TaxTMI 
TaxTMI 
2025 (8) TMI 1787
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....ith section 144C(13) of the Act ('Final Assessment Order') dated 28 October 2024 beyond the time limit prescribed under section 153 of the Act (i.e. by 31 December 2023), which is outer time limit for passing the assessment order and hence, the aforesaid assessment order is time barred and liable to be quashed. II. Grounds of Appeal in respect of transfer pricing adjustment 2. Addition to the total income on account of transfer pricing adjustment by incorrectly not considering the analysis and documentation Erred in proposing an adjustment of INR 65,42,860 to the value of couple of international transactions of the Appellant by not considering the analysis and documentation maintained by the Appellant to determine the arm's length price ('ALP') of aforesaid international transactions. 3. In connection with interest on overdue receivables, the Ld. TPO and Ld. AO have erred in considering the said transaction as a separate international transaction warranting a separate analysis Erred and failed to appreciate that receivable/ payable resulting from the international transactions has been treated as closely linked transa....
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....0.5 per cent per annum in light of the guidance by the jurisdictional High Court Erred in not appreciating that the Guarantee under consideration is not comparable to the Bank Guarantee rates as considered and the same shall be restricted to 0.5 per cent as per the disposition of the Hon'ble Mumbai High Court. 9. The Ld. AO has erred in double consideration of Sundry Creditors Writeback by the CPC and not permitting the Rectification Request filed by the Appellant Erred that sundry creditors write-back was already credited to the Profit and Loss account of the Appellant thereby there was no need for the CPC to add the same to the total income of the Appellant. The Ld. AO also did not give cognizance to the Rectification Application highlighting the said fact, thereby leading to a double consideration of income. 10. Non consideration of credit of prepaid taxes as per the intimation by CPC under section 143(1) of Income Tax Act Erred in law, and in facts, in non-consideration of the prepaid taxes corresponding to the transferor companies pursuant to amalgamation with the Appellant. 11. Proposed initiation of penalty proceeding....
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....e direction of the Ld. DRP, the Assessing Officer passed the impugned final assessment order after making transfer pricing adjustment, firstly, for guarantee commission amounting to Rs.5,42,599/- and, secondly, for interest on overdue receivables amounting to Rs. 60,00,260/-. Aggrieved, the assessee is in appeal before us by way of grounds as reproduced above. 4. The Ld. Counsel for the assessee filed a paper book containing pages 1 to 734 and case law compilation containing pages 735 to 1224. 5. The ground Nos. 2 to 6 of the appeal of the assessee relates to transfer pricing adjustment in relation to international transaction of the 'interest on overdue receivables'. Before us, the Ld. Counsel for the assessee submitted that interest on overdue receivables was not a separate international transaction warranting a separate analysis. 5.1 The brief facts relevant to the issue in dispute are that the details of the international transactions entered into by the assessee, along with the method adopted for benchmarking such transactions, have been tabulated in paragraphs 2 and 3 of the order of the learned Transfer Pricing Officer ("Ld. TPO"). For ready reference, detai....
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....verage credit period, inclusive of invoices settled within 60 days, was rejected. Thereafter, the Ld. TPO computed the interest on that portion of trade receivables which exceeded the 60-day credit period, by applying six-month LIBOR (0.2597% as on 30.09.2020) plus 400 basis points, aggregating to 4.2597%. For this purpose, the Ld. TPO undertook invoice-wise analysis of the receivables from AEs, as available at pages 13 to 32 of his order (not reproduced herein for brevity). On this basis, the Ld. TPO determined the arm's length interest on trade receivables at Rs. 60,00,261/-. 5.3 The learned Dispute Resolution Panel ("Ld. DRP") upheld the action of the Ld. TPO in treating the interest on outstanding receivables as a separate international transaction within the meaning of section 92B of the Income-tax Act, 1961 ("the Act"). In doing so, the Panel relied upon a series of decisions of the coordinate Benches of the Tribunal, inter alia, Zeta Interactive Systems (India) (P.) Ltd. v. ITO [2022] 142 taxmann.com 202 (Hyd. - Trib.), Satyam Venture Engineering Services (P.) Ltd. v. ACIT [ITA No. 362/Hyd/2021, dated 28-06-2022], Apache Footwear India (P.) Ltd. v. ACIT [2023] 148 tax....
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....Anti-Avoidance Rules (SAAR), intended to counteract tax avoidance in controlled transactions, and that the question of notional or real income does not arise in this context. 5.7 The assessee's further objection, that once a working capital adjustment had been made in the determination of margins under the Transactional Net Margin Method ("TNMM"), no separate adjustment for interest on receivables was warranted, was also rejected. The Ld. DRP found that the assessee had not furnished any cogent explanation or computation of monthly trade and non- trade receivables/payables or the capital position of either the assessee or the comparables, and therefore no case was made out for subsuming interest on receivables within the working capital adjustment. The Panel reiterated that interest on receivables constituted a separate international transaction requiring independent benchmarking. 5.8 The Ld. DRP also rejected the plea of the assessee to consider the "net" receivable position (i.e., receivables minus payables) for the purposes of computing the ALP adjustment, holding that the statutory definition under the Explanation to section 92B uses the term "receivable" and not "net....
