TaxTMI 
TaxTMI 
2026 (5) TMI 164
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..../ learned Transfer Pricing Officer ("the Ld. TPO")/ Hon'ble Dispute Resolution Panel ("DRP") erred in making transfer pricing adjustment of INR 2,37,093 towards interest on overdue receivables, without appreciating the submissions filed during the assessment proceedings. Interest on delayed receivables amounting to Rs. 2,37,093 1.1. Without prejudice to the above, the Learned AO/ the Learned TPO/ Hon'ble DRP grossly erred in determining an adjustment of INR 2,37,093 with respect to interest on delayed receivables u/s 92CA of the Act thereby: a) Erred in considering delayed trade receivables as "interest free loans" advanced to the Associated Enterprises ("AEs") for the period of delay, and thereby erred in imputing an interest on the same during the year. b) Erred in treating realization of trade receivables as a separate international transaction, whereas, it is only the realization of the service proceeds, incidental to the primary transaction of provision of services. Further, learned AO/ learned TPO/ Hon'ble DRP grossly erred in not considering that the delay in receivables does not fall within the purview of capital financing as ....
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....ons of the plan. b) Erred in not appreciating the based on the group policy, the AE does not recharge to the Appellant any compensation costs upon vesting of shares to the employees and hence the Appellant did not incur any expense towards issue of ESOPs. c) Erred in not appreciating that the cost of such an arrangement between the employees of the Appellant and its AE should not be construed as the cost of the Appellant and accordingly its expenses cannot be artificially inflated by including the ESOP amount in the operating cost base. d) Erred in relying on the safe harbor rules laid out in Rule 10TA(j) of the Rules without appreciating the fact that the Appellant did not opt for the safe harbor rules for the year under consideration. GROUNDS RELATING TO CORPORATE TAX ADJUSTMENT: 2. Disallowance of deduction under section 80G of the Act amounting to Rs. 44,17,993/- 2.1 The learned AO/ the Hon'ble DRP erred in law and on facts by disallowing deduction of Rs. 44,17,993 claimed under section 80G of the Act, holding that the contributions towards Corporate Social Responsibility ('CSR') were not eligible for deduction u....
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....d any other grounds, which may be raised at the time of hearing, it is prayed that necessary relief may be provided." 3. The only issue in this appeal in the transfer pricing adjustment is with respect to the interest on overdue receivable amounting to Rs. 2,37,093/- determined as arm's-length price [ALP] considering the overdue receivable from associated enterprises as a separate international transaction and adopting LIBOR +450 basis point as the benchmark interest rate. The second issue involved is the treatment of cost connected to the employee stock option plans wherein such cost was considered as an operating cost for the purpose of margin computation of the assessee for the transfer pricing adjustments. The corporate ground relating to the disallowance of deduction under section 80G of the Act amounting to Rs. 4,417,993/- which was not allowed by the learned assessing officer considering that these are the contribution towards the corporate social responsibility which were not eligible for deduction under section 80G of the Act. 4. The brief facts of the case show that the assessee company is engaged in the provision of business support services and technical suppo....
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....d dispute resolution panel, wherein the ground of objection No. 11 was decided. The learned dispute resolution panel was also provided the additional evidences, the remand report was also called for and thereafter the original addition was sustained to the extent of Rs. 2,37,093/-. Thus there is no justification for taking LIBOR +450 basis points by the learned transfer pricing officer as well as confirming the same by the learned dispute resolution panel. Further the request of the learned authorised representative is also supported by the several judicial precedents. We find that if there is no justification for putting LIBOR + 450 basis points, same cannot be sustained. Further we find that the judicial precedents cited before us have clearly held that LIBOR +200 basis points are the appropriate rate of interest in case of interest on overdue receivable from associated enterprises, looking to the smallness of the amount, to put it afresh for benchmarking would be cumbersome, we do not find any reason not to accede to the request of the assessee. Accordingly we direct the learned transfer pricing officer to compute the interest on the outstanding overdue receivable from associate....
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.... that for that particular purpose arriving at an appropriate cost base is also relevant. Therefore he stated that the cost of incentive plan, employee stock option plan etc. granted by the associated enterprises to the employees of the assessee is the cost that is incurred as an incentive to the employees of the taxpayer and instead of the taxpayer bearing the cost it is borne by the associated enterprises as it issued the shares. The award of such stock is to give incentives to the employees of the assessee company and to retain them in employment as valuable employees and forms part of the salary. Therefore this cost is required to be treated as salary and thereby part of operating cost. He categorically computed that. According to the submission of the assessee the above cost is quantified at Rs. 62,297,492/- in respect of employees of the assessee. The ld. TPO referred to the decision of the Hon'ble Supreme Court of Israel to support its contentions. He further stated that in all the advance pricing agreement the taxpayers in India have agreed to this position also. Accordingly he increased the cost base of the assessee by Rs. 62,297,492 towards the ESOP cost in respect of empl....
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....d the corporate social responsibility expenditure of Rs. 8,835,985. This amount was disallowed by the assessee while computing the profits of the business. However it was found that the assessee has claimed deduction under section 80G of the Act of Rs. 4,417,993/- in respect of the said CSR expenditure. The assessee was questioned about that and the assessee submitted that the deduction under section 80G of the Act is allowed according to the scheme of the provision. The company has made a donation to recognised charitable organisation which shall be allowed as a deduction under section 80G of the Act. The details of the donation made by the assessee company to various charitable foundation and trust during the assessment year are also eligible for deduction under section 80G of the Act. It was further stated that the deduction under section 80G of the Act is not related to the computation of income under the head profits and gains of business and profession, but is granted as deduction under chapter VIA of the Act from the gross total income. The assessee further referred to the explanatory memorandum to the Finance (No. 2) Bill, 2014 as well as the Notification issued by the Mini....