TaxTMI 
TaxTMI 
2025 (4) TMI 2337
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....ght of Rule 18(6) of ITAT Rules. ITA No. 6581/DEL/2018 [A.Y. 2014-15] 4. The grievances of the assessee read as under: "1. The Ld. Assessing Officer (AO) / Ld. Transfer Pricing Officer (TPO') erred on facts and in the, circumstances of the case in determining an arm's length adjustment to the income of the Appellant on account of alleged interest on perceived delay in collection of receivables from the Associated Enterprises (AES'), thereby, resulting in the enhancement of returned income by INR 27,48,552; 2. That the reference made by the Ld. AO to the Ld. TPO under section 92CA of the Act suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order passed under section 143(3) read with section 144C of the Act, based on which the Ld. AO concluded that it was 'expedient and necessary' to refer the matter to the Ld. TPO for computation of the arm's length price ('ALP'), as required under section 92CA(1) of the Act; 3. The Ld. AO/Ld. TPO/Hon'ble Dispute Resolution Panel ('DRP') erred on facts and in law in making an upward adjustment on account of alleged interest on p....
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.... consideration before us, the TPO considered the outstanding receivables as international transaction and accordingly proposed a transfer pricing adjustment on delayed receivables from AEs. He treated outstanding receivables (for more than 30 days) as deemed loan advanced by the Assessee to its AEs; considered State Bank of India (SBI) Prime Lending Rate ('PLR') @ 14.50% as the arm's length rate of interest and consequently proposed an adjustment of Rs. 1,01,32,562/-. 8. Thereafter, the Assessing Officer passed the draft assessment order dated 18.12.2017, u/s 143(3) read with section 144C of the Income tax Act, 1961 (Act) in conformity with the TPO order. 9. Being aggrieved by the draft order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP, vide directions dated 20.06.2018, directed the TPO to recompute the adjustment using interest rate of six months LIBOR plus 400 basis points on receivables where repayment is to be made in USD and to apply SBI PLR of 14.5% (as applied in TPO order) where loan is to be repaid in INR. Further, the DRP directed to allow the credit period as per agreement or 60 days in case no such period is mentio....
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....essee further submitted that the appropriate adjustments need to be considered to bring parity in the working capital investment of the tested party and the comparables rather than looking at the receivable independently. It is argued that such working capital adjustment takes into account the impact of outstanding receivables on the profitability. 15. The ld. counsel for the assessee further submitted that the assessee undertook working capital adjustment in its TP study. Further, the ld AR stated that the revised computation of adjusted margins was also submitted before DRP. The ld AR submitted that the arm's length price determination for the said consequential receivables is subsumed within the arm's length price determination of the principal international transaction itself and therefore no separate arm's length price determination is required once the principal international transactions are tested (which has not been disputed by the TPO). 16. Reliance was placed on the decision in the case of Kusum Healthcare Private Limited Vs. ACIT (ITA No. 765/2016 dated 25.04.2017 wherein the hon'ble Delhi High Court has held that the such adjustment is impermissible w....
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....m India (P.) Ltd. vs DCIT [2021] 132 taxmann.com 207 (Delhi - Trib.) * Toshiba Technical Services International Corporation vs ACIT: [2022] 145 taxmann.com 474 (Ahmedabad - Trib.) * Integra Software Services (P.) Ltd vs DCIT: [2022] 145 taxmann.com 460 (Chennai - Trib.) 20. Another argument forwarded by the ld AR was that the assessee is a debt free company and is not paying interest on any funds utilized by it in its business activities and placed reliance on the decision of the ITAT Delhi in the case of Bechtel India Pvt Ltd. vs DCIT (ITA No. 1478/Del/2015) (refer page 108 of case law compilation). Further, the above decision of the ITAT has also been upheld by the Hon'ble Delhi High Court (ITA 379/2016) (refer page 87 of case law compilation). The judgement has further been upheld by the Hon'ble Supreme Court (SLP (CC) No. 4956/2017). (refer page 85 of case law compilation) 21. Reliance was also placed on the following judicial pronouncements: * Bechtel India Pvt. Ltd. vs ACIT (ITA No. 7234/Del/2017) * PCIT vs Boeing India (P.) Ltd. [2023] 146 taxmann.com 131 (Delhi) * Global Logic India Ltd vs DCIT: ITA No. 1104/Del/201....
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....thin the working capital adjustment because working capital adjustment is made with reference to the opening and closing balances as on 1st April and 31st March. The ld. DR further stated that therefore, interest on delayed payments of receivables do not get subsumed in the working capital adjustment allowed to the assessee. The ld DR relied on the decision of CIT Vs Cotton Naturals I P Ltd (2015) 55 taxmann.com 523(Delhi) for the proposition that where in case of credit allowed to a customer on sale of goods, lending rate would apply. The ld DR further argued that not charging interest from nonrelated company are not relevant factor. The ld. DR also argued margin of 30% is also not relevant while considering calculation of interest on delayed realisation of receivables because interest on outstanding receivables are separate international transaction. 24. In its rejoinder the ld AR stated that all the details regarding receivables are furnished before the DRP and remand report was called for by the DRP. The ld AR further submitted that the AO and the DRP have not commented adversely about the benchmarking. The ld AR argued that the decision of Bechtel India (supra) is not follo....
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....ment Year and hence the pattern to justify undue benefit accorded could not be discerned. 29. In the case of Bechtel India Pvt. Ltd. Vs. ACIT (85 Taxman 121), after analyzing the case of Ameriprise India Pvt. Ltd (62 Taxman 237) and Mckinsey Knowledge Centre Pvt. Ltd. (77 Taxman 164) held that the interest on delayed payment of receivables cannot be subsumed in the working capital adjustment allowed to the assessee. In the case of Albany Molecular Research Hyderabad Research Center (P.) Ltd. vs. DCIT (126 taxmann.com 289), the Co-ordinate Bench of Hyderabad Tribunal held that interest on outstanding receivables is a separate international transaction and directed to charge interest by applying LIBOR + 200 Points. In the case of Apache Footwear India Pvt. Ltd. vs. ACIT (148 taxmann.com 371), the Co-ordinate Bench of Tribunal concluded that interest on outstanding receivables from the AE is required to be separately benchmarked and interest should be charged on the delayed period @ 6% on the receivables. 30. We also make it clear that interest cannot be charged on each and every receivable and has to be examined on case to case basis and the TPO has to enqu....
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.... be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. 11. The Court finds that the entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. [2012] 24 taxmann.com 199/209 Taxman 200/345 ITR 241 (Delhi)." 28. Applying the legal p....