Outstanding receivables from international transactions held to be within the jurisdiction of TPO

Outstanding receivables from international transactions held to be within the jurisdiction of TPO; receivables, if not brought back in time, form part of TP analysis for calculation of potential interest loss

In brief :-In a recent ruling in the case of Logix Micro Systems Ltd. Vs. ACIT [2010-TI I-50-ITAT-BANG-TP], the Bangalore Bench of the Income-tax Appellate Tribunal (“Tribunal”), while deciding the case in favour of the Indian Income-tax Department (“Revenue”) with a few amendments, ruled that, when a case is referred to the Transfer Pricing Officer (“TPO”) by the Assessing Officer (“AO”), the TPO is within his limitations to make an adjustment for an inordinate delay in repatriation of receivables of the assessee from its overseas associated enterprise (“AE”). Moreover, for calculation of the adjustments on such potential income loss, the Indian short-term deposit rate of 5% should be used.

Facts

The assessee is in the business of software development. It entered into a product development services agreement and a professional service agreement with one of its AE. During the course of transfer pricing (“TP”) assessment proceedings, the TPO upheld all the transactions with the AE to be compatible with the Arm’s Length Price (“ALP”) but proposed an adjustment for the notional income loss incurred by the assessee due to the large amount of receivables outstanding with its AE.

The AO passed an order, incorporating the TP order, against which the assessee appealed before the Commissioner of Income-tax (Appeals) (“CIT(A)”).

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