TaxTMI 
TaxTMI 
2020 (9) TMI 153
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....g during the year and in doing so have grossly erred by: 2.1. not appreciating the overall arrangement/commercial considerations of the Assessee with its Associated Enterprises ("AEs") and recharacterizing the outstanding receivables from overseas AEs as unsecured loans advanced to the AEs and imputing interest at the rate equal to LIBOR plus 400 basis points; 2.2. disregarding the intercompany pricing arrangement and not appreciating the fact that unlike a loan or borrowing, outstanding receivable is not an independent transaction which can be viewed on standalone basis and needs to be examined with the commercial transaction as a result of which the debit balance has come into existence; 2.3. ignoring the fact that working capital adjustment takes into account the impact of outstanding receivables on profitability and therefore, no further imputation of interest is warranted; 2.4. rejecting the Assessee's contention that no interest is charged to third parties as well and therefore, no adjustment is warranted considering the Comparable Uncontrolled Price method as the "most appropriate method" for determining the arm's length price ("AL....
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....LP Adjustment of Rs. 1,89,33,756/- proposed to the Assessing Officer. Accordingly, the Assessing Officer assessed the income at Rs. 46,93,35,412/-. 4. Being aggrieved by the assessment order, the assessee filed appeal before us. 5. The Ld. AR submitted that the issues contested herein are already decided by the Tribunal for Assessment Year 2010-11 which was confirmed by the Hon'ble Jurisdictional High Court. The Ld. AR submitted that the assessee manufactures and markets pharmaceutical products. It is engaged in export of pharmaceutical products to its overseas associated enterprise (AE) as well as non-group companies. During the relevant assessment year, the assessee had undertaken the international transaction pertaining to export of pharmaceutical products. The said international transaction has been duly accepted by the TOI to be at arm's length. However, the TPO re-characterized receivables outstanding from AE as unsecured loans advanced by the assessee to its AE and imputed a notional interest based on LIBOR + 400 basis points (resulting in interest rate of 5.013%). An adjustment of Rs. 1,89,33,756/- was made by the TPO in the transfer pricing order. The DRP concurr....
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....ion, the Ld. AR relied upon the following decisions wherein it has been held that when no interest is charged from both AEs and non AEs, the transaction with non-AEs serves as an internal CUP and thereby, no notional interest can be charged on receivables from AEs: i) Kusum Healthcare Pvt. Ltd. vs. Addl. CIT (ITA No. 84/Del/2017) ii) Livingstones vs. CIT [TS-962-HC-2016 (BOM)-TP] iii) Indo-American Jewellery Ltd. vs. CIT [TS-3-HC-2013(BOM)] iv) Bausch & Lomb Eyecare (India) Pvt. Ltd. vs. ADCIT [TS-152-ITAT- 2014(DEL)] v) Axis Risk Consulting Services (P.) Ltd. vs. DCIT [2018] 92 taxmann.com 103(Del. Tri.) vi) Sophos Technologies (P.) Ltd. vs. DCIT [2018] 100 taxmann.com 374 (Ahd. Tri.) In view of the above, where there is a uniform and consistent policy/practice followed by the assessee pertaining to outstanding receivables in respect of AEs and non-AEs, no adjustment in respect of notional interest on outstanding receivables is warranted. 7. The Ld. DR submitted that all the grounds of appeal, taken by the assessee in its appeal, emerge from one fundamental issue as to justification of TP adjustment on account of delayed ....
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....tunity cost, decision of jurisdictional High Court in the case of Cotton Naturals India Pvt. Ltd., ITA No.233/2014 and then have given its findings at P/18-23 of its order upholding the credit spread of 400 bps over LIBOR rate. As regards to GOA 2.2 to 2.5 are interlinked and the Ld. DR submitted that the TPO issued a show-cause dt.05.09.2016, examined the reply of the assessee vis-a-vis the relevant facts and has recorded his elaborate discussions in his order. The TPO has recorded his discussions w.r. to FAR analysis of the assessee at P/2 to 8. The TPO has discussed relevant provisions of Sec. 92CA(2A), 92CA(2B), Explanation (1)(c) to Sec.92B, Sec. 92F(v) and sec. 92B(1) and amendments brought by Finance Act, 2012. Thereafter the TPO has made elaborate discussions on the issues involved in para-15 to 20. The TPO has also discussed various case-laws in his order. The TPO has adopted the segregated approach for benchmarking of outstanding receivables from AE on account of its delayed realisation for the delay beyond the period of 180 days as the assessee itself admitted to have allowed a period of 180 days for realisation of such receivables. Thus it may be noted that for the dela....
