TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 939
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.... Deputy Commissioner of Income-tax, Transfer Pricing Officer 1(2)(1) and 1(2)(2) ("TPO") in his order passed under Section 92CA(3) of the Act as confirmed by the Hon'ble Dispute Resolution Panel ("DRP"). Each of the ground is referred to separately, which may kindly be considered independent of each other and without prejudice to each other. Transfer Pricing grounds: 1. That on the facts and circumstances of the case and in law, the order of assessment framed by the learned Additional Commissioner of Income-tax, Special Range - 3, New Delhi (hereinafter referred to as 'the learned AO') pursuant to the directions of the Hon'ble Dispute Resolution Panel - I (hereinafter referred to as 'the Hon'ble DRP') under section 144C(5) of the Act, is a vitiated order, arbitrary and is thus bad in law and void ab-initio. 2. That the Hon'ble DRP directions are bad in law to the extent the same are prejudicial to the Appellant. 3. That the learned AO/ learned TPO/Hon'ble DRP have erred, in facts and in law, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Income-tax Act, 1961 ("the Act") read with the Income-tax Rules, 1962 (....
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....234B and 234C of the Act mechanically and without." 2. The briefly stated facts of the case are that the assessee is a wholly-owned subsidiary of D.E. Shaw & Co. (Mauritius) and during the year under consideration it was engaged in providing services in the nature of investment advisory services to its associated enterprises (AEs). The assessee filed return of income on 27/11/2013, declaring total income of Rs. 7,80,08,923/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short "the Act") was issued and complied with. 2.1 During the year under consideration, the assessee entered into following international transactions with its AEs: No. Type of international transaction Method selected Total value of transaction (Rs.) MAM PLI i. Provision of financial and investment advisory services TNMM OP/OC 502,954,339 ii. Availing of business support services TNMM OP/OC 90,647,577 iii. Reimbursement of expenses TNMM OP/OC 7,175,000 iv. Payment of managerial remuneration TNMM OP/OC 66,322,205 2.2 The assessee benchmarked the international transactions using Transactional Net Margi....
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.... 2.6 The Ld. TPO in support of his finding relied on the decision of the Tribunal Mumbai bench in the case of Tecnimont ICB Ltd. Vs. DCIT (2013) 32 taxman.com 357. 2.7 The Ld. TPO applying the Comparable Uncontrolled Price (CUP), proposed interest rate of 14.55% per annum as arm's length level of interest, as under: "It is very difficult to get other tax payers in the similar circumstances. So, the interest rate that would have been charged in similar circumstances or the interest rate that the tax payer could have got by lending such money to private persons in India or interest rate the company could have got from independent third party in India by lending such surplus money under comparable circumstances i.e. without any security and margin money is considered. The basic principle, to be followed, is that the currency in which the loan has originated must be considered along with the country of origin for e.g., if the Indian parent is lending to another party, important consideration would be the interest rate expected by the lender, which would be the interest prevalent in India or opportunity cost of such funds if they were invested either in the business, or other forms ....
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....elevant finding of the Ld. DRP is reproduced as under: "5. The TPO has applied the SBI base rate of 14.55%. As per the Safe Harbour Rules, the base rate of SBI as on 30th June of the relevant previous year + 150/300 basis points depending on whether the receivables exceed Rs. 50 Cr., is the arm's length price. The Safe Harbour Rules are not applicable, however, they do represent the result of considerable analysis of the correct rate of interest to be taken as the arm's length price. There is no bar to benefitting from this analysis and deciding the issue, considering the facts of the case and fee Safe Harbour Rules. Considering the facts, the AO/TPO is directed to apply the SBI base rate on 30th June of fee relevant previous year, +150 basis points if fee receivables do not exceed Rs. 50 Cr., and +300 basis points if the receivables exceed Rs. 50 Cr., in accordance with the Safe Harbour Rules. 2.10 Aggrieved with the above finding of the Ld. DRP, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above. 3. The Ld. counsel of the assessee, at the outset, submitted that similar adjustment was made in preceding years in the case of the assessee ....
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.... following judgment: (a) ITAT Hyderabad in the case of EPAM Systems India Pvt. Ltd. v. ACIT in ITA No. 192/Hyd/2017 dated 24.10.2017." 5. In support of the contention, the Ld. counsel also relied on the decision of the Tribunal in the case of Global Logic India Ltd. Vs. DCIT in ITA No. 1104/Del/2015 and ITA No.1115/Del/2017 and decision in the case of Bain Capability Centre India Private Limited Vs. DCIT in ITA No. 404/Del/2017 dated 13/11/2017. 6. The Ld. counsel also submitted that average collection period of comparable companies was more than that of the assessee company and thus the transaction does not call for any adjustment in this regard. The Ld. counsel distinguished the decision of the Tribunal in the case of Bechtel India private limited in ITA No. 6530/Del/2016 relied upon by the Ld.DRP. The Ld. counsel submitted that in the case of Bechtel India (supra) the service agreement entered into between the parties, duly disclosed the period within which the payment should be made, in the absence of which interest was to be charged. However, in the case of the assessee company there was no such clause in the service agreement entered into by the assessee company with its....
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....as a benchmark is inappropriate, since an alleged foreign currency loan in the international market would be LIBOR based which are internationally realized and adopted and not the domestic rates." 8. The Ld. CIT(DR), on the other hand, relied on the order of the lower authorities and submitted that working capital adjustment subsumes receivables outstanding for normal credit period, which the Ld. TPO in the case has allowed for 60 days. According to her, there is no finding by the Ld. TPO or by the Ld. DRP that average collection period of the comparable was more than the average collection period of the assessee from its AEs. She accordingly, requested to restore the matter to the file of the Ld. TPO for deciding in accordance with law. 9. We have heard the rival submission and perused the relevant material on record. The Ld. counsel has submitted that adjustment on account of receivables is subsumed in the working capital adjustment made by the Ld. TPO and, therefore, no separate adjustment is required on account of receivables following the decision of the Tribunal dated 04/09/2017 in preceding years in ITA No. 1681/Del/2015, 1018/Del/2016 and 75/Del/2017. The Tribunal (supra)....
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....having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterized the ITA No. 1681/Del/2015, 1018/D/2016, 75/D/2017 Assessment year: 2010-11, 11-12, 12-13 70 transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345ITR 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." 10.10 It is seen that the TPO has considered a period of 30 days to be normal for the realization of receivables and has calculated notional interest on period/number of days exceeding 30 days while making the upward adjustment, however, as the Hon'ble Delhi High Court has held in Kusum Health Care Pvt. Ltd. (supra) that there might be a delay in calculation of money even beyond the agreed limit due to a variety of factors which have to be investigated on a case to case basis. The H....