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2022 (6) TMI 1361 - AT - Income TaxTP Adjustment - calculation of interest on delayed receivables - separate international transaction - TPO has held that the outstanding receivables from the AE is in the nature of loans and calculated the interest on receivables from AE by following CUP method - TPO added 100 basis points towards currency risk and arrived at the applicable rate of LIBOR + 400 points which worked to 4.836% - Whether interest on receivables is separate international transaction and requires benchmarking separately? - credit period considered by the DRP at 30 days - HELD THAT:- As relying on case of Applied Materials India Pvt. Ltd. v. ITO [2022 (6) TMI 1357 - ITAT BANGALORE] interest on receivable is a separate international transaction which has been rightly considered by the TPO/DRP. Determination of ALP in respect of interest on receivables - We notice that the coordinate Bench of the Tribunal in the case of Barracuda Networks India Pvt. Ltd. [2022 (5) TMI 322 - ITAT BANGALORE] the issue with regard to determination of ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid. Thus we are of the view that the issue has to be restored back to the AO/TPO for determination of ALP afresh with appropriate benchmarking. Assessee has entered into a service agreement with its AE with regard to providing ITeS on 1.10.2009 and later entered into amendment agreement on 26.12.2003 whereby clause 2.3 of the original agreement was amended to increase the credit period to 90 days. This fact has not been taken into consideration by the DRP - Thus direct the TPO to consider the credit period of 90 days while determining the ALP afresh, after providing reasonable opportunity of being heard to the assessee. The assessee is directed to provide the relevant details for fresh benchmarking of the ALP with regard to interest on receivables. With these observations, we set aside the order of the DRP on this issue and remit it back to the AO/TPO for fresh decision. Appeal by the assessee is partly allowed.
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