2018 (2) TMI 1525

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....nterest under section 234B of the I.T. Act, which is consequential and mandatory. Therefore, Ground Nos. 10 and 11 are also not argued. Therefore, in the present appeal, ground Nos. 3 to 9 have to be disposed-of. Rest are rejected. 4. Briefly, the background of the case of the assesseecompany is that during the course of assessment proceedings, the case of the assessee-company was referred to ACIT/TPO (T.P.), New Delhi, as the assessee-company had entered into international transactions. The order dated 25th October, 2016, under section 92CA(3) of the Act was passed by TPO wherein an upward adjustments of Rs. 57,57,95,126 was made to the arms length price in relation to international transactions. Thereafter, a draft assessment order was passed on 28th December 2016, wherein the total income of the assessee-company was assessed at Rs. 86,23,06,341/- after making addition of Rs. 58,32,23,621/- on four counts. Aggrieved by the proposed additions, the assessee-company raised objections against the draft assessment order before DRP. The DRP-I, New Delhi, passed its order dated 26th November, 2017 and issued directions. Accordingly, the impugned assessment order have been passed by t....

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....hat interest rate of 12.87% would be arm's length level of interest that needs to be charged for the deemed loan advance for the period of receivable outstanding beyond the period stipulated in the service agreement/invoice. After calculation of the interest, adjustment of Rs. 15,34,91,486 was made and total ALP of international transaction was computed at Rs. 57,57,95,126. Learned Counsel for the Assessee referred to page-38 of the appeal papers which is order of the DRP, which, adjudicated the issue as ground No.14. The DRP noted that this ground pertains to T.P. adjustment by re-characterization of delayed receivables as a loan and benchmarking the transaction of outstanding receivables from A.E. using interest rate CUP of SBI base rate plus 300 basis points on delays in realization of payment from A.E. against the invoices raised for the provision of services. The objections raised by the taxpayer were considered by the A.O. in the draft assessment order. It was noted that similar ground had been raised in A.Y. 2012-2013 as well. The ground has been discussed by the DRP at page 4 and 5 of the rectification order passed on 23rd February, 2017 which is reproduced in the order of ....

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.... to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345ITR 241 (Delhi). The issue in the present appeal is also identical therefore, squarely covered by this judgment in favour of the assessee. Therefore, Ground No. 4 & 5 are allowed." 6.1. Learned Counsel for the Assessee submitted that he has verified that no appeal has been filed by the Department before the Hon'ble jurisdictional Delhi High Court against this jud....

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....he year and were written off in the books of account of the assessee-company. Accordingly, the same were claimed as allowable deduction in computation of taxable income of the assessee-company. It was submitted that the aforesaid sum did not represent a debt which had become bad during the year, as was inadvertently submitted before A.O. This amount is, in fact, represents debit balance which was appearing in the accounts of vendor and which was written off, since it was not recoverable. The assessee-company requested the DRP to condone this mistake on the part of the assessee. It was submitted that this sum being loss incurred by the assessee-company in the ordinary course of business and incidental to the operation of the business which was claimed as deduction in the return of income. The A.O. has stated that no deduction can be allowed in respect of bad debt unless such debt or part thereof, has been taken into account in computing the income of the assessee-company of the previous year, in which, the amount of such debt or part thereof, is written off or of an earlier previous year. The DRP noted that assesseecompany has not provided any basic details of when the amount was ad....

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....61 without appreciating the fact that the same has been incurred on account of obsolete spare parts actually written-off as per the accounting policy regularly followed by the Appellant." 14. Learned Counsel for the Assessee referred to page-40 of the appeal paper which is order of the DRP. The DRP noted that during the year under consideration, assessee-company had debited a sum of Rs. 15,71,661 as "stock written off" to its P & L A/c and claimed the same as an allowable expense under the Act. This write off was on account of some of the spare parts found obsolete during the course of stock verification conducted by the assessee-company for the relevant year. It was submitted that Accounting Standard-2 - Valuation on inventory (AS-2) issued by the ICAI prescribes that inventories lying as on the end of the year are to be valued as per the consistent method of valuing the inventories at 'lower of cost and net realizable value'. It further provides that where an item of inventory becomes obsolete, cost may not be recoverable and a charge to P & L A/c on account of such obsolescence has to be made to bring down the value of inventory at net realizable value. In line with the above....

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....y did not file any evidence in support of its claim except filing copy of the ledger account. Assesseecompany did not submit any report of Engineer or Production Head to verify that actually the inventory has become obsolete. Mere filing of the ledger account is not sufficient to support the claim of the assessee-company that the stock has become obsolete. Merely referring to Accounting Standard would not support the claim of the assessee-company that in fact the stock of the assessee-company has become obsolete. In the absence of any evidence in support of the claim of the assesseecompany, no interference is called for in the matter. The DRP has given one more chance to the assessee-company to get the claim verified before A.O. However, the assessee-company did not avail the opportunity and did not produce any relevant or cogent evidence before A.O. to substantiate the claim of obsolete stock. No interference is called for in the matter. Ground No.8 of appeal of assessee-company is dismissed. 17. On ground Nos.7 and 8, Learned Counsel for the Assessee also made an alternative submission and submitted that assessee-company followed Cost plus method and in case, the cost is disal....