TaxTMI 
TaxTMI 
2024 (6) TMI 328
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....39;Nil': 2. Determining the ALP as NIL, without appreciating that the cost towards management fees is already considered as part of the operating cost in respect of the services transactions, which have been determined to be at arm's length. Interest on Receivables 3. Making TP adjustment by imputing interest on outstanding receivables relating to provision of services to AE's : a) Not appreciating the fact that the receivables are consequential/closely linked to the principal transactions; b) Under TNMM, the working capital adjustments undertaken take into account the impact of outstanding receivables of the controlled transactions vis-à-vis the uncontrolled transactions in determining the arm's length margin; c) Not appreciating the facts and circumstances surrounding the receivables and re characterising the outstanding receivables as unsecured loans advanced to AEs: d) Not appreciating that the company has receivables from third parties and no interest is charged in relation to the same. 4. Without prejudice, not undertaking an objective economic analysis to determine the arm's length price of the outstanding receivables by: a) Not a....
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....ssment proceedings, the TPO noticed that the assessee has entered into various international transactions including provisions for market research services, global/regional management allocation overhead fee, payment of trade mark license fee and provisions of I.T. enabled services & reimbursement to AEs. The assessee has benchmarked different services under different methods like TNMM. For global/regional management allocation fee and payment of trade mark, the appellant had adopted CUP method and claimed that the transaction with its AEs are at ALP. The learned TPO after considering the relevant international transactions and also taking note of various submissions made by the assessee had made TP adjustment in respect of provision of ITE services and interest on receivable from its AEs. The TPO had also made adjustment towards payment of management service fees to its AEs, however, not made any adjustment since an adjustment was already made on aggregate basis including management fee paid to AE under TNMM method. 5. The Assessing Officer has passed the draft assessment order u/s 143(3) r.w.s. 92CA of the I.T. Act on 26.12.2016 in pursuant to TP adjustment as suggested by the T....
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....een the payment of management fees and services rendered by the AE. The assessee had also failed to prove the cost benefit analysis by filing necessary evidences and also failed to explain how management fees paid by the assessee to its AE is beneficial to its business. Since the assessee could not establish payment of management fees with necessary evidences, the TPO has rightly made adjustment and their order should be upheld. 11. We have heard both parties, perused the material available on record and gone through the orders of the authorities below. The appellant had entered into a global/regional management service agreement with AEs for providing various services. The appellant had paid management service fee to its AE on the basis of agreement entered into by the parties and claimed that the fee has been paid for rendering various services. The TPO had made adjustment towards management fee on the ground that the assessee could not establish cost benefit from fee paid to AE and also failed to furnish necessary evidence to establish rendering of services by the AE. We find that an identical issue has been considered by the Tribunal in assessee's own case for the earlier A.Y ....
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....ther evidence that may be filed by the assessee to justify payment of management fees. Thus, we set aside the order of the Assessing Officer and restore the issue to the file of the Assessing Officer/TPO. 13. The next issue that came up for our consideration from Ground Nos.3 & 4 of assessee's appeal is TP adjustment by imputing the interest on outstanding receivables relating to provision of services to its AEs. The learned Assessing Officer has made TP adjustment in respect of receivable from its AE on the ground that the assessee has allowed abnormal credit period when compared to normal credit period allowed to third parties. According to the learned TPO the argument of the assessee that once the adjustment is made towards working capital, then there is no separate adjustment is required for trade receivables is incorrect because when the appellant has provided longer credit period to its AEs when compared to 3rd parties, the same need to be benchmarked. Therefore, the learned TPO has benchmarked trade receivable by adopting 14.45% rate of interest per annum after allowing normal credit period which is on par with the credit periods allowed to 3rd party and has suggested TP ad....
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....01/04/2002, it is not open for the assessee to agitate the question as to whether or not the interest on outstanding receivables is an international transaction requiring separate benchmarking. Only issue remains to be considered is in respect of the rate of interest, while placing reliance on the decisions reported in Tecnimont ICB House Vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.), Hon'ble Bombay High Court in PCIT Vs. Tecnimont (P) Ltd., (supra) and CIT Vs. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523 (Delhi). Assessee prayed that LIBOR+200 basis points may be adopted. This aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House (supra) and confirmed by the Hon'ble Bombay High Court. Cotton Naturals (I) (P.) Ltd. (supra) is also on the same aspect. 10. Insofar as the interest on receivable is concerned, Munbai Bench of the Tribunal, vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.) considered the view taken in Everst Kanto Cylinder Ltd. v. Asstt. CIT (LTU) [2014] 52 taxmann.com 395 (Mum.); PMP Auto Components (P.) Ltd. v. [IT Appeal No. 1484 (Mum.) of 2014, dated 22-8-2014]; Hinduja Globa....
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.... It is further observed that the interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters; that the interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable; that the currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115, the Hon'ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon'ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs, that the parameters cannot be different for outbound and inbound loans, and a similar reasoning applies to both inbound and outb....