TaxTMI 
TaxTMI 
2019 (4) TMI 1820
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....ted Enterprises (AEs) at the end of the year. The TPO requested for breakup and reconciliation of the receivables outstanding and opening balances as at the end of the year which were not been provided by the assessee. As per clause (c) of Explanation of section 92B ,inserted by Finance Act 2012 w.e.f.01.04.2002, receivables are treated as international transaction. Since the taxpayer failed to submit the details, the TPO proposed to charge interest @6% on delayed payments beyond 60 days credit period. The AO relied on the case of M/s Logix Micro Systems Ltd., 42 SOT 525 and M/s Chiel India Pvt. Ltd. [TS-145-ITAT-2014(DEL)-TP] and considered the SBI term deposit rates as appropriate to charge interest on receivables. Accordingly determined the arm's length price on receivables at Rs. 66,41,816/- u/s 92CA of the Act. The AO made the addition of Rs. 66,41,816/- on account of interest on receivables as recommended by the TPO u/s 92CA of the Act. 4. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO holding that the receivables reflected by the assessee from it's AEs are 100% subsidiaries of the assess....
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....USA. In the present case, the appellant company has dues receivable from its 100% subsidiaries and AEs. Further, in that case, the outstanding is more than 6 months. But in this case, it is a fact that the receivables received in reasonable period. Hence, the said ratio cannot be applied. Moreover, the appellant is a debt free company and not charging interest on the creditor s and also not paying interest on debts. In view of this, the ratio relied upon by the Id. TPO is not applicable to the facts of the case. The appellant relied on the decision of Hon'ble ITAT Delhi in the case of Bain Capability Centre India (P.) Ltd for the proposition that no TP adjustment on receivables to be done in case neither interest is charged on the creditors nor interest is paid to the debtors. On careful consideration of this decision it is found that the ratio applies to the facts of the case as it was held that where assessee a debt free company had neither received any interest from its creditors nor paid any interest to any of its debtors, it could not be inferred that it had given any benefit to AE by blocking its interestbearing funds to AE by extending credit period, hence, TP adju....
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....as a debt free company as it neither received any interest from any creditors nor paid interest to any debtor Whether once it was accepted that assessee did not have any interest bearing borrowed funds for extending any kind of loan to its AE1 then it could not be reckoned that assessee gave any benefit to AE by blocking its interest bearing funds by extending credit period - Held, yes" Considering the ratios of the above decisions and also the material 'facts of the case the TP adjustment made by, he AO is hereby deleted. Hence, these grounds of appeal are allowed." 5. Aggrieved by the order of the Ld.CIT(A), the revenue filed appeal before this Tribunal. During the appeal hearing the Ld.DR supported the orders of the Assessing officer. 6. On the other hand the Ld.AR argued that all the AEs are 100% subsidiaries of the assessee company and the assessee company has huge capital reserves as on 31.03.2014 and very meager amount of borrowings. Most of the exports are with AEs. The Ld.AR further submitted that keeping in view the extra credit period allowed to the AEs, the price has been charged suitably at a higher rate when compared to non-AEs. Since the TPO has made the a....
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....lied on the decision of this tribunal in GVK Power & Infrastructure Ltd. vs ACIT Circle-2(1) dated 18/05/2018 where in ITAT held that no notional interest is chargeable on delayed payments. For ready reference we extract the relevant para of the ITAT's order in GVK Power & Infrastructure Ltd which reads as under: 12. Even otherwise as observed from the order of the TPO on three occasions, there was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson SumiInfotech & Designs Limited Vs. DC1T reported In (2018) 52 CCH 0122 Delhi, and Hon'ble ITAT Delhi held as under: 5. We have considered the rival submissions and perused the material available on record. The assessee has given several reasons to explain that it being a business transaction, commercial consideration should have been considered by the authorities below. It was explained that the long term business relation with the customer and A.E. predicate waiver of this right. The interest is only associated with the loans and not services. It was explained that p....
