Transfer pricing interest adjustment remanded after subsidiary liquidation evidence and additional material undermined sustainability of the addition.

The transfer pricing adjustment imputing interest on the loan advanced to the German subsidiary was set aside because additional evidence showed the subsidiary had entered liquidation and the investment and loan had been written off. As the new material directly affected the sustainability of the interest adjustment, the matter was remitted for fresh adjudication by the Assessing Officer after granting the assessee an effective opportunity of hearing. The additional evidence was taken on record, and the substantive transfer pricing issue was left open for reconsideration.

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Issues: Whether the transfer pricing adjustment made by imputing interest on the loan advanced to the German subsidiary was sustainable, and whether the matter required fresh adjudication in view of the subsidiary's liquidation and the additional evidence produced.

Analysis: The adjustment was made on the footing that interest was chargeable at 6% on the loan advanced to the overseas subsidiary. The record, however, showed that the subsidiary had entered liquidation, the investment and loan had been written off in the books, and additional material was produced regarding the liquidation order and subsequent regulatory proceedings. In these circumstances, the earlier sustaining of the interest adjustment was held to be unsatisfactory, and the additional evidence was taken on record. Since the new material had a direct bearing on the correctness of the transfer pricing adjustment, the matter was considered fit for reconsideration by the Assessing Officer after granting the assessee a fair opportunity of hearing.

Conclusion: The transfer pricing addition on account of interest on the loan to the German subsidiary was set aside and remitted to the Assessing Officer for fresh adjudication.

Final Conclusion: The assessee obtained partial relief on the transfer pricing issue, and the appeal was disposed of by remand with the substantive addition left open for reconsideration.

Ratio Decidendi: Where additional evidence materially affecting the sustainability of a transfer pricing interest adjustment is received, and the underlying overseas subsidiary is shown to be under liquidation, the adjustment may be set aside for fresh consideration after affording the assessee an effective opportunity of hearing.

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