TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 572
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.... the associated enterprise on the basis of order passed by the Transfer Pricing Officer ('TPO')/ Dispute Resolution Panel ('DRP'). 2.2 That the DRP/ TPO erred on facts and in law in re-characterizing the alleged transaction of delay in receipts of receivables as unsecured loans advanced to the associated enterprises. 2.3 That the DRP/ TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an 'international transaction', per se, under section 92B of the Act but is a consequence of an 'international transaction' undertaken in the form of services rendered to the associated enterprise. 2.4 That the DRP erred on facts and in law in holding that the nonrealization of invoice value beyond the stipulated period (as per contract) is a separate international transaction, whose arm's length price is required to be determined separately. 2.5 Without prejudice, that the DRP/ TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the 'international transaction' of export and since the profit earned by the assessee as a percentage of cost is higher than the profit earne....
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.... of the AO in making transfer pricing addition of Rs. 4,71,35,199/- being interest on receivables. 4. Facts of the case, in brief, are that the assessee company is engaged in the provision of software development services to GlobalLogic Inc. and other GlobalLogic group companies. It filed its return of income on 27.11.2013 declaring the total income at Rs. 33,89,27,640/-. Since the assessee has entered into certain international transactions, the AO referred the matter to the TPO for determination of the ALP of the international transaction. The TPO, during the course of TP assessment proceedings, observed that the assessee has entered into the following international transactions with its AEs:- S. No. International Transaction Amount [In Rs.] 1. Provision of Software Development Services 1,88,69,99,823 2. Purchase of equipment 92,645 3. Reimbursement of expenses 11,86,07,516 4. Amount received on behalf of AE 65,61,799 Total 201,22,61,783 5. The TPO, rejecting the various explanations given by the assessee, held that the overdue receivables constitute separate international transaction and the working capital adjustment does not subsume interest on overd....
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....eclared by the comparables. Further, the assessee has not charged any interest on receivables from unrelated parties. Referring to the decision of the Tribunal in assessee's own case for A.Ys 2010-11 and 2012-13 in ITA No.1104/Del/2015 and 1115/Del/2017, order dated 12th December, 2017, he submitted that the Tribunal, following the decision of the Hon'ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd., in ITA No.765/2016, order dated 25th April, 2017, has held that no adjustment on account of interest on receivables can be made. Referring to the decision of the Tribunal in assessee's own case vide ITA No.8726/Del/2019, order dated 29th June, 2020 for A.Y. 2015-16, he submitted that the Tribunal, following the decision in assessee's own case for A.Y. 2010-11 and 2012-13, has deleted the addition holding that no adjustment has to be made on account of notional interest on receivables. He accordingly submitted that this being a covered matter in favour of the assessee, the adjustment made by the AO on account of interest due on receivables from its AE has to be deleted. 10. The ld. DR, on the other hand, heavily relied on the orders of the AO/TPO/DRP and submit....
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.... intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO 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 basis of the outstanding receivables would have distorted the picture and reITA characterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Delhi). 12. Consequently, the Court is unable to find any error in the impugned order of the ITAT giving rise to any substantial question of law for determination. The appeal is, accordingly, dismissed." 15. So, in view of the law laid down by Hon'ble High Court in Pr. CIT-V vs. Kusum Health Care Pvt. Ltd. (supra), we are of the considered view that no adjustment can be made on account of notional interest on receivable....
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....was decided in favour of the taxpayer by upholding the order rendered by the Tribunal by making following observations :- "5. On appeal filed by the Revenue, the ITAT upheld the order of CIT (A). While, upholding the order of CIT (A), the ITAT held that interest income is associated only with the lending or borrowing of money and not in case of sale. We express no opinion on the above reasoning of the ITAT and keep that reasoning open for debate in an appropriate case. However, in the facts of the present case, the specific finding of the ITAT is that there is complete uniformity in the act of the assessee in not charging interest from both the Associated Enterprises and Non Associated Enterprises-debtors and the delay in realization of the export proceeds in both the cases is same. In these circumstances, the decision of the Tribunal in deleting the notional interest on outstanding amount of export proceeds realized belatedly cannot be faulted." 21. So, when the taxpayer has not been making any distinction between AE and non-AE in charging any interest on outstanding receivables, the adjustment made by the TPO/DRP/AO on account of arm's length interest is not sustainable. Mo....