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2024 (6) TMI 879
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....red in proposing, the Hon Dispute Resolution Panel, New Delhi ("the DRP) has erred in upholding and subsequently, the Ld.AO has erred in confirming the adjustment of INR 483,100,309 to the income of the Assessee on account of difference in the arm's length price ('ALP)) of (a) international transaction of Sale and Purchase to/ from Associated Enterprises ('AEs') during the relevant previous year; (b) the adjust 95,29,675 to the income of the Assessee on account of notional charge on Corporate Guarantee by Assessee to its AE; and (c) the adjustment of INR 2,35,2 1,457 to the income of the Assessee by treating outstanding receivables as unsecured loans and charging notional interest thereon. 3. On the facts and circumstances of the case and in law, the Ld.AO grossly erred in emailing the ante dated assessment order along with a cover letter dated 27 May 2022 to the appellant, after the due date of completion of the assessment. The ante dated order emailed on the registered mail of the appellant on 27 May 2022 being time barred is bad in law and is passed with a preconceived mindset of raising frivolous and high pitched demand on the appellant and should be de....
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.... AO and the Hon'ble DRP erred in not appreciating that CPM has consistently been accepted by the revenue authorities in the prior years as the most appropriate method with GP/COP as the PLI and there being no change in the facts and Circumstances of the current year vis-à-vis prior years, the Ld. TPO has disregarded the Rule of consistency'. 9. On the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in applying 'Berry ratio' with Operating Profit/Value Added Expenses (OP/VAB') as the PLI under The Transactional Net Margin Method (TNMM) based on conjectures and surmises, without appreciating that the Assessee is engaged in manufacturing activities and therefore, purchases and cost of production ought to be included in the cost base. thereby, completely disregarding the facts of the case, the functional profit of the Assessee, established legal principles and internationally accepted transfer pricing guidelines. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP also failed to appreciate that Berry ratio is applied only in specific circumstances, i.e. low risk procurement and distributors. ....
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.... " under section 92B(1) of the Act and thereafter applying transfer pricing provision under the Act in the absence of any income whatsoever thereby resulting in taxation on notional income 14. On the facts of the circumstances of the case and in law , the Ld. TPO, AO and the Hon'ble DRP have grossly erred in not appreciating that corporate guarantee was provided by the Assessee in the capacity of the shareholder , thereby discharging shareholder's function to meet its group business commitments and aiding the AE in enhancing business footprints. The Ld. TPO,Ld. AO and the Hon'ble DRP erred in questioning the commercial expediency for providing corporate guarantee and not appreciating the jurisprudence that the tax officer cannot go beyond his powers in questioning commercial decisions of the company 15. Without prejudice to the above grounds, the Ld. TPO, Ld. AO and the Hon'ble DRP have grossly erred in incorrectly considering bank guarantee rates as Comparable Uncontrollable Price ('CUP") for the purpose of notionally determining arm's length fee of the Corporate Guarantee. 16. On the facts and circumstances of the case and in law, the Ld. TPO, Ld. AO an....
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....international transaction of 'Sale made to its Associated Enterprise and related aggregated international transactions ' during the year was much higher than the arm's length margin of comparable . In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP failed to appreciate that the impact of outstanding receivables is already subsumed in the higher margins earned by the Assessee. 22. Without prejudice, the Ld. TPO, Ld. AO and the Hon'ble DRP erred in adopting an ad-hoc period of 60 days to determine overdue receivables from the AEs for the purpose of treating such overdue receivables in the nature of interest free unsecured loans. In doing so, the Ld. TPO, Ld. AO and the Hon'ble DRP grossly erred in ignoring that :- 22.1 the Assessee has granted a credit period of up-to 180 days to both AEs as well as non-AE third parties. 22.2 the Assessee has not charged interest on delayed receivables from third parties as well. 22.3 the Reserve Bank of India ('RBI') has itself acknowledged the hardships faced by the companies (operating in similar industries) and has revised the foreign remittance guidelines related to credit period norm for jewellery exporters....
