TaxTMI 
TaxTMI 
2019 (7) TMI 85
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....on, it cannot be assumed that separate adjustment is required in respect of interest therefrom, since outstanding net receivables emanate from the service sales transaction itself. 1.2 Thatfurthermore the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that since appellant is also not charging any interest on overdue debts from third parties, therefore notional interest on outstanding receivables with AE is neither factually and nor legally sustainable, particularly when appellant is a debt free company and is not paying interest on funds utilized in business activities or on credit from suppliers. 1.3 Thatthe learned Commissioner of Income Tax (Appeals) has also failed to appreciate that while determining the margin appellant had not made any adjustment for working capital and since appellant had earned higher margin of 23.33% as compare to the margin of 11.42% of comparable companies, no further adjustment was warranted. 2. That in any case and without prejudice the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in not applying the LIBOR rate for computation of interest in view of the judg....
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....see has earned a markup of 23.3% on cost, though which was higher than the comparables but it was not as per the agreement with the Associated Enterprises. The Ld. TPO after rejecting the submission of the assessee, computed the arm's-length price of the transaction with 25% markup on the cost and accordingly calculated the adjustment of Rs. 18,64,202/-. 2.3 Further, the Ld. TPO asked the assessee to furnish the details regarding receivables with regard to the outstanding dues from its Associated Enterprises. The learning TPO rejected the plea of the assessee to adopt the interest rate on LIBOR basis and adopted average prime lending rate of SBI of 11.80% with an additional 300 basis points (to take into account other factors/reasons) as the right benchmark for the interest. The learning TPO accordingly proposed adjustment of Rs. 41,44,702/- 2.4 After incorporating, that adjustment proposed by the Ld. TPO in his order dated 20/01/2014, the Assessing Officer passed a draft assessment order on 17/02/2014. As no objections were filed before the Ld. Dispute Resolution Panel, within the stipulated period, the Assessing Officer passed final assessment order on 18/03/2014 computing ....
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....of commercial over-dues. * 'Receivable' does not mean that de hors the context every 'receivables' appearing in the accounts which have dealing with AE would automatically be characterized as international transaction. * Further allowing the credit period to the AE is not an independent international transaction but it is depending and consequential on the sales made to the AE. * Reliance is placed on following judicial pronouncements: - 403 ITR 45 (Del) PCIT vs. B.C. Management Services (P) Ltd. - 34 taxmann.com 298 (Mum) ACIT Vs. Nimbus Communications Ltd. - 94 Taxmann.com (Visakhapatnam) GVK Power & Infrastructure Ltd vs. ACIT - 68 SOT 259 (Mum) Goldstar Jewellery Ltd vs. JCIT - 65 Taxmann.com 187 (Bang) Avnet India (P) Ltd vs. Dy CIT 3.2 No separate adjustment in respect of interest is required once ALP of the sale/service transaction has been determined; * Overdue debts are necessary outcome of any form of business of normal buy and sale transaction of goods and services. * Early or late realization of sale/ service proceeds is incidental to the transaction of sale/ servi....
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....es Transaction with AE Basis of ALP adopted by appellant Similar bench marking by comparable companies Credit period by appellant Credit period by comparable companies. Software services rendered Cost plus margin of 23.33% Cost plus average margin of 11.42% 30 days 147 days * Appellant has already factored the impact of delayed receivables in the working capital and thereby any further adjustment only on the basis of the outstanding receivables would re-characterized the transaction. Reliance is placed on the judgment by Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd reported in 345 ITR 241. * Reliance is also placed on following judicial pronouncements: - 91 taxmann.com 443 (Del) Motherson Sumi Infotech & Designs Ltd vs. Dy CIT - - ITA No 765/2016 (Del) Pr CIT vs. Kusum Healthcare (P) Ltd. 3.5 In alternate- LIBOR rate be applied in for computation of interest against SBI PLR rate applied by AO. * Since AE is not based in India for benchmarking, SBI PLR rate in not a valid comparable. Rates should be as per the prevalent borrowing rates in the other countries, which is L....