Microchip Technology (India) Private Ltd. Vs DCIT (ITAT Hyderabad)
Conclusion: When assessee had both trade receivables and trade payables, it would be unreasonable to calculate interest only on trade receivables for the purpose of determining the ALP of the transaction. AO/ TPO was directed to consider both trade payables and trade receivables for the purpose of notional interest to be charged for determining the ALP value of the transaction.
Held: Assessee-company challenged the legality of the assessment order on the ground that AO passed the assessment order on a non-existent entity, consequent to its merger. Also, assessee had both trade receivables as well as payables and therefore, charging interest only in respect of trade receivables for the purpose of ALP was incorrect. AO contended that amalgamating company, namely M/s Microsemi India Private Ltd. continued to be existent as per Income Tax records since its PAN AAHCS7379L was not withdrawn and at the same time M/s Microchip Technology (India) Private Ltd also exist with PAN : AABCM9868J as on the date of passing of assessment order and therefore, the search in Income Tax Business Application(ITBA) module based on the PAN had displayed the name of M/s Microsemi India Pvt. Ltd., which resulted in passing of the assessment order and as on the date of the passing of the assessment order, both the entities were existent in the eye of law. Assessee also contended that the transaction of outstanding receivables with the Associated Enterprise of the assessee was in the regular course of their business and could not be benchmarked as a separate international transaction, assessee not only had trade receivables, but also, there were trade payables and therefore set off must be given in respect of these transactions It was held that existence or non-existence do not lie on any continuum. If a company exists for the purpose of some litigation, it exists for the purpose of tax litigation also. This was the dicta of the Hon’ble Apex court in the case of Mahagun Realtors Pvt Ltd. Therefore, there was no merit that assessment itself was bad. Moreover, in the case of the DCIT vs. McKensey knowledge Centre India Pvt. Ltd [2018] 96 com 237 (Delhi) Hon’ble Delhi High Court and in the case of Bhatia Airtel services Ltd vs. DCIT, [2021] 126 taxmann. com 315 (Delhi – Trib.) the Co-ordinate Bench of the Delhi Tribunal held that with the introduction of the explanation to section 92B of the Act by Finance Act, it was determinable that if there was any delay in the realization of credit arising from the sale of goods or services rendered in the course of carrying on the business, it was liable to be visited with the transfer pricing adjustment on account of interest income short charged/uncharged. It was, therefore, not open for the assessee to agitate this question as to whether the interest on outstanding receivables in an international transaction was requiring separate benchmarking time and again. . In so far as the prayer of assessee in respect of set off of the trade receivables and payables and the deemed interest thereon, was concerned, following the decision in the case of Coim India Pvt. Ltd Vs. DCIT in ITA No.495/Del/2021 it was concluded that when assessee had both trade receivables and trade payables, it would be unreasonable to calculate interest only on trade receivables for the purpose of determining the ALP of the transaction. AO/ TPO was directed to consider both trade payables and trade receivables for the purpose of notional interest to be charged for determining the ALP value of the transaction. Appeal was decided in partly assessee’s favour.
