TaxTMI 
TaxTMI 
2018 (10) TMI 1180
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.... the assessee furnished the information called for. 2.1 After verification of the information, the AO referred the matter to TPO u/s 92CA(1) with the prior approval of the Pr.CIT-5, Hyderabad for determination of arm's length price in respect of international transaction reported by the assessee for the FY relevant to AY 2013-14 2.2 During the course of TP proceedings, the TPO asked the AR of the assessee to furnish the details of receivables. The AR of the assesee submitted the same on 26. 10.2016. On verification of the same, the TPO noticed that some of the receivables are received after the credit period and it was proposed to charge interest@ 14.45% p.a. on the receivables received beyond the credit period allowed, to which the taxpayer replied that outstanding receivables are consequent to the international transactions of provision of SDS and not in the nature of any advance/loans. Since these are closely linked with the sale of services they have been aggregated with the principle transaction of sales for the purpose of economic analysis. It is fully funded entity and the sales and receivables are running accounts and the WCA duly considered the impact of outstanding ....
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.... 499096 20/02/13 11423157 (*) 137554 22364255 (*) 269303 142908219 6576629 (*) The assessee has submitted bank statements of the Kenya AE and also provided an affidavit along with reasons of delay. Considering the factual circumstances, only one month interest till the end of the FY is being levied on two said invoice which are outstanding as on date. 2.4 The TPO, thus, determined the SLP of receivables at Rs. 65,76,629/- and the same is made as adjustment u/s 92CA(3). 2.5 The AO incorporated the above adjustment in the final assessment order. 3. Aggrieved, the assessee preferred an appeal before the CIT(A). 4. The CIT(A) after discussing the issue elaborately with various case law, directed the AO to apply the applicable interest rates given as under, in stead of 14.45% applied by the TPO according to the number of days of delay: Domestic term deposit rates of SBI as on (Information available on the website of SBI that the interest rates prevailing for the FY 2012-13) &nbs....
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....e Tax (Appeals) ('CIT(A) erred in: 1. Computation and levy of interest on outstanding receivable balance of AE's as on 31st March, 2013 and disregarding the fact that they are mere consequential to the main international transaction of software services and not a separate international transaction as such. 2. Making TP adjustment by imputing interest on outstanding receivables as on March 31st 2013 relating to sale of software services to AEs: a) Not appreciating the fact that under TNMM, the impact of outstanding receivables on the working capital adjustments have already been taken into account in determining the arm's length margin hence there is no need of imputing interest on outstanding receivables again; b) Not appreciating the facts and circumstances surrounding the receivables and re-characterizing the outstanding receivables as unsecured loans advanced to AEs c) Not appreciating that the instant transaction is not covered in the definition of international transaction as defined ul s 92B of the Act in the facts and circumstances of the case. 3. Without prejudice, not undertaking an objective economic analys....
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....he course of business", and therefore, the outstanding receivables could by themselves constitute an international transaction. He further referred to the OCED Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paras 3.48 & 3.49 under Chapter III para A.6.1 of the said Guidelines titled "Different types of comparability adjustments" spoke of the need to eliminate differences that may arise from different accounting practices between controlled and uncontrolled transactions. In particular, it was noted under para 3.49 that "a significantly different level of relative working capital between the controlled and uncontrolled parties may result in further investigation of the comparability characteristics of the potential comparable." Mr. Singh submitted that the ITAT erred in disagreeing with the TPO, who had characterised the outstanding receivables as an international transaction by itself which required benchmarking. 10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression „receivables‟ does not mean that de hors the context every item of „recei....