TaxTMI 
TaxTMI 
2025 (2) TMI 1788
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.... Trimble Inc USA and is primary engaged in the business of Software Development Services, application services and allied internet / IT enabled services. Return of income declaring income of Rs. 61.81 Crs. was filed. The appellant had adopted TNMM and CUP as the most appropriate method for its international transactions concluding that the same at ALP. Upon recommendation of the Ld. AO, the Ld. TPO, after considering direction of DRP, proposed an upward adjustment of Rs. 50,78,859/-. The Ld. Counsel argued that justifying its upward adjustments the Ld. TPO held the view that trade receivables due from foreign AEs received beyond the credit period allowed assume the character of interest free loans and hence attract a levy of interest. It was submitted that the Ld. DRP had also accorded in principle concurrence to the action of the Ld. TPO albeit with directions to recalculate. 3.0 It is the case of the appellant assessee that the upward adjustments made by the Ld. TPO is totally unwarranted. The appellant has argued that there is no case for tinkering with the credit period given by the assessee to its foreign AEs. It has been submitted that the credit period awarded to the AEs ....
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.... by the Ld. DR that interest would have been charged on overdue receivables if the parties were unrelated. It is the case of the Revenue that TPO is well within his powers to question the commercial expediency. The Ld. DR urged that the question of debt free company would have been relevant only if the underlying transaction had domestic component. The Ld. DR has also raised on presumption of potential Revenue loss arguing that had funds been received in time they could have been deployed for potential interest earnings. 5.0 We have heard rival submissions in the light of material available on records. We have noted that the action of the Ld. AO in making the upward adjustment by disturbing the credit period contracted between the assessee and its foreign AEs is not correct. It is a settled principle of law that the Revenue cannot decide as to how business shall be done by a taxpayer. To this extent the arguments of the Ld. DR that the Ld. TPO has powers to question the commercial expediency are incorrect. The decisions of a business are fundamentally guided with the objective of maximizing the profits and cannot be guided by the taxman. 5.1 The Ld. Counsel for the assessee h....
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....4 From the fact, it emerges that the assessee has not charged any interest on outstanding receivables from AEs and non-AEs. Further, the loans advanced to AEs have been benchmarked separately. It also emerges that the assessee is a zero-debt entity and do not incur significant interest expenditure. Therefore, to allege that the assessee accommodated its AEs in the guise of receivables would not be a correct proposition. Therefore, this addition is not sustainable. We order so. The corresponding grounds raised by the assessee stand allowed...". 5.3 Further, on the impugned issue the Hon'ble Coordinate Bench of this Tribunal in its latest decision in the case of Temenos India Pvt. Ltd for Assessment Year: 2020-21 vide IT(TP)A No. 32/CHNY/2024 has ruled as under:- "....8. The ld. AR's first contention was that the assessee company being a debt free company, no adjustment is warranted as interest imputation on outstanding trade receivables from its AE's. In this context, the ld. AR relied on the Hon'ble Supreme Court judgment in the case of PCIT vs. Bechtel India Pvt. Ltd., in CC No. 4956/2017/SC (judgment dated 21.07.2017). The second contention of the ld.AR was that the T....
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.... 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. 12. Most importantly, we find that the assessee is a debt free company. In other words, outstanding receivables will not impact the profitability of the company because the assessee is having largely its own funds and there is no debt secured by assessee on which interest is to be paid by the assessee. Hence, the delayed receivables will not impact in any way. The Co-ordinate Bench of Chennai, ITAT in the case of Integra Software Services Pvt. Ltd., in ITA No. 736/CHNY/2017 (order dated 21.10.2022) has considered the issue of zero debt entity and finally deleted the addition by observing in para 3.4 as under:- 3.4 From the fact, it emerges that the assessee ....
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....10-11 (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 the issue in dispute are that in view of payments against invoices raised by the assessee to associated enterprises were received with the delay more than industry standard. The Learned TPO proposed a separate transfer pricing adjustment re-characterizing the outstanding receivables as unsecured loans. He applied CUP method for benchmarking the transaction of interest on receivables and using SBI prime lending rate, computed adjustment for interest on receivables amounting to Rs. 1,30,78,181/-. On the objections of the assessee, the Learned DRP noted that in assessment year 2010-11, the Tribunal following the decision of the Tribunal in the case of Kusum Healthcare Private Limited (reporte....
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....02, 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 as well as by the Learned DR. In the instant case, the Learned DRP has noted the decisions of the Tribunal and High Court in the earlier years. In assessment year 2010-11 the Tribunal in ITA No.1478/Del/2015 placed reliance on the decision of the Tribunal in the case of Kusum Healthcare Private Limited (supra) and held that impact of credit period was duly factored in working capital adjustment allowed while-determining the arm's-length price and, therefore, no separate adjustment for interest on receivables was warranted in the hands of the tested party. The relevant extract of the decision of the Tribunal is reproduced as under: "15.1 It is brought to our notice that the assessee is....
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....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 been expressly recognized as an international transaction. In the said decision, the decision of the Hon'ble Bombay High Court in the case of CIT vs. Patni Computer Systems was also considered, wherein Hon'ble Bombay High Court set aside the view taken by the Tribunal in view of amendment to section 92B. The decision in the case of Kusum Healthcare Pvt. Ltd. was duly considered in the case of Ameriprise India Pvt. Ltd. and it was observed from para 20 to 23 as under:- 20. The ld. AR supported the impugned order by relying on a Tribunal order dated 31.3.2015 passed in Kusum Healthcare Pvt. Ltd. vs. ACIT (ITA No.6814/Del/2014) in which it has been held that no additional imputation of inter....
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....stion 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 the Tribunal in the case of Bechtel India Pvt. Ltd., concerning AY 2013-14, we find that ITAT has taken note of the judgments of the Hon'ble Delhi High Court, Hon'ble Supreme Court concerning AY 2010-11 and also co-ordinate bench order of the Tribunal for assessment year 2012-13. After taking note of above judicial pronouncements, the ITAT had deviated from its earlier order for AY 2012-13 and followed the judgment of Hon'ble Delhi High Court and Hon'ble Supreme Court concerning AY 2010-11. The Delhi Bench of the Tribunal in Bechtel India Pvt. Ltd., for the assessment year 2013-14 had categorically held that there need not be any transfer pricing adjustment for imputing interest cost for the outstanding trade recei....