TaxTMI 
TaxTMI 
2024 (3) TMI 657
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....ustice 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 DRP erred in ignoring that the Assessee had common policy of not charging interes....
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....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 in turn, a separate international transaction and further extended the credit period to 60 days as opposed to 30 days proposed by the TPO. Further, no relief was granted by the Ld. DR....
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....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 the receivables on the working capital and thereby on its pricing/profitability vis-à-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have dis....
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....he 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 in sec. 92B defining international transaction would encompass such interest from sale as the non-receipt of due interest would have the effect on profits or income. This contention also does not merit acceptance because when 'sale' and 'lending money' h....
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.... 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 undertaken by the Ld. DRP or any industry benchmark. Further, no economic or commercial rationale for using a credit period of 60 days has been provided by the Ld. DRP. 23. On the other hand, the ld. DR relied on the following cases: (a) Swiss Re Global Business Solutions India (P.) Ltd. vs. Addl./Jt./Dy./ Assistant Commissioner of Incometax/I....
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.... 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 ascertain whether assessee, who is similarly situated, would render the same kind of services at the same or similar price to a third party or not. If we examine the issue in the above-said context, it would be clear that the assessee would charge bank interest or any other interest with a find any error in the same. view to compensate itself on account of delay in making the payment. Hence, ....
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....e 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 interest is to be separately computed for outstanding receivables. 4. Whether the assessee is a debt free company or not is immaterial as TPO is required to examine whether the Indian entity/assessee had supplied the products/ services to its AEs at ALP or not. Further being debt free does not mean that it can allow its funds to be utilized by AE for indefinite period of time. 5. As explained in above noted paras, the deci....