- Penalty under Section 271G of the Act deleted as the TPO has accepted arm’s length price of the Assessee based on documents filed - Excel Biolife Private Limited [TS-212-ITAT-2024(Mum)-TP]

Facts

• During the course of the TP Assessment, the TPO notice under Section 92D of the Act to the Assessee on 29/01/2018 whereby it is required to submit the details / explanation to support arm’s length price.

• The TPO accepts arm’s length price of the Specified Domestic Transaction (‘SDT’) in the TP Order 24/10/2018 post considering the documents filed by the Assessee.

• The AO levied penalty under Section 271G of the Act on the ground that the details were not filed by Assessee within 30 days, which was subsequently confirmed by CIT(A).

• The Assessee filed an appeal before the Tribunal.

Hon’ble Tribunal’s Order

Deleting the penalty, Hon’ble Tribunal noted that:

• Nowhere it was mentioned that during the course of TP proceedings Assessee has not furnished any such details which were required.

• In the TP order, the TPO noted that the Assessee furnished all the details required and value of SDT with the AE is not being disturbed.

• If the details for computation of ALP of SDT has been accepted by the TPO, we find no reason for levy of penalty under Section 271G of the Act.

- Onus on the Assessee to show that credit period exceeding 60 days permissible in the industry - Hetero Labs Limited [TS-207-ITAT-2024(HYD)-TP]

Facts

• The TPO observed that the deferred receivables would constitute separate international transaction and has to be benchmarked in regard to delay beyond the reasonable credit period. Accordingly, the TPO computed the interest on opening receivables and invoices raised during the year as per short term deposit rate of SBI. The TPO allowed a credit period of 60 days.

• CIT(A) upheld the approach of the TPO.

• The Assessee contended that did not charge any interest whatsoever on the delayed receivable from foreign AE as well as non-AE debtors. It further contended that it is the commercial decision of the Assessee out of its business expediency to give extended credit facility for both the foreign AEs and Non-AEs equally.

• Without prejudice, the Assessee contented that he interest-free credit period must be allowed for 180 days before ITAT (90 days before CIT(A)), rather than 60 days as allowed by the CIT(A).

Hon’ble Tribunal’s Order

Upholding the approach of the TPO, Hon’ble Tribunal observed as under:

• The interest on delayed outstanding trade receivables is an international transaction. Based on various judicial precedence, the interest rate of 6 percent SBI rate can be considered appropriate benchmark.

• Regarding the claim for credit period of 180 days, Hon’ble Tribunal noted as under:

“Though the assessee has relied upon the assessment order for the A.Y 2022-23 dated 09.02.2024, however, this Tribunal cannot blindly follow the order of the Assessing Officer for the present assessment year. In fact, in the written submissions reproduced hereinabove, the assessee has mentioned that “The assessee’s main argument is that it did not charge any interest whatsoever on the similarly delayed foreign non-AE debtors.” This statement of fact made by the assessee for the AY. 2017-18 is contrary to the statement of facts made for the assessment years 2016-17 and 2022-23. Further, as mentioned hereinabove, at page 187 of the order of ld.CIT(A), it is clearly mentioned that the assessee has not substantiated the credit period of 90 days. In our view, the onus is on the assessee to prove that the delayed credit period of more than 60 days is permissible in the pharmaceutical industry. As mentioned hereinabove, we had consistently followed and granted the credit period of 60 days which we have also done in the case of M/s Aurobindo Pharma Ltd. vs. ACIT, Central Circle- 1(2), Hyderabad in ITA No:485/Hyd/2022 dated 27.04.2023 wherein we have also granted the credit period of 60 days, which is also in the same of line of business. No special treatment can be given to the assessee. Furthermore, once the assessee failed to justify and substantiate the credit period of 90 days before the lower authorities, it is preposterous to claim 180 days credit period before the Tribunal. Hence, we do not agree with the contention of the assessee. With respect to the submission that assessee has not charged any interest from the non-AE and therefore, the non-AE should be considered as an internal comparable. This contention of the assessee is without any basis and the assessee failed to establish that the assessee has not charged any interest from its non-AE before the lower authorities and further, the assessee failed to prove that the non-AE were operating in the same segment, product, region and with the same terms and conditions of sale and purchase of Pharmaceutical products.”

- Disallowance of reimbursement of foreign travel expenses under Section 37 of the Act for cost plus entities, highlights breach of APA by AO - Fidelity Information Services India Pvt. Ltd [TS-241-ITAT-2024(CHANDI)-TP]

Facts

• The Assessing Officer disallowed reimbursement of foreign travel expenses under Section 37 of Act and alleged that the Assessee has failed to prove that the said foreign travel cost is a normal and ordinary course business expense.

• CIT(A) deleted the said addition, and the Assessee filed an appeal before the Hon’ble Tribunal.

Hon’ble Tribunal’s Order

Upholding the order of CIT(A), Hon’ble Tribunal noted as under:

• The Assessee is a cost-plus entity where all expenses are reimbursed with a mark-up of 16.60 percent as per the APA.

• Pursuant to the APA entered into by the Assessee with CBDT, covering the impugned AY as one of the rollback years, reimbursement of expenses was required to be benchmarked along with the main transaction of provision of software development expenses as part of operating expenses.

• Accordingly, the total operating cost considered for mark-up calculation included foreign travel expenditure. The Assessee filed a modified income return and compliance report post APA reviewed by TPO and there were no adverse conclusions.

• In light of these facts, the Hon’ble Tribunal states that AO’s disallowance “is clearly in breach of letter and spirit of the APA”

- Confirms non charging of interest on loan considering advances were made for complying with regulatory requirement - Tata International Limited [TS-239-ITAT-2024(Mum)-TP]

With respect to interest imputed by the TPO on loan advanced to wholly owned subsidiary [i.e. TATA West Asia FZE, which is located in Jabel Ali Free Zone (JAFZA)], Hon’ble Tribunal notes that the money was advanced by Assessee to comply with JAFZA rules and therefore was quasi equity. Relevant observation of Hon’ble Tribunal is reproduced below:

“14.1. It is noticed that Tata West Asia FZE (wholly owned subsidiary of the assessee) is located in Jabel Ali Free Zone (JAFZA). As per JAFZA rules, APB, page 56A, if the net assets of entity in free zone falls below 75% of its share capital the owner shall restore the net assets to at least 75% of its share capital. The AE incurred a bad debt due to which its Net Assets fell below 75% of its share capital and hence money was advanced by the appellant to comply with JAFZA rules as quasi equity. Therefore, such loan / advances shall not attract any interest. Attention is invited to Board Resolution placed at Page 58 of APB. From the above it is clear that the loan was given for the purpose of business and therefore, in our view, no interest should be disallowed keeping in view the decision of Hon’ble Supreme Court in the case of S.A. Builders Ltd. (supra). There is also merit in the submissions of the assessee that even otherwise, the loan was granted from interest free funds i.e. receipts from the maturity of mutual funds APB pages 62 and 67. Considering these facts, non-recovery of interest from interest free loan, the addition of interest amount Rs.26,84,253/- is quashed.”