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....Cost of Production will not be an appropriate PLI and as against the same, OP/VAE has been stated to be the appropriate PLI by the TPO. Further, referring to the comparable for benchmarking the international transactions, selecting fresh set of comparables, the TPO stated that the median OP/VAE of the comparables is proposed to be taken at 75.24% and using the same, arms' length revenues of the assessee were determined at Rs. 536,26,35,080/- as against reported operating revenues of Rs. 478,29,35,236/- resulting in a difference of Rs. 57,96,99,844/- which was proposed as an adjustment u/s. 92CA of the Act. Moreover, adjustment u/s. 92CA was proposed on account of corporate guarantee and interest on receivable amounting to Rs. 95,29,675/- and Rs. 2,35,21,457/- respectively. Thereafter, taking into consideration the adjustment so proposed by the Transfer Pricing Officer, the draft assessment order u/s. 143(3) read with section 144C(13) of the Act was passed by the Assessing officer on 28.07.2021 wherein adjustment on account of transfer pricing as proposed by the Transfer Pricing Officer was made and the assessed income was determined at Rs. 80,77,27,100/- after making an addition of....
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.....2023. In view of this, the Ground of Appeal No. 1, 3 and 4 are dismissed without making any comments on the merits of the case. It is seen that on the issue under consideration, the assessee has approached the Hon'ble Rajasthan High Court in DB Civil Writ Petition No.9166/2022, since the issue is already sub-judice before a Higher Authority, decision reached therein on this issue will become applicable to each of the party. 7. During the course of hearing, the Ld. AR submitted that the transfer pricing adjustment of Rs. 48,31,00,309/- as challenged under Ground of Appeal 1, 5, 6, 7, 8, 9, 10, 11 and 12 are stemming out from the fact that the adjustment proposed by TPO in respect of the international transactions of sale and purchase of goods to/from its Associated Enterprises has been upheld by Dispute Resolution Panel to the extent of Rs. 48,31,00,309/-. In doing so, similar to immediately preceding assessment year, it has disregarded the economic analysis carried out by the assessee in its transfer pricing documentation and has rejected the Cost Plus Method, with gross profit margin/Cost of Production (GP/COP) as the profit level indicator, which is the most appropriate metho....
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....ting Profit/Value Added Expenses as an appropriate PLI for benchmarking the international transactions with the associated enterprises. " OP/VAE (page-32 of AO Order) (iii) Profile of the assessee company: AY 2016-17 AY 2017-18 Nature/Profile Export Manufacturer (Page-36 of ITAT Order) Export Manufacturer (Para 4.1 of TP Report) Profile of assessee company as per findings of lower authorities Manufacturer (Page-26 of ITAT Order) (iii) Extracts of Financial Statements depicting characteristics of manufacturer: Fixed assets: Fixed Assets S.No. Name of Assets Balance as at 31-03-2017 31-03-2016 A. Tangible Assets Freehold Land 48,94,908.00 48,94,908 Leasehold Land 3,51,56,343 3,51,56,343 Building 22,62,77,883 21,50,47,894 Plant & Machinery 23,82,66,492 18,79,50,445 Electric Installation 7,76,38,802 7,55,77,605 Furniture & Fixtures 2,41,22,136 2,19,30,577 Office Equipment 1,62,81,864 1,52,02,246 Computer 6,26,67,584 5....
