2020 (7) TMI 282

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....ty notices u/s 271AA and 271BA along with Draft assessment order dated 23.12.2016, which tantamount to passing of Final Assessment Order. 3. Ground No.3 3.1 The Ld. TPO/ Ld. AO/ Ld. DRP erred in making the ALP adjustment u/s. 92C(3) of the Act for Rs. 1,73,612/- towards Interest @ 7% on Outstanding Receivables from AEs on hypothetical and notional basis without there being any material on record. 3.2 The Ld. TPO/ Ld. AO/ Ld. DRP erred in not following the procedure laid down under the provisions of Section 92C of the Act relating to the 'Computation of Arm's Length Price' . 3.3 The Ld. TPO/ Ld. AO/ Ld. DRP has erred in law in recharacterising the amount of outstanding receivables due from Associated Enterprise ("AE") as a loan advanced by the Appellant to its AE, which is not permissible u/s. 145 of the Act. 3.4 The Ld. TPO/ Ld. AO/ Ld. DRP has erred both in facts and in law in not appreciating the fact that no interest has been charged by the Appellant on the value of outstanding receivables due from AE as well as Non-AE. 3.5 The Ld. TPO/ Ld. AO/ Ld. DRP erred in not appreciating the fact that there is no clause relating to....

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....ng disposed of by this consolidated order for the sake of convenience. In order to adjudicate the issue raised in the appeal, reference is being made to the facts and issue in ITA No. 1909/Hyd/2017. 4. The ground no. 1 raised by the assessee is general in nature and does not require any adjudication. The ground no. 2 raised by the assessee is not pressed. Hence it is dismissed as not pressed. The issue raised in ground of appeal no. 3 is against the transfer pricing adjustment made on account of interest due on outstanding receivable from Associate Enterprises (in short AE). 5. Briefly in the facts relating to the issue the assessee is a partnership firm and in operation since year 1998. It is engaged in the business of rendering Software Development Services to its AEs and other customers. The Assessing Officer made reference under section 92CA(1) of the Act to the TPO to determine the arm's length price of the international transactions undertaken by the assessee. The TPO made adjustment to the tune of Rs. 13.45 crores (approx.) in his order passed under section 92CA(3) of the Act. Another transaction noted by the assessee were receivable from the AEs. The assessee was s....

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....that the assessee was following consistent method of accounting from year to year. He relied on various decisions in this regard. 7. The learned DR for the Revenue pointed out that interest on Receivables was separate International Transaction. He pointed out that working capital adjustment takes care of the period within the financial year, but does not cover outstanding. He also referred to an agreement between the assessee and the AEs where terms of payment are prescribed into the number of days within which payment is to be made. He was of the view that any delay beyond the period gave rise to issue of charging of interest on such delayed Receivables. He also pointed out that the explanation under section 92B of the Act has been inserted with retrospective effect from 01.04.2002. 8. The learned AR for the assessee in rejoinder stated that under the transfer pricing provisions, comparison has to be made and where the period of delay in the case of the assessee was lower than the period of delay of the comparables, no adjustment merits to be made. He further pointed out that the master agreement has no role to play while benchmarking the international transaction of interes....

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....tically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that visà- vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the Assessing Officer was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-à-vis that of its comparables, any further adjustment only on the bas....