TMI Blog2017 (12) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... T ) wherein SLP filed in the Hon’ble Supreme Court has been dismissed. TPO/DRP/AO have erred in making adjustment on account of arm’s length interest which is not sustainable in the eyes of law, hence no adjustment on account of interest on receivables can be made Not allowing credit of advance tax, TDS, foreign tax and tax paid under MAT provision while computing the tax liability on assessed income - Held that:- While calculating the tax paid under MAT provision, it is required to be deducted from gross tax payable. Similarly, while calculating the tax credit of advance tax, TDS and foreign tax is also required to be set off first in computing the overall tax liability by the taxpayer. Particularly when tax liability of the taxpayer is higher as per peak profit computed under MAT provision of the Act, so AO is directed to recomptue the tax liability by considering the credit of advance tax, the TDS, the foreign tax and tax paid on MAT provision in the light of the decision rendered by Hon’ble Allahabad High Court in the case of CIT vs. Vacment India (2014 (10) TMI 787 - ALLAHABAD HIGH COURT ) - Decided in favour of assessee. - ITA No.1104/Del./2015 And ITA No.1115/Del./201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on', per se, under section 92B of the Act but is a consequence of an 'internal transaction' undertaken in the form of services rendered to the associated enterprise. 2.5 That the DRP/TPO erred on facts and in law in re-characterizing the alleged delay in receipts of receivables as unsecured loans advanced to the associated enterprises and making a transfer pricing adjustment on that basis. Without prejudice, 2.6 That the DRP/TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the 'international transaction' of exports and since the profit earned by the appellant as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 2.7 That the DRP/TPO erred on facts and in law in not appreciating that even after considering adjustment on account of working capital in the margin of the appellant and the comparable companies since the adjusted margin of the appellant is higher than that of comparable companies no interest ought to be imputed on the alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the DRP/TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an international transaction, per se, under section 92B of the Act but is a consequence of an internal transaction undertaken in the form of services rendered to the associated enterprise. 2.3 That the DRP/TPO erred on facts and in law in re-characterizing the alleged delay in receipts of receivables as unsecured loans advanced to the associated enterprises and making a transfer pricing adjustment on that basis. Without prejudice, 2.4 That the DRP/TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the 'international transaction' of exports and since the profit earned by the appellant as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 2.5 That the DRP/TPO erred on facts and in law in not appreciating that even after considering adjustment on account of working capital in the margin of the appellant and the comparable companies since the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.No. International Transaction Amount (in Rs.) 1 Software development and related services 1,723,446,486 2 Reimbursement of expenses from associated enterprises 107,691,808 3. The international transactions entered into by the taxpayer qua software development and related services have been found at arm s length by ld. TPO as per TP report prepared by the taxpayer. However, the ld. TPO disputed the international transactions entered into by the taxpayer qua reimbursement of expenses from Associated Enterprise (AE) to the tune of ₹ 10,76,91,808/- on the ground that realization of payments exceed from 30 days to 248 days which is on account of non-realization of payment from its AE as specified in the agreement. 4. The ld. TPO further called upon the taxpayer to show cause as to why the penal interest be not charged from the AE qua the payment made beyond the period of 30 days from the date of receipt of invoice on account of delay in realization of payment. TPO proposed a total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding receivables to its AEs has not followed the arm s length principle. ( ii) The assessee did not correctly assess the risk associated with the international transaction of non recovery of dues, the risk like foreign exchange fluctuation risk, credit risk, financial risk, business risk etc. ( iii) The assessee s cost of borrowing or availability of surplus funds is not relevant for determining the arm s length interest to be charged by the assessee. ( iv) The assessee should have used the standard of the return that it would have earned in India if money was lent here to a company with the same economic status as that of AE. ( v) The assessee has not been able to provide any substantial argument against the use of the PLR of SBI. The 14.88% rate of return on this particular rating has been calculated in a scientific manner and was also provided in the show cause notice. Hence, following the discussion in the preceding paras the interest is calculated in the Annexure 1 to 5 and made a part of this order. The ledger account details have been taken as furnished by the assessee. Based on the calculation above, the arm s length interest is det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments or deferred payment or receivable or any other debt arising during the course of business 14. Provisions contained under Explanation (i), (a) (c) of section 92B have been analyzed by Hon ble Delhi High Court in case cited as Pr. CIT-V vs. Kusum Health Care Pvt. Ltd. in ITA 765/2016 order dated 25.04.2017 , wherein it is held that the expression added in Explanation to section 92B does not mean that de hors the context, every item of receivables appearing in the accounts of an entity, which may have dealing with foreign AE, would automatically be characterized as an international transaction and decided the issue in favour of the taxpayer by returning following findings :- 10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression receivables does not mean that de hors the context every item of receivables appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to AE cannot be considered as a standalone transaction without considering the main transaction of the sale. 17. Furthermore when the taxpayer is undisputedly a debt free company, as it is not the case of the ld. TPO that borrowed funds have been appropriated enabling the AE to make the delayed payment on receivables. So when outstanding receivables is not a separate international transaction, the delay in realization of the sale proceeds is incidental to the transaction of sale and as such no notional interest can be levied by treating the same as unsecured loan. 18. Furthermore it is the case of the taxpayer that when the taxpayer is not charging interest from unrelated third party / non- AE, in case of such delay, no adjustment on interest in case of AE can be made and drew our attention towards the details of invoices raised qua unrelated parties available at page 183A of the paper book wherein delay in realization of the receivables is also up to 218 days for AY 2010-11 and up to 417 days qua AY 2012-13 as per detail of invoices raised on unrelated parties qua AY 2012-13, available at page 236 of the paper book. 19. This issue has been dealt with by Hon ble Bombay Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court has been dismissed. 23. In view of what has been discussed above, TPO/DRP/AO have erred in making adjustment on account of arm s length interest which is not sustainable in the eyes of law, hence no adjustment on account of interest on receivables can be made. So, Grounds No.2 to 2.9 are determined in favour of the taxpayer. GROUNDS NO.4 5 ITA NO.1104/DEL/2015 (AY 2010-11) AND GROUNDS NO.3, 4 5 ITA NO.1115/DEL/2017 (AY 2012-13) 24. AO has not allowed credit of advance tax, TDS, foreign tax and tax paid under MAT provision while computing the tax liability on assessed income. 25. We are of the considered view that while calculating the tax paid under MAT provision, it is required to be deducted from gross tax payable. Similarly, while calculating the tax credit of advance tax, TDS and foreign tax is also required to be set off first in computing the overall tax liability by the taxpayer. Particularly when tax liability of the taxpayer is higher as per peak profit computed under MAT provision of the Act, so AO is directed to recomptue the tax liability by considering the credit of advance tax, the TDS, the foreign tax and tax paid on MA ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
