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2022 (9) TMI 587 - Income Tax
TP adjustment - upward adjustment in imputing notional interest on the outstanding overdue receivables from Associated Enterprises - HELD THAT:- As working the assessee’s margin is significantly higher than the operating margin of the comparable companies. There may be a delay in the collection of receivables even beyond the agreed time limits due to a variety of factors which has to be decided on a case to case basis. When TNM method is considered as the most appropriate method, which was also not disputed by Revenue, the net margin thereunder would take care of such notional interest cost. It was further explained by Ld.AR that the impact of the delay in collection of receivables would have a bearing on the working capital of the assessee. We find that these working capital adjustments on the ALP has been already factored in its pricing / profitability vis-à-vis that of its comparables. We therefore are of the considered view that any further adjustment to the margin of the assessee on the outstanding receivables cannot be justified and no separate upward adjustment on outstanding export receivables is required and therefore we direct the Ld.AO to delete the upward adjustment made towards overdue receivables from AE. We therefore allow this ground raised by the assessee.
Adjustment towards corporate guarantee commission on the gross guarantee given to AE - AR pleaded that it is not an international transaction as the assessee has not charged the AE - HELD THAT:- TPO made the adjustment by instances referring to the commercial banks providing financial guarantees but did not contemplate the issue of corporate guarantee. The concept of bank guarantees and corporate guarantees was explained in the case of Prolifics Corporation Ltd[2015 (1) TMI 551 - ITAT HYDERABAD] by the Hyderabad Tribunal wherein it has observed that the provisions of corporate guarantee always involves risk and there is a service provided to the AEs in increasing its creditworthiness in obtaining loans in the market.
We find that there must be a minimum charge on the P & L Account but there is an enhanced risk which cannot be ruled out in providing guarantees. Ultimately, the Hon’ble Tribunal upheld the adjustment made on guarantee commissions given to AEs. We find merit in the arguments of the Ld. AR that the rate of corporate guarantee should be restricted to the amount utilized by the AE, @ $ 11.5 Million USD, but should not be applied on the gross corporate guarantee. In view of the above discussion and by respectfully following the ratio laid down in the case of CIT vs. Everest Kanto Ltd [2015 (5) TMI 395 - BOMBAY HIGH COURT] we are of the considered view that the corporate guarantee commission is an international transaction and should be charged @ 0.50% on the corporate guarantee amount utilized, by the AE. We therefore allow the grounds raised by the assessee.
Disallowance u/s 14A - Assessee argued assessee has not earned any exempt income - HELD THAT:- We find from the records submitted by the Ld. AR that the assessee has not earned any exempt income during the relevant assessment year mandating the invoking of provisions of section 14A of the Act. The Hon’ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd [2018 (7) TMI 567 - SC ORDER] has dismissed the SLP of the Revenue and held that section 14A can only be triggered if assessee claims any expenditure against an income which does not form part of the total income under the Act. The Hon’ble Supreme Court further observed that Rule 8D only provides for a method to determine the amount of expenditure incurred in relation to income which does not form part of the total income of the assessee. Appeal of assessee allowed.