TaxTMI 
TaxTMI 
2017 (12) TMI 1052
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....ion 143(3) read with section 144(C) of the Income-tax Act ('the Act') at an income of Rs. 5,45,07,770 as against returned income of Rs. 1,44,76,534. 2. That the assessing officer erred on facts and in law in making an adjustment of Rs. 4,00,31,234 in respect of the receipt of receivable from the associated enterprise considering the same to be an 'international transaction' of loan, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO'). 2.1 That the Dispute Resolution Panel ('DRP') erred on facts and in law in upholding the order of the TPO, wherein, it was held that the alleged delay in realization of receivables is as an international transaction in terms of section 92B of the Act. 2.2 That the DRP erred on facts and in law in holding that the TPO is justified in determining the arm's length price of the international transaction and determining the arm's length rate of interest by considering Prime Lending Rate of SBI, applying CUP method. 2.3 That the assessing officer erred on facts and in law in not considering the order passed by TPO giving effect to th....
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....lity on assessed income and thereby raising a frivolous tax demand. 5. That the assessing officer erred on facts and in law in determining the assessed tax demand under normal provisions of the Act without appreciating that tax liability is higher as per book profits computed under the MAT provisions of the Act. 6. That the assessing officer erred on facts and in law in levying interest under Section 234B and Section 234C of the Act." "ITA NO.1115/DEL/2017 (AY 2012-13) 1. That the assessing officer erred on facts and in law in completing assessment under section 143(3) read with section 144(C) of the Income-tax Act ('the Act') at an income of Rs. 42,15,26,930 as against returned income of Rs. 39,08,14,360. 2. That the assessing officer erred on facts and in law in making an adjustment of Rs. 3,07,12,570 in respect of the receipt of receivable from the associated enterprise considering the same to be an 'international transaction' of loan, on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ('TPO'). 2.1 That the Dispute Resolution Panel ('DRP') erred on fac....
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....t sales proceeds, and therefore, interest if any, ought to be impute don the period of delay beyond 12 months. 2.9 That the AO/TPO erred on facts and in law in computing interest in respect of the alleged delay in realization of receivables even for the period after the close of the relevant previous year i.e. after 31.03.2012. 3. That the assessing officer erred on facts and in law in calculating surcharge and education cess on gross tax payable without giving effect to MAT credit under section 115JAA of the Act. 4. That the assessing officer erred on facts and in law in not allowing foreign tax credit of Rs. 15,70,867 without assigning any specific reason. 5. That the assessing officer erred on facts and in law in allowing short credit of tax deducted at source to the extent of Rs. 45,737/-. 6. That the assessing officer erred on facts and in law in levying interest under Section 234C of the Act on the returned income. 7. That the assessing officer erred on facts and in law in levying interest under Section 234B of the Act." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Global Logic....
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.... ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 IN ITA NO.1104/DEL/2015 (AY 2010-11) AND ITA NO.1115/DEL/2017 (AY 2012-13) 9. Ground No.1 being general in nature does not require any adjudication. GROUNDS NO.2 TO 2.9 IN ITA NO.1104/DEL/2015 (AY 2010-11) AND ITA NO.1115/DEL/2017 (AY 2012-13) 10. Ld. TPO rejected the contentions raised by the taxpayer inter alia that there is no international transactions involved qua outstanding receivables; that the benchmarking of delay in receipt of receivables is at par with internal comparables; that the taxpayer has earned higher margin vis-à-vis comparable companies in TNMM; that the interest rates proposed on unsecured loan cannot be applied on delay of receivables; that no interest can be charged on the opening balance of receivables; that interest shall be charged on LIBOR rate and proceeded to calculate the arm's length interest as under :- "5.9 Following the discussions in the preceding paras, the following conclusions can be drawn :-....
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....hand, ld DR for the Revenue to repel the arguments addressed by the ld. AR for the taxpayer contended that as per Explanation (i), (c) to section 92B(1) inserted by Finance Act, 2012 with retrospective effect from 01.04.2002, payment or deferred payment or receivables or any other debt arising during the course of business is an international transaction and relied upon the order passed by ld. TPO. 13. The ld. TPO while treating the outstanding receivables as international transaction relied upon Explanation (i), (a) & (c) of section 92B which is reproduced as under for ready reference :- "Explanation (i), (a) and (c) of section 92B recognizes sales and receivables arising during the course of business as separate transaction. The explanations read as under :- (i) the expression "international transaction" shall include- (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) ..... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee....
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....law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi). 12. Consequently, the Court is unable to find any error in the impugned order of the ITAT giving rise to any substantial question of law for determination. The appeal is, accordingly, dismissed." 15. So, in view of the law laid down by Hon'ble High Court in Pr. CIT-V vs. Kusum Health Care Pvt. Ltd. (supra), we are of the considered view that no adjustment can be made on account of notional interest on receivables by relying upon Explanation (i), (a) & (c) of section 92B by treating the continued debt balance as an international transaction. Moreover when the taxpayer is debt free company, there is no question of charging any interest or receivables. This issue has also been decided by Hon'ble Delhi High Court in case of Pr. CIT-1 vs. M/s. Bechtel India Pvt. Ltd. in ITA 379/2016 order dated 21.07.2016. 16. Furthermore when we examine the entity level margin of the taxpayer vis-à-vis comparable companies, the taxpayer has earned higher margin i.e. taxpayer earned 38.39% OP/OC margin vis-à-vis margin of comparable companies at 11.43%. In such circumstances, no separate....
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....Enterprises and Non Associated Enterprisesdebtors and the delay in realization of the export proceeds in both the cases is same. In these circumstances, the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realized belatedly cannot be faulted." 21. So, when the taxpayer has not been making any distinction between AE and non-AE in charging any interest on outstanding receivables, the adjustment made by the TPO/DRP/AO on account of arm's length interest is not sustainable. Moreover the interest can be charged only on loaning or borrowing of money and not in case of sale. Particularly when there is no penal clause in the agreement entered into between the taxpayer and its AE/non-AE to charge the interest on delayed receivables. Even otherwise, a transaction cannot be recharacterized merely on ground of delay in payment of receivables. 22. Identical issue has also been examined by coordinate Bench of the Tribunal in Kadimi Tool Manufacturing Co. Pvt. Ltd. vs. DCIT in ITA No.7068/Del/2014 order dated 25.09.2017 and has been decided in favour of the taxpayer by relying upon Kusum Healthcare Pvt. Ltd. vs. ACIT - 170 TTJ 411 and Bech....