TaxTMI 
TaxTMI 
2023 (10) TMI 457
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....ricing adjustment with respect to Interest on Delayed Receivables of 38,74,591 to the income of the Appellant without appreciating the facts of the case. 3. That on the facts and circumstances of the case and in law, the Ld. AO/Ld. TPO erred in treating the outstanding receivables as international transaction u/s 92B of the Act. 4. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in ignoring the fact that the balance of outstanding payable with Associated Enterprises (AE) is more as compared to the outstanding balance of the receivables with AE. 5. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in not appreciating the fact that the receivables are a result of the business transactions of the Appellant and cannot be segregated from integral part of the operations of the Appellant; 6. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO having accepted the primary transactions to be at arms length under Transactional Net Margin Method ought not to have separately benchmarked outstanding receivables as it is subsumed in the main transaction. ....
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....esearch and development and settings. Assessee filed its return of income for A.Y. 2018-19 on 29.11.2018 declaring total income of Rs. 16,04,14,750/- under normal provisions and at income of Rs. 14,78,03,870/- u/s 115JB of the Income Tax Act, 1961. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued to the assessee on 22.09.2019 which was duly served upon the assessee. During the year under consideration, the assessee company had entered into international transactions within the meaning of section 92CA of the Act. Thereafter, the case was referred to the Transfer Pricing Officer (TPO) in order to get arm's length price of those transactions determined by the TPO. The TPO vide order u/s 92CA(3) of the Act dt.31.07.2021 proposed an amount of Rs. 38,74,591/- in respect of interest on delayed receivables as the transfer pricing adjustment. Accordingly, made adjustment u/s 92CA amounting to Rs. 38,74,591/- to be added to the income of the assessee. 2.1. Consequently, a draft assessment order was passed on 24.09.2021 with total income to be assessed u/s 143(3) r.w.s. 144C(1) of the Income Tax Act at Rs. 16,48,95,494/-. Thereafter, against the proposed draf....
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....108(2)1 states: "The contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions:" 6.5 Above provisions read with the well-established doctrine of 'substance over form' (applied by the Courts in numerous judicial decisions) indicate that transfer pricing regulations are to be applied keeping in mind the overall scheme of the taxpayer's business arrangement. In Swadeshi Cotton Mills Co Ltd v CIT (6311R 57) the Supreme Court held thai the mere existence of an agreement between two parties on the supply of goods or services did not mean that the Revenue authority had not discretion in deciding whether the payment had been made wholly and exclusively for the pul~r.sa of business. Merely because of the existence of an agreement, the Income-tax Officer is not bound to agree that the payment was made exclusively and wholly for the purpose of the business. In MadhowjlOharamshiMfg Co Ltd v CIT (78 ITR 62), the Supreme Court held that the appointments of the sell....
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.... the view, that the 58 short term fixed deposit interest rate may be the appropriate ALP rate to measure the interest compensation in these types of transactions. In this regard, we place reliance on the principle held by the Honourable Bangalore ITAT in the case of Logik Microsystems Erd (ITA No.423/Bang/2019 dated 07.10.2010) (2010-TI I-50-ITAT Bang-TP), under similar factual circumstances, wherein it was observed, "While adopting the Indian rate. it is not proper to rely on PLR of the State Bank of India. This is because if the funds were brought in time and those funds were property deployed, the assessee company may earn an income at the maximum rate applicable to deposits and not at the rate applicable to loans. We find it appropriate to adopt a reasonable rate that would be available to the assessee on short-term deposits". Accordingly, the TPO is directed to adopt the SBI short term deposit interest rate for the subject year as the ALP interest rate and re-compute the adjustment to be made to the total income. As the SBI short term deposit rate is an index rate adopted under Indian conditions to charge interest it is not an adhoc rate as contended by the assessee. Therefore....
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....he material on record. From the perusal of the order passed by the TPO, it is clear that both the lower authorities have given an elaborate reasoning for coming to the conclusion that the delay in receiving the receivables is an international transaction and is required to be bench marked in accordance with law. We are reproducing hereinbelow the chart filed by the assessee which is to the following effect : APACHE FOOTWEAR INDIA PVT. LTD / AY 2018-19 Export Receivables Realisation pattern during A.Y. 2018-19 Particulars Total Number of Invoices during the A.Y. 2018-19 Amount Export Invoice value in Rs. % of invoices realized to total invoices raised during the year A) Realised within credit period 3,001 6,48,15,77,864 91.22 B) Realised beyond credit period of 60 days <10 days 241 36,27,20,363 5.10 10-20 days 204 18,88,04,889 2.66 20-30 days 45 7,11,80,351 1.00 30-45 days -- -- -- 45-60 days -- -- -- >=60 days ....
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.... or deferred payment or receivable or any other debt arising during the course of business" has been considered to be an international transaction which is required to be benchmarked. Following the above said Explanation, the co-ordinate Bench for the subsequent assessment years vide order dt.16.05.2017 in the case of Betchal India Pvt. Ltd ITA No.6530/Del/2016 (supra) had decided the issue against the assessee. In view of the above, the decision relied upon by the assessee is of no help to assessee. 14. So far as the argument of the assessee that the assessee is a debt free company and therefore, no borrowed fund was used for making supplies to it's A.E. and therefore, is not liable to be compensated for the delay in receiving the receivable is concerned, the same in our view, suffers from inherent flaw as in the T.P. analysis, the TPO is required to examine whether the assessee had supplied the product / services to it's A.E. at Arm's Length Price or not ? If by providing the services / goods at a discounted rate or permitting the assessee to receive the payment after a long period of 60 days or 90 days, then it will amount to permitting the A.E. to use the working capit....
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....nterest as applicable to the short-term deposit. In view of the above, we do not find any reason to deviate from our view taken in the case of Apache (supra). With respect to the other decision relied upon by the ld.AR for the assessee, it is interesting to note that in the said decision, the co-ordinate Bench of the Tribunal came to the conclusion that Libor + 200 points are required to be applied on the interest received on advances, and that decision was made in the case of foreign currency. However, the point remains that our decision in the case referred to herein was not brought to the attention of the co-ordinate Bench of the Tribunal while passing the said decision. 14. Further, it is relevant to mention that LIBOR (London Interest Bank Rate) is applicable in the case of lending by one bank to the other. However, in the case of assessee like before us, which is doing a business for earning the profit cannot be equated with the bank loan taken by the bank from another bank. In the case of Enterprise, which is rendering the services or manufacturing or supplying the products, there are lot of factors which are materially different than lending of money. Further, if one per....