TMI Blog2018 (1) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... M.: This appeal by the assessee is directed against order dated 10/10/2017 passed by the Ld. Additional Commissioner of Income Tax, Special Range -3, New Delhi (hereinafter will be referred as the Assessing Officer ) for assessment year 2013-14. The impugned assessment order has been passed by the Assessing Officer in compliance to the direction dated 22/09/2017 of the Ld. Dispute Resolution Panel (DRP). The grounds of appeal raised by the assessee are reproduced as under: On the facts and circumstances of the case and in law, the learned Additional Commissioner of Income-tax, Special Range - 3, New Delhi ( AO ) has erred in passing the assessment order under Section 143(3) of the Income-tax Act, 1961 ( the Act ) after considering the adjustments proposed by the Deputy Commissioner of Income-tax, Transfer Pricing Officer 1(2)(1) and 1(2)(2) ( TPO ) in his order passed under Section 92CA(3) of the Act as confirmed by the Hon ble Dispute Resolution Panel ( DRP ). Each of the ground is referred to separately, which may kindly be considered independent of each other and without prejudice to each other. Transfer Pricin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.3. That, without prejudice, the learned AO/ learned TPO/ Hon ble DRP have inadvertently erred, in facts and in law, by considering gross instead of net outstanding receivables while determining the adjustment towards interest on receivables. 3.4. Without prejudice, the learned TPO/Hon ble DRP have erred, in facts and in law, in considering the SBI base rate instead of London Interbank Offered Rate ( LIBOR ) while calculating notional interest on alleged delays in realization of payment from the AEs as the invoices were raised on the AEs in foreign currency i.e. USD. 4. That the learned AO/ Hon ble DRP have erred, in facts and in law, on the circumstances of the case and in law by alleging that the Appellant has furnished inaccurate particulars of income, thereby proposing to initiate penalty proceedings under section 271 (1 )(c) of the Act. 5. The learned AO erred, in facts and in law, by proposing to levy consequential interest under section 234B and 234C of the Act mechanically and without. 2. The briefly stated facts of the case are that the assessee is a wholly-owned subsidiary of D.E. Shaw Co. (Mauritius) and during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .08%. In view of the adjusted margin of the comparable being less than the margin of the assessee, no adjustment was proposed by the Ld. TPO to the international transactions carried out by the assessee. 2.4 During the transfer pricing proceedings, the Ld. TPO found that there was delay in realization of the various invoices raised by the assessee i.e. receivable and according to him the transaction of the assessee of extending prolonged interest free credit to its AEs was in the nature of international transaction and need to be benchmarked separately. 2.5 According to the Ld. TPO receivables constituted international transaction due to following reasons: 1. As per amended Explanation (1)(c) to section 92B of the Act which has been inserted by the Finance Act, 2012 w.e.f. 01/04/2002, the term international transaction includes capital financing including any type of receivables. 2. As per the provision of section 92B(1) of the Act, the arrangement between two AEs for allocation or apportionment of or any contribution to, any cost or expense incurred or to be incurred in connection with the benefit, service or facility provided or to be provided to anyone or more of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the interest rates prevailing in India. The CUP therefore being used is the prime lending rate of SBI. 2.8 The Ld. TPO computed interest at the rate of 14.5% per annum in respect of the invoices where amount remained outstanding for more than 60 days. In this manner, the Ld. TPO computed the adjustment to ₹ 1,52,70,594/- in his order dated 10/10/2016 passed under section 92CA(3) of the Act. 2.9 After incorporating the adjustment proposed by the Ld. TPO, the Assessing Officer issued a draft assessment order. The assessee filed objections against the adjustment proposed in the draft assessment order before the Ld. DRP and challenged that the receivables is an international transaction as well as challenged the benchmarking of the transaction applying SBI base rate of 14.55%. The Ld. DRP upheld the receivable as international transaction. On the issue of benchmarking, the Ld. DRP observed that receivables are denominated in Indian Rupees (INR) and not in foreign currency and, thus, following the decision of the Hon ble Delhi High Court in the case of CIT Vs. Cotton Naturals (I) Pvt. Ltd., ITA No.233/2014, dt. 27th March, 2015, the interest rate of SBI base rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny specific time period within which AE is required to make payment to the assessee in respect of outstanding receivables, if any. The copy of service agreement is placed at PB 232 247 Early or late realization of service proceeds is incidental to the transaction of service, and not a separate transaction. Further, the TP adjustments cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. The Payment paragraph in the service agreement between the assessee and AE (PB 235) does not provide for any fixed payment period within which AE is required to make payment to the assessee. Further, it is important to mention here that the aassessee company is a debt-free company, as is evident from its Balance Sheet at PB 203. Therefore, since the funds have not been borrowed by the assessee company, there is no question of charging any interest further on its receivables. Also, the TPO had carried out detailed analysis of working capital adjustment to the international transactions carried out by the assessee, which is evident from Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company enclosed at PB 7. 2. Assessee submitted the invoice-wise details of receivables and payables from/to AE vide its letter dated 22.08.2016, which are enclosed at PB 248 272 3. Now, even if an adjustment on account of interest on receivables is to be made, it should be restricted to net outstanding receivables during the year, and not on the gross outstanding receivables. 4. Reliance is placed on the judgment of this Hon ble Tribunal in the case of Bentley System India Pvt. Ltd. v. ACIT in ITA No. 6161/Del/2013 dated 04.11.2015, where similar view has been upheld by the Hon ble ITAT. The relevant findings in this regard are as under: 11. We have heard the rival submissions and perused the material available on record. On a consideration of the entire factual matrix where the issue of Amendment by Finance Act, 2012 in terms of insertion of Explanation to Section 92B with retrospective effect from 01.04.2003 as considered by the Co-ordinate Bench in the decision of Ameriprise India Pvt. Ltd. is relied upon by the Id. CIT DR and considering the proposition of law as laid down by the Hon ble Bombay High Court in the case of Vod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and payables from/to the AEs. It is also seen that while making the adjustment, TPO has not calculated the notional interest by considering the average time taken by the AE for making the payment to the assessee. Hon ble Delhi High Court in the case of Principal Commissioner of Income Tax vs Kusum Health Care Pvt. Ltd. in I.T.A. No. 765/2016 vide judgment dated 25th April, 2017 has laid down in Paras 10, 11 and 12 as under:- 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 characterized 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 factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Year, the figure of receivables in relation to that AY could hardly reflect a pattern that would justify the TPO to reach a conclusion that the figure of receivables beyond prescribed number of days constituted an international transaction by itself. In the present appeals before us, no such in-depth analysis of the receivables has been made by the TPO. Accordingly, we deem it appropriate to restore the issue of interest on receivables in all the three years to the file of Assessing Officer/TPO for recalculating the interest on receivables in conformity with the ratio of judgment of the Hon'ble Delhi High Court in the case of Kusum Health Care Pvt. Ltd. (supra). The assessee will be given due opportunity by the Assessing Officer/TPO before such an adjustment is recalculated. This ground stands allowed for statistical purposes in all three Assessment Years. 10. We note that in the preceding years decided by the Tribunal (supra) normal credit period of 30 days was allowed by the Ld. TPO for realization of the receivables and calculated the interest on period exceeding 30 days while making the adjustment for interest. In the instant case the Ld. TPO has allowed credit p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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