TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 1633
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....re development services. 3. For the assessment year 2020-21, the return of income was filed on 12.02.2021 declaring total income of Rs. 92,92,20,010/-. The return was selected for scrutiny and notice u/s. 143(2) was issued and served on the assessee on 29.06.2021. During the course of assessment proceedings, the case was referred to the TPO to determine the Arms Length Price (ALP) of international transactions undertaken by the assessee with its AE. The TPO passed order u/s. 92CA of the Act on 31.03.2023. In the said order of the TPO, the outstanding trade receivables was treated as international transactions. The TPO applied LIBOR + 350 BPS (rate of 5.818%) on the outstanding receivables of Rs. 32,848 lakhs as on 31.03.2020 and imputed interest of Rs. 3,14,15,287/- representing the arms length interest income from outstanding / trade receivables from the AE's. The relevant finding of the TPO reads as follows: - "6.4 Since the assessee has not performed the benchmarking of the outstanding receivables and trade receivable transaction in the Transfer Pricing study documentation, the International transactions pertaining to the receivables is being benchmarked using the fo....
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....inal assessment order passed, the assessee has filed the present appeal before the Tribunal. The assessee has raised grounds with regard to TP adjustment as well as corporate tax issues. However, during the course of hearing, the ld.AR did not press the grounds relating to the corporate tax issues. Hence, the grounds relating to corporate tax namely Ground nos. 3 to 9 are rejected. Ground Nos. 1 and 10 are general in nature and no specific adjudication is called for, hence, the same are dismissed. The surviving ground namely Ground No. 2 and its sub-grounds with regard to the transfer pricing issue read as follows: - "Ground No. 2 - Erroneous treatment of outstanding receivables as a separate international transaction: a. Outstanding receivables not a separate international transaction: TPO erred in law and on facts and the DRP further erred in upholding / confirming the action of the TPO, in considering outstanding receivable as a separate and distinct international transaction without appreciating the fact that the receivables are consequential/ closely linked/ aggregated with the principal transaction which have already been determined to be at arm's length....
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....sum Healthcare Delhi HC' f. Debt-free company: The TPO/DRP failed to appreciate the fact that the appellant is a zero debt company and there are no finance/interest costs incurred by the assessee in its operations. The TPO and DRP ought to have followed the decision of Hon'ble SC in Bechtel India in this regard. g. TPO's benchmarking of outstanding receivables not as per provisions/Rules: The TPO grossly erred in not appropriately applying any of the prescribed methods under Rule 10B of the Income Tax Rules, 1962 (the Rules') as the Most Appropriate Method and not providing details of any comparable uncontrolled transaction, thereby completely ignoring the mandate for application of CUP Method / Other method under Rule 10B and Rule 10C of the Rules." 7. The assessee has filed three sets of paper-book. In one set, namely Part A, the assessee has enclosed its financials for the relevant assessment year, Form 3CEB, Transfer Pricing Study, Intercompany service agreement with HQ, show cause notices issued by the TPO, working related to working capital adjustment margins, invoice wise ageing schedule, etc. In the second set of paper-book namely Part B, th....
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...., even beyond the agreed period, due to a variety of factors which will have to be investigated on case to case basis and the impact of this would have on the working capital of the assessee will have to be studied and enquired properly by the AO for analyzing the statistics over a period of time to find out the pattern which would indicate that viz-a-viz the receivables for the supplies made to its AE, the arrangement reflects an international transaction intended to benefit the AE in some way. Further, the Hon'ble High Court held that when the assessee having already factored in the impact of receivables on the working capital and thereby on its profitability viz-a-vis with that of its comparables, any further adjustment, only on the basis of outstanding receivables would have distorted the picture. Hence, it was held that it is not permissible. In this instant case before us also, the TPO has not carried out basic exercise or any analysis on the facts of the case or the factors mentioned by the Hon'ble Delhi High Court. The TPO has not carried out any exercise of statistics and the pattern which would indicate that the receivables from supplies will benefit the AEs in some way. ....
