TMI Blog2020 (1) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... making working capital adjustments of the taxpayer vis-a-vis its comparables which is less than the working capital adjusted margin of the comparables any further adjustment on account of delayed payment of outstanding receivables from AE would distort the entire picture of re-characterization the transactions. In other words, transactions as to outstanding receivables cannot be re-characterized as loan deemed to be advanced by the taxpayer to its AE. We are of the considered view that AO/DRP have erred in making addition on account of interest on outstanding receivables from AE, hence ordered to be deleted. - Decided in favour of assessee. - ITA No.4132/Del./2017 - - - Dated:- 31-12-2019 - Shri Kuldip Singh, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Ms. Rajnandini Shukla, Advocate For the Revenue : Shri Rakesh Kumar, Senior DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER Appellant, M/s. Target Sourcing Services India Pvt. Limited (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law by upholding the adjustment made by the Ld. TPO/ Ld. AO thereby by not appreciating that while making the said adjustment the Ld. TPO/Ld. AO have not satisfied the conditions set out in section 92C(3) of the Act. 4. That the Ld. AO has erred both in facts and in law, in charging interest under Section 234A, 234B, 234C and 234D of the Act and withdrawing interest u/s 244A of the Act as applicable. 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Target Sourcing Services India Pvt. Limited, the taxpayer was incorporated on 26.09.2007 in New Delhi to facilitate sourcing of goods and products from India including identification of vendors, and to provide assistance vendors in adhering to design standards communicated to them, quality control and follow up with vendor for timely delivery of the goods. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AE) as reported in Form 3CEB as under :- S.No. International Transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 7. Ld. AR for the taxpayer challenging the impugned order contended inter alia that re-characterization of outstanding receivables as loan by the TPO extended by the taxpayer to its AE and thereby imputing interest on such outstanding receivables is not sustainable in the eyes of laws; that when working capital adjustment has already taken into account the impact of receivables on the profitability, no further charging of interest is warranted; that transaction of outstanding receivables is not an independent transaction to be examined on standalone basis; that the taxpayer is a debt free company and as such, imputation of interest on account of blocked fund is unwarranted; that when taxpayer has earned higher operating profit to operating cost margin as compared to comparable companies, further addition proposed falls within +/- 3% range allowed under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PLI TSS India s Margin Working capital adjusted margins of comparables OP/OC 19.48% (29.61%) 2.1.8 The above analysis empirically demonstrates that the differential impact of working capital of the tested party vis-a-vis its comparables has already been factored in the profitability of the Assessee which is less than working capital adjusted margin of the comparables. Hence, the Assessee humbly submits that keeping in view the above factual position any further adjustment on the pretext of outstanding receivables is uneconomical, unwarranted and wholly unjustified. 2.1.8.1 Further, the Assessee would like to place reliance on the case of Kusum Healthcare Private Limited Vs. ACIT (ITA No. 6814/Del/2014)], wherein the Hon'ble ITAT has evaluated the need to undertake working capital adjustment and concurred with the contentions of the Assessee that working capital adjustment takes into account the impact of outst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit to operating cost (OP/OC), margin as compared to comparable companies further proposed addition falls within +/- 3% range allowed under the Indian Transfer Pricing Regulation. 13. Hon ble High Court of Delhi in case of Kusum Health Care Pvt. Ltd. (supra) confirmed the findings returned by the Tribunal on this issue of deferred payment of receivables by returning following findings :- 9. Mr. Raghvendra Singh, learned counsel appearing for the Revenue submitted that the ITAT overlooked the fact that the expression international transaction as defined in Explanation (i)(c) to Section 92B of the Act included payments or deferred payment or receivable or any other debt arising during the course of business , and therefore, the outstanding receivables could by themselves constitute an international transaction. He further referred to the OCED Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paras 3.48 3.49 under Chapter III para A.6.1 of the said Guidelines titled Different types of comparability adjustments spoke of the need to eliminate differences that may arise from different accounting practices ..... X X X X Extracts X X X X X X X X Extracts X X X X
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