TaxTMI 
TaxTMI 
2021 (1) TMI 124
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....and are contrary to the facts and circumstances of the present case. 2. On the facts and circumstances of the case and in law, the learned CIT(A), AO and the Transfer Pricing Officer ("TPO") has erred in imputing notional interest on the outstanding receivables from the associated enterprise and thereby making a TP adjustment in this regard. 3. The learned CIT(A)/ AO / TPO has erred in law and on facts in holding the alleged delay in the realization of the receivables from Associated Enterprises ("AE") as an international transaction ignoring the fact that the same is not an international transaction in terms of Section 92B of the Act but arises only as a consequence of an international transaction with its associated enterprise. 4. Without prejudice to our grounds that the delay in receivables is not an international transaction, the learned CIT(A)/ AO / TPO has erred in law and on facts by making transfer pricing adjustment on account of delay in the realization of the receivables even after accepting the primary international transactions of the Appellant at arm's length based on the Transaction Net Margin Method at the entity level. 5. Wi....
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....inancing and therefore, the PLR taken as benchmark rate may not reflect the arm's length rate. 2.1. The Ld. CIT(A) having observed that the benefit that accrues to the AE of the assessee should be evaluated at the beneficiary's end as to at what interest it would have availed funds, had this arrangement was not in place, ought to have appreciated that this is bad in law since the credit period allowed is more than the agreed period of credit which drastically affects the assessee's working capital. 2.2 The Ld. CIT(A) ought to have appreciated that a businessman in a given situation would not have allowed its receivable to be outstanding for such a long time, given the requirement for funds for working capital and other capital expenditure and therefore it is imperative that the money which would be realised in Indian rupees has been allowed to be at the disposal and convenience of the AEs and hence TPO/AO rightly applied PLR to determine the arm's length price of interest receivable. 2.3 The Ld. CIT(A) erred in not following the binding decision of the Chennai Bench of the Hon'ble Tribunal in the case of M/s Professional Access softwar....
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....bstantial justice, the delay in filing the appeal is condoned and the appeal of the Revenue is admitted for adjudication. 5. The brief facts of the case are that the assessee company is engaged in the business of software development and specialized in providing business response applications and specializes in deriving a solution that contemplates a merger of technologies (voice internet and data communication), involving a range of products from computer phony integration, switching, high-end multimedia, messaging, speech recognition, web enabled call centers. The assessee company has three divisions i.e., software division which is engaged in the business of export of software development and services and hardware resale and maintenance support (AMC). The assessee caters to both domestic and export market. The assessee has entered in to various international transactions with its Associated Enterprises (AEs) for sale of software and services, purchase of software and services, interest free advance and reimbursement of expenses at cost. The assessee has benchmarked its transactions with AEs under Transactional Net Margin Method as the most appropriate method and established i....
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....sions of the assessee was of the opinion that delay in realization of receivables from AE beyond specified credit period, amounts to indirect funding to AE, which constitutes a separate international transaction in view of the amendment to Section 92B by the Finance Act, 2012, w.e.f. 01.04.2002 and hence outstanding receivables from AE needs to be benchmarked. Therefore, by taking note of the details filed by the assessee has imputed interest on receivables by taking PLR as base rate and made TP adjustment of Rs. 2,31,73,569/-. 8. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its arguments made before the AO and contended that receivables from AE cannot be separate international transactions when the assessee has benchmarked its transactions with AE at entity level by applying Transaction Net Margin Method as most appropriate method and proved its transactions with AE are at Arms Length Price. The assessee has also argued in light of the margin earned by the assessee from its transactions with AE and submitted that the margin earned by the assessee from its transactions with AE is at 39....
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....that delay in realization of receivables from AE is not an international transaction within the meaning of Section 92B of the Act. The ld.AR for the assessee without prejudice to the above argument made an alternative argument in as much as assuming and not accepting for the moment delay in receivables is not an international transaction, the ld.CIT(A) has erred in making TP adjustment on receivables with AE even after accepting the primary international transactions of the AE are at arms length on the basis of Transaction Net Margin Method at the entity level. The ld.AR for the assessee further submitted that the CIT(A) has erred in not appreciating the fact that the assessee has earned a high net margin of 39.83% which is much above the margin earned by comparable companies, which has impliedly compensated the delay in realization of outstanding receivables. It is further submitted that the assessee has a unique policy of not charging interest on outstanding receivables from AE as well as non-AE and therefore the assessee cannot be expected to charge interest on outstanding receivables from AE. The AR further submitted that the ld.AO has erred in not allowing any credit period wh....
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....onal transactions and hence delay in realization of receivables from AE beyond credit period constitutes a separate international transaction with effect from assessment year 2013-14 onwards. Therefore, we are of the considered view that there is no merit in the arguments taken by the assessee that delay in realization of AE receivables is not an international transaction. We further note that after the amendment to clause (c) of explanation to Section 92B of the Act, realization of receivables after abnormal delay beyond credit period would tantamount to indirect funding to AE and merely because the assessee is almost a debt free company or the margin of the assessee is higher than the comparables, no such funds of the assessee should be allowed to be utilized for indefinite period. We further note that once delay in realization of AE receivables constitute an international transaction, whether or not, assessee charges interest on receivables from AE or not, has no relevance because any understanding or arrangement between the assessee and its AE which is detrimental to Revenue and against the principles of scheme of Chapter X of the Act, cannot come to the rescue of the assessee.....
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....credit period between assessee and AE. If there is no agreed credit period, then the AO is directed to allow standard credit period that the industry is allowing in this line of business. 14. The next issue came up for consideration from Ground No.3 of Revenue appeal is disallowance of expenditure for earning exempt income u/s.14A of the Act. The AO has computed disallowance of expenditure u/s.14A of the Act in accordance with prescribed procedure provided under Rule 8D of the Income Tax Rules, 1962 and disallowed interest expenditure under Rule 8D2(ii) and other expenditure under Rule 8D2(iii) of the IT Rules, 1962. According to the AO, irrespective of the fact that any dividend income is earned which do not form part of exempt income, expenditure relatable to income which do not form part of total income needs to be computed in accordance with Rule 8D of Income Tax Rules, 1962. It is the contention of the assessee that when there is no exempt income earned from investments, there is no question of disallowance of expenditure relatable to such exempt income. 15. We have heard both the parties, perused the materials on record and gone through the orders of various authorit....