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....RP) had not taken note of the Delhi High Court concerning AY 2010-11. The Hon'ble Supreme Court judgment concerning AY 2010-11 was rendered on 21.07.2017 i.e., after order of ITAT for AY 2012-13. 14. For the subsequent assessment year namely AY 2013-14, (post the judgment of the Hon'ble Supreme Court judgment and the Hon'ble Delhi High Court judgment in the case of Bechtel India Pvt. Ltd., concerning AY 2010-11) the Delhi Bench of ITAT in ITA No. 7234/Del/2017 (order dated 18.12.2020) had discussed the conflicted saga of Bechtel cases concerning Assessment Year 2010- 11 and 2012-13 and held that the Hon'ble Supreme Court judgment in Bechtel India Pvt. Ltd., for the assessment year 2010-11 (supra) had settled the law and there cannot be any interest imputed on outstanding receivables when assessee in the said case was a debt free company. The relevant facts, contentions raised by both the sides and the finding of the Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., for assessment year 2013-14 (supra), reads as follows: - 11. The ground No. 5 of the appeal relates to transfer pricing adjustment for interest on receivables. 11.1 The facts qua th....
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....e issue in dispute and submitted that special leave petition filed by the Revenue against the order of the Hon'ble High Court for assessment year 2010-11 has been rejected by the Hon'ble Supreme Court on 21/07/2017, which is after the order of the Tribunal for AY 2012-13 dated 16/05/2017 and therefore decision of the Tribunal in assessment year 2012- 13 need not be followed. 11.3 The Learned DR, on the other hand, submitted that the Tribunal in assessment year 2012-13 noted the decision of the Hon'ble High Court in assessment year 2010-11 and after taking into consideration the Explanation inserted by way of the Finance Act, 2012 to section 92B with retrospective effect from 01/04/2002, held that any delay in realization of debt arising during the course of the business is liable to be visited with TP adjustment on account of interest income short charged or uncharged. In view of the learned DR, the Learned DRP is justified in following the order of the Tribunal in assessment year 2012-13. 11.4 We have heard rival submission of the parties on the issue in dispute and relevant material on record including the decisions cited by the Learned Counsel of the assessee a....
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.... have considered the submissions of both the parties and perused the record of the case. The assessee's grievance is two-fold. Firstly, when working capital adjustment has been made, then, no separate adjustment is required to be made in respect of accounts receivables because the same gets subsumed in the working capital adjustment. The second plea of the assessee is that since its funds are entirely debt free, therefore, no adjustment is warranted in regard to late realisation of proceedings from receivables. The assessee's reliance as noted earlier, is on the decisions in its own cases for assessment year 2010-11 and 2011-12. The issue has been elaborately considered in the case of Ameriprise India Pvt. Ltd. (supra) and, again, in the case of Mckinsey Knowledge Centre Pvt. Ltd. (supra). In the case of Techbooks India International Pvt. Ltd. vs. DCIT (supra), taking note of the Explanation inserted by the Finance Act, 2012 to Section 92B, it was observed that there remained no doubt that apart from any short-term or long-term borrowing, etc., or even advance payments or deferred payments, 'any other debt arising during the course of business' had also bee....
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....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;" 11.7 But before us the Learned Counsel of the assessee has referred to the decision of the Hon'ble Supreme Court dated 21/07/2017, which is after the decision of the Tribunal in assessment year 2012-13. The Hon'ble Supreme Court has held as under: "Delay condoned. We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, rises, on the facts of this case. The special leave petition is dismissed." 11.8 In view of the order of the Hon'ble Supreme Court, which is subsequent to the order of the Tribunal in assessment year 2012-13, we direct the Ld. AO/TPO to delete the transfer pricing adjustment on account of the interest receivables. The ground No. 5 of the appeal of the assessee is accordingly allowed. 15. From the above order of the Delhi Bench of....