TMI Blog2015 (2) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... d allowed to the party depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE. The transaction of sale to the AE and credit period allowed in realization of sale proceeds are closely linked as they are inter linked and the terms and conditions of sale as well as the price are determined based on the totality of the transaction and not on individual and separate transaction. The approach of the TPO and DRP in analyzing the credit period allowed by the assessee to the AE without considering the main international transaction being sale to the AE will give distorted result by disregarding the price charged by the assessee from AE. Though extra period allowed for realization of sale proceeds from the AE is an international transaction, however, for the purpose of determining the ALP, the same has to be clubbed or aggregated with the sale transactions with the AE. Even by considering it as an independent transaction the same has to be compared with the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts from Associate Enterprises. 4) The Ld. Assessing Officer erred in the facts and in law in levying of interest u/s 234B 234C of the Income Tax Act 1961. 2. Ground nos. 1 to 3 are regarding adjustment of notional interest on account of extended credit period allowed to the AE. 3. The Transfer Pricing Officer (TPO) noted that average collection period of the assessee from its AE is 351 days and 332 days in case of manufacturing of Jewellery unit and Diamond Trading unit respectively. The assessee also furnished the details of average credit realization period from the Non-AEs. The TPO noted that the average realization period from non -AE is 125 days and 209 days in case of Manufacturing of Jewellery unit and Diamond trading unit respectively. Thus the TPO found that there is a delay of 226 days and 123 days in case of Manufacturing of Jewellery unit and Diamond Trading unit respectively in realization of dues from AE in comparison to non-AEs. The TPO observed that the AE of the assessee is getting the benefit of making the late payment to the assessee and the benefit is given to the AE. Assessee has borrowed funds from from the financial institution on which it is bear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the revenue is recognized only on the basis of mercantile method of accounting then it is not necessary that the payment is to be made as soon as it becomes due. It is not a loan or borrowing which is an independent transaction and can be examined for the purpose of arm s length price on stand alone basis. The transaction is only the result of the main international transaction. Thus he has submitted that it is the policy of the assessee not to charge the interest on the credit period or delay in realization of the sale proceeds. In support of his contention he has relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Indo American Jewellery Ltd. (2014) 4 taxmann.com 310 and submitted that the Hon'ble High Court upheld the finding of the Tribunal holding that interest income is associated only with the lending or borrowing of money and not in case of sale and there is a complete uniformity in the act of the assessee in not charging interest from both the AE and non AE debtors. The Ld. Authorized Representative has also filed the details of sales to the AE and non AE as well as the average collection period from AE and non AE. He has submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR has further contended that as per the terms of agreement between the parties, the credit period is allowed only for 150 days but the TPO has allowed 180 days which is more than the period agreed between the parties. 7. In rebuttal, the Ld. Authorized Representative has submitted that only 13% of the total outstanding was realizable from the AE whereas the 87% from the non AE. Further the assessee is availing the credit from the creditors which in turn allowed to the debtors. 8. We have considered the rival submissions and relevant material on record. The assessee has reported international transaction in its TP report regarding sale to its AE from manufacture of jewellery units and diamond trading unit. The TPO accepted the price charged by the assessee from AE at arm s length. However, the TPO has made the adjustment on account of notional interest for the excess period allowed by the assessee to AE for realization of dues. The TPO applied 18.816% per annum as arm s length on the over due amounts of AE and proposed adjustment of ₹ 2,49,95,139/-. The DRP though concurred with the view of the Assessing Officer/TPO on the issue of international transaction, however, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of determining the ALP, the closely linked transaction should be aggregated and clubbed together. When the transaction are influenced by each other and particularly in determining the price and profit involved in the transactions then those transactions can safely be regarded as closely linked transactions. In the case in hand the credit period extended to the AE is a direct result of sale transaction. Therefore no question of credit period allowed to the AE for realization of sale proceeds without having sale to AE. The credit period extended to the AE cannot be treated as a transaction stand alone without considering the main transaction of sale. The sale price of the product or service determined between the parties is always influenced by the credit period allowed by the seller. Therefore, the transaction of sale to the AE and credit period allowed in realization of sale proceeds are closely linked as they are inter linked and the terms and conditions of sale as well as the price are determined based on the totality of the transaction and not on individual and separate transaction. The approach of the TPO and DRP in analyzing the credit period allowed by the assessee to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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