TaxTMI 
TaxTMI 
2024 (3) TMI 713
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....Pricing Officer (*TPO) has erred in not appreciating the fact that accounts receivable/ accounts payable arising out of the international transaction of provision of IT enabled services by the Appellant to its Associated Enterprises ("AEs"), are closely linked to the international transaction and since the Hon'ble DRP/Learned AO/Learned TPO has determined the primary international transaction at an arm's length price after considering working capital adjusted margins of comparable companies, no separate adjustment can be made for such inter-company receivables and the same has been favourably upheld by the Hon'ble ITAT in Appellant's case for AY 2015-16 (ITA No. 4453/Del/2019). 2.2 That on the facts of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO has erred in not appreciating the fact that since the weighted average period of realization of inter-company invoices of 43.59 days is less than the credit period of 60 days as stipulated in the intercompany agreement, no TP adjustment is warranted. 2.3 That on the facts of the case and in law, the Hon'ble DRP/Learned AO/Learned TPO has erred in re-characterizing the inter-company r....
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....round No. 4 - Addition on account of allocation of expenses between SEZ unit and non-SEZ units, amounting to INR 7,51,20,905. 4.1 On the facts and circumstances of the case and in law, the Hon'ble DRP/Learned AO has erred in making an addition of INR 7,51,20,905 on account of reallocation of direct as well as common cost between SEZ unit and non-SEZ units, by alleging that claim of deduction under section 10AA of the Act made by the Appellant is excessive, despite that fact that deduction claimed by the Appellant in earlier years was accepted by the Respondent. 4.2 On the facts and circumstances of the case and in law, the Hon'ble DRP/Learned AO has erred in allocating the direct expenses of the SEZ and non-SEZ units ('taxable units') and not appreciating the fact that separate books of account have been prepared for SEZ unit, which were duly certified by the auditor. 4.3 On the facts and circumstances of the case and in law, the Learned AO has erred in not accepting the turnover method for distribution of common expenses between SEZ and taxable units. 4.4 On the facts and circumstances of the case and in law, the Hon'ble DRP/....
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....ssment Year but disallowed in the return of income as a prior period expenditure. 6.2 Without prejudice to above, on the facts and circumstances of the case and in law, the Learned AO has erred in not appreciating the fact that the liability for payment of INR 37,82,75,381 had crystallized in the subject year. 6.3 Without prejudice to the above, on the facts and circumstances of the case and in law, the Learned AO has erred in not considering the fact the aforesaid payments would in any case be allowable under section 43B of the Act on payment basis. The Appellant has filed a rectification application before the Learned Respondent for rectification of the mistake of not following the direction of the Hon'ble DRP and the aforesaid ground shall not be pressed where the application is allowed by the Learned Respondent. 7 Ground No. 7 - Levy of interest under section 234A of the Act 7.1 On the facts and circumstances of the case and in law, the Learned AO has erred in charging interest under section 234A of the Act amounting to INR 26,24,780. The Appellant has filed a rectification application before the Learned Respondent for r....
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....vables outstanding ought to be netted-off with trade payables to AE. Further the assessee has also relied upon the order of the Hon'ble High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd. 398 ITR 66 (Delhi 2017). All the grounds raised by assessee aren't tenable because of the following reasons. A. The AO/TPO order on Interest on delayed receivables fulfills all the conditions laid down by the Hon'ble High Court decision in the case of PCIT vs. Kusum Healthcare Pvt. Ltd. 398 ITR 66 (Delhi 2017) and accordingly the case is covered in favour of the department. (i). At the outset, it is humbly submitted that why the decision of Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. is not applicable to the facts of the case has been discussed in detail by the Hon'ble DRP in its order. However, without prejudice to the above, it is stated that even if the Hon'ble Bench follows the decision in the case of Kusum Healthcare Pvt. Ltd., even then the AO in the instant case has clearly made out a case for charging of interest on receivables by following the conditions laid down by the Hon'ble Delhi High Court ....
