Transfer pricing disputes resolved: benefit test rejected for technical services, interest benchmarked at LIBOR plus 200 points, multiple issues remanded for fresh examination

The ITAT Hyderabad addressed multiple transfer pricing issues. For technical services from AE, the Tribunal held that TPO cannot apply benefit test while computing ALP, citing SC precedent that revenue authorities cannot second-guess business decisions, directing deletion of addition. For regional support services, assessee granted additional opportunity to prove case. Interest on receivables benchmarked at LIBOR + 200 points following recent Tribunal decision. Issues regarding taxability of interest income, employee loans written off, and security deposits were remitted back to TPO for fresh examination after assessee provided additional evidence and documentation.

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Issues:
Transfer pricing adjustments made by TPO, Dispute Resolution Panel's decision, Taxability of interest income, Disallowance of employee advances, Disallowance of security deposits, Penalty proceedings under section 270A of the Income-Tax Act.

Transfer Pricing Adjustments:
The assessee's appeal arose from the Assessing Officer's order related to the Assessment Year 2017-18. The case involved international transactions, leading to a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP). The TPO made adjustments, which were partly allowed by the Dispute Resolution Panel (DRP). The assessee challenged the adjustments, leading to the current appeal.

Technical Services Adjustment:
The main contention was regarding technical services received by the assessee for project bidding support from its Associated Entity (AE). The TPO and DRP disallowed the expenses, stating the assessee derived no benefit. However, the Tribunal held that the benefit test should not be applied by the TPO, citing relevant judgments. Consequently, the Tribunal directed the AO to delete the addition related to technical services.

Regional Support Services Adjustment:
The assessee provided additional evidence to contest the regional support services adjustment. The Tribunal granted the assessee another opportunity to prove its case regarding regional support services, allowing this ground of appeal for statistical purposes.

Interest on Receivables Adjustment:
Regarding interest on receivables, the Tribunal directed the AO to apply LIBOR + 200 points for loan transactions, citing recent decisions. The Tribunal affirmed the view that the transaction was international and should be computed considering the ALP.

Taxability of Interest Income:
The issue of taxability of interest income was remitted to the TPO for fresh adjudication due to discrepancies in reconciliation between the 26AS statement and the profit and loss account.

Disallowed Employee Advances and Security Deposits:
The Tribunal allowed the disallowance of employee advances and security deposits to go back to the TPO for re-examination, providing the assessee with an opportunity to substantiate the genuineness of these transactions.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing various issues back to the TPO for fresh adjudication in the interest of justice. The order was pronounced on 9th Sept., 2024.

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