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.... Parts & Findings 23996367.55 93619065 Other Metals 293475970.00 20782379 Total 3101868146 2271511799 Other Expenses Manufacturing Expenses Particulars Balance as at 31-03-2017 31-03-2016 Job Work Charges 378130338 297174362 Stores and Consumables 56611642.31 56485051 Power and Fuel 43191082.5 35787155 Repairs and Maintenance # - Building 2544768 - Plant and machinery 4108939.32 6653707.32 12248322 Other Manufacturing/direct Expenses 20373889.22 13281415 Total 504960659.4 414976305 Ratio of Sales to/Purchase from AEs AY 2016-17 AY 2017-18 Sales to AEs 88.34% 83.50% Sales to Non AEs 11.66% 16.50% Purchase from AEs 21.09% 21.40% Purchase from Non AEs 78.91% 78.06% Thus there is no material change in ratio of sale to/purchase from AEs to take any divergent view. Applicability of Berry Ratio: (a) In view of the profile of the assessee company and....
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.... the process, the assessee takes all types of risk such as inventory risk, credit & collection risk, product risk, manpower risk, market Risk ( to a limited extent), technology risk, general business risk and foreign exchange risk. In terms of cost base for carrying out these functions and related risk, there are material costs, manufacturing expenses and employment/manpower costs which have been incurred by the assessee and therefore, for determining an appropriate return on such costs, these costs have to be necessarily considered and which has been rightly considered by the assessee as part of its " cost of production" and based thereon, has adopted operating profit/cost of production as an appropriate PLI. We failed to understand how the TPO has worked out the value added expenses and quantum thereof in the face of these undisputed facts and circumstances of the case ignoring the manufacturing functions and risk so undertaken and the asset employed by the assessee. We therefore find that the decision of the Hon' ble Delhi High Court doesn't support the case of the Revenue rather its supports the contentions advanced by the ld AR on behalf of the assessee. 35. . Now, co....
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....ot justified in the instant case. " Issue is Covered by decision of Hon'ble ITAT in assessee's own case for AY 2016-17: (b) As elaborated in the tables above, there is no change in nature of activities undertaken during the year under consideration as well as in the immediately preceding year. (c) Further, the level and extent to which assets are employed are similar to the immediately preceding year rather there has been an increase therein which are further indicative of the fact that assessee is a manufacturer and risks are undertaken thus covered by the decision of Hon'ble ITAT. (d) In view of the above, as held by Hon'ble ITAT, assessee being a manufacturer and looking at the assets employed and risk undertaken, application of berry ratio is not in justified and deserves to be quashed. (v) Calculation of GPM: (Page-47, Para-36 of ITAT) Findings of Hon'ble ITAT: 36. Now, coming to the selection of comparable and application of the PLI ( i.e. Gross Profit margin / Cost of production), it has been submitted by the ld AR that where the PLI of GP/COP is applied on the comparable companies so selected by TPO, the transac....
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....se for AY 2016-17 in ITA No.97/JP/2021 vide order dated 07.02.2022. It is seen that in the impugned assessment year also the adjustment has been made after applying the berry ratio. Bench has made the categorical findings after analysis of entire fact whether berry ratio is applicable on the assessee or not. In the transfer pricing documentation, the assessee has mentioned the profile of the company and there is no change in the same compared to earlier assessment year and as reproduced at Para-25 of order of AY 2016-17. 10. Moreover, in the impugned assessment year as well the TPO while issuing the show cause notice as well as while proposing the adjustment as well as the DRP has not disputed the fact rather there is an categorical affirmation that the assessee is engaged in the business of manufacture and export of colored stones and studded jewellery and has manufacturing units in Jaipur and Mumbai as noted from para 2 of the order so passed by the TPO. Thus the said fact is also aligned with the Para-26 of order for AY 2016-17. 11. As far as function performed, assets employed and the risk undertaken by the assessee while carrying out its manufacturing activities is conce....