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....elay have to be investigated on case to case basis. (2) Proper inquiry/examination has to be conducted by the PO by analyzing the statistics over a period of time to discern a pattern which would indicate that viz-a-viz the receivables, an arrangement which reflects international transactions intended to benefit the Associated Enterprises. (3) In the case of Kusum Healthcare Pvt. Ltd., the Hon'ble Court has remarked that the entire focus of the AO was just on one assessment year and AO could not reflect a pattern to justify that the receivable constitute international transactions by itself. (4) In that case, the Hon'ble High Court held that the assessee has already factored the impact of receivables on the working capital and adjustments on the basis of outstanding receivables would have distorted the picture. Also, the Hon'ble High Court has held that the impact on the working capital of the assessee has to be studied. (iii) If we analyze the transactions of the instant case then we will find that the AO has clearly been able to made out a case in line with the Hon'ble Delhi High Court decision in the case of Kusum Healthcare Pv....
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....s as defined in explanation (i)(c) of section 92B of the IT Act, as amended by the Finance Act 2012 with retrospective effect from 01.04.2002. The above noted arrangement which is, clearly an international transaction has been entered into by the assessee company regularly at least from F.Y. 2011-12 onwards to benefit its Associated Enterprises. (iv) Further in the above noted case, as the period of delay as considered by the TPO/DRP is within the financial year, accordingly it cannot be said that that the assesseee has already factored the impact of receivable on the working capital, as claimed by the assessee. Thus, it is humbly submitted that if the invoices are raised within the year and the proceeds are also realized within the year only but beyond the stipulated period of credit, then the period of the delay will not come within the ambit of working capital adjustment because working capital adjustment are made with reference to the opening and closing basis as on 1st April and on 31st March of the respective year. For example the transactions, let us say, which occur and gets complete between, 2nd April and 30th March, during the financial year, even though these ar....
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....l transaction of rendering of services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs beyond the stipulated period allowed as per agreement. In the case of Mckinsey Knowledge Centre (P.) Ltd. (supra), again, the Tribunal reiterated this reasoning and, inter alia, observed that: ".......In our considered opinion, whereas, the international transaction of purchase/sale of goods from/to AE contemplates comparison of the price charged/paid for such goods by impliedly including the interest for the period allowed for realization of invoices as per the terms of the agreement, the international transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the international transaction of purchase/sale of goods." 20. The Tribunal also explained that if an invoice is raised during the year and the proceeds are realized within the year, but, beyond the stipulated period of agreement, then, the same will not come within the working capital adjustment because working cap....
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....les has been confirmed. (a) Albany Molecular Research Hyderabad Research Center (P.) Ltd. vs. Deputy Commissioner of Income-tax [2021] 126 taxmann.com 289 (Hyderabad - Trib.) The relevant extract of the Hon'ble Tribunal decision is reproduced below:- 5.5 For the A.Yrs. 2013-14 and 2014-15, there is no dispute that assessee had realized its receivable from its AEs after abnormal delay beyond the agreed credit period. This, in our considered opinion, tantamount to indirect funding made by the assessee to its AEs by allowing the AE to utilize funds of the assessee as per its whims and fancies. Merely because the assessee is a debt free company except ECB loan, it cannot allow its funds to be utilized by its AE for an indefinite period of time beyond the agreed credit period. We find that clause C of Explanation to section 92B of the Act has been introduced in the statute by the Finance Act 2012. For the sake of convenience, clause C of relevant explanation is reproduced hereunder:- "(c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type ....
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....where the amounts were realized during the respective years itself, but beyond the agreed credit period, imputation of interest by applying LIBOR +200 basis points is to be made from the date of expiry of agreed credit period from the date of raising the invoice and the same is to be charged till the date of realization of debts. We hold that the decision of the Hon ble Delhi High Court in Kusum Healthcare (P.) Ltd. (supra) talks about only outstanding receivables at the end of the year i.e. to say when working capital adjustment is given to the assessee, no separate adjustment need to be made on the outstanding receivables at the end of the year. In our considered opinion, the decision of Hon'ble Delhi High Court does not speak about the invoices that were realized from the AE beyond the agreed credit period during the year. Hence, it could be safely concluded that the decision of the Hon'ble Delhi High Court in Kusum Healthcare (P.) Ltd. (supra) does not give any finding with regard to invoices realized during the year from AE. To that extent alone, we are giving our independent finding by treating that as a separate international transaction and directing the Id. TPO to ....
