TaxTMI 
TaxTMI 
2019 (10) TMI 1507
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....essee was a willful choice to keep the funds with its associated enterprises ("AEs") which is nothing but an act of financing or funding of AEs. The TPO has also drawn support from the amendment made by way of Finance Act 2012 to the term, 'International Transaction' where the scope of definition is made wide enough to include receivables as separate international transactions. Capital financing includes receivables also as per the amendment in Finance Act, 2012. According to the TPO, the assessee, instead of providing loan or funding out of surplus funds available with the company, alternatively chose not to collect money on due date which is nothing but indirect giving of loan or funding. Had the AEs taken loan from the assessee, it would have paid an interest to the assessee but by way of keeping funds they are enjoying an interest free loan. Therefore, the TPO concluded that the overdue receivables would partake the character of activity of providing loan or funding by the assessee. The TPO also contended that imputing interest on the re-characterization of the receivables is not notional. In response to the assessee's submission that it is a zero debt company, the ....
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....rred in holding that no Transfer Pricing adjustment is required on the overdue receivables by determining the interest on such receivables, by relying on the dismissal order of the Hon'ble Supreme Court in the case of M/s. Bechtel India Private Limited. 2.2 The learned CIT(A) failed to consider that the Tribunal has reversed its own decision in the later decision" in the case of M/s. Bechtel India Private Limited reported in 85 taxmann.com 121(2017) and facts of the case in hand is similar to that of the later decision referred above. 2.3 The learned CIT(A) failed to consider the fact that the assessee company has total interest liability of Rs. 39,12,998/- out of which the nature of interest expenditure of Rs. 8,47,54/- is not known and hence the claim of the assessee that the assessee company is a debt free company is not acceptable. 2.4 The learned CIT(A) ought to have seen that the assessee company has allowed its receivables to remain with the Associated Enterprise for a period of time which is beyond the industry practice. 2.5 The learned CIT(A) ought to have considered the fact that the assessee company has not proved that the delay in receipt of invoiced amount ....
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....e is pleading that the Revenue's appeal be dismissed, if it is a debt free company. However, the Revenue pleads that the Hon'ble Delhi ITAT in the case of Bechtel India Pvt. Ltd., itself, in its subsequent decision, upheld the Revenue's stand, therefore irrespective of whether the assessee is a debt free company or not, interest on delayed realization of receivables is a separate international transaction and, therefore, it requires separate benchmarking, it has nothing to do with the operations of the assessee company being with the debt free funds only. In order to appreciate the issue, the relevant portion of the order of the Delhi Bench of this Tribunal in ITA No.6530/Del/2016, order dated 16.05.2017 is extracted as under : 17. We have considered the submissions of both the parties and perused the record of the case. The assessee's grievance is two-fold. Firstly, when working capital adjustment has been made, then, no separate adjustment is required to be made in respect of accounts receivables because the same gets subsumed in the working capital adjustment. The second plea of the assessee is that since its funds are entirely debt free, therefore, no adjustment is warranted ....
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....tional transaction. At this stage, it would be apposite to note that the Finance Act, 2012 has inserted Explanation to section 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation, which is otherwise also for removal of doubts, gives meaning to the expression 'international transaction' in an inclusive manner. Sub-clause (c) of clause (i) of this Explanation, which is relevant for our purpose, provides as under:- ` Explanation.-For the removal of doubts, it is hereby clarified that- (i) the expression "international transaction" shall include- (a) ............ (b) ........... (c) capital financing, including any type of long-term or shortterm borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;....' 22. On going through the relevant part of the Explanation inserted with retrospective effect from 1.4.2002, thereby also covering the assessment year under consideration, there remains no doubt that apart from any long-term or short-term lending or borrowing, etc., or any type of advance payme....
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....n the excess period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined." 18. In view of the above observations, the reliance placed by the ld. counsel for the assessee on earlier decisions cannot be accepted. 19. In the case of Ameriprise (supra), it has been observed that the working capital adjustment is in respect of international transaction of rendering services to the AE. Interest for credit period allowed as per the agreement is given in the price charged for rendering of services. Whereas the non-realisation of invoice value beyond the stipulated period is a separate international transaction whose ALP is required to be determined. Granting of working capital adjustment is confined to the international transaction of rendering of services, whose ALP is separately determinable. On the other hand, the international transaction of interest receivable from its AEs for late realization of invoices beyond such stipulated period is a separate international transaction. Allowing working capital adjustment in the international transaction of rendering of....