2024 (12) TMI 1341 - AT - Income Tax

Outstanding receivables beyond credit period from associated enterprises require independent benchmarking under transfer pricing rules

M/s. Biocon Biologicals Ltd. Versus The Assistant Commissioner of Income Tax, Circle 2 (1) (1), Bengaluru.

M/s. Biocon Biologicals Ltd. Versus The Assistant Commissioner of Income Tax, Circle 2 (1) (1), Bengaluru. - TMI Issues Involved:1. Adjustment of Arm's Length Price for Overdue Receivables from Associated Enterprises.2. Legal Validity of the Assessment Order.3. Corporate Tax Computation under Section 115JB.4. Non-grant of Advance Tax, TDS, TCS Credits, and Foreign Tax Credit.5. Initiation of Penalty Proceedings under Section 270A.6. Interest under Section 244A and Levy of Interest under Section 234C.Detailed Analysis:1. Adjustment of Arm's Length Price for Overdue Receivables from Associated Enterprises:The primary issue revolved around the adjustment of Rs. 14,05,46,884 made by the Transfer Pricing Officer (TPO) for overdue receivables from Associated Enterprises (AEs). The assessee argued that these receivables were interlinked with the main international transactions and should not be benchmarked separately. The TPO, however, treated these as a separate international transaction, applying interest based on LIBOR plus 450 basis points. The Dispute Resolution Panel (DRP) upheld this view, rejecting the assessee's contention that no interest should be imputed due to the absence of a policy of charging interest from unrelated parties. The Tribunal agreed with the lower authorities that the outstanding receivables beyond the agreed credit period constituted a separate international transaction requiring independent benchmarking. However, it noted a computational error in the TPO's calculation and directed the TPO to consider netting off outstanding receivables with payables where applicable. The Tribunal also remanded the issue back to the TPO to consider the assessee's argument regarding working capital adjustments potentially negating the need for the interest adjustment.2. Legal Validity of the Assessment Order:The assessee challenged the assessment order's validity, claiming it was time-barred under Section 153 of the Income-tax Act. However, the Tribunal did not find merit in this argument, as the assessee did not substantiate the claim during the proceedings. Consequently, this ground was dismissed.3. Corporate Tax Computation under Section 115JB:The assessee contested the computation of book profits under Section 115JB, arguing that the Assessing Officer (AO) erroneously considered assessed profits as book profits without any adjustments reflected in the assessment order. The Tribunal found merit in this contention, noting discrepancies in the computation of book profits and directed the AO to rectify the error and compute the correct book profit and consequent tax.4. Non-grant of Advance Tax, TDS, TCS Credits, and Foreign Tax Credit:The assessee argued that credits for advance tax, TDS, TCS, and foreign tax were not granted, particularly concerning the merger with Biocon Research Limited. The Tribunal directed the AO to verify and grant the credits after proper verification, thus allowing this ground of appeal.5. Initiation of Penalty Proceedings under Section 270A:The Tribunal dismissed the ground concerning the initiation of penalty proceedings under Section 270A, considering it premature and consequential, as the primary issues were still under consideration.6. Interest under Section 244A and Levy of Interest under Section 234C:The Tribunal found the grounds relating to interest under Section 244A and the levy of interest under Section 234C to be consequential or premature, thus dismissing them.In conclusion, the Tribunal partly allowed the appeal for statistical purposes, providing directions for specific issues while dismissing others based on the merits and procedural aspects.