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....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 judgment, 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 wou....
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....ding 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 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 product....
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....ot even clear that why the assessee is contested such adjustment when there is a clear cut provision in the agreement itself for charging of interest on delayed receivables. Further this condition, as stipulated in the case of asssessee in inter services agreement, is not there in the case of Kusum Healthcare Ltd and accordingly assessee can't claim that it is covered by Kusum Healthcare decision. Also from the perusal of the he earlier orders of the Hon'ble Tribunal, it is clearly seen that this agreement was not in place at that time and it has also not been referred to in the earlier orders. The intercompany services agreement has been entered into 13.10.2015 and accordingly it has come into place only from F.Y. 2015-16 (A.Y. 2016-17 which is the assessment year in question. Thus the assessee also cannot claim that the earlier orders of the tribunal are binding for the current year also because the facts specially the inter company services agreement was not in place earlier, so the earlier tribunal orders are not binding precedent in the instant case. C. Why the earlier orders of the Hon'ble Tribunal in the case of assessee are not applicable to th....
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....i ITAT in the case of Alcatel Lucent India Ltd. Vs. ACIT, Central Circe 15, Delhi in ITA No. 366/Del/2022 and ERM India Pvt. Ltd. vs. National eassessment Centre, New Delhi (2021) 132 taxmann.com 220 (delhi), however the facts of the both the cases are different from the assessee case as there is no inter company services agreement with the respective AEs which provided for charging of interest on delayed receivables and assessee's case is on a totally different ground wherein the agreement itself clearly provides for charging of interest. E .Also the assessee has stated that the weighted average period of realization of invoies is 43.59 days, accordingly no adjustment is required. However, this reason is totally devoid of any merits because as stated above, the agreement clearly provides for charging of interest after 60 days and no such benefit of so called weighted average period is given in the agreement. Also the analysis has been made invoice wise and in line with the Hon'ble High Courts decision in the case of Kusum Healthcare, interest has been computed. Assessee has also taken one of the grounds that as no interest was charged from third party customers, a....
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....nd the law as laid down on the issue of interest on delayed receivables by various tribunals/courts. G. Lastly, even at the cost of repetition, as discussed in detail in the above noted paras, it is once again reiterated that the interest on outstanding receivables has been duly computed by the TPO based on the principals laid down by the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd, even though the decision of the Hon'ble Delhi High Court has been distinguished by several Tribunals. Also when there is a inter company service agreement which clearly mandates for charging of interest for all payments delayed after 60 days then there is absolutely no logic in not charging the interest on account of delayed receivables because it clearly tantamount to infringement of the written agreement between the asssessee and its AE and there is no reason at all to benefit the assessee even after the presence of the inter company service agreement. Accordingly the addition on account of interest on receivables may kindly be upheld and the assessee's appeal may kindly be dismissed on account of the issue of interest on outstanding/delayed receivables. ....
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.... as a prior period expense. Copy of Computation of income for AY 2016-17 is enclosed as Annexure 5 for your perusal. Given that Synnex was under the obligation to settle such amount with the Assessee and around the fact that the Assess had already made the lumpsum cash payment to its employees Synnex through the group company, agreed to contribute the equivalent amount of cash of INR 37,82,75,381, to the Assessee. Accordingly, in view of the above restricting arrangement in Assessee has during the year under consideration accrued the receivable of INR 37,82,75,381 from a group company under the head Capital Reserve account in its balance sheet. Since the consideration is a mere one - time settlement payment arising out of the obligation agreed by Synnex and does not have any commercial nexus with the business carried out by the Assessee. It has thus been regarded as a capital receipt not liable to tax. (b) From the above explanation, the following reasons emerge out for the stand taken by the assessee to show the lump-sum amount as capital receipt. (1) The assessee company has treated the lump-sum amount as capital receipt because it did not have....
