2017 (5) TMI 965 - ITAT DELHI

Determination of ALP of the international transaction of interest on receivables from AEs - working capital adjustment - Held that:- Interest for credit period allowed as per the agreement is given in the price charged for rendering of services. Whereas the non-realisation of invoice value beyond the stipulated period is a separate international transaction whose ALP is required to be determined. Granting of working capital adjustment is confined to the international transaction of rendering of services, whose ALP is separately determinable. On the other hand, the international transaction of interest receivable from its AEs for late realization of invoices beyond such stipulated period is a separate international transaction. Allowing working capital adjustment in the international transaction of rendering of services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs beyond the stipulated period allowed as per agreement.

Also if an invoice is raised during the year and the proceeds are realized within the year, but, beyond the stipulated period of agreement, then, the same will not come within 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. Therefore, respectfully following the decision of Ameriprise India Pvt. Ltd. (2015 (8) TMI 652 - ITAT DELHI) and, again, in the case of Mckinsey Knwledge Centre Pvt. Ltd. [2017 (5) TMI 830 - ITAT DELHI] we reject the assessee’s contention that the interest on delayed payment of receivables get subsumed in the working capital adjustment allowed to the assessee.

Also argument that since it was debt free fund company, which finding is not disputed, therefore, no interest could be attributable on the late realization of receivables is to be rejected at the threshold because, as noted earlier, interest on delayed realization of receivables is a separate international transaction and, therefore, requires separate benchmarking. It has nothing to do with the operations of the assessee company being with the debt free funds only.

Selecting of ad hoc interest rate of LIBOR+400 bps while computing the addition - Held that:- We find that the ld. DRP has directed to compute the adjustment using the rates of six months LIBOR + 400 bps on receivables which are to be paid to the assessee in US $ in accordance with the decision in Cotton Naturals (2015 (3) TMI 1031 - DELHI HIGH COURT) wherein it has been held that it is the current year in which the loan is to be repaid which determines the rate of interest and, hence, the prime lending rate should not be considered for determining the interest rate. We, therefore, do not find any reason to take a different view on this issue.