TMI Blog2018 (7) TMI 2239X X X X Extracts X X X X X X X X Extracts X X X X ..... ery much evident from observations of order passed by DRP that CBDT had notified these rules vide notification dated 18/09/13. However Hon ble Delhi Tribunal in case of Rolls-Royce India Pvt. Ltd. vs. DCIT [ 2015 (12) TMI 516 - ITAT DELHI ] has held it to be applicable from 18/09/2013. With the above direction we remit this issue back to Ld. TPO/AO for recomputing the working capital adjustment by considering provisions written back as operating items without applying Safe Harbour Rules. Adjustment in respect of receivables - TPO computed interest on outstanding receivables at the rate equal to 11.69 % LIBOR (SBI base rate) +300 basis points - HELD THAT:- There is no specific period mentioned for the payments to be received from its AE. Ld.TPO, therefore estimated a period of 30 days as allowable for payment receivables and any delay beyond 30 days has been bench marked as international transaction by imputing interest at the rate of 11.69% LIBOR +300 basis points. We deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in conformity with the above referred judgment in case of Oran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds, which are without prejudice to each other: Transfer Pricing grounds: 1. Ld. AO / TPO / DRP have erred in making an addition of ₹ 10,22,69,751 under chapter X of the Act. 2. Ld. AO / TPO / DRP have erred by not accepting the economic analysis undertaken by Appellant and in accepting / rejecting comparables by applying incorrect filters and comparability criteria. Transfer Pricing adjustment in respect of Provision of telecommunication and related support services 3. Ld. AO / TPO / DRP have erred in facts of the case and in law by making an adjustment of ₹ 6,78,19,915 while determining arm s length price of services provided by the Appellant. 4. Ld. AO/ TP0/ DRP have erred in law and in facts and circumstances of the present case by applying inappropriate filters for selection/ rejection of comparables. 5. Ld. AO/ TPO/ DRP have erred in law and in facts and circumstances of the present case, by rejecting certain comparables having Turnover less than INR 5 crores. 6. Ld. AO/ TPO/ DRP have erred in law and in facts and circumstances of the present case, by rejecting certain comparables identified by the Appellant, for having differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking and determination of arm s length price of receivables is not warranted. 18. Ld. AO / TPO / DRP have erred in considering outstanding receivables as a loan and imputing interest on the same, thereby making an adjustment of ₹ 3,44,49,836 to the returned income of the Appellant. 19. Without prejudice to the above, Ld. AO / TPO / DRP have erred in failing to appreciate that the Appellant does not charge interest from third parties on its receivables, thus no interest is required to be charged on receivables from AEs also. 20. Without prejudice to the above, Ld. AO / TPO / DRP have erred in undertaking an adjustment on gross outstanding receivables, instead of net outstanding receivables. 21. Without prejudice to above the rate of interest adopted for this purpose is also not justified. Corporate Tax grounds: 22. the learned AO / DRP have erred by making disallowance amounting toINR12,93,901, being the 25% of expenditure incurred by the assessee towards sales promotion on ad-hoc basis. 23. the learned AO / DRP have erred by alleging that sales promotion expenses were not wholly and exclusively for the purpose of business ignoring the details submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant has undertaken working capital adjustment to account for difference in the working capital intensities of the comparables vis-a-vis the Appellant which inevitably considers the impact of receivables and payables arising from international transactions. 4. The learned AO/TPO/DRP have erred by considering outstanding receivables as a separate international transaction and benchmarking the same using CUP as the Most Appropriate Method. 5. The learned AO/TPO/DRP have erred by re-characterization of outstanding receivables as a loan extended by the appellant to its associated enterprise and imputing interest on the same. 6. The CUP analysis undertaken by the TPO and upheld by DRP is flawed and does not represent an uncontrolled transaction. 7. Without prejudice to the above, the learned AO/ TPO/ DRP have failed to appreciate that the Appellant does not charge any interest from unrelated parties and therefore an application of the arm s length standard requires that no interest should be imputed in - respect of receivables outstanding from the AEs. 8. Without prejudice to above, the rate of interest considered by the learned AO/TPO/DRP for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 138,083,923 Purchase of fixed assets 34,951,630 The method adopted by assessee was TNMM using OP/OC as PLI. Assessee computed its margin at 15.73%, vis-a-vis 12 comparables selected by assessee, whose margin was computed at 1.98%. Dissatisfied with the comparables selected by assessee, Ld.TPO rejected 3 companies and added two companies. Final comparable list determined by Ld.TPO was a set of 4 comparables whose margins were computed at 1.68%. Ld.TPO rejected working capital. The margin thereafter, edited by assessee by refusing certain items considered as non-operating income by assessee came to 6.32%. The adjustment computed by assessee was at ₹ 1,63,641,409/-. Ld.AO also computed interest on receivables by imputing interest @ 11.69% for the delay in receipt of payments at ₹ 3,44,49,836/-. Thus the total adjustment proposed by Ld.TPO was ₹ 19,80,91,245/-. 3. Aggrieved by the draft assessment order, assessee raised objection before DRP. 3.1. Before DRP assessee pointed out certain computational errors and upon verification of the details, DRP directed; Ld.TPO to verify and consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount of lease rent equalisation written back; provision of PF shortfall written back/ other provisions written back, provision of doubtful loans and advances written back other write-offs/written back on account of reconciliation of profit/loss items; to be treated as operating items as it pertains to regular trade and business transaction of assessee. DRP passed directions in respect of the above as under: Attention is invited to the detailed discussion at Para 6.7 page 37- 43 of TPO s order. While most of the items supra are covered in the discussion, TPO is directed to examine the objections and recompute the operating margins correctly taking into account the factual inaccuracies pointed out by the taxpayer. After excluding/considering the companies as directed the TPO is directed to rework the OP/OC margin of remaining comparables by removing the computational errors, if any. Before DRP the taxpayer has filed additional evidences supporting breakup of provisions made during the year and provisions written back during the year vide submissions dated 19/08/15 under Rule 4 (3) (b) of the Income Tax (Dispute Resolution Panel) Rule 2009. The TPO is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification filed by assessee, assessee has submitted all relevant information/details regarding the breakup of the provision written back. We therefore direct Ld.TPO to recompute working capital adjustment by considering these items as operating items after due verification. It is observed that DRP has directed to compute working capital adjustment by using safe harbour rules. It is very much evident from observations of order passed by DRP that CBDT had notified these rules vide notification dated 18/09/13. However Hon ble Delhi Tribunal in case of Rolls-Royce India Pvt. Ltd. vs. DCIT reported in [2016] 69 taxmann.com 209, has held it to be applicable from 18/09/2013. 