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....d treated to be part of the salary of the employees only. Thus there is a clear cut nexus between the receipt and the expenditure and it is a clear case of one to one mapping of the amount received from the parent company and the amount incurred for giving salary. (5) The assessee has also submitted that the character of the receipts shown in the books of accounts also plays a vital role in determining the nature and consequent taxability of the receipt. This contention of the assessee is clearly incorrect and made without any basis as it has been laid down by several courts that the treatment of the entry in the books of accounts of the assessee is not the determining factor for its taxability. The purpose of the receipt is the determining factor i.e. whether it is received for capital purpose or revenue purpose which determines the taxability of the receipts. The assessee case is clearly a case of double exemption from taxation i.e. on one hand it is claiming the payment made to the employee as revenue expenditure but on the other hand it is treating the same amount (which has been paid to the employee) received as reimbursement without any profit element, as capital in ....
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....duced below:- 19. We find that the aforesaid conduct is unsustainable. The contention of the assessee is that the said sum was received from holding company to enable it to pay directors remuneration beyond the limits prescribed by the Companies Act. Hence, the same is not an income but a capital grant. This argument is acceptable to the extent the expenditure out of the said is not treated as deduction from profits/ income. The assessee has done so and hence the amount received cannot be treated as nontaxable income as at the same time the expenditure out of it is claimed as an expenditure/deduction. As referred above, the case laws referred by the learned counsel of the assessee are not at all applicable on the facts of the case. In those cases the amounts were received by the assessee company which were incurring heavy losses to recoup the losses and for the survival. In the present case, the situation is not at all like that. Moreover, in none of those cases the assessee had made such an effort to reduce the utilisation of grant in its computation of income. Further learned counsel of the assessee has claimed that neither the assessee company nor the holding company ha....
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....et aside the orders of learned CIT(A) and allow the Revenue's appeal on aforesaid reasoning. The ratio of above noted case clearly applies in the case of the assessee and it is humbly requested that the entire amount received of Rs. 37,82,75,381/- as reimbursement from the holding company is nothing but revenue receipt of the assessee company and the assessee action of crediting the same in the Capital Reserve account is against the law as well as against the accounting principles. Accordingly, the AOs action of taxing the same as revenue receipts may please be upheld. Further during the course of the hearing, the assessee has not pressed and argued this issue and stated that they have already offered the above receipts as income in the computation. However, till the filing of the revised grounds of appeal, as late as 26.08.2023, the assessee was always raising this issue and because of that reason alone, the above brief argument is submitted for kind consideration of the Hon'ble Bench, which may dismiss this ground of the assessee along with directions for treating the above receipts as income of the assessee. Issue no. 3 (grounds of app....
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....n the cases of CIT v. Durga Prasad More & Sumati Dayal v. Commissioner of Income -tax, (1995) 80 Taxman 89 (SC). (d) During the course of hearing the assessee has stated that it has signed lease agreement with a third party and because of that it is not debiting any separate repair and maintenance expenses. From the perusal of the lease agreement, it is seen that the said agreement, is mainly of the land and the building only with car parking spaces etc. However, from the perusal of the schedule of fixed assets, it is seen that besides lease hold improvements, the assessee has lot of plant and machinery also and the net block of plant and machinery as on 31.03.2015 is 39,61,36,562/- Besides this the assessee has also huge tangible assets of computer, furniture and fixture and office equipment and it is difficult to believe that all these plant and machinery, furniture and fixture has no repair and maintenance cost in its tenth year. Also in the P&L a/c in schedule 27, the assesee has debited huge expenses with regard to repair and maintenance on building and plant and machinery. As no cost was allocated to SEZ units, the AO has made proportionate allocation ....
