TMI Blog2019 (10) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... D SHRI S. JAYARAMAN, ACCOUNTANT MEMBER For the Appellant : Shri M. Srinivasa Rao, CIT For the Respondent : Shri Sriram Seshadhri, CA ORDER PER S. JAYARAMAN, ACCOUNTANT MEMBER: The Revenue filed this appeal against the order of the Commissioner of Income Tax (Appeals)-11, Chennai in ITA No.4/CIT(A)-11/2016-17 dated 31.08.2017 for the assessment year 2013-14. 2. M/s. Verizon Data Services India (P) Ltd., the assessee, is engaged in development of maintenance of software for telecom operations and business support services. While making the assessment for the assessment year 2013-14, the Transfer Pricing Officer mentioned in the transfer pricing order that the assessee was due to receive remuneration of services within a specified due date. However, it has not enforced payment and legal right provided thereby. Therefore, the TPO came to the conclusion that the action of the assessee was a willful choice to keep the funds with its associated enterprises ( AEs ) which is nothing but an act of financing or funding of AEs. The TPO has also drawn support from the amendment made by way of Finance Act 2012 to the term, 'International Transaction' where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceivables. Therefore, ld CIT(A) directed the AO to verify whether the assessee is a debt free company and if so, the adjustment will stand deleted. If the assessee is not a debt free company, then ld CIT(A) held that the position will be different after amendment to Explanation (1)(c) to Section 92B(1) by Finance Act 2012 with retrospective effect from 01/04/2002. Since, the provisions are very clear that receivables or any other debt arising during the course of business falls in the category of international transaction as held by the Bombay High Court in the case of Patni Computer Systems Ltd., the interests must be charged on the overdue receivables in accordance with Arms Length Price (ALP). 3. Aggrieved against that order, the Revenue filed this appeal with the following grounds:- 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The learned CIT(A) erred in holding that no Transfer Pricing adjustment is required on the overdue receivables by determining the interest on such receivables, by relying on the dismissal order of the Hon'ble Supreme Court in the case of M/s. Bechtel India Private Limited. 2.2 The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational transactions, invited our attention to the decision of the ITAT in the case of Bechtel India Pvt.Ltd. Vs. DCIT in ITA No.1478/Del/2015 for the assessment year 2010-11, dated 21.12.2015 and the decision of the Hon ble Delhi High Court in the case of PCIT Vs. M/s. Bechtel India Pvt. Ltd., in ITA 379/2016, dated 21.07.2016. Thereafter, the ld.AR invited our attention to the Paperbook and submitted that the assessee was having as on March 31,2013, cash and bank balances of ₹ 1,252,692,948 and that the assessee has not incurred interest expenses , the working capital adjustment made subsumes therefore, it was pleaded that the Revenue s appeal may be dismissed. The ld.DR rebutted by inviting our attention to the ground No.2.3, supra. 5. We heard the rival submissions. Based on the Hon ble Delhi High Court s decision in the case of Bechtel India Pvt. Ltd., supra, which was upheld by the Hon ble Supreme Court, the assessee is pleading that the Revenue s appeal be dismissed, if it is a debt free company. However, the Revenue pleads that the Hon ble Delhi ITAT in the case of Bechtel India Pvt. Ltd., itself, in its subsequent decision, upheld the Revenue s stand, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eivables is warranted if the pricing/profitability is more than the working capital adjusted margin of the comparables. In the opposition, the ld. DR relied on a later order dated 6.7.2015 passed by the Tribunal in the case of Techbooks International Pvt. Ltd. (supra), in which the transfer pricing adjustment on account of the delayed realization of invoices from AEs has been upheld. The ld. DR contended that the order in the case of Kusum Healthcare Pvt. Ltd. (supra), has been passed without considering the amendment to section 92B carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002, which has been duly taken into account by the Tribunal in its later order in Techbooks International Pvt. Ltd. (supra). 21. After considering the rival submissions and perusing the relevant material on record, it is noticed as highlighted above, that the assessee argued before the TPO that interest on receivables is not an international transaction. At this stage, it would be apposite to note that the Finance Act, 2012 has inserted Explanation to section 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation, which is otherwise also for removal of doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises? 24. While answering the above question, the Hon ble High Court noticed that an amendment to section 92B has been carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside the view taken by the Tribunal, the Hon ble High Court restored this issue to the file of the Tribunal for fresh decision in the light of the legislative amendment. 25. The foregoing discussion discloses that non-charging or undercharging of interest on the excess period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. 18. In view of the above observations, the reliance placed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment allowed to the assessee. The ld. counsel has also advanced an argument that since it was debt free fund company, which finding is not disputed, therefore, no interest could be attributable on the late realization of receivables. In our opinion, this plea is to be rejected at the threshold because, as noted earlier, interest on delayed realization of receivables is a separate international transaction and, therefore, requires separate benchmarking. It has nothing to do with the operations of the assessee company being with the debt free funds only. The Delhi Bench of this Tribunal arrived to the above conclusion for the assessment year 2012-13, after considering various decisions relied on by the assessee including the decision of the Hon ble Delhi High Court. Thus, it is clear that the Revenue has made out a case in its favour for this assessment year, i.e., 2013-14. Following the above decision, we hold that the interest on delayed realization of receivables is a separate international transaction and, therefore, requires separate benchmarking. It has nothing to do with the operations of the assessee company being with the debt free funds alone. 6. In the result, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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