2022 (12) TMI 920

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....with associated enterprises ("AEs") amounting to INR 9,378,115 by: 2.1. aggregating the "business support services" and "research and development" services as one segment and modifying the comparability' analysis conducted in the Transfer Pricing Documentation of the Appellant on inappropriate and inadequate grounds; 2.2. accepting companies that were functionally not comparable to the appellant in terms of functions, assets and risk profile. 2.3. rejecting the comparable companies which were comparable to the Appellant, on ground of functional dissimilarity. 3. That on the facts and circumstances of the case, the Ld. AO/Ld.TPO/ Ld. DRP erred in denying the adjustment for working capital position of the Appellant vis-a-vis the comparable companies. 4. That on the facts and circumstances of the case and in law the Ld. AO Ld. TPO/Ld. DRP erred in treating delay in receipt of payment from the AE's, as unsecured loans advanced to the AE's and applying a rate of interest @ 4.3311 % (LIBOR plus 400 basis points). 5. That on the facts and circumstances of the case and in law, the Ld. AO erred in charging and computing interest under se....

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.... 7. At the outset, the Ld. AR brought to our notice Annexure 1 to the TPO's order (pages 43 and 44 of TPO's order) wherein the party-wise AE details alongwith the amount of outstanding payables, outstanding receivables and interest calculated thereon has been provided which is reproduced below :-   7.1 The Ld. AR submitted that during the assessment year 2014-15, the assessee also has "payables" in respect of some of its AEs. This is on account of advance payments received by the assessee. As the assessee is a captive service provider and does not provide services to third parties, netting off of receivables and payables should be allowed to the assessee. The Ld. AR submitted that the Ld. TPO while making the adjustment has only considered receivable paid beyond 60 days for making a notional interest adjustment ignoring payments/ receivables made in advance. In support the Ld. AR relied upon the recent judgement of the Delhi High Court in PCIT vs. Mckinsey Knowledge Centre India (P.) Ltd. (ITA No. 146/2020) dated 12.10.2021. The Ld. AR further submitted that as the working capital adjustment subsumes the adjustment on account of receivables no separate adjustment of outs....

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....t the Ld. AO/TPO is not justified in charging interest on receivables without factoring in the payables to the AEs. 8.2 Before the Ld. TPO/DRP the assessee submitted that during assessment year 2013-14 there were delayed payments by the assessee to the third party vendors also, for which no interest was charged by them. Thus, the same ought not to be benchmarked in the absence of any interest charged in unrelated party scenario. It is settled principle that there is no need to bench mark the interest on receivables wherein the interest has not been charged from either of the parties i.e. payables and receivables. In the absence of any fact to prove that the assessee is liable to payment of interest, no adjustment is warranted. 8.3 Admittedly, the assessee is a debt free company. It has neither received any interest from any creditors nor paid interest to debtors. It has not borrowed any funds for extending loan to the AEs. The Hon'ble Delhi High Court in case of PCIT vs. Bechtel India Pvt. Ltd. (ITA No. 379 of 2016) held that as the assessee is a debt free company there is no question of charging any interest on receivables. SLP filed by the Revenue against the judgment of Ho....

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....erest on receivables from AEs. 8.6 Having regard to the legal position set out above, we hold that the Ld. AO was not justified in making adjustment on account of interest on receivables in the facts and circumstances of the assessee's case. Accordingly, the assessee succeeds. 9. Charging of interest under section 234A, 234B, 234C and 234D of the Act is consequential. 10. In the result, the appeal of the assessee is allowed. The order was pronounced in the open court on 11th April, 2022. ============= Document 1 Annexure-1 Name of the AE Voucher No. Date of Invoice Payables Receivables Date of Receipt/ Payment Due Date Period outstanding above 30 days Interest@ 4.3311% (LIBOR plus 400 basis points) IND-20130901 9/30/2013 79,801 6/20/2013 11/15/2013 IND-20131002 10/31/2013 79.800 2/24/2014 2/15/2014 116 1,0984144 Trend Micro EMEA (GB) Ltd IND-20131102 11/30/2013 79,801 IND 20131203 12/31/2013 82,430 2/24/2014 2/24/2014 2/15/2014 2/15/2014 86 814 3519 55 537.9642 IND-20140228 2/28/2014 122,152 2/24/2014 5/15/2014 ....