INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Computation of ALP - Adjustments towards notional interest in respect of outstanding receivables and notional mark up on a transaction in respect of liason support services -

Assessee-company was engaged in business of manufacturing pharmaceuticals products. AO made adjustments in respect of international transactions. On appeal, CIT(A) deleted upward adjustment towards notional interest made in respect of outstanding receivables and also deleted the upward adjustment towards notional mark up on a transaction in respect of liason support services. Aggrieved, Revenue was in appeal. Revenue submitted that ALP interest that was required to be charged by the assessee from AEs in view of delay in realization of sale invoices issued beyond the credit period was extended by the assessee and in that regard, the Revenue pointed out at assessment order, wherein duration was for 335 days. Further, as regards, upward adjustment towards notional mark up on transaction in respect of liason support services, the Revenue submitted that the CIT(A) totally ignored the fact that certain amount of estimation and approximation was necessary while dealing with TP adjustment. On the other hand, the assessee submitted that approximately 179 days delay was incurred in realization of sale invoices beyond the credit period extended by it and therefore, the CIT(A) rightly deleted the upward adjustment. Held: CIT(A) had given a detail finding that copy of invoices clearly showed that terms of delivery and payment was 180 days from the date of appeal of lading. Therefore, interest was not to be charged up to outstanding period of less than 180 days. CIT(A) further observed that TPO charged interest for 335 days, which was not correct but at the same time, the TPO rightly applied the rate at 3.05% that was LIBOR + Foreign Fluctuation Adjustment (FFA) and accordingly, the adjustment was confirmed to the extent of Rs. 5,73,996. As per RBI policy, for credit of 180 to 360 days, the assessee has to be granted the upward adjustment. Thus, there was no fault pointed out by the Revenue in respect of delay period, which was less than 180 days. Hence, order passed by the CIT(A) was accordingly, upheld.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2012-13

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