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2019 (7) TMI 1899 - AT - Income TaxTP Adjustment - selection of MAM - RPM OR TNMM - determination of Arm’s Length Price (ALP) in respect of an international transaction of sale of reagents by the Assessee to its Associated Enterprise (AE) - HELD THAT:- As decided in own case [2019 (6) TMI 601 - ITAT MUMBAI] RPM was the MAM and directed the TPO to determine ALP applying RPM as the MAM. Assessee sells re agents (chemicals) after purchase from AE but to use re agents the customer has to possess analysers, which is given free of cost by the Assessee. Therefore, the Assessee is not merely indulging in simple trading in reagents. Perusal of the order of the Tribunal for AY 2010-11 would show that the same reasons were given by the TPO in AY 2010-11 for coming to the conclusion that the Assessee is not a reseller simpliciter and therefore RPM cannot be the MAM. The findings recorded by the Tribunal of its order for AY 2010-11 would show that manufacturing activity had not commenced in that year and this fact remains the same for AY 2011-12 also. The finding in the same paragraph by the Tribunal is that the Assessee purchases and sells re agents and chemicals without any value addition. The tribunal has also recorded a finding that analyzer, spares and consumables, though were imported, however, they were not sold but were provided in the laboratories/diagnostics units of the third party customers for testing and research activity. In the light of similarity of facts in AY 2011-12 & 2010-11, we are of the view that the decision rendered by the Tribunal in AY 2010-11 would equally apply to AY 2011-12 also. Following the aforesaid decision of the tribunal we hold that RPM is the MAM for determining ALP. Computing arm's length interest in respect of receivable outstanding from the AEs beyond six months as on 31.03.2011 - normal credit period was only 60-90 days whereas the Assessee had allowed credit period of more than 700 to 800 days - whether allowing a greater period of payment to the AE would be an international transaction and income from such arrangement should also be determined having regard to Arm’s Length Price as laid down in Sec.92? - HELD THAT:- In the present case, admittedly the receivables relate to transactions in FY 2007-08 & 2008-09.TPO has not spelt out as to what is the nature of the receivables and whether it had any relation with any international transaction of those years and what is the position with regard to the ALP of those transactions, whether working capital adjustment were made while determining ALP of connected international transaction, what is the effect of payables by the Assessee to the very same AE and on what account these payables were due to the Assessee, whether in the circumstance where there is receivables as well as payables from the very same AE, can you say that there is any real benefit of longer credit period allowed to the AE in respect of receivables from AE. Without an analysis of all these facts, it is not possible to come to a conclusion that allowing longer credit period to the AE was an international transaction and income from such transaction has to be determined having regard to ALP. The issue requires to be set aside to the TPO for examination afresh of the question whether allowing longer credit period was in the nature of an international transaction in the facts and circumstances of the case. TPO will decide the issue afresh after affording opportunity of being heard to the Assessee. Rate of interest to be adopted - as assuming that there was an international transaction, we are of the view that the CIT(A) has rightly applied LIBOR rate + 3% as the appropriate rate of interest, taking note of the judicial pronouncements on the issue including in the case of CIT v. Cotton Naturals (I) Private Limited[2015 (3) TMI 1031 - DELHI HIGH COURT] wherein it was held that Arm’s length interest rate needs to be the market-determined rate applicable to the currency in which the loan has to be repaid. Therefore there is no merit in the appeal by the revenue.
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