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....king capital finances availed by the AEs. Briefly the facts of the issue under consideration are that assessee had given corporate guarantee in previous years against the working capital finance availed by the AEs and the same was extended during the year under consideration. Ld.TPO opined that assessee has exposed itself to a big risk by providing corporate guarantee for which the assessee has not charged any amount from the AE and accordingly an adjustment of Rs. 95,29,675/- was proposed by applying rate of 4.45% (2.45% plus 200 basis points for risk factor) on average of outstanding borrowing availed by AE. 16. Dispute Resolution panel disposed the objections so raised by assessee without admitting the contention so raised therein. 17. During the course of hearing Ld.AR made the following submissions: 1.1.1 Various judicial precedents have supported the view that a transaction between two enterprises constitute an international transaction u/s. 92B only if it has a bearing on the profits, income, losses or assets of such enterprises. In this regard we place our reliance on the following case laws which were delivered/pronounced post amendment by FA, 2012: ....
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....ntroduced with effect from a particular date specified by the legislature, the judicial forums, including this Tribunal, at times read it as being effect from a date much earlier than that too. One such case, for example, is CIT Vs Ansal Landmark Township Pvt Ltd [(2015) 377 ITR 635 (Delhi)] wherein Hon'ble Delhi High Court confirmed the action of the Tribunal in holding that the provision, though stated to be effective from 1st April 2013 must be held to be effective from 1st April 2005. Whether such an exercise can be done in the present case is, of course, something to be examined and our observations should not be construed as an expression on merits of that aspect of matter. Given the fact that the assessee has succeeded on merits in this case, it would not really be necessary to deal with that aspect of the matter. 1.1.3 Suzlon Energy Limited Vs DCIT in ITA No. 619/Ahd/2017 vide order dated 25-06-2019 held as under: "7. Similarly, the TP adjustment on account of corporate guarantee for working capital and Corporate guarantee for financing and other arrangements was considered by the Tribunal at Para 24 of its order. The relevant finding read as under:- ....
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....s appeal in favour of the assessee, it is nothing more than shifting of judicial forum before which the matter is now to be agitated. We have, therefore, refrained from dealing with elaborate arguments of the parties on merits at this stage. 29. In the result, and subject to the above observations, the appeal of the assessee is allowed. 8. Respectfully following the same, we confirm the findings of the First Appellate Authority." 1.1.4 Bharti Airtel Limited Vs ACIT (2014) 43 taxmann.com 150 (Delhi Trib) 1.1.5 The contention so raised by the assessee was rejected by Ld. DRP by placing its reliance on the decision of Hon'ble Madras High Court in the case of Pr.CIT Vs Redington (India) Ltd (2020) taxmann.com 136 and decision of Hon'ble Mumbai Tribunal in the case of SiroClinpharm (P) Ltd Vs ITO (2021) taxmann.com 73 (Mumbai Trib). The facts of the present case vis. a vis. findings of these decisions is being analyzed hereunder: "67. The next issue is with regard to the Corporate Guarantee and Bank Guarantee. 68. From the Annual Report of the assessee, it was seen that the assessee had issued guarantees on behalf of its subsidiaries to the t....
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....part, the assessee had taken maximum risk in providing Bank Guarantee to their subsidiaries and the entire credit risk is owned by the assessee, the Indian Company and it has to be reimbursed at maximum percentage of fees. Further, the TPO noted as to the manner in which the Bank's charge commission on guarantees extended and observed that the Bank will insist upon cash deposits / guarantee deposits / asset mortgage etc., to extend guarantees on behalf of their clients. Further, it was pointed out that if a situation arises that the Bank Guarantee has to be invoked, when the Associate Enterprise is not in good financial position, obviously, the assessee is at risk and they claim that there is no risk in providing guarantees cannot be accepted. The TPO drew a comparison between the Guarantees issued by the Bank and Guarantees issued by the assessee on behalf of the Associated Enterprise to the Bank. It has been recorded that the Associated Enterprises of the assessee have not provided any security to the assessee. In the agreement / contract between the Associated Enterprises and the assessee, no condition has been imposed on the Associated Enterprises to pay the amount to the a....
