TaxTMI 
TaxTMI 
2023 (9) TMI 202
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....bal Services LLC ('AE') 1.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) has failed to appreciate the fact that outstanding receivables are incidental and inextricably linked to the transaction of provision of services and not a separate transaction; hence margins computed by Appellant after working capital adjustment should have been considered sufficient to capture the impact of credit period. 1.3 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the decision of learned AO / TPO to apply CUP method for determining arms length price with respect to outstanding receivables from AE. 1.4 Without prejudice, learned CIT(A) has grossly erred in accepting the interest rate adjustment as adhoc 100 bps for risk adjustment without giving any proper justification. Ground no 2 - Disallowance of employee's contribution to PF amounting to Rs. 2,52,246 under section 36( )(va) of the Act 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the decision of learned AO in disallowing the employees contribution to PF amounting to R....
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....lable in its hand; that in an independent third party scenario, no third party would extend any such fund to any unrelated entity without expecting commensurate compensation for the same. Consequently, non-charging of commensurate compensation from AE in respect of such grant of funds by the assessee was not found to be at arm's length, and accordingly adjustment for interest to be charged on the outstanding receivables of AE was proposed, applying Arms Length Price (ALP) interest rate of 317.35, which was determined on the following basis: Name of AE Base Avg. Comparable Rate (spread) Forex Risk ALP Interest Rate Etech Inc., USA Avg. 12 month Libor- 90.00 127.35 100 317.35 7. The TPO accordingly computed ALP interest at Rs. 43,31,239/- on outstanding receivable and as the assessee was required to pay outstanding payable beyond the credit period extended by the AE the ALP of the same was computed at Rs. 2,37,361/-. Thus, net adjustment of interest receivable by the assessee of Rs. 40,93,878/- was proposed by the TPO as required to be made on account of the excess credit period allowed to the AE 's on outstanding receivables. The AO added the same to the income of th....
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....e contended that the Ld.CIT(A) had wrongly applied the decision of the ITAT in the case of Amiriprise India Pvt. Ltd (supra) ,and the judicial proposition on the issue in fact was in favour of the assessee in view of various decisions of the ITAT. The Ld.DR however relied on the order of the Ld.CIT(A). 10. We have heard both the parties. The issue for consideration before us is whether any upward adjustment of interest on outstanding receivables of AE's exceeding their credit period is warranted in terms of section 92C of the Act. 11. It is an undisputed fact that the international transaction of the assessee with its AE with respect to the business of call centres, BPO services and reimbursement of broad-band charges, was bench-marked by the assessee adopting TNMM method which the TPO had accepted to be at ALP. In this regard, the assessee while computing TNMM method for determining the ALP of the transactions, had made working capital adjustment to the margin earned and the operating margin thereafter of the assessee was calculated at 10.75% as opposed to the mean of operating margin of comparables to 13.44%. The impact of the difference in operating margin was calculated in a....
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....nalyzing statistics for a period to discern the pattern it should be arrived at, whether the outstanding receivables reflected a pattern intended to benefit the associated enterprise in some way. Thereafter, it was pointed out that the ITAT Delhi Bench in the case of M/s. Bharti Airtel Services Ltd. Vs. DCIT in ITA No.3183 & 6272/Del-2018 dated 31.3.2022 dealt with an identical issue of the TPO treating the outstanding receivables of the AE as being in the nature of un-secured loans/advances thereby embedding notional interest thereon. The Tribunal, relying upon the decision of Hon'ble Delhi High in the case of Kusum Healthcare P.Ltd. (supra) held that if while doing comparability analysis adopting TNMM method the working capital adjustment is accepted then the differential impact of the working capital of the assessee vis-à-vis comparables stands factored in the pricing and profitability, and where the margin of the assessee and the comparables after making adjustment on account working capital are comparable, then no further adjustment is required. The relevant findings of the ITAT in this regard at para 8-9 of the order are as under: "8. We have heard the rival submissi....
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.... the working capital adjusted margin of the comparables and, therefore, "any further adjustment to the margins of the Assessee on the pretext of outstanding receivables is unwarranted and wholly unjustified." 10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression "receivables" does not mean that de hors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied..... .....The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored ....
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....awn to a very recent decision of the ITAT, Delhi Bench, in the case of Rockwell Automation India Pvt. Ltd. Vs ACIT in ITA No. 6806/Del/2018 dated 05-05-2022, wherein identical issue had been dealt with taking note of various conflicting decisions on the issue and also the final judicial position on the same. The Tribunal noted in the said case the decision of the ITAT, Delhi Bench, in the case of Kusum Health P. Ltd in its order in ITA No.6814/Del/2014 dated 31.3.2015 holding that working capital adjustment takes into account the impact of outstanding receivables and no further adjustment is required if the margin of the assessee is higher than the working capital adjusted margin to the comparable. Thereafter, the Tribunal took note of two contrary decisions of the ITAT in the case of Ameriprise India P. Ltd vs ACIT ITA No. 2010/Del/2014 dated 14-08 15, followed in Mckinsey Knowledge Centre P. Ltd. ITA No.154/Del/2016 . It thereafter noted that the decision of the Delhi Bench in the case of Kusum Health P. Ltd. (supra) was upheld by the Hon'ble High Court and further noted that in the case of Mckinsey Knowledge Centre P. Ltd. the Hon'ble High Court had restored the issue of interes....
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....low Subsidiary 11,108,465 - 11,108,465 8 Rockwell Automation Inc, Canada Fellow Subsidiary 6,937,229 6,937,229 9 Rockwell Automation Southeast Asia Pte. Ltd. Singapore Fellow Subsidiary 2,640,880 (2,640,880) Net Receivable /(Payable) Balance 378,801,106 (245,891,857) 7. Based on the above it was argued that the amount of outstanding payables by the company towards its AEs was over 2.8 times than the amount of outstanding receivables from the AEs. It was also argued that the AEs did not charge any interest from the assessee as well as on the outstanding payables. The ld. AR relied on the decision of the Co-ordinate Bench of ITAT in the case of AVL India P. Ltd. Vs. DCIT 88 taxmann 11 wherein it has been held that in order to determine ALP. Benefit of netting of interest has to be allowed on aggregate amounts receivable and payable from all AEs and not on transaction by transaction basis. The ld. DR relied on the order of the ld. DRP. 8. Heard the arguments of both the parties and perused the material available on record. 9. The issue has been deliberated in a number of cases by the Tribunal. The Delhi Tribuna....
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....ACIT (ITA No. 2010/Del/2014) on issue of interest charged on outstanding receivable and concluded that the assessee's contention that the ITAT erred in concluding that charging of interest on delayed receipt of receivables is a separate international transaction which requires to be benchmarked independently is incorrect. 14. Aggrieved the taxpayer (Mckinsey Knowledge) filed Review Petition before the Hon'ble High Court against the order dated 09.08.2018 and the Hon'ble High Court vide order dated 16.04.2019 in Review Pet. No. 360/2018 was pleased to recall/correct their order dated 09.08.2018 holding as under: 9. As far as the first argument by the review petitioner i.e. the answer to the question of bringing to tax the interest amounts goes this Court is of the opinion that the fact that the order of 07.02.2018 referred to Kusum Health Care had expressly remitted the matter for consideration to the ITAT supports the assessee's submission. All that the court had stated on 07.02.2018 was that the matter required re- examination by the ITAT in the light of the Kusum Health Care (supra). For these reasons the judgment to the extent it deals with adjustments made by the TPO and....