Short term deposits cannot be taken at par with an international transaction u/s 92B of the Income Tax Act

The Income Tax Appellate Tribunal has ruled that short-term deposit rates from a domestic bank cannot be equated with international transactions under Section 92B of the Income Tax Act. The tribunal found that the lower authorities incorrectly applied the State Bank of India's prime lending rate for term deposits when calculating the arm's length price adjustment for interest on receivables from overseas associated enterprises. This adjustment was deleted as it did not consider the nature of international transactions involving foreign currency and overseas market conditions.

IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “A” : HYDERABAD
(THROUGH VIDEO CONFERENCE)

BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

I.T.A. No. 1709/HYD/2019
Assessment Year: 2013-14

M/s.Kony India Private
Limited,
HYDERABAD
[PAN: AADCK2294C]
(Appellant)

Vs

Deputy Commissioner of
Income Tax,
Circle-2(1),
HYDERABAD
(Respondent)

For Assessee : Shri Vivek Sharma, AR
For Revenue : Shri Sunil Kumar Pandey, DR

Date of Hearing : 28-04-2021
Date of Pronouncement : 18-06-2021

O R D E R

PER S.S.GODARA, J.M. :

This assessee’s appeal for AY.2013-14 arises against the CIT(A)-6, Hyderabad’s order dt.01-08-2019 in appeal No.10079/2018-19/B3/CIT(A)-6, involving proceedings u/s.143(3) r.w.s.92CA(3) of the Income Tax Act, 1961 [in short,‘the Act’].

Heard both the parties. Case file perused.

2. The assessee’s sole substantive grievance pleaded in the instant appeal challenges correctness of the lower authorities’ action making arm’s length price ‘ALP’ adjustment of Rs.75,60,985/- qua interest on receivables involving its overseas Associated Enterprises ‘AEs’. Suffice to say, it transpires at the outset that we need not delve much deeper qua the relevant facts pertaining to the instant issue. We find that assuming but not accepting that the learner lower authorities have rightly found the assessee’s interest receivables as beyond the period involving un-controlled transactions, the impugned adjustment is not liable to be sustained for the sole reason that the same has been made not as per ‘LIBOR’ rate applicable in case of international transactions but after taking State Bank of India’s prime lending rate @14.45% on term deposits in the Transfer Pricing Officer’s (TPO) order and upheld in the CIT(A)’s lower appellate order.

3. Learned CIT-DR’s vehement contention is that the TPO as well as the CIT(A) have rightly treated the foregoing bench mark as per the short term deposit rate in the State Bank of India and therefore, the same deserves to be upheld.

4. We find no merit in Revenue’s instant argument since such a short term deposit cannot be taken at par with an international transaction u/s.92B of the Act as the latter involves foreign currency and overseas market conditions. In addition to this, learned lower authorities have also not adopted any comparable transaction in the very segment as well so as to come to the conclusion that the assessee’s receivables in case of overseas AEs involved more than the market practice of reasonable time period. We keep in mind all these clinching aspects and direct the TPO to delete the impugned ‘ALP’ adjustment of Rs.75,60,985/- in issue. The assessee’s sole substantive ground to this effect stands accepted in the above terms. 

To know more in details find the attachment file