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....ason as to how the decision in Bharti Airtel Limited would apply to the assessee's case. Furthermore, there was no record placed before the Tribunal by the assessee that they have not incurred any cost for providing Bank Guarantee. As observed earlier, the TPO has compared the nature of documentation executed by the assessee in favour of his Associated Enterprise to come to the factual conclusion that it is a financial service. This finding of fact has not been interfered by the DRP, but the DRP was of the view that the same treatment, which was given in the previous Assessment Year should be extended for the Assessment Year under consideration also and there is no reason given by the TPO for taking a divergent view. The finding that the very same transaction for the previous Assessment Year was subject matter of TP adjustment, has not been disputed by the Tribunal rather not even dealt with by the Tribunal. Therefore, the finding rendered by the Tribunal is utterly perverse. 70. The argument of the learned Senior counsel appearing for the assessee is that prior to the amendment brought about in Section 92B by Finance Act 2012, the Tribunal had decided that furnishing ....
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....y with retrospective effect. That apart, even before the DRP, such contention was not raised. The Hon'ble Supreme Court in Gold Coin Health Food Private Limited, while deciding the issue whether an amendment was clarificatory or substantive in nature or whether it will have retrospective effect held as follows: Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 72. A new Enactment or an Amendment meant to explain the earlier Act has to be considered retrospective. The explanation inserted in Section 92B by Finance Act 2012 with retrospective effect from 01.04.2002 commences with the sentence "For the removal of doubts, it is hereby clarified that -" 73. An Amendment made with the object of removal of doubts and to clarify, undoubtedly has to be read to be retrospective and Courts are bound to give effect to such retrospective legislation. 73. An amendment made with the object of removal of doubts and to clarify, undoubetedly has to be read to be retrospective and courts are bound to give effect to such retrospective legislation. 74. The learned Senior Standing counsel for the Revenue referred to the decision in Co-operative Company Limited vs. Commissioner of ....
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....of assessee: - In this case the assessee company was providing the corporate guarantee for other unrelated concerns as well, therefore, providing the corporate guarantee was sort of service or element of business for the assessee and accordingly it was opined that providing corporate guarantee was one of the financial services provided by the assessee for which it should be appropriately remunerated because while providing corporate guarantee to other unrelated concerns the company was charging guarantee commission from them, whereas, in our case the assessee company is not involved in providing any guarantee for any third party or engaged in the business of providing guarantee. - Providing corporate guarantee without charging commission has been held to be justified on the ground that out of this corporate guarantee the AEs has been benefitted and consequently the income would have occurred to these AEs and resultantly shifting of the tax base. In this regards it is important to note that NP Rate of AE M/s Jewellery Channel Ltd UK is merely 1.58%, which is a very meager amount. Neither any such shifting of profits has been established by Ld.TPO. - In the....
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...., the contention so raised was rejected by holding as under: (Page-18 of assessment order) : 1.2.1 A perusal of the findings made above shows that the contention so raised has been termed as flawed on the ground that if subsidiary goes bankrupt, even if the assessee is able to sell the assets of its subsidiary, It may not be able to discharge the full liability. In this regards following facts need the kind consideration: (a) The borrowing availed by the AE was secured by way of First charge on the EPG License of AE. (b) In addition to the above, the loan was secured by way of creating a charge over the inventory of raw material, finished goods and receivables and second charge on all the assets of AE. The relevant extract of sanction letter containing these terms and conditions is placed hereunder: (c) At the end of 31.03.2017 the outstanding balance of said loan was GBP 1.50 Million whereas the value of asset against which the said borrowing was secured stood as under: S.No. Particular Amount (GBP) 1. EPG License (total value of license is 1.90 Million GBP, 0.880 Million is merely the amortized value) 8,80,000 2. Invento....
