TaxTMI 
TaxTMI 
2020 (2) TMI 558
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....d at arm‟s length. 3. The ld. CIT(A) erred in holding that interest on receivables for extra credit period allowed is not an international transaction. 4. The ld. CIT(A) ought to have appreciated the fact that TPO had rightly made ALP adjustment on sale of instant coffee as the assessee company intentionally changed the method of adoption for TP study as the CUP method results in arm‟s length adjustment. 5. Any other grounds that may be urged at the time of hearing." 3. Grounds No. 1 & 5 are general in nature, no adjudication is required, therefore, same are dismissed. The only grounds for adjudication before us are ground Nos.2 to 4. 4. Facts of the case in brief are that assessee-company is engaged in the business of manufacturing of instant/soluble coffee, filed its return of income by declaring total income of Rs. 112,58,64,910/-. The return filed by the assessee was initially processed u/sec. 143(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). Subsequently, case of the assessee was selected for scrutiny and was transferred to TPO u/sec. 92CA of the Act. Thereafter, assessment was completed u/sec. 143(3) r.w.s. 144C(3) of the Act d....
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....ed the material placed on record. During the appeal hearing, the Ld.AR argued that providing corporate guarantee to its AE would not constitute an international transaction as held by various tribunals and hence no adjustment is required. The ld.AR further submitted that the AE is 100% subsidiary of the assessee company, hence it is the obligation of the assessee to extend it‟s support to improve the business and smooth running of 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 ....
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....egard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is favourable to the assessee has to be adopted even though other Benches have taken a different view. We, therefore, hold that the Explanation to Section 92B cannot be applied retrospectively and for the years under consideration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "International Transaction" within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect." 5.2. Similar view was taken up by the Coordinate Bench of ITAT, Hyderabad in the case of Batronics India Ltd. (supra). In the instant case, the facts are identical. The assessee had given corporate guarantee to its 100% subsidiary and the AE for the purpose ....
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....the outset, Ld.AR has submitted that the issue involved in this case is squarely covered by the decision of the coordinate bench of the tribunal in assessee's own case for the A.Y. 2014-15 and submitted that same may be followed. 11. Ld.DR relied on the order of the Assessing Officer. 12. We have heard both the sides, perused the material available on record and orders of the authorities below. 13. In this case, the TPO suggested the adjustment of Rs. 91,96,360/- being @9% on the opening balance of Rs. 10,21,81,783/- on the ground that assessee has to receive outstanding receivables balance of Rs. 10,21,81,783/- as on 31/03/2014. The case of the assessee before the ld. CIT(A) was that most of the payments were received within 120 days and the details were furnished with the TPO in tabular form which has not considered by the TPO. The ld. CIT(A) by folwoing the assessee's own case for the A.Y. 2014-15 directed the Assessing Officer to delete the addition. We find that facts for the year under consideration are mutatis mutandis similar to the facrts involved in A.Y. 2014-15 in ITA No. 348/VIZ/2018 dated 03/04/2019 wherein the ITAT upheld the order of the ld. CIT(A). For the sake o....
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....td 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. DCIT 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 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 no....
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....isions 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 situation, in Principal Commissioner of Income Tax Vs. Bechtel India Pvt. Ltd. ITA 379/2016, decided on 21.07.2016, 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. ....
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....AT 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 predominantly involved in the provision of services to it's A.Es as we l as third parties. The contention of the assessee have not been disputed by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm'....
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....d. [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 Motherson SumiInfotech & Designs Ltd. (supra) and the decision in the case of B.C. Management services (P.) Ltd. (supra) we hold that the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authoritie....
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....e/packing size-wise comparison as done by the Assessing Officer as the sale consists of single product i.e. instant coffee and the material in all sizes of packing are of the same quality. In fact, out of the 11 sizes, only in 2 sizes i.e. 100 grams packing and 200 grams packing, price charged to assessee's AE was lower. In fact, in 6 out of 11 sizes, assessee charged to AE more than non-AE, therefore adjustment suggested by the TPO is not correct. He further submitted before the TPO that to consider the weighted average price of all sizes in which case, no adjustment will be required as the difference in such case will be 1.49% as against the permissible difference of 3%. However, the TPO only suggested two sizes adjustment less prices charged to AE is lower compared to non-AE. The TPO has considered CUP method analyzed the sale price for each SKU charged to AE and non-AE. 17. Before the ld. CIT(A), the assessee has contended that the entire product is the same supplied to the AE and the non-AE and finding given by the Assessing Officer taken into consideration SKU is a basis is not correct and further submitted that though the assessee has supplied 11 sizes to the AE and non-AE,....
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....ee has adopted CUP as the most appropriate method for benchmarking the transaction of sale of instant coffee to AE. The TPO has treated that the data used by the assessee on sample basis in computation of arms's length price is not correct and rejected the CUP analysis. From the details furnished by the assessee, the TPO has observed that there are differences in terms and conditions of sales made to AEs and non-AEs which materially affects the price in the open market. In view of the Rule 10(B)(1)(a)(ii) as the sale price should be adjusted to account to arrive at arms' length price. After considering the submissions and data, the TPO has suggested and worked out the adjustments on sale of instant coffee to the AE and computed the same at Rs. 1,09,42,509/- which is charged less to the AE compared to the non-AE and called explanation from the assessee. The assessee has submitted that TPO has taken only two sizes out of 11 sizes i.e. 100 grams and 200 grams and suggested adjustment which is not correct. Out of 11 sizes in 6 cases, the assessee has charged higher price. It was further contended before the TPO that comparing the product size-wise is unfair and incorrect and also unsci....
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....e charged to AE varied depending on size of the packaging. The appellant followed CUP method for internal TP report and not suggested any adjustment. Out of 11 sizes of the same product, the TPO compared prices between AE and Non-AE and found in 6 cases the appellant charged higher price to AE when compared to Non-AEs. In three cases, the price charged to AE as noted by TPO, is less than 3%. Only in case of two sizes, the TPO suggested adjustment as the price charged to AE is lower when compared to Non-AE. The TPO considered each SK is a different and hence compared the same with price charged by the appellant to AE and Non-AE. For the earlier asst. years the Department negating the CUP method followed by the appellant in its internal TP study adopted TNMM as MAM and the same was not considered by the TPO for the year under consideration as CUP method results in ALP adjustment. The appellant contends that as the entire product is the same comparison of price on SKU basis is incorrect. It was also contended that weighted average method is best suited in the facts of the case. Considering the above facts and also the submissions of the appellant, it is felt that the TPO erred in co....