TaxTMI 
TaxTMI 
2025 (9) TMI 1189
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....appeals involve similar facts, grounds and issues. So, both were heard together and for sake of convenience. 3. Brief facts of case through ITA No.6390/Del/2017 are that appellant/assessee declared income of Rs. 76,05,47,120/- in ITR filed on 27.11.2013. The case was selected for scrutiny. Notice under Section 143(2) of the Act dated 04.09.2014 was issued by the Ld. DCIT, Circle 16(1), New Delhi. Notices under Section 143(2)/142(1) of the Act were issued along with questionnaire were issued calling specific details. The case was transferred to Special Range-9, New Delhi by Ld. PCIT vide order dated 12.08.2016. After the transfer of jurisdiction, the assessee was again issued notices u/s. 143(2) & 142(1) of the Act. Shri Niren Gupta, CA/AR of the assessee attended proceedings from time to time. 3.1 The assessee is engaged in the business of designing, engineering, consultancy, fabrication, supply and erection & commissioning of chemical plants. During the year, assessed company entered into international transactions with its Associated Enterprises which are reflected in Form No. 3CEB annexed with the Return of Income. Accordingly, a reference was made to the Transfer Pricing ....
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....e orders passed by the AO/Transfer Pricing Officer ("TPO") were bad in law as the pre-requisite for applying Chapter-X, i.e., existence of an international transaction between two Associated Enterprises ("AE") under the provisions of section 92B of the Act, was not satisfied or existed in the present case. 3. That on the facts and circumstances of the case and in law, the learned DRP/AO/TPO has erred in interpreting and applying the explanation (1)(c) to Section 92B of the Act on the amount of outstanding receivables; 4. That on the facts and circumstances of the case and in law, the learned Dispute Resolution Panel ("DRP")/AO/TPO has erred in considering the amount of year end outstanding receivables from associated enterprises as an international transaction; 5. That on the facts and circumstances of the case and in law, the learned DRP/AO/TPO erred in confirming/making an adjustment of INR 3,033,721 by imputing interest in respect of alleged international transaction pertaining to outstanding receivables, alleging the same to be not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Act read with Rule 10D of the Income-....
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.... business model of the appellant where revenue cycle is usually longer and it takes longer time to recover the proceeds; 14. On a without prejudice basis to the above grounds, the learned DRP/AO/TPO has erred in not appreciating the fact that operating profitability of Appellant vis-à-vis comparable companies was much higher even after considering the impact for loss of impugned notional interest; 15. On a without prejudice basis to the above grounds, the learned DRP/AO/TPO has erred in being selective in computing interest in situations where there was net receivables and not providing set off for situations where there was only outstanding payables; 16. On a without prejudice basis to the above grounds, the learned DRP/AO/TPO has erred on the facts and circumstances of the case and in law by denying relief to Appellant on arbitrary basis for delay in receipt of receivables beyond a certain time limit, 17. That on the facts and circumstances of the case and in law, the learned DRP/AO/TPO has erred by disregarding judicial pronouncements in undertaking Transfer Pricing adjustments; 18. That on the facts and in the circumstances of the case....
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....the same to be not at arm's length in terms of the provisions of Sections 92C(1) and 92C(2) of the Act read with Rule IOD of the Income-tax Rules, 1962 ("the Rules"). The Hon'ble CIT(A) has erred in not providing any findings of the interpretation; 6. That on the facts and circumstances of the case and in law, the learned AO/TPO has erred in stating that the Appellant: a. has provided benefit to its associated enterprises by way of advancement of interest free loan in the form of delay in receipt of receivables; and b. has incurred cost in relation to provision of such service/benefit to its associated The Hon'ble CIT(A) has erred in not providing any findings of the interpretation; 7. On a without prejudice basis to the above grounds, the learned AO/TPO has erred on facts in stating that the Appellant has failed to show that the delay in payment of receivables was compensated by the AE through a set off in any other transaction. The Hon'ble CIT(A) has erred in not providing any findings of the above facts; 8. On a without prejudice basis to the above grounds, the learned AO/TPO has erred by not allowing the Appellant'....
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....k of India on External Commercial Borrowings and Trade Credits (No. 8/2010-11) for imputing notional interest. The Hon'ble CIT(A) has erred in not providing any findings of the above facts; 16. On a without prejudice basis to the above grounds, the learned AO/TPO has erred in not appreciating the facts and circumstances of the case and in law by denying relief to Appellant on arbitrary basis for delay in receipt of receivables beyond a certain time limit. The Hon'ble CIT(A) has erred in not providing any findings of the above facts." 6. In ITA No.6390/Del/2017 vide application dated 07.02.2020, additional ground of appeal under Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 was taken, as under: "1. On the facts and circumstances of the case and in law, the assessing officer/Commissioner of Income-tax (Appeals) ought to have restricted the levy of the dividend distribution tax, on the dividend distributed to Technip France SA (formerly known as Technip France SAS), to beneficial tax rate in accordance with Article 11 of the double taxation avoidance agreement (DTAA) between India and France read with para 7 of the protocol thereto, instead of....
