In a recent case, the Allahabad High Court Directed the Transfer Pricing Officer (TPO)to decide on the Interest receivables as it was adjusted in working capital. The bench reiterated that once working capital adjustment is granted to assessee, there is no need for further imputation of interest on outstanding receivables at the end of the year, as the same gets subsumed in working capital adjustment.
The Assessee company, Phoenix Lamps Ltd filed petition before the High Court challenging ITAT’s action of re-characterizing inter-company receivables as unsecured loans and notionally treating receivables as separate international transactions.
The Bench referred to the decision in case of judgement of Delhi High Court in Pr. Commissioner of Income Tax-V Vs. Kusum Health Care Pvt Ltd.where the TPO was directed to ascertain whether interest is to be imputed on bills that have been realised after credit period of 70 days.
The Bench held that “the direction for imputing interest on the bills was not necessary and the TPO is required to act keeping in view the judgment of Kusum Health Care”. Further reiterated that once working capital adjustment is granted to the assessee, there is no need for further imputation of interest on outstanding receivables at the end of the year as the same gets subsumed in the working capital adjustment.
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The Division Bench comprising Justice Shekhar B. Saraf and Justice Manjive Shukla directed the TPO to look into entire aspect in light of ruling in Kusum Health Care and pass orders accordingly.
Advocates Chhaya Gupta and Sujeet Kumar appeared on behalf of assessee and Advocate Gaurav Mahajan appeared for the respondent.
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