The Ahmedabad Bench of Income Tax Appellate Tribunal has held that transfer pricing adjustments not applicable to interest free loans and advances by assessee to Associated Enterprises.
The appellant Lambda Therapeutic Research Ltd. is a limited company and engaged in the business of facilitating the clinical research services to the pharmaceuticals industries. The assessee in the year under consideration has provided interest-free loans and advances to its associated enterprises. The assessee has not charged any interest from these associated enterprises on the amount of loans and advances provided to them.
The AO/TPO observed that the transaction of advancing the interest-free loans to the associated enterprises is an international transaction which requires being determined at the arm length price in pursuance to the provisions of section 92C of the Act. The AO accordingly has worked out the amount of interest with respect to the AE’s and made the upward adjustment aggregating to ₹ 2,17,41,980/- to the total income of the assessee.
Aggrieved assessee preferred appeal before CIT-A. The CIT-A observed that the associated enterprises were set up for the development of the business and reducing its cost on the technical clinical research work which has resulted the benefit to the assessee. Further, the purpose of advancing loan to such AEs was to hold and control of equity and gaining businesses from them. Accordingly the learned CIT-A was pleased to delete the addition made by the AO on account of adjustment for the interest on the advances given to the AEs. But the CIT(A), with respect to the advance given to the associated enterprises situated in UK found that there was no benefit accrued to the assessee from such AEs. Accordingly, the CIT (A) confirmed the upward adjustment made by the AO/TPO for the interest amounting to ₹43,04,408/- on account of interest free advances made to this AE. Aggrieved by the order both revenue and assessee filed appeal before the ITAT.
The Tribunal in assessee’s own case observed that it is not necessary that the benefit will arise in the year in which such loans and advances were provided without interest. The generation of the benefit in terms of money in the year under consideration only cannot be a criterion for making any adjustment under the transfer pricing provisions in the given facts and circumstances. Such income may arise in subsequent years. The Tribunal in assessee’s own case hold that “no adjustment under the transfer pricing provisions is required to be made with respect to the interest free loans and advances by the assessee to its associated enterprises in the given facts and circumstances”. The Coram of Sri Waseem Ahmed and Sri Siddhartha Nautiyal by relying the decision of the tribunal itself in the assessee’s own case has held that “no material has been placed on record by the Revenue to demonstrate that the decision of Tribunal as discussed above has been set aside / stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Thus, respectfully following the order this tribunal in own case of assessee the ground of appeal raised by the assessee is hereby allowed whereas ground of appeal of the revenue is hereby dismissed”.
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