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....n-AE. It may be noted that a margin period of 180 days, as per agreement and as stated by the assessee, have been considered by the TPO and to be reasonable & fair to the assessee, the interest have been computed for the period beyond 180 days only. Further as directed by the DRP, the interest have been computed in respect of overdue receivables upto 31st March of the FY under consideration. In addition to the discussions by the TPO and the DRP it would be interesting to consider certain crucial facts & figures of the year as well as that of last FY as reflected in the financial statements of the assessee & the annexure filed before Tribunal. The same are reproduced as under:- Particulars Figures as on 31.03.2013 Figures as on 31.03.2012 Remarks Share-capital 7.99 Cr. 7.99Cr. Reserve &Surplus 147.43 Cr. 119.20 Cr. Total Funds 155.42 Cr. 127.19 Cr. P/62 of PB Sales of product 141.13 Cr. 104.95 Cr. P/63 of PB AE Non AE AE Non AE Annexure-I. Sales to AE for FY 98.23 Cr. NA NA 42.90Cr . 2012-13 comes to 69.6% of total sales &in the ca....
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....owing this practice/arrangement the AE is enjoying 68% (approx) funds of the asssessee in the form of outstanding receivables without any interest and only a portion of the funds is allowed, that to when another payment becomes due, which are necessary for logistics support and to meet the various expenses to keep the assessee afloat. These vital facts & ratios substantiate that the arrangements between the assessee and the AE are intended to benefit the AE. In view of these crucial facts, the benchmarking to account for the opportunity cost and time value of money in the case of the assessee is warranted. Under these facts & circumstances, separate benchmarking of interest on over delayed realisation of such outstanding receivables is quite justified. The arguments/objections of the appellant are accordingly totally misplaced. The assessee has relied upon the decision of the ITAT in its own case for AY 2010-11 and the order of Hon'ble Delhi High Court wherein the said order of the ITAT for AY 2010-11 has been upheld and the Departmental appeal has been dismissed. However, the facts, ratios and analysis of facts for the year in the case of the assessee itself, which indicate a defi....
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....ecision of Hon'ble Supreme Court in the case of Radhasoami Satsang vs CIT {1992] 60 taxman 248(SC) and has held that the rule of consistency should not create anomaly. In view of the above facts & submissions, the Ld. DR requested that the decision of the Hon'ble Courts in earlier years in the case of the assessee may not be blindly followed in the name of rule of consistency and the issue may be considered afresh in view of the glaring facts, ratios, analysis of facts in the case of the assessee and relevant case laws. 7. In rejoinder the Ld. AR submitted that the factual aspects in Tech Book India & the circumstances arises in that case are totally different in present assessee's case. Therefore, the said decision will not be applicable in the present case. The factual aspect has remained similar for Assessment Year 2010-11, 2011-12, 2012-13 & in the present Assessment Year. The assessee in the present case in all the previous years has given the details of outstanding receivables and its interest as well as in the present Assessment Year also all the outstanding receivables with the calculation was given by the assessee before all the Revenue Authorities ( AO/ TPO/ DRP). 8....
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....od no adjustment on account of notional interest on outstanding receivables is warranted. As per without prejudice argument of the Ld. AR and from the records it emerges that no interest was charged on the delay in receipt of receivable in respect of the delay in receipt of receivables in the nature of unsecured loan. The interest shall be charged at LIBOR plus rate and not at the prevailing SBI Base rate as per held by the Assessing Officer. In 2011-12, the DRP concluded that since the receivables from AE are in US Dollars, LIBOR plus rate should be applicable in case of the assessee. After considering for all in cost selling, credit rating, security and transactions cost, 400 basis points should be added to LIBOR plus rate of the year. Thus, average 12 months USD Labor for 2012 was 1.013%. Thus, the applicable rate for computing interest on outstanding receivables should be 5.013%. Regarding details of outstanding receivables of AE as on 1/4/2012 along with realization dated for each invoice. Thus, opening outstanding receivables were raised in previous Financial Years. The notional interest on the same, have already been added by respective Transfer Pricing Officers, in the asse....