TMI Blog2017 (3) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... eceivables did generate from international transactions carried on by the assessee with its AE outside India. Therefore, there is no basis for argument that no adjustment could be made towards notional interest or receivables from AE. The outstanding receivables from AE is financial result of international transactions concluded by the assessee and therefore, the income effect arising, if any, to that outstanding receivables is very much relevant aspect of ALP. Therefore, the TPO is having the jurisdiction to examine the issue of outstanding receivables or non-charging interest thereon. As in the present case, the credit period extend by the assessee to its AE is very longer period, sometime it is more than one year the contention of assessee that there can be no separate transfer pricing adjustments towards notional interest on outstanding receivables rejected.- Decided against assessee - I.T.A.No.3305/Mds./2016 & S.P. No.20/Mds./2017 - - - Dated:- 9-2-2017 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND Shri Duvvuru RL Reddy, JUDICIAL MEMBER For The Appellant : Mr.Sandeep S.Karhail, Advocate For The Respondent : Mr.Pathalavath Peerya, CIT D.R ORDER PER C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R submitted that the assessee was mainly involved in provision of software services. Transfer pricing Officer held that outstanding receivables as a separate international transaction of interest-free advances to AEs and that the same cannot be treated as part of transaction of services for benchmarking purposes. Thus even while not finding any fault in the TP analysis and benchmarking of international transaction of services is carried out by assessee including making working capital adjustment, TPO adopted prime lending rate of 14.4% and proposed an adjustment of ₹ 11.10 crores to total income. Before the DRP Proceedings, detailed objections were filed by appellant contesting approach of treating outstanding receivables of the separate international transaction although closely and inextricably linked to the main transaction of provision of software development services which are found to be at arm s length after making necessary adjustments on account of working capital. Appellant also objected to quantification of interest well beyond a period of previous year under consideration by application of prime lending rate. According to ld.A.R, applying TNNM, the international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse contrary decision of any other High court, therefore, Appellant respectfully prays for application of similar principles in this case and deletion of adjustment made by TPO. Further, ld.A.R relied in the case of CIT Vs. Smt..Godavari Devi Saraj, in 113 TR 589(Bom.). 5. On the other hand, ld.D.R referred the amendment in Explanation-2 of the Act and submitted that receivables fall under the definition of international transaction. He also referred the memorandum of Finance Bill, 2012 whereby the Explanation to Sec.92B has been inserted and submitted that the definition of term International taxation has been explained and includes the capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business. He submitted that the deferred payment or receivables or debt arising during the course of business is covered under the expression International Taxation . As per clause (c) of Explanationto Sec.92B of the Act. In support of that he relied on the judgement of Bangalore Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts even beyond the normal period, which shows that the assessee is financing its AE by accommodating the delayed remittance. In the present case, the assessee parked a huge amount of funds for a longer period with its AE. It was only because the pricing of international taxation has been accepted for ALP test, it is not possible to hold that the TPO should not go into this question of parking of huge funds with its AE. If the funds are repatriated to India, the assessee would have been in a position to earn better profit from appropriate investment of those repatriated funds. This potential loss is definitely a factor to be considered while evaluating the financial impact of the international taxation concluded by the assessee with its AE. Therefore, in our opinion, it is required to keep the TP adjustments towards notional interest on receivables. The purpose of TP adjustments is in the larger context of anti-evasion measures. The outstanding balance of the receivables from the AE did not generate out of domestic transactions. Those receivables did generate from international transactions carried on by the assessee with its AE outside India. Therefore, there is no basis for argum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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