TaxTMI 
TaxTMI 
2022 (9) TMI 1463
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.... with its sales to third party customers in India. For the assessment year 2015-16 they have filed their return of income on 30/11/2015 declaring an income of Rs. 5,11,12,990/- under normal provisions of the Act and Rs. 5,08,80,452/- under the provisions of 115JB of the Act of the Act. 3. Noticing the international transactions entered into by the assessee with its AE, determination of the Arms Length Price ("ALP") of the international transaction was referred to the learned Transfer Pricing Officer ("learned TPO"). Finally by order dated 08/11/2018, learned TPO suggested upward adjustment of Rs. 2,51,71,958/- in respect of the purchase of the finished/traded goods and Rs. 30,97,616/- towards the interest on receivables among other adjustments. Pursuant to the order of the learned TPO, learned Assessing Officer issued draft assessment order dated 26/11/2018. 4. Aggrieved, assessee filed objections before the learned DRP. Learned DRP considered the contentions of the assessee and issued certain directions to the learned Assessing Officer/learned TPO by order dated 28/06/2019 reducing the adjustment on account of purchase of finished/traded goods to Rs. 2,33,45,776/- and interest o....
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....lizes in the marketing of products in India, mainly in the field of chemicals, polymers, and paper chemicals, sourced from globally acclaimed manufacturers apart from establishing joint ventures, distribution and business development centres as a part of its expansion plan to cover engineering products. It is further objected that though the KPL trades in products which are not comparable to petroleum additives, no segmental information is available. Further objection taken in this respect is that KPL is owning significant intellectual property rights and focused on sustainable development and renewable energy. Lastly, it was submitted that if for any reason the KPL has to be considered as a comparable its correct margin is 6.51% as against 6.64% as computed by the learned TPO in the show cause notice. 9. According to the learned TPO, KPL is mainly engaged in trading of specialty chemicals and polymers, which is similar to the functions of the assessee. In respect of the segmental information, learned TPO, after referring to the relevant financials found in the annual report of the company, found that as seen from the annual report, the trading of goods constitutes 97.5% of the re....
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....les, namely, Four Soft IT Solutions (India) Pvt. Ltd., Thirdware Solutions Limited and Flextronics Software Systems Limited, whose revenue from software development service and non-software development service was 81.07% & 18.93%, 78.31% & 21.69% and 85.13% & 14.87% respectively. On this ground, he submitted that this KPL has to be excluded. 12. Insofar as the findings of facts returned by the learned TPO and learned DRP are concerned, there is not much dispute. Both the authorities found that the assessee and the KPL are engaged in the business of sale of chemicals and polymers. Only difference is that apart from deriving revenues to a tune of 97.5% from the sale of speciality chemicals and polymers, KPL is also deriving revenue from the sale of products like tea, refrigerant gas and wind power to an extent of 2.5%. By no stretch of imagination can we say that the logic applicable to the entity engaged in both product and software development services is applicable to the entity engaged in sale of products. Assessee and KPL are engaged in sale of specified oils and apart from specified oils, the KPL is also selling some other product like tea and refrigerant gas etc., that too to....
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.... used in paints is the only segment of the company, and inasmuch as the Hitech Specialities is predominantly involved in the trading of chemicals, there is no dissimilarity of functions. Learned TPO further found that on further verification, the computation of margin was found to be correct. 15. Learned DRP on a consideration of the submissions made before them noted that the Hitech Specialities is trading in specialty chemicals and functionally similar to the assessee. Learned DRP, however, directed the learned TPO to verify the computation of margin in the light of the figures furnished by the assessee and to take a view. 16. Before us also the assessee submitted that as could be seen from the profit and loss account of Hitech Specialities, this company is deriving Rs. 6,16,43,940/- from services like management fee and commission against the total revenues of Rs. 63,08,57,190/-, namely, revenue from the service is about 10% of the total revenue and, therefore, it is not a good comparable. There is no dispute that both the assessee and Hitech Specialities are in the distribution business, assessee dealing with petroleum additives and the Hitech Specialities dealing in speciali....
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....able. The sales from the car care product is 23.39% of the total trading sales whereas from the distribution of lubricants and additives, this entity was deriving the rest of the revenue. Lastly, it was contended that there was erroneous margin computation in respect of this entity. 20. Learned TPO brushed aside the objection relating to the dissimilarity of function stating that Hindage Oilfield Services Limited is also engaged in trading of additives, lubricants and car care products, which is similar to the functions of the assessee. Apart from that, learned Assessing Officer found from the annual report that the trading of additives constitute 81% of the revenue of the company. Learned TPO justified the computation of margin. 21. Learned DRP having considered the contentions raised by the assessee held that 84% of the sales of the revenue of Hindage Oilfield Services Limited is from trading of additives and the balance is from the sale of car care products. On this premise, learned DRP rejected the contention of the assessee, but on the aspect of computation of margin, directed the learned TPO to re-visit the issue and to rectify the error if any. 22. On a perusal of the Not....
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....al transaction; that the receivables are not in the nature of 'capital financing' and would not constitute international transaction; that when the primary transactions are found to be at arm's length, no adjustment could be made on account of deferred receivables; and that the receivables are closely linked with the principal transaction and not an independent international transaction. 25. Learned TPO placed reliance on the decision of the Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., (in ITA No. 6530/Del/2016, dated 16/05/2017) which in turn referred to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Patni Computer Systems (2013) 215 Taxmann 108 (Bom), wherein the amendment to Section 92B of the Act by Finance Act, 2012 with retrospective effect from 01/04/2002 was considered. Basing on the view taken in a number of decisions of the Tribunal of various Benches, learned TPO held that it is incumbent upon the taxpayer to separately benchmark the arm's length price of the international transaction relating to interest on overdue receivables from the AE by way of analysis of functions, assets and risks. While following the view taken b....
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....ylinder Ltd. v. Asstt. CIT (LTU) [2014] 52 taxmann.com 395 (Mum.); PMP Auto Components (P.) Ltd. v. [IT Appeal No. 1484 (Mum.) of 2014, dated 22-8-2014]; Hinduja Global Solutions Ltd. v. Addl. CIT [2013] 145 ITD 361/35 taxmann.com 348 (Mum.); Tata Autocomp Systems Ltd. v. Asstt. CIT [2012] 52 SOT 48/21 taxmann.com 6 (Mum.); CIT v. Tata Autocomp Systems Ltd. [2015] 56 taxmann.com 206 (Bom.); Four Soft Ltd. v. Dy. CIT [2011] 142 TTJ 358 (Hyd.); and Everst Kanto Cylinder Ltd. v. Asstt. CIT (LTU) [2015] 56 taxmann.com 361 (Mum.) wherein the Hon'ble Tribunals has upheld use of LIBOR for the purpose of benchmarking loan/advance given to foreign AE's, and held that the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. This view is affirmed by the Hon'ble Bombay High Court [2018] 96 taxmann.com 223 (Bombay) observing that in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher then the amount of interest payable on funds obtained locally, it would take a....