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....h higher than comparable margin, no TP adjustment could be made on account of interest on outstanding receivables. * Agilisys IT Services India (P.) Ltd. vs. ITO [2017] 77 taxmann.com 16 (Mumbai) * GKN Driveline (India) Ltd. vs ACIT (OSD): [2024] 167 taxmann.com 124 (Delhi). 8.5 Appellant neither charges from nor pays interest on outstanding receivable to third party. Ld.TPO has erred in subjecting a hypothetical income to tax by way of imputing notional interest on the invoices not realized by the Appellant from the AEs within the stipulated period. The Appellant neither charges any interest from third parties and AE's nor pays any interest to third parties and AE's. Reliance in this regard is placed at the chart attached as Annexure - 1 Cases wherein it is held that where there is a uniformity in not charging interest both from associated enterprises and non-associated enterprises, no transfer pricing adjustment can be made * PCIT v. Avery Dennison (I) (P.) Ltd.: [2023] 154 taxmann.com 454 (Delhi) * ACIT v. Avery Dennison (I) (P.) Ltd.: [2021] 133 taxmann.com 536 (Delhi - Trib.) * ACIT vs Axis Risk Consulting Servic....
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.... wherein interest on outstanding receivables computed after allowing set-off of outstanding payables from receivables. * CIT(A) order passed in Appellant's own case for AY 2015-16, basis which adjustment was deleted by TPΟ. * TPO order passed in Appellant's own case for AY 2016-17. The TPO while computing the adjustment on account of interest on outstanding receivables has computed interest only in situations where there were only outstanding receivables or both outstanding receivables and outstanding payables with the associated enterprises and not provided set-off in situations where there were only outstanding payables with the associated enterprises. Post factoring the interest on outstanding payable by Appellant, the net interest payable amounts to INR 4,64,538 to AEs (refer pages 2 to 10, 16, 20, 29 and 30 of paper book). The same has also been noted/ computed by the TPO himself, refer page 24 of the TP order. As per section 92(3) of the Act, if after application of the transfer pricing principles the income of the Appellant is reduced then the transfer pricing provision will not be applicable. It is submitted that the said benefi....
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....dia Private Limited vs ACIT: (2021] 86 ITR(T) 544 (Delhi) * ExlService.com India Private Limited vs ACIT: ITA No. 5436/Del/2017 (Delhi) Working capital adjustment takes into account the impact of outstanding receivables on profitability and therefore, no further imputation of interest is warranted. The working capital adjusted margins of independent comparables would reflect the allowance of potential delays in recovery of accounts receivables and since Appellants' margins have been benchmarked against these arm's length comparables and making an additional adjustment by imputing a deemed interest income on the accounts receivables from the AE for the Appellant will tantamount to double addition. If the profitability of the tested party is more than the working capital adjusted margin of the comparable companies, then additional imputation of interest on the outstanding receivables is not warranted. Post working capital adjustment, the margin of comparable companies works out to be 4.43 percent and since Appellant has earned a higher margin of 53.46 percent, there is no requirement of separate adjustment on account of outstanding receivable (refer 306 to 3....
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..... TDS credit is reflected in Form 26AS. Ld. AO vide assessment order dated August 30, 2017, has provided tax deducted at source ("TDS") credit amounting to INR 11,63,89,730 instead of INR 13,99,41,388 claimed by the Appellant. The TDS credit is reflecting in Form 26AS of the Appellant (refer page 239 to 256 of the paper book). Copies of foreign tax credit are at page nos. 257 to 261 of the paper books vide application dated 05.09.2017, the assessee requested Ld. AO for providing TDS credit which is at page nos. 237 and 238 of the paper books. Ld. AO has disallowed the foreign tax credit ("FTC") amounting to INR 13,25,393 claimed by Appellant under section 90/90A of the Act. The copy of FTC certificates foreign clients are attached at page 257 to 261 of paper book. 9. Learned Authorized Representative for the Revenue submitted that interest on receivable is international transaction, balance sheet at page no. 197 mentions trade receivable, intra group agreement is at page 169 of the paper books. The assessee has given interest. No working capital adjustment have been made by the assessee. The Transfer Pricing Study Report has been considered. Ld. TPO has not done working capital ....
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....tion of interest is warranted. Working capital adjustment margin of independent comparable would reflect the allowance and any further adjustment on account of outstanding receivables is not permissible. Reliance is placed on the decision of PCIT Vs. Kusum Health Care (P) Ltd.(supra). 10.5 Ld. TPO has used an interest rate of 4.45690% for computing interest on outstanding receivable on the basis of 6 months LIBOR rate as on March 2013 and 400 basis points (300 basis plus additional 100 points on account of currency risk) were added to the 6 month LIBOR rate. Ld. TPO relied on RBI Circular where ECB LIBOR rates has been specified for loan having maturity of three years. However, in the present case, the outstanding receivables have been realized in average period of 93 days. Therefore, further addition on in arbitrarily adding a mark-up of 100 basis points to LIBOR based rate used to impute interest on receivables outstanding in foreign currency by relying on the RBI master circular being unjustified is set aside. 11. In view of above observations and discussion, ground of appeal nos. 2 to 17 are allowed. 12. Ground of appeal nos. 18 and 19 are consequential. 13. Ground ....