TaxTMI 
TaxTMI 
2024 (3) TMI 657
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.... under section 144B of the Act and principles of natural justice not being followed. 3. Without prejudice to the above grounds, the Ld. AO/ Ld./ TPO/ Hon'ble DRP erred on facts and circumstances of the case and in law, in confirming the Transfer Pricing adjustment amounting to Rs. 5,36,99,972 in respect of alleged notional interest on outstanding receivables due from Associated Enterprises (AES). 4. Without prejudice to above grounds, that on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO / Hon'ble DRP erred by treating receivables from AEs as international transaction separate and distinct from the international transaction of export of finished goods to AEs. 5. Without prejudice to above grounds, that on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO exceeded his jurisdiction in re-characterizing the trade receivables of the Assessee from its AEs as unsecured loans advanced to AEs and Hon'ble DRP erred in confirming the same, thereby, penalizing the Assessee for not undertaking its business in a particular manner. 6. Without prejudice to above grounds, the Ld. AO/ Ld. TPO/Hon'ble....
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.... Reimbursement of expenses by AEs Other method - 55,46,831 Accepted Transfer Pricing (TP')/ Assessment Proceedings: 5. During the course of the TP proceedings, a show-cause notice ('SCN) was issued by the TPO thereby asking the Applicant, amongst other things, to show cause as to why the: • Outstanding receivables of the Assessee from the AEs, be not re-characterized as deemed loan and an interest @months LIBOR plus 400 basis points, be not computed on it. 6. After receipt of the replies the AO treated interest on outstanding receivables as a separate international transaction and made addition. 7. Subsequently, the Assessing Officer passed the draft assessment order dated March 31, 2021, incorporating the adjustment as proposed by the TPO and accordingly, assessing the total income of the Assessee at Rs. 86,01,50,040/- which was objected before the ld. DRP by the assessee. Proceedings before the Ld. Dispute Resolution Panel ('DRP') 8. With respect to interest on outstanding receivables, the Panel upheld the action of the TPO/AO in treating outstanding receivables of the Assessee as an unsecured loan advanced to its AEs and....
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....ng out the working capital adjustment, no separate adjustment was required on account of outstanding receivables from AEs.The relevant extract of the order is reproduced below: "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 characterized 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. 11. 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 in the impact of t....
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.... lending or borrowing of money and not with sale. So if the international transaction is that of sale, the arm's length price is determined qua the 'sale price'. Of course, while determining the ALP in a sale transaction, all the relevant aspects including the credit period allowed are taken into view. On the other hand, if the international transaction is that of lending or borrowing money', the arm's length price is gauged qua the 'interest. When the international transaction is that of sale', the interest aspect is embedded in it. There can be no separate international transaction of interest' in the international transaction of sale'. Early or late realization of sale proceeds is only incidental to the transaction of sale, but not a separate transaction in itself. If the ALP in respect of an international transaction of sale' is determined, then there can be no question of treating the non-receipt of interest in such sale transaction as a separate international transaction warranting any further adjustment. One may also contend that the expression any other transaction having a bearing on the profits, income, losses.....' as employed ....
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.... with an unrelated/third party. It was argued that since the assessee does not charge any interest on delayed payments from its unrelated/third party customers, not charging any interest from its AEs is consistent with the arm's length principle if one were to apply the comparable uncontrolled price ('CUP') method. D. Failure to give set off of receivables cleared in less than 30 days 20. It was argued that interest on receivables may be allowed to be computed only after allowing a set off/compensatory adjustment of receivables cleared by the AEs either before 30 days (or 60 days) or those received in advance. Details of the same have been furnished by the assessee at page 261 to 263 of the Paper Book. E. Credit period restricted to 60 days on an ad-hoc basis 21. In this regard, it is submitted that the ld. DRP had granted an arm's length credit period of 60 days to the assessee which was, thereafter, taken into account by the TPO while making the impugned TP adjustment vide the Appeal Effect Order. 22. It was argued that the choice of 60 days being the arm's length credit period is on an ad hoc basis and not the result of any comparability analysis u....
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....nent the relevant extract of the Hon'ble Tribunal order is reproduced below for ready reference:- 11. The above-said issue of delay in receivables is no more res integra. The co-ordinate Bench in the cases relied upon by the Revenue examined the issue and thereafter directed the TPO/Assessing Officer to apply rate of interest of 6% on outstanding receivable at the year end. The assessee had relied upon various judgements. All these judgments have been considered by the coordinate Bench and thereafter, the above said direction was issued by the Bench. 12. The reliance of the assessee on the decision of Hon'ble Delhi High Court in the case of Boeing India (P.) Ltd. (supra), is of no use to the assessee as in the said judgement, the Hon'ble Delhi High Court in Para 15 had mentioned that the issue receivable is essentially a question of fact. As mentioned hereinabove, in the present case, there is a delay in receiving the outstanding of Rs. 62,38,68,941/- in respect of 519 invoices as mentioned hereinabove and there is no explanation given by the assessee for such a delay in receiving the amount. The very purpose of benchmarking the transaction is to ascer....
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....brought any comparable instance. In these circumstances, the TPO had applied the banking rate as applicable to short term loans. In our view, the same is required to be corrected and instead thereof, ALP is to be computed by adding notional interest @ 6% on the receivable. Considering the totality of facts and circumstances, in view of the decisions cited supra and in view of foregoing discussion, we dismiss the appeal of the assessee. Accordingly, the appeal of the assessee is dismissed. (viii) There are several other decisions by different Tribunals which have also taken the similar stand in favour of the department and for the sake of brevity, the same are not mentioned. Thus to summarize the following points are humbly submitted for the kind consideration of the Hon'ble Bench. 1. The issue of delay in receivables from AEs is no more res integra. 2. After the amendment in explanation to section 92B, the outstanding receivables constitute a separate international transaction which is required to be bench marked separately. 3. The working capital adjustment does not subsume the invoices which are raised during the year and accordingly intere....