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TMI Blog2022 (1) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee entered into international transaction with its overseas Associated Enterprise (AE) of providing business support services and marketing support services. In course of its business of trading, the assessee had imported medical equipments for resale to third parties. The medical equipments and consumables traded by the assessee are, basically, blood gas analysers and consumables. As per the business model adopted by the assessee, it buys analysers and sales them to third parties, i.e., hospitals, medical institutions etc. and books the revenue in the trading segment. However, in some instances, when the customer is not willing to buy the equipment, they are leased to the customer and installed at their premises and the consumables required by the customer in using the equipment is provided by the assessee. The cost of the leased medical equipment imported from the AE is capitalized in the books of account of the assessee and its related operating cost, such as, depreciation is charged to the profit and loss account of the trading segment. 5. After calling for and examining the details relating to import of medical equipments, the Transfer Pricing Officer (TPO) issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alysers and sells them to third parties i.e. hospitals, medical institutions etc, books the revenue under the trading segment. On the other hand, if the customer is not willing to buy the analysers, such instruments were installed at the customer's premises and the consumables required by the customer in using these instruments were provided by the assessee. We find that the cost of such analysers imported from the AEs, were capitalized in the books of accounts of the assessee and its related operating cost, i.e. depreciation, has been charged to the profit and loss account while computing the profitability of the trading segment. We find that the assessee has used TNMM analysis to bench mark arm's length nature of international transaction of purchase of medical equipment. 29. We find that the TPO has accepted the purchase price of such analysers for the trading segment as arm's length, but surprisingly, determined the arm's length price of purchase of fixed assets at Nil. The Assessing Officer, while framing the final assessment order, even went ahead one step further and disallowed the claim of depreciation considering the arm's length price determined by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AE and interest should not be charged. Though, the assessee objected to the proposed action of the TPO by submitting that the delay in outstanding receivables cannot be treated as international transaction and no interest can be charged by treating it as unsecured loan, however, the TPO was unconvinced. He held that after amendment to section 92B by Finance Act, 2012 w.e.f. 01.04.2002, the delay in outstanding receivables would fall within the definition of international transaction. Having held so, the TPO proceeded to compute interest on receivables remaining outstanding beyond the period of 30 days by applying SBI prime lending rate (PLR) of 14.50%. Accordingly, he suggested an adjustment of Rs. 13,57,841/-. When the issue was disputed before learned DRP, though, they upheld the decision of the TPO by treating the delay in outstanding receivables as international transaction requiring computation of interest, however, they did not agree with the rate of interest applied by the TPO. Accordingly, the DRP directed the TPO to re-compute interest on outstanding receivables by applying the rate of six months LIBOR plus 400 bps, wherever the loan is to be repaid in US Dollar. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered and, in case, there are outstanding payables, it has to be set off against outstanding receivables and interest has to be charged on net receivables. As regards, the contention of the assessee that working capital adjustment subsumes outstanding receivables, in our view, this may be correct in so far as receivables remaining outstanding at the end of the year. However, the invoices raised and realized during the year, but, beyond the credit period cannot get subsumed in the working capital adjustment. Since, all these factors have not been considered by the Departmental Authorities, we are inclined to restore this issue to the Assessing Officer for fresh adjudication, keeping in view our observations hereinabove. 15. As far as the rate of interest is concerned, it is open to the assessee to furnish material before the Assessing Officer to demonstrate that the rate of interest, if any, chargeable on the outstanding receivables, would be less than, what has been determined by learned DRP. 16. In ground no. 4, the assessee has challenged mark-up of 5% on recovery of expenses from AE resulting in addition of Rs. 36,83,982/-. 17. Briefly the facts are, in course of tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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