Transfer Pricing adjustment cannot be applied where same interest was already disallowed and taxed; concessional rate claim upheld.

Where the assessee had already disallowed and included interest paid to an associated enterprise in taxable income and paid tax, a further upward transfer pricing adjustment on the same interest was deleted because it would produce double taxation. The assessee was held entitled to the concessional tax rate despite delayed filing of Form 10-IC where the form and return were on record and extensions applied; delay treated as procedural. Interest under provisions for shortfall and deferment is to be recomputed: one on income as finally determined and the other on income declared in the return. Penalty proceedings were held premature.

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Issues: (i) Whether the transfer pricing adjustment of Rs. 1,60,21,483 made on interest paid on non-convertible debentures is liable to be sustained when the assessee had already disallowed and added back the same interest under section 94B; (ii) Whether the assessee is entitled to concessional tax rate under section 115BAA(5) despite delayed filing of Form 10-IC; (iii) Whether interest under sections 234B and 234C should be computed after giving effect to the Tribunal's decision; (iv) Whether penalty proceedings under section 270A are maintainable at this stage.

Issue (i): Whether the transfer pricing (TP) upward variation of Rs. 1,60,21,483 on interest paid to associated enterprise can be sustained despite the assessee having disallowed the entire interest under section 94B and included it in taxable income.

Analysis: The Tribunal examined the computation and audit records showing that the assessee had suo motu disallowed interest of Rs. 7,69,03,118 under section 94B and had included the same in total income and paid tax. The Tribunal considered the Department's contention on the separate operation of TP provisions and section 94B, and the possibility of carry forward under section 94B(4), and reviewed the documentary evidence and returns of subsequent years to verify whether any carry forward benefit was claimed. The Tribunal found on the record that the specific interest amount under challenge was not carried forward or claimed in subsequent years and that further TP adjustment in respect of an amount already added back and taxed would result in double taxation.

Conclusion: The transfer pricing addition of Rs. 1,60,21,483 is deleted and the assessee's additional ground on this issue is allowed (in favour of the assessee).

Issue (ii): Whether the assessee is entitled to the concessional tax rate under section 115BAA(5) despite filing Form 10-IC after the original due date.

Analysis: The Tribunal considered the facts that return and Form 10-IC were filed and available at assessment, the CBDT/Court extensions of due dates during the Covid-19 period, and precedents treating delayed filing of Form 10-IC as a procedural lapse. The Tribunal reviewed coordinate bench decisions and the assessee's filing timeline relative to extended deadlines and concluded that the delay did not defeat the substantive right to the concessional rate.

Conclusion: The assessee is entitled to the concessional tax rate under section 115BAA(5) (in favour of the assessee).

Issue (iii): How should interest under sections 234B and 234C be computed after giving effect to the Tribunal's order?

Analysis: The Tribunal directed that interest under section 234B be computed on the income as finally determined after giving effect to the Tribunal's deletions and that interest under section 234C be computed on the income declared in the return.

Conclusion: Interest under section 234B shall be charged on the income finally computed after Tribunal's order and interest under section 234C on the income declared in the return; this issue is partly allowed (partly in favour of the assessee).

Issue (iv): Whether penalty proceedings under section 270A are premature/maintainable.

Analysis: The Tribunal examined the stage and basis of penalty proceedings and found them premature for adjudication.

Conclusion: Ground relating to penalty under section 270A is dismissed as premature (in favour of the assessee on procedural grounds).

Final Conclusion: The Tribunal deleted the TP addition relating to interest (allowing the additional ground), granted the concessional tax rate under section 115BAA(5), directed re-computation of interest under sections 234B and 234C consistent with its findings, dismissed the penalty ground as premature, and accordingly the appeal is partly allowed.

Ratio Decidendi: Where an assessee has already disallowed and included an expense in taxable income under section 94B and paid tax thereon, a further transfer pricing upward adjustment on the same amount resulting in additional taxation is not permissible; delayed filing of Form 10-IC, being a procedural lapse when the form and return are on record and timelines were extended due to Covid-19, does not defeat the substantive right to claim concessional tax under section 115BAA(5).

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