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..... 21. Further, a perusal of the financial statements of AE shows that total outstanding balance of said borrowing by AE as on 31.03.2017 was GBP 1.50 Million against which combined value of EPG license, inventory and receivable is more than 9.70 Million. Thus the assets against which the loans were secured were way more than the amount of borrowings and even in case AE goes bankrupt, the assets of AE are enough to repay the borrowing without having any impact on the financial health of the assessee. Moreover, the assessee has not incurred any cost or expenditure for issuing such corporate guarantee. 22. Dispute Resolution Panel while disposing off the objections relied upon the decision of Hon'ble Madras High Court in the case of PCIT Vs Redington (India) Ltd which was followed inSiroClinpharm P Ltd Vs ITO. Both the decision were carefully perused along with the facts of the case of assessee. In the case of Redington India Ltd, the assessee company was providing the corporate guarantee to other unrelated entities also in the form of financial services. In providing guarantee for the AEs, the company has taken maximum risk and entire credit risk was owned by the assessee compa....
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.... unsecured loans: Vide SCN dated 24.01.2021 Ld. TPO proposed to treat the amount receivable from AEs as unsecured loans on the ground that payments for the invoices raised have not been received within 60 days and on this premise adjustment have been made. Thus action of Ld.AO has resulted into treating the amount of receivable as unsecured loans and accordingly imputing the interest thereon. It is being most respectfully submitted that said characterization of receivable as "unsecured loan' is not in accordance with the provisions of the Indian transfer pricing regulations which provides as under: (a) As per Para 1.121 and 1.123 of OECD Guidelines (updated July 2017), the tax authorities should recognize and appreciate the actual transaction undertaken by a taxpayer and the same should not be disregarded barring exceptional circumstances. The relevant extracts are provided below for your kind consideration: D.2 Recognition of the accurately delineated transaction: 1.121 A tax administration, should not disregard the actual transaction or substitute other transactions for it unless the exceptional circumstances described in the following paragraphs 1.....
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.... Thus, we agree with the submissions of the learned counsel for the assessee and delete these additions both on law as well as on merits" (c) In view of these facts and circumstances, it is evident that outstanding receivables from AE were in the course of business and not any lending of money. It is further important to note that Rule 10B(2) of the Income-tax Rules, 1962 ("the Rules"), which lay down the various comparability factors to be considered while undertaking a comparability analysis also inter-alia, include the following: "Conditions prevailing in the markets in which the operate, including the geographical location and size of the markets, laws and Government orders in force, costs of labour and capital in market, overall economic development and level of competition and whether the markets are wholesale or retail. " In view of the above discussion, the outstanding balances arising from rendering of services to the AE are in the nature of 'trade receivables' and cannot be re-characterized as loans/moneys advanced to AE under any circumstances. 2.2 Continuing Debit Balance is not a standalone international transaction but resul....
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....o cover any hypothetical transaction which has not taken place between the AEs. The terms and conditions of the intercompany transactions undertaken by Assessee with its AE were concluded on arm's length basis in the TP documentation maintained by the Assessee. The early or late realization of proceeds is incidental to the sale transaction and is not a separate transaction in itself. In other words, these represent the consequence of an international transaction and not an international transaction per-se, as per Section 92B of the Act. Therefore, the same does not warrant the determination of any separate arm's length price ((ALP'") under Section 92C of the Act. If the ALP in respect of an international transaction is determined, in that case non-receipt of interest in such transaction cannot be treated as a separate international transaction warranting any further adjustment. Once ALP is determined in respect of the primary export transaction, it would be deemed to be covering all the elements and consequences of such transaction. Hence, after having determined the ALP of the primary transaction, it cannot be assumed that separate arm's length analysis of outstanding ....
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.... 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. In other words, there has to be a proper inquiry by the TPO by analyzing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. So, no adjustment can be made on account of notional interest on receivables by relying upon Explanation (i), (a) and (c) of section 92B by treating the continued debt balance as an international transaction... "In view of the discussion and following the consistent decisions of the Tribunal in Assessee's own case for the preceding as well as the succeeding assessment years, no adjustment on account of interest due on receivables from its AE can be made. " * We further place our reliance on the following case laws: - Gillette Diversified P....
