ACIT Special Range-05 vs. Kusum Healthcare Pvt. Ltd., New Delhi: Case Filed for 2014-15 Assessment Year – Transfer Pricing Adjustment Dispute

ACIT Special Range-05 vs. Kusum Healthcare Pvt. Ltd., New Delhi: Case Filed for 2014-15 Assessment Year – Transfer Pricing Adjustment Dispute

Case Number: ITA 6013/DEL/2019

Appellant: ACIT Special Range-05, New Delhi

Respondent: Kusum Healthcare Pvt. Ltd., New Delhi

Assessment Year: 2014-15

Case Filed On: 12th July 2019

Order Type: Final Tribunal Order

Date of Order: 14th October 2022

Pronounced On: 14th October 2022

Background of the Case

This case involves an appeal filed by the Assistant Commissioner of Income Tax (ACIT), Special Range-05, New Delhi, against Kusum Healthcare Pvt. Ltd., a pharmaceutical company based in New Delhi. The appeal pertains to the assessment year 2014-15 and focuses on a dispute over a transfer pricing adjustment made by the Transfer Pricing Officer (TPO) regarding interest chargeable on delayed receivables from associated enterprises (AEs).

The case was initially assessed by the CIT(A)-44, New Delhi, who ruled in favor of Kusum Healthcare Pvt. Ltd., leading to the ACIT filing an appeal before the Income Tax Appellate Tribunal (ITAT). The appeal was heard by the Delhi Bench ‘I’ of the ITAT, consisting of Shri C.M. Garg, Judicial Member, and Shri N.K. Billaiya, Accountant Member.

Key Issues in the Case

The primary issue in this case revolves around the transfer pricing adjustment made by the TPO. Kusum Healthcare Pvt. Ltd. engaged in the export of pharmaceutical products to its overseas associated enterprises (AEs) as well as non-group companies. The TPO accepted the international transaction of exporting pharmaceutical products as being at arm’s length. However, the TPO recharacterized the outstanding receivables from the AEs as unsecured loans and imputed a notional interest rate of LIBOR + 400 basis points (4.683%), resulting in an adjustment of Rs. 2,66,13,334.

Kusum Healthcare Pvt. Ltd. contested this adjustment before the CIT(A), who deleted the transfer pricing adjustment by relying on a previous ruling by the Hon’ble Delhi High Court in the company’s own case for the assessment year 2010-11 (398 ITR 66). The CIT(A) also noted that similar adjustments made in the assessment years 2012-13 and 2013-14 had been deleted by the ITAT.

Proceedings in the Tribunal

The appeal was heard by the ITAT on 11th October 2022, with the final order pronounced on 14th October 2022. The appellant, ACIT Special Range-05, was represented by Mrinal Kumar Das, Sr. DR, while Kusum Healthcare Pvt. Ltd. was represented by Shri Vishal Kalra, Advocate, and Ms. Reema Jain, CA.

The Revenue’s argument centered on the assertion that the facts of the current assessment year were different from those in previous years, where similar adjustments had been deleted. The Department’s Representative (DR) argued that the working capital adjustment did not adequately account for the impact of outstanding receivables on profitability, and therefore, the adjustment made by the TPO was justified.

Tribunal’s Analysis and Decision

The Tribunal carefully considered the arguments presented by both parties, as well as the relevant facts of the case. The Tribunal noted that the issue of interest on delayed receivables had already been adjudicated in favor of the assessee by the Hon’ble Delhi High Court for the assessment year 2010-11, and that this decision had been consistently followed by the ITAT in subsequent assessment years (2012-13 and 2013-14).

The Tribunal found no basis for the Revenue’s argument that the facts of the current assessment year were different from those in previous years. The Tribunal emphasized that the working capital adjustment had been calculated on the same lines as in earlier years, and therefore, the earlier decisions were fully applicable to the case at hand.

The Tribunal also took note of the fact that the Revenue had not accepted the High Court’s decision for the assessment year 2010-11 and had filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court of India, which was pending for adjudication. However, the Tribunal held that this pending SLP did not impact the applicability of the High Court’s ruling to the current case.

In light of the above, the Tribunal upheld the CIT(A)’s decision to delete the transfer pricing adjustment and dismissed the Revenue’s appeal. The Tribunal concluded that there was no reason to interfere with the findings of the CIT(A), given that the issue had already been settled by higher judicial authorities.

Conclusion

The case of ACIT Special Range-05 vs. Kusum Healthcare Pvt. Ltd., New Delhi, serves as a significant precedent in the area of transfer pricing, particularly regarding the treatment of outstanding receivables from associated enterprises. The Tribunal’s decision to dismiss the Revenue’s appeal and uphold the deletion of the transfer pricing adjustment reinforces the importance of consistency in judicial rulings, especially when similar issues have been adjudicated in previous years.

This case also highlights the importance of considering the broader context of judicial decisions, including pending appeals and the potential impact of higher court rulings. For tax professionals and corporate taxpayers, the case underscores the need to closely monitor developments in transfer pricing jurisprudence and to be aware of how past rulings may influence ongoing and future disputes.

The final order, pronounced on 14th October 2022 by Shri C.M. Garg and Shri N.K. Billaiya, reflects the Tribunal’s commitment to upholding established legal principles and ensuring that similar cases are treated consistently over time.

Order Pronounced By: Shri C.M. Garg, Judicial Member, and Shri N.K. Billaiya, Accountant Member

Final Order: Appeal Dismissed, CIT(A) Decision Upheld

ACIT Special Range-05 vs. Kusum Healthcare Pvt. Ltd., New Delhi: Case Filed for 2014-15 Assessment Year – Transfer Pricing Adjustment Dispute