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Issues: (i) Whether separate transfer pricing adjustment on interest attributable to overdue receivables was warranted, and whether the assessee was entitled to credit for the agreed credit period and working capital adjustment; (ii) whether the foreign exchange loss was wrongly subjected to double addition and whether the assessed income/computation mismatch required correction; (iii) whether relief was admissible in respect of tax credit and interest under section 234A.
Issue (i): Whether separate transfer pricing adjustment on interest attributable to overdue receivables was warranted, and whether the assessee was entitled to credit for the agreed credit period and working capital adjustment.
Analysis: The receivable for services was examined as a distinct international transaction for benchmarking purposes. The invoices showed an agreed credit period of 90 days, and interest for that period was already embedded in the service pricing. The credit period adopted by the transfer pricing officer at 60 days was therefore found to require correction. At the same time, the plea that the assessee was debt-free did not justify exclusion of notional interest on amounts outstanding beyond the agreed period. The rate of interest adopted by the transfer pricing officer and the alternative suggested by the assessee were both found to be unsupported; the matter required fresh benchmarking on comparable factors and FAR analysis. The claim for working capital adjustment was rejected because it had not been claimed in the transfer pricing study report and the arm's length pricing exercise had been carried out without such adjustment.
Conclusion: The adjustment was not deleted in full. The transfer pricing officer was directed to recompute the working by adopting a 90-day credit period, verify whether similar credit was available to non-associated enterprises, and determine the interest rate on a proper comparable basis. The assessee's request for working capital adjustment was rejected.
Issue (ii): Whether the foreign exchange loss was wrongly subjected to double addition and whether the assessed income/computation mismatch required correction.
Analysis: The foreign exchange loss had already been disallowed by the assessee in the computation, and its further inclusion in the assessment resulted in double addition. The assessment order and the computation sheet also showed different total income figures, creating an apparent inconsistency requiring verification and correction by the assessing authority.
Conclusion: The foreign exchange loss addition and the computation discrepancy were directed to be rectified in favour of the assessee.
Issue (iii): Whether relief was admissible in respect of tax credit and interest under section 234A.
Analysis: The return had been filed within the extended due date, so charging interest under section 234A was not sustainable. The assessee was also entitled to correction of tax deducted at source credit and foreign tax credit in accordance with law.
Conclusion: Relief was granted by directing deletion of interest under section 234A and granting the tax credits as admissible.
Final Conclusion: The assessee obtained substantial relief, but the transfer pricing issue concerning overdue receivables survived only for recomputation on corrected factual and benchmarking parameters.
Ratio Decidendi: Interest on overdue receivables may be separately benchmarked for transfer pricing purposes, but the credit period actually agreed and already embedded in service pricing must be respected, and any imputed interest must rest on proper comparables and FAR analysis; claims for working capital adjustment must be supported by the transfer pricing study and the record.
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