Impact Of Delayed Receivables From AE Already Factored In Working-Capital: Allahabad HC Directs TPO To Adjudicate Interest On Receivables
Pankaj Bajpai
5 Sept 2024 1:16 PM IST
The Allahabad High Court recently 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 Division Bench comprising Justice Shekhar B. Saraf and Justice Manjive Shukla reiterated that “In respect...
The Allahabad High Court recently 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 Division Bench comprising Justice Shekhar B. Saraf and Justice Manjive Shukla reiterated that “In respect of bills raised on or after Apr 01, 2010 to its AEs, what was the date of realization and whether the same has been realized within the credit period allowed of 70 days. If not, interest is to be imputed on those bills also”.
Facts of the case:
The Assessee company approached the High Court challenging ITAT's action of re-characterizing inter-company receivables as unsecured loans and notionally treating receivables as separate international transactions.
Observations of the High Court:
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. [ITA No. 765 of 2016], 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.
Even though the Bench found ITAT's direction to TPO to examine the bills is correct, the Bench stated 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”.
The Bench also 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.
Hence, the High Court directed the TPO to look into entire aspect in light of Kusum Health Care ruling and pass orders accordingly.
Counsel for Appellant/ Assesee: Advocates Chhaya Gupta and Sujeet Kumar
Counsel for Respondent/ Revenue: Advocate Gaurav Mahajan
Case Title: Phoenix Lamps Ltd vs DCIT
Case Number: ITA No 71/2024
