TMI Blog2019 (4) TMI 1820X X X X Extracts X X X X X X X X Extracts X X X X ..... any expenditure towards the corporate guarantee. The revenue could not bring any evidence to establish that the assessee had incurred any expenditure for extending the corporate guarantee. As stated by the Ld.AR it is the obligation on the part of the assessee to extend the support and assistance to its subsidiaries for business development. Since the facts are identical, respectfully following the view taken by coordinate benches in the case laws cited, we hold that the corporate guarantee given by the assessee on behalf of its AE would not constitute an international transaction within the meaning of 92B of the Act. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue - I.T.A. No. 348/VIZ/2018 - - - Dated:- 3-4-2019 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For the Appellant : Shri D.K.Sonowal, DR For the Respondent : Shri Ramesh Babu, AR ORDER PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the revenue is against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-1, Guntur vide Appeal No.10198/2017-18 dated 06.04.2018 for the Assessment Year (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO informing invoices raised, amount realizable and date of realization including the number of days the credit was extended. This fact has been verified from the documents submitted and found correct. Hence, the assertion of the TPO that bifurcation was not provided is not correct. The appellant contends that considering the extra credit period allowed to the AEs, the price has been charged suitably at a higher rate when compared to the non-AEs. A comparative statement has been submitted to demonstrate that the price charged to the AEs is more than 9.84%. The appellant also contends that the TPO has taken the comparable which is not on the record of the appellant company. It is also pleaded that sample sale of 500 Kgs to a particular party and that too a new party cannot be compared when the AEs were purchased around 864 MTs of goods. The appellant relied on the several decisions and requested to delete the addition. The Id. TPO relied on the decision of Hon'ble ITAT Bangalore in the case of MIs. Logix Micro Systems Ltd. The facts of that case are distinguishable from the facts of the present case. Hence, the ratio of the said decision cannot be applied straight away. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AE and thus it could not be reckoned that assessee had given any benefit to AE by blocking its interest- bearing funds to AE by extending credit period - Held, yes - Whether therefore, transfer pricing adjustment, as made by TPO, by imputing interest on delay in receipt of payment was uncalled for and same was directed to be deleted - Held, yes Hon'ble High Court of Delhi in the case of Kusum Healthcare Pvt. Ltd (ITA 765/2016, dated 25-04-2017) held that inclusion of receivables in Explanation W Sec.92B of the Act does not mean that all the receivables are in the nature of international transactions. It has to be decided on the case to case basis. In view of this face, as the appellant contended that pricing has been fixed to take care of longer period of credit period should have been considered by the TPO. The appellant also relied on the decision of Hon'ble ITAT Delhi in the case of BC Management Services (P.) Ltd (83 taxmann.com 346) and requested to delete the adjustment. The Hon'ble Tribunal held that TP adjustment on receivables regarding extended credit period is not called for on the basis of the company is debt free one. The relevant part of the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coordinate Bench held that no separate benchmark is required on receivables when PLI is comparable. For the sake of clarity and convenience, we extract para No.17 and 17.1 of the said order which reads as under : 17. We have heard both the parties and perused the material placed on record. In this case, there were receivables outstanding for both the assessment years which was not received in time. It was also observed that the receivables were not received during the entire year. The Ld.TPO has not furnished the delay in recovery of receivables and period of outstanding. As per the order of the TPO, the PLI margin in the assessee s case is 37.26% which is higher than the average margin of comparable case. The interest on receivables is bench marked to equate the PLI of the tax payer company with that of comparable company. The TPO has accepted that there is no arm length adjustment is required in this case on account of margin. The AO has not brought on record to show that the assessee has extended undue credit to the AE for the period beyond the time specified in the master service agreement. The AO has also not made out a case that there was any undue advantage by extending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the authorities below. It may also be noted here that all international transactions were accepted by the TPO to be at arm's length, except, payment of interest on loan. The authorities below have treated the delayed payment beyond 30 days as loans. In fact, no loan have been extended by the assessee. It was the amount due' against the A.Es. as well as non-A.E. on which interest have been charged by considering the deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra), squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstandings. The decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. Kusum Healthcare Pvt. Ltd.,(supra), squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non-A.Es which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that the revenue has not made out case of disallowance of notional interest on delayed payments and accordingly, we set aside the orders of the authorities below and delete the addition. The appeal of the assessee on this ground is allowed. 