TMI Blog2021 (3) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... eivables from AE or not, has no relevance because any understanding or arrangement between the assessee and its AE which is detrimental to Revenue and against the principles of scheme of Chapter X of the Act, cannot come to the rescue of the assessee. Merely because there is no provision to chargeability of interest in the agreement between the assessee and its AE for delayed realization and merely because assessee does not pay any interest to the AE on the security deposit, the Revenue cannot be deprived on its legitimate share in accordance with the scheme of Chapter X of the Act and the purpose behind the Chapter X. Appropriate rate for benchmarking international transactions for delay in realization of AE receivables - HELD THAT:- If we go by the standards, the LIBOR rate is most appropriate rate of interest in the international market and which is accepted by most of the countries. Therefore, it would be most appropriate if the LIBOR rate is applied as most appropriate rate of interest for imputing interest on delay in receivables from AE. In this case, the AO has imputed notional interest by adopting PLR as the base rate. Therefore, we are of the considered view the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said adjustment was deleted by the Ld. Transfer Pricing Officer (ld. TPO ). 3. The Ld. Assessing Officer and TPO, and Hon ble DRP erred on the facts and in law in passing the assessment order pursuant to the directions of the DRP making alt adjustment of INR 4,241,096 by considering. The outstanding receivables from AEs as a separate international transaction and accordingly determining the arms length price of the impugned international transaction. 4. The Ld. AO, Ld TPO and Hon ble DRP erred on facts and in law in erroneously re-characterizing the outstanding receivables from AE of the Appellant as unsecured loan and computing notional ,nlcresl on alleged delays in realization of payment from the AEs against the invoices raised for provision of engineering design, drawing and consultancy services. 5. The id. AO, Ld. IPO and Hon ble DRP, without prejudice, erred on fads and in law in arbitrarily applying interest II the rate of 12.625 percent being the average Prime Lending Rate (PLR) of Bank of India for FY 2010-11 of the outstanding receivables from the AEs without appreciating lie fact that the transactions giving rise to the receivables were denominated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd during the course of assessment proceedings, a reference u/s. 92CA(1) of the Act was made to Transfer Pricing Officer to determine ALP of international transactions with its AEs. During transfer pricing assessment proceedings, the TPO made upward adjustment of ₹ 1,75,55,986/- to the EDS segment and ₹ 42,41,096/- as interest on AE receivables. Based on the TPO order dated 29.01.2015, Assessing Officer has passed draft assessment order u/s. 143(3) r.w.s 92CA of the Act on 30.03.2015 and proposed following transfer pricing adjustments. The Assessing Officer has also proposed additions towards corporate tax issues like disallowance u/s.14A of the Act, disallowance u/s. 36(1)(va) and disallowance u/s.40(a)(ia) of the Act. The details of adjustments proposed by the Assessing Officer in draft assessment order is as follows:- S.No. Nature of Adjustment Amount in ` 1. TP Adjustment Interest on AE receivables 4,421,096 EDS segment 17,555,986 2. Disallowance u/s. 14A 6,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee 16,438,083 - 6 Doosan Heavy Industries and Construction Co. Limited, Republic of Korea, Project Material 434,396,596 TNMM 6. The assessee has filed objections against draft assessment order passed by Assessing Officer before DRP-2, Bengaluru, and challenged various adjustments proposed by Assessing Officer, but could not succeed. The learned DRP has upheld adjustments proposed by the Assessing Officer towards upward adjustments on EDS segments and interest on AE receivables. The learned Assessing Officer has passed final assessment order on 22.02.2016 in pursuant to directions of DRP and made additions proposed by TPO towards international transactions . The assessee carried matter in appeal before ITAT., Chennai. The Tribunal vide its order dated 14.12.2016 has set aside the appeal to the learned DRP for fresh consideration. The DRP-2, Bengaluru vide its order dated 27.12.2017, in consequent to the directions of Tribunal has passed order u/s. 144C(5) of the Act and confirmed additions made by Assessing Officer towards upward adjustments on EDS segm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d)TP) Lotus Labs Pvt Ltd TA No. 2295/ Bang/ 2016 MIs Logix Micro Systems Ltd VsAsst CIT (2010-TIl-50-ITATBANG- TP) Dy. CIT v/s MIs.lndo American Jewellery Limited. ITA No. 5872/Mum/2009 Nimbus Communications Limited (ITA No.2361 (Mum.) of2007) Patni Computer System Limited (ITA No 426 1131/PN/06) No interest chargeable on outstanding balances: M/s. Logix Micro Systems Ltd VsAsstCIT(2010-TlI-50-ITATBANG -TP) Nimbus Communications limited ITA No.2361 (Mum.) of 2007) Patni Computer System Limited (ITA No 426 1131/PN/06) International rate should be used since transaction denominated in foreign currency: Pr. CIT vsTecnimontPvt Ltd., ITA 56 o120l6 (Bombay High Court) CIT vs. Cotton Naturals (I) Pvt. Ltd.. ITA No. 233/2014 Delhi HC Plintron Global Technology Solution Vs DCIT. ITA No. 532/Chny/2017 Siva Industries Holdings Ltd. VsACIr (ITA No.148/Mds/2010 Sin Ventures Limited vs. ACIT (ITA No. 216l/Mds/20ll) Bharti Airtel Services Limited. ITA No. 58l6/Del/2012 Kohinoor Foods Ltd. Vs ACIT,ITA NO. 3688 to 3891IDel/2OI2 Foursoft Ltd. Vs Dy. CIT(ITA No. 1495/Hyd/20l0) 11. The learned DR , on the other hand, strongly supportin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further note that once delay in realization of AE receivables constitute an international transaction, whether or not, assessee charges interest on receivables from AE or not, has no relevance because any understanding or arrangement between the assessee and its AE which is detrimental to Revenue and against the principles of scheme of Chapter X of the Act, cannot come to the rescue of the assessee. We further note that merely because there is no provision to chargeability of interest in the agreement between the assessee and its AE for delayed realization and merely because assessee does not pay any interest to the AE on the security deposit, the Revenue cannot be deprived on its legitimate share in accordance with the scheme of Chapter X of the Act and the purpose behind the Chapter X. Therefore, we are of the considered view that there is no error in the finding recorded by the AO as well as the TPO and the DRP to come to the conclusion that delay in realization of receivables from AE beyond credit period tantamount to indirect funding to AE which constitutes separate international transactions. 13. Having said so, let us examine what is appropriate rate for benchmarking in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at AE receivables beyond specified credit period constitute separate international transactions and the same needs to be benchmarked and hence there is no error in findings recorded by AO / DRP to hold that it is an international transaction. But when it comes to rate at which such interest is to be imputed, it is a well settled principle of law that international LIBOR rate is an appropriate rate for imputing interest on AE transactions, because transactions giving rise to receivables were denominated in foreign currency and accordingly, we direct AO to apply LIBOR+300 BPS for imputing interest on AE receivables. Accordingly, ground taken by assessee is partly allowed. 15. The next issue that came up for our consideration from ground no.7 of appeal is employees contribution to PF ESI. The Assessing Officer has disallowed employees contribution towards PF ESI on the ground that same has been remitted beyond due date specified under respective Acts. 16. The learned AR for assessee at the time of hearing submitted that this issue is squarely covered by the decision of Hon ble Supreme Court in the case of CIT Vs. Vinay Cements Ltd. reported in 313 CTR 268 and also the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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