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Tribunal Overturns Transfer Pricing Adjustment for Foreign Entity; Interest on Delayed Payments Deemed Compliant. The Tribunal allowed the appeal of the foreign entity, overturning the transfer pricing adjustment of Rs. 6,63,370/- imposed by the AO for interest on ...
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Tribunal Overturns Transfer Pricing Adjustment for Foreign Entity; Interest on Delayed Payments Deemed Compliant.
The Tribunal allowed the appeal of the foreign entity, overturning the transfer pricing adjustment of Rs. 6,63,370/- imposed by the AO for interest on delayed payments from associate enterprises in India. The Tribunal found that the overdue receivables did not breach Indian Transfer Pricing regulations, referencing the Kusum Healthcare case to support that working capital adjustments typically include interest on receivables. Consequently, the AO was directed to reverse the adjustment, rendering it unnecessary. The decision was pronounced on 29.12.2023.
Issues involved: The appeal challenges the final assessment order under sections 143(3) and 144C(13) of the Income-tax Act, 1961 for Assessment Year 2017-18, specifically focusing on upward transfer pricing adjustments.
Details of the judgment: The appeal was filed by a foreign entity located in France, disputing the transfer pricing adjustment of Rs. 6,63,370/- related to interest on delayed payments from its associate enterprises in India. The Dispute Resolution Panel (DRP) directed the Assessing Officer (AO) to make the adjustment based on the Transfer Pricing Officer's (TPO) order. The AO calculated the adjustment using the SBI base rate plus 300 basis points.
During the hearing, the assessee's counsel argued that the delay in payment did not impact the arm's length price as the foreign entity was not affected by the credit period extension. The counsel also highlighted that similar credit policies were applied to unconnected entities without charging interest. Referring to a judgment by the Delhi High Court, it was contended that no transfer pricing adjustment was necessary for overdue receivables by the foreign entity.
On the other hand, the Revenue's representative supported the lower authorities' orders. After considering both sides, the Tribunal agreed with the assessee that the overdue receivables from the foreign entity did not violate Indian Transfer Pricing regulations. It was noted that the working capital adjustment generally includes interest on receivables, as indicated in the Kusum Healthcare case. Consequently, the Tribunal directed the AO to reverse and cancel the adjustment.
As a result, the appeal of the assessee was allowed, and the adjustment was deemed unnecessary. The order was pronounced in the open court on 29.12.2023.
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