17.1. In the instant case the PLI is higher than comparable cases and the TPO held that no ALP adjustment is required with regard to profit margin. The assessee contended that having accepted that the PLI is higher than the comparable cases the potential loss of interest is taken care and embedded in the sale price. The department has not given the specific details such as what was the period of recovery, what was the delay, what was the reasonable delay etc., thus the department has not made out a case for charging the interest on delay. The revenue also did not controvert the submission of the assessee that due to higher margins and the long term relations and business considerations the right of interest is waived. In the case of M/s Cura Technologies supra Hon ble ITAT , Hyderabad bench has held that no interest required to be charged on trade advances. Similar view was taken by the ITAT, Hyderabad in the case of M/s Bartronics supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deemed loans. Therefore, the decision of ITAT, Delhi Bench in the case of M/s. Kusum Healthcare Pvt. Ltd., (supra) squarely apply in the case of the assessee, since the assessee earned significantly higher margin than the comparable companies, which have been accepted by the TPO, therefore, there was no justification to charge interest on outstanding. The decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT v. Kusum Healthcare Pvt. Ltd. (supra) squarely apply to the facts and circumstances of the case. The assessee also explained that there are similar delays in collection of outstanding receivables from both A.Es and non AEs which is due to business and commercial reasons. Therefore, there is uniformity in act of assessee in not charging interest from AEs and non AEs. Therefore, the decision of the Hon'ble Bombay High court in the case of CIT v. Indo American Jewellery Ltd. (supra) squarely apply to the facts of the case. 5.1 Considering the nature of business of assessee and the facts explained above, we are of the view that there was non justification for the authorities below to make adjustment to the income declared by assessee. Recently, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is debt free company having large amount of reserves. The department has not made out a case of undue advantage of allowing credit. The Ld.CIT(A) has given finding that the receivables were received in reasonable period and there was no delay. The department did not place any evidence to controvert the finding given by the Ld.CIT(A). Therefore, we hold that there is no case for making adjustment of interest on receivables in the assessee s case. Ld.DR did not place any other decision of the Apex Court to controvert the case laws relied upon by the assessee. Accordingly, we uphold the order of the Ld.CIT(A) and appeal of the revenue on this ground is dismissed. 8. Ground No.6 and 7 are related to the issue of corporate guarantee to subsidiaries. The TPO found that the assessee has given corporate guarantee of ₹ 177,29,00,000/- to it s AEs and the taxpayer did not disclose the same in From 3CEB and TP study report. The TPO issued show cause notice, proposing to make adjustment u/s 92CA on the amount of corporate guarantee at 1.60%. The assessee objected for making adjustment on account of corporate guarantee stating that the AEs are 100% step down companies for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate guarantee to its AE without charging any fees for same, said transaction would not constitute international transaction within meaning of section 92B. Similarly, Hon'ble ITAT Hyderabad in the case of Dr. Reddy's Laboratories Ltd (81 taxmann.com 398) held that where assessee has not incurred any cost in providing corporate guarantee on behalf of its AE, it would not constitute 'international transaction' within the meaning of section 92B. The other case laws relied by the appellant also perused and found that the contention of the appellant get support from all the decisions to the fact that when there is no cost incurred by the appellant, the guarantee given cannot be treated as international transaction. Respectfully following the above decisions and also considering the decision given by Ld. CIT(Appeals)-2, Guntur, the addition made by the AO is hereby deleted. 10. We have heard both the parties and perused the material placed on record. The issue involved in these appeals is with regard to corporate guarantee. On identical facts, in assessee s own case, this Tribunal deleted the addition made by the AO and upheld the order of the Ld.CIT(A) in I.T.A. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the facts of the instant case before us. 5.1. Similarly in the case Dr.Reddy Laboratories Limited Vs Additional Commissioner of Income tax,Circle-1(2),Hyderabad reported in 81 Taxman 398, the Coordinate Bench of ITAT Hyderabad A held that where the assessee had not incurred any corporate guarantee charges on behalf of its AE it would not constitute international transaction within the meaning of 292B of the Act. For ready reference, we extract para No.29 of the order of the ITAT which reads as under : 29. We have carefully considered the rival contentions and perused the record. The ITAT, Delhi Bench in the case of Bharati Airtel Ltd., (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma (P.) Ltd. v. Dy. CIT [IT Appeal No. 2618 (Mum.) of 2014, dated 31-3-2016). The Bench observed that transfer pricing is a legislation seeking the tax-payers to organise their affairs in a manner compliant with the norms set-out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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