Sec. 92C of Income Tax Act, 1961—Transfer Pricing—Even income arising from international transaction must satisfy the test of income under the Act and must find its home in one of the charging provisions.

Facts: The basic common grievance in all these appeals relates to addition made on account of Transfer Pricing Adjustment towards interest on debentures invested in the Associated Enterprise (AE) Vital Construction Pvt. Ltd. (VCPL).

Held, that transfer pricing adjustment has been made on this hypothetical amount of interest receivable. Even income arising from international transaction must satisfy the test of income under the Act and must find its home in one of the charging provisions. Here in this case, nowhere the TPO/AO has been able to establish that notional interest satisfy the test of income arising or received under the charging provision of Income Tax Act. If income is not taxable in terms of section 4, then chapter X cannot be made applicable, because section 92 provides for computing the income arising from international transactions with regard to the ALP. Only the interest income chargeable to tax can be subject matter of transfer pricing in India. Making any transfer pricing adjustment on interest which has neither been received nor accrued to the assessee cannot be held to be chargeable in terms of the Income Tax Act read with Article 11(1) of DTAA. Here it cannot be the case of accrual of interest also, because none of the investee companies have acknowledge that any interest payment is due, albeit they have been requesting for waiving of interest of even coupon rate of 4%, leave alone the return of 18% which was dependent upon some future contingencies. Assessee despite all its efforts has acceded to such request. Even, the Revenue is unable to prove that interest on CCDs was actually received by the assessee. Therefore, following the judicial precedents referred to above we hold that the addition made on account of transfer pricing adjustment is unsustainable as the assessee has actually not received any interest income, hence, would be protected by Article 11(1) of India–Mauritius tax treaty. Since, the treaty provision is more beneficial to the assessee as per section 90(1), it will override all other provisions of the Act. Additions made are deleted. In view of our decision hereinabove, various other grounds raised by the assessee contesting the TP adjustment having become academic are not required to be adjudicated. In the result, Appeals are allowed as indicated above. - GURGAON INVESTMENT LTD. V/s DY. DIT - [2020] 182 ITD 424 (ITAT-MUMBAI)