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....ital adjustment and accordingly, no further separate adjustment is warranted in respect of overdue receivables, as also upheld by the Hon'ble Delhi High Court in the case of Kusum Health Care Pvt. Ltd. (ITA 765/2016) and by Hon'ble Delhi Tribunal in Assessee's own case for AY 2015-16 (ITA No. 4453/Del/2019). 1.2 It is Ld. DR's contention that the AO/TPO order on Interest on delayed receivables fulfils all the conditions laid down by the Hon'ble High Court decision in the case of PCIT vs. Kusum Healthcare Pvt. Ltd. 398 ITR 66 (Delhi 2017) and accordingly the case is covered in favour of the Department. 1.3 It is humbly submitted that the DR has misconstrued the said decision and has failed to appreciate the principle laid down by the jurisdictional High Court. At the cost of repetition and for the sake of ready reference the relevant observations are 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 ....
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....rofitability vis-a-vis that of its comparables as any addition on that account would distort the picture. 1.5 In the present case, the primary contention of the Appellant is that the TPO while benchmarking the ITeS segment has granted working capital adjustment to the Appellant and thus the Appellant's profitability was benchmarked against working capital adjusted margins of the Comparable. Thus, in term of the decision of jurisdictional high Court in case of Kusum Healthcare (supra) no adjustment is warranted even if it is held that the outstanding receivable is an international transaction. 1.6 The entire focus of the DR in Page 3 to 6 is to somehow establish that the outstanding receivable is an international transaction which in terms of the decision in Kusum Healthcare is irrelevant where working capital adjustment has been granted. This finding of the Hon'ble Delhi High Court has been followed by the coordinate bench of this Tribunal in catena of case and same are being relied upon. 1.7 Without prejudice to the above, it is also submitted that the DR is seeking to improve the case of the TPO as the TPO never enquired into the facts of the case to es....
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....hi Tribunal 2017) • Ameriprise India Pvt. Ltd. (2015) 62 Taxmann.com 237 (Delhi Tribunal) • Mckinsey Knowledge Centre Pvt. Ltd. vs DC1T (2017) 77 taxmann.com 164 (Delhi Tribunal) 1.11 Recently a coordinate bench of this Tribunal in the case of Orange Business Services India Solutions (P.) Ltd. v. DCIT ([2022] 141 taxmann.com 167 (Delhi - Trib.)) and Global Logic India Ltd [TS810-ITAT-2022(DEL)-TP], upheld the deletion of adjustment on account of interest on outstanding receivables by placing reliance on the Hon'ble Delhi High Court ruling in the case of Kusum Health Care Pvt. Ltd. after referring to all the aforesaid arguments preferred by the Revenue. The relevant extract the case of Orange Business Services India Solutions (P.) Ltd (supra) is reproduced for ready reference - "10. The Id. DRP held that the assessee's reliance on the Delhi High Court's decision in Kusum Health Care (P.)Ltd. (supra) is quite misplaced as in that case an important aspect of the matter was not brought to the notice of their lordships of the High Court that this new explanation to section 92B was specifically inserted to reiterate the fact that the it....
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....erized the transaction. 16.In the appeal filed by the assessee in the case of Mckinsey Knowledge, the Hon'ble High Court vide order dated 7-2-2018, while admitting the appeal on the other issue, remitted the issue of interest charged on outstanding receivables to IT AT, following their decision in the case of Kusum Healthcare. 17.However, vide order dated 9-8-2018, the Hon'ble High Court in the case of Mckinsey Knowledge, while deciding the appeal of the assessee on other issue, also rejerred to the decision of the Hon'ble Delhi Tribunal in case of Ameriprise India (P.) Ltd. (supra) 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." 18. Aggrieved, the taxpayer (Mckinsey Knowledge) jiled Review Petition before the Hon'ble High Court against the order dated 9-82018 and the Hon'ble High Court, vide order dated 16-4-2019 in Review Pet. No. 360/2018, was pleased to recall/correct their order da....