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....ned Departmental Representative at length and have carefully perused the material available on record. In the present case, the Transfer Pricing Officer ("TPO") has treated the portion of receivables from Associated Enterprises ("AEs") remaining outstanding beyond the agreed credit period of 60 days as constituting a separate international transaction within the meaning of section 92B of the Income-tax Act, 1961 ("the Act"), and has determined its arm's length price by imputing interest thereon at the rate of six-month LIBOR plus 400 basis points. The Dispute Resolution Panel ("DRP") has upheld the adjustment so made, noting that the computation was carried out on an invoice-by- invoice basis, restricting the imputation of interest only to the period beyond the agreed credit term, thereby ensuring objectivity and eliminating arbitrariness. 7.1 The contention advanced on behalf of the assessee is that interest on overdue receivables does not constitute an international transaction per se, but is inextricably linked with the underlying sale transactions, which have already been benchmarked under the Transactional Net Margin Method ("TNMM"), and hence do not warrant a separate ....
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....plea founded on ejusdem generis, as the word "receivable" is associated with "any other debt arising during the course of business", and is not confined solely to borrowings or capital loans. The TPO and the DRP, in our view, have rightly characterised the extended credit period as an implicit financing transaction and benchmarked it accordingly. 7.4 It was next contended that any notional interest on receivables is already subsumed in the working capital adjustment made under TNMM, since delayed collection imposes a financing cost on the creditor, which is compensated through higher margins. The DR, however, countered that beyond the arm's length credit period, such cost is ordinarily recovered through explicit interest charges, and failure to benchmark delayed receivables separately would distort the arm's length price. 7.5 Having considered the rival submissions, we are of the view that while a properly computed working capital adjustment under TNMM as held in the case of Kusum health care p Ltd (supra) and Acquity Solutions India P Ltd (supra) may, in certain cases, obviate the need for a separate interest adjustment, such subsumption can only be recognised if: (i....
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....s not computed such comparison of the working capital adjusted margin of the tested party with the comparables, it cannot find fault with the Ld. TPO for not taking into consideration working capital adjusted margin while arm's length valuation of the purchase or sales transaction to avoid the chargeability of the interest on overdue receivable as a separate international transaction. 7.9 We also note that the TPO's methodology was precise, adopting an invoice-by-invoice approach and charging interest only on the portion of receivables outstanding beyond 60 days, thereby excluding the agreed credit term already embedded in the pricing. Interest was computed prospectively from Day 61 until actual realisation, at the rate of six-month LIBOR plus 400 basis points, a rate drawn from the Safe Harbour Rules under Rule 10TD, read with Rule 10AB of the Income-tax Rules, 1962, as indicative of an arm's length outcome. This granular approach accords with the transfer pricing framework and avoids distortion by averaging periods of compliance with those of delay. 7.10 It was the assessee who sought to average receivable days (including those paid within time) to dilute the im....
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....est rate applicable for outbound loans/advances to wholly-owned subsidiaries ( Rule 10 TD) under clause 5 (v) of the relevant notification, which was six-months LIBOR +400 basis points for the year in question. The learned TPO used this rate as an indicative of arm's-length rate for notional loan represented by the overdue receivables. The learned DR submitted that that the TPO's action of applying the other method under Rule 10AB read with "safe harbour rates" is found to be in consonance with jurisdictional precedents. Before the assessee has not brought on record any comparison under CUP or any other method prescribed under the rules. In some circumstances, we feel the 'other method' of taking safe harbour rate for comparison, is justified. 7.14 Further, as regards the contention of the learned counsel that no addition on this account has been made in subsequent years, we find that the learned counsel has not furnished any material to demonstrate whether, in those years, the returns were subjected to scrutiny assessment. On the contrary, the order of the learned TPO for Assessment Year 2022-23, as placed in the paper book at pages 982 to 1054, clearly reflects....
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....ontentions of the assessee are not acceptable. The provision of the corporate guarantee to associated enterprises is explicitly recognized as an international transaction under the Act. The Explanation (i)(c) to section 92B inserted by the Finance Act, 2012 with retrospective effect from 01.04.2002, clarifies that "capital financing, including any type of guarantee" falls within the scope of international transaction. In the light of this amendment any corporate guarantee extended by an Indian entity on behalf of its foreign AE squarely falls within the ambit of international transaction. We note that Hon'ble Allahabad High Court in the case of Jubilant Pharmova Ltd. v. Add. CIT (supra) affirmed that by virtue of 2012 amendment, a parental corporate guarantee has to be regarded as an international transaction under section 92B of the act. 8.2 The contention of the assessee that such guarantee is a share holder activity not warranting comparability is also not acceptable for the reason that corporate guarantee is not a casual incident of the parenthood, but a conscious assumption of risk and provision of valuable financial services to its AE. By way of securing the AE's b....