TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1160
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....is undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 (Rules') and modifying/ undertaking fresh analysis while determining the arm's length price and in doing so making an adjustment of INR 95,17,882 to the international transaction. Included in Ground No. 2 2. Grounds against imputing interest on outstanding receivables due from AEs - Adjustment of INR 95,17,882 a) Not appreciating that outstanding receivables is not covered in the definition of international transaction as defined u/s 92B of the Act in the facts and circumstances of the case; b) Not appreciating that the receivables are consequential/ closely linked to the principal transaction of provision of services and hence have been aggregated for determination of ALP under TNMM; c) Not appreciating the fact that the working capital adjustments undertaken take into account the impact of outstanding receivables of the controlled transactions vis-a-vis the uncontrolled transactions in determining the arm's length margin d) Not appreciating the facts and circumstances surrounding the receivables and recharacterising the outstanding receivables as uns....
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....amend, vary, omit, or substitute any of the aforesaid grounds of appeal at any time before, or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law. 3. Tersely we advert the case that GCC was setup to provide a range of centralised back-office service in nature of finance, accounting, administration, human resource etc in support of its group entity business. GCC is wholly owned subsidiary of Interbrew International B.V. Netharlands which is ultimately held by AB InBev. 3.1. On transfer pricing matter, the ld. Transfer Pricing Officer (in short TPO) proposed - transfer pricing adjustment in relation to provision of services by GCC to its AE amount of Rs. 36,99,01,460/- and computed interest on delayed collection of receivables and made addition of Rs. 1,24,15,227/- with total income of assessee. Being dissatisfied on order of the TPO the assessee filed objection before the ld. Dispute Resolution Panel (in short DRP) & finally the adjustment amount is reduced & disallowance of Arm's Length Price (in short ALP) is restricted to amount of Rs.95,17,882/-. In the final order the AO has computed the in....
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....which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to....
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.... determining margin of the Assessee. 2.12.1 We note that contention of the taxpayer is that different treatment has been given by the TPO to the tax payer and the comparables in respect of export incentives. This objection is not valid as we find that export incentives are not considered as part of the operating revenue both in the case of taxpayer as well as in the cases of the comparable companies. Therefore, uniform treatment has been applied by the TPO. The stand taken by the TPO regarding export incentive as non--operating in nature gets support from the decision of the Honourable Delhi ITAT in Good year India Limited ITA No. 1706/Del/2017 dated 22.01.2018. Accordingly, this ground is rejected." 5.1. The assessee in its paper book has placed the following submission which is reproduced as below: - "Our submissions 4.4 The Appellant humbly submits that export incentive income earned by the Appellant is directly linked to the provision of services by the entity to its group company. Accordingly, income earned by sale of SEIS scrips should be considered as operating in nature while determining the operating revenue of the Appellant. 4.5 Although the term operating reve....
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....gnized for such scrips relates to the provision of IT enabled services, as the entitlement to such scrips arises only on account of such IT enabled services rendered by the Appellant to its AEs. Accordingly, such income qualifies as a part of operating revenue for the purpose of computation of operating profit margin of the transaction pertaining to rendering of IT enabled services by the Appellant. 4.9 Furthermore. one would need to understand the object and purpose of providing the SEIS incentive and whether in an uncontrolled situation the export incentive would be retained by the exporter or would the same be passed on to the principal/ buyer? If the export incentive is targeted at making exports from India more competitive and in the absence of such an incentive, Indian exports would be at a cost disadvantage relative to other sources of purchase for the buyer, in such a situation an uncontrolled exporter would be willing to pass on the export benefit to the buyer to make his pricing more competitive. 4.10 In this case it may be appropriate to consider export incentive as part of operating revenue in a TNMM analysis. This would effectively result in transferring the export....
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....he documents available on the record. The assessee humbly submitted that export incentive income earned is directly linked to the provision of services by the entity to its group company. Accordingly. income earned by sale of SEIS scrips should be considered as operating in nature while determining the operating revenue of the assessee. Although the term operating revenue is not defined under the Act. reference can be made to the Safe Harbour rules notified by Central Board of Direct Taxes (-CBDT). Rule 10TA(k) of the Income Tax Rules, 1962 ( in short the Rules) provides the definition of the operating revenue which is discussed above in paragraph 5.1. The TP guidelines issued by the Organisation for Economic Cooperation and Development ("OECD Guidelines) state as follows: "2.83 As a matter of principle. only those items that (a) directly or indirectly relate to the controlled transaction at hand and (b) are of an operating nature should be taken into account in the determination of the net profit indicator for the application of the transactional net margin method. 2.84 Costs and revenues that are not related to the controlled transaction under review should be excluded wher....