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.... assessee, in which the decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. M/s. Kusum Healthcare Pvt. Ltd., (supra), have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of interest on receivables. We, accordingly, set aside the orders of the authorities below and delete the entire addition. 6. In the result, appeal of the assessee is allowed. The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR relied on the decision of Pr.CIT vs B.C.Management Services (P) Ltd, (2018) 164 DTR (Del)299 where in Hon'ble Delhi High court held that delayed payment made by AE cannot be treated as part of income. For ready reference we extract the relevant part of the order of the Hon'ble DeIhi High court which reads as under: 9. With respect to the treatment of notional interest by the TPO/AO, the Court is of the opinion that no question of law arises. In an identical situatio....
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....here was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson SumiInfotech& Designs Ltd. (supra), and Hon'ble ITAT Delhi held as under: "We have considered the rival submission and perused the material available on record. The assessee has given several reasons to explain that it being a business transaction, commercial consideration should have been considered by the authorities below. It was explained that the long term business relation with the customer and A.E. predicate waiver of this right. The interest is only associated with the loans and not services. It was explained that payments are received only after satisfaction of the customer and therefore, there was delay in receiving the payments. The assessee also explained before T.P. authorities below that average outstanding days for recovering sales dues was 57 days in the case of A.Es, whereas, in the case of non A.E., it was 66 days. It was also explained that non charging of interest from A.E.s as well as non A.E. on interest receivables was that it being ....
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....e, accordingly, set aside the orders of the authorities below and delete the entire addition." The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR relied on the decision of Pr.CIT v. B.C. Management Services (P.) Ltd. [2018] 89 taxmann.com 68/253 Taxman 138/403 ITR 45 (Delhi) where in Hon'ble Delhi High court held that delayed payment made by AE cannot be treated as part of income. For ready reference we extract the relevant part of the order of the Hon'ble Delhi High court which reads as under: "9. With respect to the treatment of notional interest by the TPO/AO, the Court is of the opinion that no question of law arises. In an identical situation, in Bechtel India (P.)Ltd.(supra), the Court had held that such notional income on account of delayed payment made by the AO cannot be treated as part of the income and made the subject matter of the adjustments. The question no. 2 and 3 therefore does not arise for consideration." While rendering the judgment the Hon'ble High court has considered the decision in the case of Bechtel India (P.) Ltd. (supra) Therefore, placing reliance on the decision of Mot....
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....anks, but more in the nature of personal guarantee given by the promoters of the company in India for the loan taken by the companies from banks. The assessee also further stated that no direct financial benefit was given to the overseas beneficiaries on account of corporate guarantee nor any expenditure was absorbed by the parent company on behalf of its subsidiaries and requested to drop the proposal of adjustment u/s 92C of the Act. However, not being convinced with the explanation of the assessee, the Ld.AO made the adjustment of Rs. 2,83,66,400/- @1.60% on the corporate guarantee of Rs. 177.29 crores. The AO made the addition of Rs. 2,83,66,400/- to the returned income by an order u/s 143(3)r.w.s. 92CA(3) of the Act dated 28.12.2017. 9. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition made by the AO following the order of the coordinate Bench of ITAT, Hyderabad in the case of Bartronics India Limited Vs. Dy.Commissioner of Income Tax, 86 taxmann.com 254 and Dr.Reddy Laboratories Limited Vs. Addl.CIT in 81 taxmann.com 398. For the sake of clarity and convenience, we extract relevant part of the order of the....
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.... the company without any financial impediment. Therefore the Ld.AR submitted that the corporate guarantee is given to it's AE in the commercial interest and no expenditure was incurred, thus there is no case of any adjustment and no addition is warranted in the assessee's case. The Ld.AR invited our attention to the decision of ITAT Kolkata, 'C' Bench in the case of DCIT, Circle-8(1), Kolkata Vs. M/s EIH Ltd., [2018] 89 taxmann.com 417 (Kolkata - Trib) wherein Hon'ble ITAT held as under : "12.12. Thus, we hold that when a parent company extends an assistance to the subsidiary, being associated enterprise, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it will be outside the ambit of international transaction under section 9213(1) of the Act. In this regard, we would like to hold that issuance of corporate guarantee by the assessee to its AE would have influence on the profits, incomes, losses or assets of enterprise 'but not necessarily have any impact on the profits, incomes, losses or assets' as a....