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M/s Avnet India Pvt. Ltd. Versus The Deputy Commissioner of Income-tax, Central Circle-11 (1) , Bangalore

2016 (1) TMI 410 - ITAT BANGALORE

Transfer pricing adjustment - whether the transaction of receivable is outside the purview of international transactions as argued by assessee - as per assessee the notional interest should be calculated on the net amount i.e after adjusting the amount due and paid to the AE by the assessee company - Held that:- The assessee company reported international transactions in its TP report. On a reference by the AO, the learned TPO accepted that the price charged by the assessee company on these tran .....

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dent transaction. It is an integral part of transaction of sale made to the AE and therefore, it has to be considered alongwith the main transaction. The similar issue had come up for consideration before the Co-ordinate Bench of Mumbai in the case of M/s Goldstar Jewellery Ltd [2015 (2) TMI 58 - ITAT MUMBAI ] wherein held both the TPO and the DRP has taken into consideration the lending rates, however, this is not a transaction of loan or advance to the AE but it is only an excess period allowe .....

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or late realization of sale proceeds is only incidental to transaction of sale, but not a separate transaction in nature. Since we hold that the impugned transaction of interest on delayed realization of sale proceeds is not international transaction, it is not necessary to adjudicate upon the additional grounds raised by the assessee company. - Decided in favour of assessee partly allowed for statistical purposes. - IT(TP)A No.757(Bang.)/2011 - Dated:- 18-11-2015 - SHRI ASHA VIJAYARAGHAVAN, JUD .....

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ny are as under: 1.The order the learned AO and the directions of the ld.DRP is opposed to the law and facts of the case. 2. The order of the ld.AO and the directions of the ld.DRP is fraught with the following errors in judgment. a. Widening of the definition of the term International Transactions is not permissible. i. The delay in the collection of the amount due by its customer who is an Associated Enterprise being treated as a loan by bringing it within the purview of the definition of Inte .....

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the above, the assessee objects that the reference made y the ld. AO related only to the point of ALP in respect of international transactions of provision of service and the said reference does not cover an alleged interest free loan transaction supposed to have been entered into by the assessee and the potential loss raising there from and, therefore prior to the insertion of sec.92CA(2A) w.e.f.1.6.2011, the TPO could not have exercised jurisdiction on any new transaction which was not referr .....

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nce, viewing such customer dues as an independent transaction is incorrect and unknown to the trade and law. v. The direction by the DRP, is an attempt to widen the scope of the definition of international transaction even by importing a deeming fiction to the section -which is against the well settled principles of interpretation of statutes. vi. The direction has erred in holding that the decision by the Hon ble Mumbai ITAT in the case of Nimbus Communications Ltd. Vs ACIT is not applicable to .....

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s, the ld.TPO ought to have considered only similar transaction in the case of comparable companies. The learned TPO ought to have verified the debts due for more than six months in the case of all published accounts and found out the interest charged/earned by the comparable companies in such a situation and applied the same rate of interest in the instant case. ix. The ld.TPO ought to have appreciated that in the case of comparable companies, when their customer delay the dues, no interest is .....

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ome/a deliberate act to conceal any particular - thus not warranting levy of penalty under section 271. c. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the AO in so far as it relates to above issue may be dropped. d. The assessee craves leave to add, alter, amend and delete any of the grounds that may be urged at the time of hearing . 2.1 The assessee company has also raised additional grounds which are as under; Additional Grounds: 1. The .....

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received or deemed to be so accrued or received. 3. At any rate and without prejudice, outstanding are not an international transactions but only represent the effect of an international transaction to which the provisions of Chapters X do not apply. 4.Without prejudice, the rate of interest adopted for imputing the interest income is very excessive . 3. The facts of the case are that the assessee company is a 100% subsidiary of Avnet Holdings LLC. Since its inception it has been providing mark .....

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sessment year under consideration, the assessee company had reported the following international transaction with its AE in Form 3CEB, as under; Nature of Transaction 3CEB Amount in INR Clause Ref of Purchase of Traded goods 184,140,707 8(B) Commission earned on services 248,414,083 10 Reimbursement of expenses 28,544,874 10 Cost allocation (payable) 2,636,880 12 4. The learned TPO found the above transactions at Arm s Length. However, the TPO made adjustment of ₹ 2,66,55,491/- on account .....

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)(a) of the IT Act, the arm s length interest is determined by following CUP method wherein the interest rate is determined under the circumstances in which the tax payer and its associated enterprises are opening i.e what is the interest that would have been earned if such credit in the form of working capital loan given to unrelated parties in similar situation as that of associated enterprises. Since the tested party is tax payer, the prevalent interest that could have earned by the tax payer .....

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o interest is chargeable on the receivables based on business prudence . 4.1 Consequent to the TPO order, the learned AO passed a draft assessment order dated 25-08-2010 incorporating the adjustment proposed by the learned TPO. 5. Being aggrieved by the draft assessment order, the assessee company filed objections before the Hon ble DRP contending inter-alia that extension of credit period cannot be treated as international transaction, and the TPO had no jurisdiction to determine whether a tran .....

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should be calculated on the net amount i.e after adjusting the amount due and paid to the AE by the assessee company c) Since the main transaction of sales to the AE is found to be at arm s length, no further adjustment is required to be made. In support of this proposition of law, he relied on the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of M/s Goldstar Jewellery Ltd. Vs JCIT in ITA No.6570/Mum/2012 dated 14-01-2015 also in the case of CIT Vs M/s Cotton Naturals (I) Pvt .....

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llowed by the assessee- company to its AE for realization of its dues. The TPO applied 14% of interest on the outstanding amount of Rs. The learned DRP also had also concurred with the finding of learned TPO. There is no dispute that the transaction in question falls within the ambit of international transactions u/s 92B of the IT Act. However, this transaction is not an independent transaction. It is an integral part of transaction of sale made to the AE and therefore, it has to be considered a .....

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rs 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. As per Rule 10A(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purp .....

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nt transaction is carried out and dependent wholly or substantially on the earlier transaction. In other words, if two transactions are so closely liked that determination of price of one transaction is dependent on the other transaction then for the purpose 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 transaction then those t .....

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fluenced 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 the AE without considering the main internationa .....

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