INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Computation of ALP - Adjustment on account of delayed payment of outstanding receivables from AE -

TPO noticed that assessee-company had substantial amount of outstanding receivables from its AE, which remained outstanding for a prolonged period and no interest was charged on such amount. Further, the TPO noticed that the assessee failed to show that the delay in payment of receivables was compensated by the AE through a setoff of another transaction; accordingly, he imputed interest on the said outstanding receivables. Assessee contended that as working capital adjustment had already taken into account the impact of receivables on the profitability, no further charging of interest was warranted. It further contended that it was a debt free company and as such, imputation of interest on account of blocked fund was unwarranted as it earned higher operating profit to operating cost margin as compared to comparable companies. Held: Since impact of working capital of tested party vis-a-vis its comparables was already factored in profitability of assessee, which was otherwise less than working capital adjusted of margin of comparable, there was no need to impute the interest on outstanding receivables from AE. Further, since assessee was a debt free company, imputation of interest on account of blocked funds that was delay in making payment of outstanding receivables from AE was not warranted. Moreover, when undisputedly the taxpayer earned higher operating profit to operating cost (OP/OC), margin as compared to comparable companies further proposed addition fall within + 3% range allowed under the Indian Transfer Pricing Regulation. Therefore, TPO erred in making addition of on account of interest on outstanding receivables from AE hence, the same was deleted.

REFERRED : Kusum Healthcare (P.) Ltd. v. ACIT (ITA No. 6814/Del/2014) : 2015 TaxPub(DT) 1365 (Del-Trib)

FAVOUR : In assessee's favour

A.Y. :

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