TaxTMI 
TaxTMI 
2026 (5) TMI 214
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....the only dispute in this appeal is addition of Rs. 7,90,04,580 on account of determination of ALP of the international transaction. 3. The brief facts show that assessee is a company which is formed pursuant to the demerger of the power grids business of ABB Global Industries and Services Pvt. Ltd. It carries on the business of Information Technology support services to the internal needs of power grids business of Hitachi Energy affiliates including developing software, configuration, testing activity and deputing engineers on need basis for providing IT support services. This is called IT support services activity. The assessee is also providing ITeServices [ITeS] catering to the internal needs of power grids business by primarily proving accounting, human resources, procurement and logistic support services along with finance related support to its group companies. 4. The assessee entered into international transaction and therefore reference was made to the ld. ACIT(TP) 1(3)(1), Bangalore [ld. TPO] on 03.11.2023. The dispute involved in this appeal is with respect to the provision of ITeS where the revenue recorded by the assessee is of Rs. 1569.50 million and earning ope....
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....onal transaction of capital financing in view of provisions of section 92B Explanation 1(c) w.e.f. 1.4.2002 and then after relying upon several judicial precedents, held that it is a separate international transaction and assessee has failed to show that it is closely linked transaction of ITeS or other services then denying the Working capital adjustment applied SBI PLR of 12.27% as the CUP benchmark on the list of several invoices raised by the assessee where the days of realisation exceeded upto 1000 days to 1 day over and above the 30 days credit period. On the basis of this, ALP on interest on overdue receivable was computed at Rs. 1,60,24,580. 9. Consequently total adjustment u/s. 92CA was made of Rs. 7,90,04,580 as per order passed by the ld. TPO on 17.10.2023 which resulted into a draft assessment order on 29.12.2023. 10. Same was carried out before the ld. DRP without any relief and consequently the TP adjustment as made by the ld. TPO was confirmed and is in dispute. 11. The assessee has raised several grounds of appeal before us. The ld. AR, Mr. Ketan Ved, CA, has also placed before us a 12 pages written note. The first submission of the assessee is with respect....
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....ion of margin, include the above comparable. Accordingly Ground No.11 with respect to comparable stated at Ground No.11.5 is allowed as indicated above. 16. The assessee also submitted that ground No.13 challenges the rejection of working capital adjustment. The ld. AR referred to para 10 of the order of the ld. TPO wherein the ld. TPO quotes Rule 10B where it is mandated that while computing the ALP if reasonable accurate adjustment to eliminate the material effects can be computed, it should be done. The ld. TPO held that as the assessee failed to demonstrate that the working capital differences had impacts its profits by showing that whether the comparable companies have financed their working capital by cost free funds or cost bearing funds and how such cost has impacted the margins. The ld. TPO has further stated that the average working capital will not show the actual working capital employed during the year and further as the sales & purchases are not uniform, consequent debtors and creditors were also to be uneven. He further held that segmental working capital is not disclosed in the annual reports of the comparables as well as cost of capital is also different in diff....
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....granting working capital adjustment. She otherwise submitted that according to the chart submitted by the assessee, it clearly shows that if working capital adjustment is granted, the margin of the comparables such as median margin is growing up from 21.73% to 22.38%. 19. We have carefully considered the rival contentions and find that the onus would be on the authority to compute the ALP according to Rule 10B for making reasonable accurate adjustment to the median of the comparable companies to eliminate the material effects of such differences on the price, cost or profit. 20. Rule 10B (3) PROVIDES THAT (3) An uncontrolled transaction shall be comparable to an international transaction ^96[or a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 21. In this case, it is the ....
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.... on hypothetical basis. Ld. DRP also committed same error. 24. Accordingly we direct the ld. TPO to examine the working produced by the assessee and decide in accordance with the law by carrying out economic analysis and not rejecting the same merely on hypothetical and theoretical basis. Accordingly ground No.13 of the appeal is allowed. 25. Ground No.15 is with respect to the TP adjustment of Rs. 160,24,580 on account of interest on delayed trade receivable. The assessee contends that it should not be considered as a separate international transaction and no interest can be imputed. It was further claimed that it should be benchmarked using a combined transaction of the services. The ld. TPO has computed the same holding it to be a separate international transaction and further the ld. DRP and the ld. TPO supported the above contention by citing plethora of judicial precedents. 26. The ld. AR has categorically stated that the working capital impact subsumes any excess credit period to the AEs and therefore no separate adjustment can be made. It is a combined as it is closely linked with the transaction of provision of services. Several judicial precedents were cited. The....
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.... days. In the TPSR the assessee has not considered such huge outstanding overdue receivable from its AE. The assessee has also not shown that even the comparable companies are also having outstanding due receivables beyond 1000 days. It is unusual and it purported the fact that assessee by keeping the outstanding due beyond the normal days is a transaction of capital financing. In normal circumstances no businessman would keep the outstanding due from its services receivable for more than the credit period granted. This clearly shows that the FAR of the sales of services of the assessee to its AE by keeping outstanding for abnormal number of days is not comparable with the FAR of the comparables which may or may not have such a huge outstanding period for recovery. 29. Further the issue of credit notes raised by the assessee directed by the ld. DRP has not at all been considered by the TPO. Not following the direction of the DRP is a clear violation of the provisions of law. Even rectification application stated to be made twice by the assessee is also not attended. Further despite giving finding at para 16.22 that if the invoices are prepared in foreign currency, LIBOR rate sho....
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....s that assessee should be granted the foreign tax credit of Rs. 63,29,484. 36. It is the further claim of assessee that balance sum of Rs. 330,01,867 which is an ineligible credit u/s 90/90A, should be allowed as a deduction u/s. 40(a)(ii) r.w.s. 37(1) of the Act. The assessee relied on the decision of the Hon'ble Bombay High Court in 76 taxmann.com 257 and coordinate Bench decision in 174 Taxman 76. It is the further claim of the assessee that if there is an enhancement to the returned income, the corresponding enhanced foreign tax credit shall be granted on the basis of such assessed income. 37. The assessee contested all the above contentions for admission of the additional ground as well as allowing the claim of the assessee. 38. The ld. DR vehemently opposed the admission of additional ground as well as all the contentions of deduction of foreign tax credit u/s. 90/90A as well as unclaimed foreign tax credit as deduction u/s. 37(1) of the Act. 39. We have carefully considered the rival contention and perused the order of the ld. lower authorities. We find that in the draft assessment order the computation of tax payable was not there, therefore the same could not b....