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2019 (7) TMI 1316 - AT - Income TaxTP Adjustment - ALP determination - MAM selection - receipt of management services from AEs - HELD THAT:- We do not agree with the TPO that ALP is ‘NIL’ and he analysed the management services on benefit test. There is no such method in the TP study. You cannot adopt a method which is not embedded in the study. It is difficult to prove the services in terms of numbers but it can be seen only in ease of doing business in India and satisfaction of the farmers who are availing the services. Without the integrated services, the assessee would not have achieved the results. TPO should have made separate bench marking for all the international transactions. But, he chose to accept the TNMM on the basis for allowing other international transactions. In our view, for the management services, TPO should evaluate the nature of services and the compensation for the same and should be bench marked separately considering the compensation adopted by the assessee. It may be classified under Royalty or FTS. We noticed that the additional evidences submitted by the assessee in paper book are all relating to assistance to assessee on the regular business and assistance in processing and administration issues. This is in support of overall system introduced in the business i.e. like ERP solutions. TPO should bench mark this transaction separately and we do not agree with TPO that the ALP for this transaction as “NIL”. Accordingly, this issue is remitted to the file of TPO to bench mark the transaction separately and grounds raised by the assessee are partly allowed. Recharacterization of Compulsory Convertible Debentures & interest thereon - TPO noted that the assessee has stated that it paid interest @12% on the debentures allotted to its AE and compared the same with PLR and concluded the transaction is within arm's length as the PLR is more than the interest charged by the assessee company to it's AE - HELD THAT:- As in assessee's own case [2017 (1) TMI 893 - ITAT HYDERABAD] coming to the issue of adopting the benchmark rate in Indian context, assessee has justified the ALP not only on the basis of SBI PLR, which was at 12.26% for the year under consideration, but also from the data from NSDL website in which average coupon rate ranged from 0.50% to 16.50% with an arithmetic mean of 12.50%. These rates were already before the TPO. Therefore, we are of the opinion that there is no need to restore the matter to the file of the AO for re-examination, when assessee has justified the issuance of CCDs at 12%. In view of that we are of the opinion that the rate at which the CCDs were given are within the range, therefore, no further addition can be considered under the TP provisions. In view of that, the addition so made is deleted and grounds of the assessee considered allowed Interest on outstanding receivables - average collection period computation - 90 days or 6 months - HELD THAT:- As relying on NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD., VERSUS ASST. COMMISSIONER OF INCOMETAX, CIRCLE – 16 (1) , HYDERABAD. [2019 (1) TMI 1598 - ITAT HYDERABAD] we remit this issue back to the file of TPO to calculate the average collection period for this AY and determine the adjustment as per the above directions. Accordingly, the grounds raised by the assessee on this issue are treated as allowed for statistical purposes. Addition u/s 14A - HELD THAT:- Assessee has not incurred any direct expenditure and with regard to interest expenditure, all the interest paid were towards committed loans like CCD, working capital loan etc. there is no other interest payment towards general category and there was no fresh investment in this year. We are in agreement with the assessee and we direct the AO not to disallow interest under rule 8D(2)(ii). With regard to disallowance under rule 8D(2)(iii), we are not in agreement with the assessee that there is no administrative expenses for the investment, even though, there is no fresh investment, still assessee has to follow up with the investment. Therefore, we sustain the disallowance under rule 8D(2)(iii). Accordingly, ground raised by the assessee is partly allowed.
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