7.4. With the above direction we remit this issue back to Ld. TPO/AO for recomputing the working capital adjustment by considering provisions written back as operating items without applying Safe Harbour Rules. 7.5. Accordingly this ground raised by the assessee stands allowed for statistical purposes. 8. Ground No. 10 The next adjustment challanged by Ld.Counsel is in respect of denial of working capital adjustment in case of Telecommunication Consultants India Ltd. It has been submitted that Ld.TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el that there is no functional difference in present year under consideration vis-a-vis immediately preceding Assessment Year. Ld. Counsel submitted that Delhi Tribunal in Kusum Healthcare Pvt.Ltd vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. (2017) 398 ITR 66 (Del), held that no interest could have been charged as it cannot be considered as international transaction. 9.2. On the contrary Ld.CIT DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of his contentions, he read out relevant parts of DRP s direction, in which Panel relying upon decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) held that interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 has inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction and ALP of such international transaction has been rightly determined by Ld.TPO. In so far as the charging of the rate of interest is concerned, he relied on the decision of the Hon ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 9.4. We have perused the submissions advanced by both the sides in the light of the records placed before us. 9.5. On perusal of service agreement between assessee and AE placed at page 337-353 of paper book it is observed that there is no specific period mentioned for the payments to be received from its AE. Ld.TPO, therefore estimated a period of 30 days as allowable for payment receivables and any delay beyond 30 days has been bench marked as international transaction by imputing interest at the rate of 11.69% LIBOR +300 basis points. Delhi Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished before Ld.AO vide submission dated 07/01/15. It has been submitted that these were genuine expenses incurred wholly and exclusively for purposes of business, and is allowable under section 37 (1) of the Act. 11.2. Ld.Counsel submitted that these documents were not considered either by Ld. AO/DRP. 11.3. Ld. CIT DR submitted that the issue may be set said to Ld. AO for due verification of the same. 11.4. We have perused the submissions advanced by both the sides in the light of the records placed before us. It is observed that corporate tax grounds raised before us involve disallowance towards sales promotion expenses and legal and professional expenses. Application for admitting additional evidence in respect of sales promotion expenses has been filed by assessee before us. 11.5. We therefore set aside these issues to Ld.AO for verification of invoices placed in the form of additional evidences in respect of the sales promotion expenses and then allow the claim as per law. Assessee is directed to file evidence in respect of legal and professional expenses if any, to Ld.AO. Ld.AO shall verify the same and consider the claim of assessee as per law. 11.6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Health Care Pvt. Ltd. (2017) 398 ITR 66 (Del), held that no interest could have been charged as it cannot be considered as international transaction. 15.3. On the contrary Ld. CIT DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of his contentions, he read out relevant parts of DRP s direction, in which the Panel relying upon the decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) held that interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 has inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression international transaction shall include- (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; . . Ld. DR submitted that expression debt arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 16. We have perused the submissions advanced by both the sides in the light of the records placed before us. On perusal of service agreement between assessee and AE placed at page 337-353 of paper book it is observed that there is no specific period mentioned for the payments to be received from its AE. Ld.TPO, therefore estimated a period of 30 days as allowable for payment receivables and any delay beyond 30 days has been bench marked as international transaction by imputing interest at the rate of 9.60% LIBOR +300 basis points. Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 has observed that: There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 30,992,565/- which comprises of expenses amounting to ₹ 61,59,151/-. At this juncture Ld.Counsel submitted that said sum of ₹ 61,14 9,151/- has been offered to tax in return of income for Assessment Year 201011. Subsequently said expenditure has been reported under the head prior period expenses for Assessment Year 2012-13 and assessee claimed deduction while computing taxable income for Assessment Year 2012-13 which has been denied by Ld.AO. 18.3. Ld.Counsel submitted that in anticipation Assessee before us raised additional ground for assessment year 2011-12, pertaining to allowability of prior period expenses, which is as under: Additional ground No. 30 That, on facts and circumstances of the case and in law, without prejudice to ground No. 9 in relation to AY 2012-13, and in the event prior period expenses of INR 64,46,782 are not considered deductible in the hands of the appellant for AY 2012-11, the said expenses shall be allowable as a deduction during AY 2011-12, i.e., the AY in which the said expenses were actually incurred by the appellant. 18.4. Ld.Counsel submitted that in the event for year under consideration assessee is not grant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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