AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 1275
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....in treating outstanding receivable from the Associated Enterprise as loan and computing the notional interest to make upward adjustment. 4. The learned TPO and learned AO have erred in benchmarking a notional transaction. 5. The learned TPO and learned AO have erred by ignoring the fact that the assesse has done a business transaction (sale of software development services) with the AE at an arm's length and hence the consequential outstanding receivable is covered in the arm's length pricing. 6. The learned TPO and learned AO have erred by ignoring the fact that the assesse has earned higher margin than the comparable and hence the any notional interest on the extended credit period is factored in the pricing itself and not to be charged additionally from the AE. Without Prejudice Grounds 7. The learned TPO and learned AO have erred by granting a credit period of only one month as against the normal business practice of allowing a credit limit of upto 6 months. 8. The learned TPO and learned AO have erred by benchmarking the notional interest basis PLR of SBI plus 150 basis point. The receivables being USD transaction the basis for benchmarking the notional loan tran....
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....rvices provided to the AE has been accepted by the TPO at arm's length then no separate adjustment can be made on account of notional interest on the receivable. The ld. AR further submitted that the assessee has not incurred any interest expenditure and therefore there cannot be any cost incurred by the assessee in respect of the credit period allowed on receivable from AE. He has relied upon the decision dt.31.3.2016 of Mumbai Bench of ITAT in the case of Siro Clinpharm Private Limited Vs. DCIT in ITA No.2618/Mum/2014 and submitted that the Tribunal has held that the Explanation 2 to Section 92B of IT(T.P)A No.308/Bang/2015 the Act has been inserted by the Finance Act, 2012 with retrospective effect from 1.4.2012. However, the retrospective amendment does not extend the scope of international transaction defined u/s. 92B. The ld. AR has pointed out that the Tribunal has considered the T.P. provisions at par with GAAR and therefore the retrospective amendment cannot trigger the levy of taxes on the transaction completed before the amendment brought in statute. The ld. AR then relied upon the decision of the co-ordinate bench dt.24.4.2015 in the case of Ingersoll Rand (India) L....
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....re Pvt. Ltd. Vs. ACIT in ITA No.6814/Del/2014 vide order dt.31.3.2015 has taken this view that allowing the credit period over and above normal credit period prevailing in the industry is certainly relevant and part of the main international transaction of sale or purchase between the assessee and the AE. However, it was held that it cannot be treated as an independent international transaction de horse the main international transaction between the parties. We further note that an identical issue was considered and decided by the Mumbai Bench of this Tribunal in the case of Information Systems Resource Centre Pvt. Ltd. Vs. ACIT in ITA No.7757/Mum/2012 and C.O. 282/Mum/2013 vide order dt.29.5.2015 in paras 11 to 13 as under : " 11. We have considered the rival submissions as well as the relevant material on record. In the present case, the sale transaction of the assessee with its A.E. have been accepted by the Transfer Pricing Officer / Assessing Officer at arm's length and no adjustment has been made in respect of the sale transaction. However, the Transfer Pricing Officer has made the adjustment on account of credit period provided by the assessee to the A.E. on realisation....
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....tions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregate and clubbing of closely linked transaction are permitted under said rule. This concept of aggregation of the transaction which is closely linked is also supported by OECD transfer pricing guidelines. In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation what is to be considered is that one transaction is follow-on of the earlier transaction and then the subsequent transaction is carried out and dependent wholly or substantially on the earlier transaction. In other words, if two transactions are so closely linked that determination of price of one transaction is dependent on the other transaction then for the purpose of determining the ALP, the closely linked transaction should be aggregated and clubbed together. When the transaction are influenced by each other and particularly in determining the price and profit involved in the transactions then those tr....
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.... in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan is available. Accordingly, we direct the Assessing Officer/TPO to re- do the exercise of determination of ALP in terms of above observation." 12. Thus, it is clear that the Tribunal has taken a view that the transaction of allowing the credit period to the A.E. on realisation of sale proceeds has to be considered along with the main international transaction in respect of sale to A.E. A similar view has been taken by the Tribunal, Delhi Bench, in Kusum Healthcare Pvt. Ltd. (supra), wherein the Tribunal, vide Para-7 to 10, held as under:- " 7. We have heard rival submissions and perused the material on record. An uncontrolled entity will expect to earn a market rate of return on its working capital investment independent of the functions it performs or products it provides. However, the amount of capital required to support these functions varies greatly, because the level of inventories, debtors and creditors varies. High levels of working capital create costs either in the form of incurred interest or in the form of opportunity costs. Working capital yields a retur....