TaxTMI 
TaxTMI 
2019 (2) TMI 1714
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....the Assessing Officer ('AO') and addition/ disallowance made by the AO are illegal, bad in law and without jurisdiction. 2. That the additions/ disallowances made are illegal, unjust, highly excessive and are not based on any material on record. The total income of the Appellant has been wrongly and illegally computed by the Assessing Officer at Rs. 1,63,01,178/- as against income declared at Rs. 1,37,85,627 /- thereby making total addition/ disallowance of Rs. 25,15,551/-. 3. That the reference made by the AO to TPO suffers from jurisdictional error as the AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Transfer Pricing Officer ('TPO') for computation of the arm's length price ('ALP'), as is required under section 92CA(1} of the Income Tax Act, 1961 ('Act'). 4. Regarding the addition/ disallowance of Rs. 7,26,471/- on account of interest on grant of loan to AE 4.1 That the TPO/AO/DRP in view of facts and circumstances of case and in law erred in treating the loan to AE as a separate in....
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.... the statutorily permitted time limits as prescribed by RBl and has arbitrarily taken 60days.Further he has not given the benefit of notional interest on advance payments and payment received before 60 days to the assesse. 5.2 a That the TPO/AO/DRP in view of facts and circumstances of case and in law erred in characterizing unrealized export proceeds as loans advanced and thereby treating it as a separate international transaction not realizing that the unrealized export proceeds are part and parcel of international transaction on account of export sale. 5.3 That the TPO/AO/DRP failed to appreciate the appellant has not charged any interest on outstanding export receivables to non AEs and therefore, transaction with AE is at arm's length. 5.4 That the TPO/AO/DRP erred in facts and circumstances of case and in law in not appreciating that interest on outstanding receivables is not charged on account of commercial expediency. 5.5 That the TPO/AO/DRP erred in facts and circumstances of case and in law in disregarding the fact that consideration towards delay in realization of export proceeds is embedded in the sale price of jewellery and as agr....
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....s 271(1)(c ) of the Act. The above grounds are without prejudice to each other." 3. The grounds raised by the Revenue in its appeal are reproduced as under: 1. "The Hon'ble DRP has erred in law and on facts by directing to perform similar interest calculation for the receivable which remains outstanding for more than 60 days subject to the verification that whether the loan is being repaid in US$ or INR respectively. 2. That the appellant craves to leave, add, alter and amend any of the ground of appeal on or before hearing. 3. That the order of the DRP being erroneous in law and on facts deserves to be set asides/cancelled and the order of the Transfer Pricing Officer be restored." 4. Briefly stated facts of the case are that the assessee firm was engaged in manufacturing and export of the jewellery from its unit located in Noida special economic zone. The assessee exported jewellery to its associate concern M/s Sidhartha Jewellery (UK) Ltd., United Kingdom. For the year under consideration, the assessee filed return of income on 30/09/2011 declaring income of Rs. 1,37,85,627/-after claiming exemption u/s 10A/10AA of the Income Tax Act, 19....
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....lly and dismissed the same as infructous. 8. The ground No. 4 relates to transfer pricing adjustment of Rs. 7,26,471/-on account of interest on loans granted to the Associated Enterprises namely M/s Sidhartha Jewellery (UK) Ltd. This loan equivalent to Rs. 1,66,77,107/- was granted from the EEFC accounts of the assessee in foreign currency. According to the Ld. TPO giving interest-free loan to its AE in financial year 2004-05, which remained outstanding during the year under consideration was in the nature of international transactions as per the provisions of the Act. The Ld. TPO held that the assessee was operating in Indian environment and thus the grant of loan is to be benchmarked with respect to prevailing interest rate in India i.e. SBI prime lending rate. However, the Ld. DRP holding that PLR of SBI, which operates in domestic environment shall not be suitable comparable and directed the TPO/AO to apply LIBOR rate to determine arm's-length price of the interest to be charged for transfer pricing adjustment. Following the direction of the Ld. DRP, the Ld. TPO taking six-month average LIBOR+ 400 basis point worked out the interest rate of 4.3561 and computed the transfer p....
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....ara (iii) above, a mark-up of 100 basis points is appropriate towards the currency risk arising from fluctuations in the foreign exchange rate, borne by the assesee. The LIBOR plus 300 basis points rate discussed in para (i) above compensates the remaining costs. The AO/TPO is directed to compute the adjustment using the rate 6 month LIBOR plus 400 basis points, on receivables which are to be paid to the assesee in Pounds, in accordance with the decision in Cotton Naturals. In this case, the foreign currency used is GB Pound therefore, LIBOR for this currency shall be applied as above." 13. Further the Ld. DRP upheld the consideration of the delay beyond 60 days. 14. The Ld. Counsel of the assessee before us filed a paper book containing pages 1 to 277 and reiterated the submissions made before the lower authorities. The Ld. Counsel submitted that interest on receivable is not an international transaction. He further referred to page 182 of the paper book and submitted that the assessee has not charged any interest in case of delay of receipt of export proceeds from unrelated parties namely Shan Jewellers Corporation and therefore, no adjustment should be made in case of dela....
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.... arising during the course of business... This is clearly an international transaction in terms of Explanation (i)(c) to section 92B. This view is supported by the decision of the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd. (2015-TII-09-HC-DELTP)." 17. We find that the Ld. DRP in arriving at the decision that interest on receivable is an international transaction, has followed the decision of the Hon'ble Delhi High Court in the case of CIT vs. Cotton Naturals (supra). We do not find any error in the finding of the Ld. DRP on the issue and accordingly we reject the contention of the Ld. Counsel that interest receivable is not an international transaction. 18. Further the Ld. DRP, following the Hon'ble Delhi High Court in the case of Cotton Naturals (supra) has also rejected the contention of the assessee that the interest subsumed in the sale price of the assessee and no separate benchmarking for interest is required. Before us also nothing has been demonstrated that margin of the assessee is better than the margin of such comparables also having receivables and thus we do not find any error in the finding of the Ld. DRP on this issue. 19. As ....