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....terest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned". 1.14. The relevant extract of the ITAT order (ITA No 1478/Del/2015) is reproduced hereunder: "15.1. It is brought to our notice that the Assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE's. The revenue has also not brought on record that the Assessee has been found paying interest to its creditors or suppliers on delayed payments. 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the Assessee" 1.15. Further, the above decision of the Hon'ble ITAT in Bechtel India has reached finality as the SLP filed by the revenue against the decision of the Hon'ble High Court was dismissed by the ....
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....ts: "2.4 Invoicing and Settlement of Costs (B) Unless otherwise specified in Exhibit A, all payments under this Agreement shall be in United States dollars and shall be due within sixty (60) days of the date of invoice and may be made by check or wire transfer. Daily interest at the rate of the "Applicable index'' - USD prime, LIBOR, or other similar index appropriate for the applicable currency or geography - plus two percent (2%) per year, may accrue and be charged, until paid, on all payments not received by the invoicing party within such sixty (60) day period. " 1.21. In view of the above, it can be seen that there is no change in the facts in AY 2016-17 viz. a viz AY 2015-16, as alleged by the DR. Accordingly, it can be construed that the order passed by the Tribunal for AY 2015-16 for deleting adjustment in respect of notional interest receivables was passed after duly evaluating the terms and conditions of the agreement. Accordingly, no adjustment should be made for notional interest on overdue receivables for AY 2016-17 in light of the earlier order passed by the Tribunal for AY 2015-16. 2. Addition on account of increase in capital- INR 37,82....
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....deduction for the subject year. Accordingly, expenditure of INR 26,78,37,118, reported as prior period expenditure in the books of account based on accounting principles, is allowable in the current year. 2.6. Without prejudice to the above, it is to be noted that payment made by the Assessee to its employees in lieu of the unvested stock awards granted under the Centennial Award programme is governed by the provisions of section 43B of the Act, which provides for deduction of bonus on payment basis. 2.7. However, where the contention of the learned AO is accepted that the amount received has a direct nexus with the expenditure incurred by the Appellant, then there has to be uniformity in accounting for the 2 transactions, the addition for the year should be restricted to 1NR 11,04,38,263. 3. Allocation of expenses between SEZ and taxable units- INR 5,62,64,530 (the addition made in the final assessment amounting to INR was reduced from 7,51,20,905 to INR 5,62,64,530 post rectification order dated August 23, 2021) 3.1 At the outset, it is wrongly mentioned that the Assessee is a manufacturing unit. The Assessee is a BPO which is engaged in ....
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....penses/ common costs have been consistently allocated on turnover basis, which has been duly accepted by the revenue authorities in previous years. Reliance placed on the Hon'ble jurisdictional High Court judgment in the case of CIT vs. EHPT India (P.) Ltd. [350 ITR 41], wherein it was held by the Hon'ble jurisdictional High Court that distortion of profits may arise if the consistently adopted and accepted method of apportionment is sought to be disturbed in a few years." 7. Heard the arguments of both the parties and perused the material available on record. 8. We have examined the provisions of the Act and judgments on this issue. 9. As per explanation (i)(c) of Section 92B of the Income Tax Act as amended by Finance Act, 2012 w.r.e.f. 01.04.2002, the interest receivables is an international transaction. Section 92B(i)(c) reads "capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." 10. In the instant case, the revenue has clearly shown a pattern by....
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....ked into separately based on the facts of the each case. In this case, the inter company services agreement provides for charging of interest on delay of receivables after 60 days. The argument that the chargeability "may accrue" and doesn't necessarily binding on the assessee to charge the interest cannot be accepted. The very purpose of transfer pricing mechanism and determination of arm's length price is to examine whether the related party is given undue benefit at the cost of the profits and the consequent taxes to be paid in India. The extract of the agreement is as under: "2.3 Invoicing and Settlement of Costs (B) Unless otherwise specified in Exhibit A, all payments under this Agreement shall be in United States dollars and shall be due within sixty (60) days of the date of invoice and may be made by check or wire transfer. Daily interest at the rate of Prime rate plus two percent (2%) per annum may accrue and be charged. until paid, on all payments not received by an invoicing party within such sixty (60) day period." 15. Hence, we direct that the adjustment on account of receivables be computed after following the directions of the ld. DRP. The ....