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.... loan have been extended by the assessee. It was the amount 'due' against the AEs as well as non-AE on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (Supra), squarely apply in the case of the assessee since the Assessee earned significantly higher margin than the comparable companies, which have been accented by the TPO, therefore, there was no justification to charge interest on outstanding. " 2.3.2 CRM Services India P Ltd in ITA No. 432/Del/2016 (Delhi Trib.) 16. Furthermore when we examine the entity level margin of the taxpayer vis. a vis. comparable companies, the taxpayer has earned higher margin i.e. taxpayer earned 38.39% OP/OC margin vis a vis margin of comparable companies at 11.43% In such circumstances, no separate adjustment on accent of interest can be made. Because the credit period extended to AE cannot be considered as a standalone transaction without considering the main transaction of the sale. This principle was earlier upheld in the case of "Kusum Healthcare Pvt Ltd. ws ACIT, Range-5 ITA No. 6814/DeV201 wh....
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.... their findings according to the provisions of the income-tax Act" 2.5 Adoption of ad-hoc 60 days credit policy: 2.5.1 In the instant case the entire adjustment is based on the premise that the amount realization should have taken place within 60 days of invoices and any amount beyond 60 days has been termed as loans advanced to AEs. In this regards, the Assessee respectfully submits that in a trade scenario like Assessee, the credit period is typically considered after factoring a variety of aspects such as relationship with the buyer, pricing, discounts, credit worthiness, number of years of relationship. Etc. and accordingly, it would not be feasible to consider a uniform credit period without taking into consideration the specific factors for the particular trade. 2.5.2 In the instant case, the Assessee has granted a credit period of up to 180 days to both AEs as well as third parties. The assessee wishes to emphasize that granting a credit period of 180 days to third parties can itself be considered as an internal benchmark for the realization policy of the Assessee and the same is in line with the RBI Guidelines (also discussed in the decisions of H....
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....if they are in foreign exchange. Whether it is AE or non-AE, it is in the interest of business that assessee receives the foreign exchange early so that it can claim deduction u/s. 10A. Therefore, in our view, putting a limit of two months of credit period itself is arbitrary. " 2.5.6 In view of the facts and circumstances elaborated above, it is humbly submitted that ad-hoc consideration of a credit period of 60 days is devoid of the facts and circumstances of the case, specifically considering that a statutory government body has itself acknowledged the hardship faced by the companies (operating in similar industry) in realizing the export remittances and has revised the foreign remittance guidelines to 180 days. 2.6 No interest charged from Non AEs as well: 2.6.1 Assessee wish to submit that it has allowed a credit period of 180 days in case of exports made to its AEs as well as to non-AEs i.e, third parties. The same is clearly evident from the invoices raised on AEs as well as non- AEs. Such Invoices raised on AEs as well as Non AEs on sample basis were placed on record before the ld. TPO by way of Annexure 3A and Annexure 3B respectively to submissi....
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....ding this issue; a commercial consideration and market practice has to be taken into account. Naturally, even as per the OECD {TP} guidelines, now worth mentioning, it has been subscribed that to ensure a healthy relationship and to maintain a long business transaction, such compensation or charging of interest are being ignored commonly by businessman," "Non-charging of compensation of interest is stated to be the market practice of this Industry. Referring one of the guidelines of OECD (para 1.29), it is prescribed that no interest could be charged on delayed payment on commercial consideration for ensuring a long and healthy relationship. it is observed that only in the event of severance of relationship; parties do resort to charging of interest. "If the AEs are not recovering interests from third parties for late recoveries, then in the instant case it would be too much to expect the assessee to charge the interest from the AEs. There is no rationale to inflict upon the assessee, merely on presumption that he ought to have charged the interest from its AEs " * Evonik Degussa India P Ltd Vs ACIT in ITA No.7653/Mum/2011 (Mumbai Trib) * Lintas India P L....