt. Ltd.Conclusion:The Tribunal remanded the issues related to TP adjustment and trade receivables back to the TPO for fresh adjudication, ensuring adherence to due process and opportunity of hearing for the assessee. The appeal was partly allowed for statistical purposes.