Transfer pricing on receivables and section 35DD amortisation were resolved in favour of the taxpayer; 234C applies to returned income.
A separate transfer pricing adjustment for notional interest on delayed receivables was unwarranted where the taxpayer was debt-free, no comparable interest recovery was shown, and the receivable element was already reflected in working capital adjustment; the addition was deleted. Deduction under section 35DD for the second instalment of amortised amalgamation expenditure was allowed, as the Tribunal could entertain the claim despite the absence of a revised return and the earlier assessment order supported the statutory deduction. Interest under section 234C was held to be chargeable only on returned income, not assessed income.
Issues: (i) Whether notional interest on delayed receivables from associated enterprises could be separately benchmarked as an international transaction and adjusted under transfer pricing provisions. (ii) Whether deduction under section 35DD could be allowed in the second year as 1/5th of amalgamation expenditure on the basis of the earlier assessment order. (iii) Whether interest under section 234C was to be computed on returned income.
Issue (i): Whether notional interest on delayed receivables from associated enterprises could be separately benchmarked as an international transaction and adjusted under transfer pricing provisions.
Analysis: The receivables issue was examined in the light of the assessee being a debt-free company with no interest expenditure and no evidence of interest recovery from unrelated parties. The adjustment was also viewed against the background of working capital adjustment, which had been directed but not fully granted, making a separate imputation of interest unnecessary in the facts of the case. The legal position that receivables may constitute an international transaction was noted, but the facts justified deletion of the separate adjustment.
Conclusion: The separate transfer pricing adjustment on outstanding receivables was deleted, in favour of the assessee.
Issue (ii): Whether deduction under section 35DD could be allowed in the second year as 1/5th of amalgamation expenditure on the basis of the earlier assessment order.
Analysis: The claim was for the second instalment of the statutory amortisation of amalgamation expenditure. The bar against a fresh claim through a revised return did not preclude the Tribunal from entertaining the claim, and the earlier assessment order supplied the factual basis for allowing the balance statutory deduction.
Conclusion: The deduction under section 35DD for 1/5th of the amalgamation expenditure was allowed, in favour of the assessee.
Issue (iii): Whether interest under section 234C was to be computed on returned income.
Analysis: The levy of interest under section 234B was treated as consequential. For section 234C, the computation was held to be restricted to returned income and not assessed income.
Conclusion: Interest under section 234C was directed to be charged on returned income only, in favour of the assessee.
Final Conclusion: The assessment was interfered with on the transfer pricing receivables adjustment and the amortised amalgamation deduction was granted, while the interest issue was confined to the returned-income basis.
Ratio Decidendi: A separate transfer pricing adjustment on receivables is unwarranted where the facts show no comparable interest claim and the receivable element is already absorbed in working capital adjustment; statutory amortisation claims under section 35DD can be entertained by the Tribunal even if not raised through a revised return.
TaxTMI 
AI Drafter ✕
TaxTMI 