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....ount of extra ordinary adjustments during the year and other commercial/ business parameters, specifically having impact on the respective units in given circumstances which as are as follows: a. One-time extraordinary adjustments of statutory bonus of Rs.32,46,28,564 and employee award compensation of Rs. 37,82,75,381 b. Differences in commercial and business parameters prevalent in the respective units 19. The AO reallocated the expenses between SEZ and taxable units in the following manner: a. Repair and maintenance expense have been proposed to be allocated in the ratio of the block of assets of the respective units. b. Staff welfare and contribution to gratuity expenses have been proposed to be allocated in the ratio of employees working in SEZ and taxable unit (0.19:1). c. Recruitment and sub-contract expenses have been proposed to be allocated in the ratio of the turnover of SEZ and taxable unit (0.22:1). In this manner, the AO proposed the following disallowance: Description Non-SEZ SEZ Total Direct Expenses (Specifically Identified): a. Repair and Maintenanc....
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....24. The assessee had maintained separate books of accounts in respect of its SEZ and taxable units, which were audited by its auditor and the certificate furnished before the AO. The assessee had also furnished the statement of computation of income, profit and loss account of the SEZ unit to the AO to substantiate that the expenses (both direct as well as direct) have been correctly accounted in the SEZ unit. The AO has not pointed out any discrepancy in the aforesaid documentary evidences furnished by the Appellant. 25. It is a settled position of law that the actual expenditure which directly pertains to a particular unit cannot be allocated to other unit. 26. The AO has also allocated the Repair and Maintenance expense to the SEZ unit ignoring the fact that as per clause 3.10 of the lease agreement of the SEZ unit all repair are to be carried out by Lessor. Thus, the allocation of such expenses is fundamentally flawed. 27. Further the staff welfare expenses, contribution to gratuity and recruitment expenses being directly identifiable cannot be apportioned on the basis of number of employees. With respect to indirect/ common costs as well, the turnover basis for alloca....
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....ay of reimbursement of the actual expenditure incurred towards such cancellation, which was the mode adopted in the present case. The said reimbursement, therefore, represents a reduction in the acquisition cost of shares of the assessee acquired by Synnex from IBM, In the Indian context, since the affected employees were the employees of the assessee, the assessee was obligated to compensate them for the loss suffered by them due to cancellation of the unvested stock options. It is further submitted that the assessee and its employees did not have any claim on Synnex towards such compensation and the amount of Rs.37,82,75,381/- was received by the assessee as one-time voluntary contribution by Synnex and not as a consideration for provision of any services or in any other manner in the ordinary course of business. It is, accordingly, argued that the said contribution qualifies as a capital receipt and cannot be brought to tax in the hands of the assessee. It is also said that mere change in the settlement mechanism between the Buyer (Synnex) and IBM (Seller) and subsequent contribution by Synnex of an equivalent amount to the assessee would not impact the taxation of the assessee.....
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....y Synnex or its subsidiaries to the employees towards aforesaid cash settlement (for unvested stock awards and retention bonus). • Being the employer, the Appellant made a payment of Rs.37,82,75,381/- to its employees towards compensation for cancellation of the unvested stock awards granted under the Centennial Award programme (in addition to a sum of Rs.3,39,13,372/- being retention bonus paid to the employees of the Appellant). • Synnex made contribution of Rs.37,82,75,381/- (received by it from IBM) to the Appellant. • On the expenditure side, since the unvested stock awards were granted in earlier years, the amount relatable to the earlier years of Rs.26,78,37,118/- was reported as prior period expenditure and the balance amount of Rs.11,04,38,263/- was reported as the expenditure for the current year (which included a sum of Rs.3,39,13,372/- being retention bonus paid to the employees of the Appellant) was reported as the expenditure for the current year. • The Appellant disallowed Rs.26,78,37,118/- (recorded as prior period expenditure), while filing the return of income and thus, deduction of aforesaid amount was not claim....