TMI Blog2022 (4) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby that transaction was held to be at ALT. There is no change whatsoever in the nature of transactions or time thereof. CIT(A) has rightly pointed out that Transfer Pricing regime normally judges the transfer pricing of the tax payer based on the results rather than on the intent to shift income from one side to another. In the normal ALP an element of implied interest would always have been there so as to compensate for the opportunity cost and notional financial cost associated with account receivable/ adjustments so called for. Thus, USD LIBOR rate at that point of time was 1.22% with markup of 80 basis point would be appropriate for determining ALP interest for trade credit which was be charged to the AE. Thus, the CIT(A) granted the partial relief thereby making adjustment at the rate of ₹ 37,50,475/-. But this observation appears to be vague as no period was quantified or verified by the Assessing Officer as well as by the CIT(A) while giving this partial relief. This needs to be verified. Therefore, we are remanding back this issue to the file of the Assessing Officer/Transfer Pricing Officer to verify the period as well as the interest rate which is available a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law the learned CIT(A) having accepted the submissions of the Appellant for not charging interest while extending credit to its USA-Associated Enterprise for payment of sale consideration by the AE, ought to have desisted from partially confirming the adjustment to total income, made by the AO-TPO and ought to have deleted the said addition in its entirety. In any event the rate of interest adopted by the learned CIT(A) while partially confirming the addition as aforesaid is excessive and contrary to facts. The addition of ₹ 37,50,475/- confirmed by the learned CIT(A) be deleted. 4. The assessee is engaged in the business of development of computer software and other related services. A reference under Section 92CA in case of the assessee was received from DCIT. The Assessing Officer made the reference for determining of Arm s Length Price with reference to all transactions reported in Form No.3CEB filed by the assessee. The return of income was filed by the assessee on 30.10.2004 declaring total income of ₹ 4,39,59,203/- after claim of deduction under Section 80HHE of ₹ 94,016/-, under Section 80G of ₹ 23,18,590/- and exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. The ld. A.R. further submitted that the TPO was not justified in charging interest at 10% to AE as the rate of interest charged by the assessee to its German AE on a Euro denominated loan, as the nature of funding is not the same. The ld. A.R. pointed out the difference between the trade credit (extended credit period) and loan as follows: (i) Tenor Trade credit is for meeting short term funding needs whereas a loan is for meeting longer term needs. (ii) Purpose trade credit is normally required to meet the working capital needs of the business. A loan is normally required to meet capital expenditures. (iii) Funding Trade credit is normally funded internally through associate companies whereas a loan is funded through banking channels. (iv) Security In the case of a loan, generally, a security or as asset has to be maintained as a collateral. This may not be the case for trade credit. (v) Geography Thais is also a determinant when funding has to be evaluated. (vi) Timing of funds and state of economy These factors also play a key role in determining the nature of funding. 7. The ld. A.R. further submitted that in case of TML, the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime thereof. The ld. CIT(A) has rightly pointed out that Transfer Pricing regime normally judges the transfer pricing of the tax payer based on the results rather than on the intent to shift income from one side to another. In the normal ALP an element of implied interest would always have been there so as to compensate for the opportunity cost and notional financial cost associated with account receivable/ adjustments so called for. Thus, USD LIBOR rate at that point of time was 1.22% with markup of 80 basis point would be appropriate for determining ALP interest for trade credit which was be charged to the AE. Thus, the CIT(A) granted the partial relief thereby making adjustment at the rate of ₹ 37,50,475/-. But this observation appears to be vague as no period was quantified or verified by the Assessing Officer as well as by the CIT(A) while giving this partial relief. This needs to be verified. Therefore, we are remanding back this issue to the file of the Assessing Officer/Transfer Pricing Officer to verify the period as well as the interest rate which is available at that particular point of time in the open market and as per the practice on. Thus, ground no.1 2 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 is partly allowed for statistical purposes. 15. We now take up take up the cross appeal filed by the Revenue for the assessment year 2005-06 i.e. ITA No.2041/MUM/2010. 16. The Revenue in its appeal has raised the following grounds : 1. The order of the CIT(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the adjustment to arm s length price should be only to the extent of ₹ 89,04,156/- as against ₹ 1,35,68,237/- made by the Assessing Officer in conformity with Section 92CA(3)/92CA(4) of the I.T. Act, 1961. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that consideration relating to expenditure incurred in foreign currency on telecommunication charges and provision of technical service outside India, amounting to ₹ 3,63,59,691/- and ₹ 3,03,52,68,901/- respectively, should not be excluded from export turnover for the purpose of computing deduction u/s.10A, disregarding the provisions of Explanation 2(iv) to Sec.10A of I.T. Act, 1961. 4. For these and other grounds that may be urged at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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