TMI Blog2017 (10) TMI 1615X X X X Extracts X X X X X X X X Extracts X X X X ..... and wholly unjustified. The revenue filed appeal before Hon ble Delhi High Court. The Hon ble Delhi High Court followed its own earlier judgment rendered in the case of CIT vs. EKL Appliances Ltd. [ 2012 (4) TMI 346 - DELHI HIGH COURT] . To the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt and therefore, for such credit allowed to AE, it cannot be said that this is an independent international transaction. But when extra credit is allowed beyond the agreed credit period, the same is a subsequent independent event and interest for such extra credit period cannot be factored in the price agreed. Only because the agreed price without considering extra credit period is in excess of the ALP, it cannot be said and held that for such independent subsequent event of allowing extra credit also, the agreed prices takes care and this is not an independent international transaction requiring separate benchmarking. In transfer pricing analysis, the purpose is not to compare profit of the tested party with that of the comparables but the purpose is to compare the prices charged by the tested party with the prices charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the total funds available to the assessee. Respectfully following this tribunal order, we direct the A. O. to find out the cost of the total funds available to the assessee and the same should be adopted as internal CUP for benchmarking of this independent international transaction i.e. allowing extra credit in addition to agreed credit period of 30 days. - IT(TP)A No. 681/Bang/2017 - - - Dated:- 26-10-2017 - Shri Arun Kumar Garodia, Accountant Member And Shri Laliet Kumar, Judicial Member For the Assessee : Shri PadamchandKhincha, C. A. For the Revenue : Shri R. N. Parbat, CIT DR. ORDER Per Shri A.K. Garodia, Accountant Member: This appeal is filed by the assessee and this is directed against the assessment order dated 31.01.2017 passed by the A. O. u/s 143 (3) r.w.s. 144C as per the directions of DRP for Assessment Years 2012 13. 2. The grounds raised by the assessee are as under:- GENERAL GROUNDS : I. The Orders passed by learned Deputy Commissioner of Income Tax, Circle- 1(1)(1), Bangalore (hereinafter referred to as AO for brevity), learned Joint Commissioner of Income Tax, Transfer Pricing, Hyderabad (hereinafter ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al business circumstances or high margins, etc; and (iii) Inappropriately computing the operating margins of comparables and the Appellant and treating provision for doubtful debt as nonoperating in nature; 7. The lower authorities have erred in: (i) Not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies; (ii) Not properly computing working capital adjustment and adopting incorrect interest rate while computing the working capital adjustment; (iii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account; and (iv) Not providing Depreciation adjustment while computing the Arm's length price; GROUNDS RELATING TO TRANSFER PRICING (INTEREST ON RECEIVABLES) 8. The lower income tax authorities have erred in: (i) Ignoring the business, commercial and industry realities and economic circumstances applicable to the Appellant; (ii) Making adjustment for notional interest on extended payment terms given to AE without appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any time before or at, the time of hearing, of the appeal, so as to enable the Income tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly. 3. Learned AR of the assessee submitted that he wants to argue only one issue i.e. T. P. adjustment on account of Interest on receivables of Rs. 932,96,476/-. In this regard, he drawn our attention to pages 38 to 40 of the order of TPO and pointed out that Working Capital adjustment was already made and therefore, no addition should be made on account of interest on receivables because it is not an independent transaction and it should be considered together as per Rule 10A (d). He placed reliance on various tribunal orders but in reply to this observation of the bench that there may be some High Court s judgment on this issue, he submitted that there is a judgment of Hon ble Delhi High Court rendered in the case of CIT vs. Kusum Health care Pvt. Ltd. in ITA No. 765/2016 dated 25.04.2017, copy on pages 218 to 222 of the paper Book. The bench observed that when a judgment of Hon ble Delhi High Court is available for guiding the tribunal, such judgment should be pointed out first and that should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Delhi High Court in this case. The same are asunder:- 1. In these appeals filed under Section 260A of the Income Tax Act, 1961 ('Act', for short) the Commissioner of Income Tax challenges the common order passed by the Income Tax Appellate Tribunal ('Tribunal', for short) on 11.02.2011 for the assessment years 2002-03 and 2003-04. 2. The appeals arise this way. The assessee is a public limited company engaged in the business of manufacturing of refrigerators, washing machines, compressor and spares thereof and also trading all these items and microwave ovens, dish washers, cooking ranges, air conditioners and spares thereof. In respect of the assessment years 2002-03 and 2003-04, it filed returns of income declaring losses amounting to Rs 148,23,80,117/- and Rs 1,14,59,660/- respectively. The Assessing Officer noticed that there were international transactions entered into by the assessee during the relevant previous years and accordingly invoked the provisions of Section 92CA(3) of the Act and referred the question of determination of the Arms Length Price ('ALP', for short) to the Transfer Pricing Officer ('TPO', for short). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery Ltd. vs. JCIT in ITA No. 6570/Mum/2012 dated 14.01.2015 and also reproduced relevant part of this tribunal order. As per the same, it is seen that in that case, the assessee was not making any difference for not charging any interest from AE as well as non AE and the tribunal observed that under these facts, only difference between the two can be considered is the average period allowed along with outstanding amount and if the average period multiplied by the outstanding amount of the AE is at arms length in comparison to the average period of realization and multiplied by the outstanding amount of the non AEs then no adjustment can be made being the transaction is at arms length. Regarding the rate of interest, it was held that average cost of the total funds available to the assessee should be considered. Hence, it is seen that as per this tribunal order, it was held that extra credit allowed can be considered as an independent transaction also and the same be compared with internal CUP being average cost of the total funds available to the assessee. In the later order, the tribunal disregarded this vital finding of the earlier tribunal order and therefore, this later tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables although when TNMM is adopted as MAM, the process of such price comparison is by comparing profits of tested party with that of the comparables and therefore, if the profit of the tested party is equal or above the profit of comparables, even after taking into account the effect of working capital adjustment and the ALP is less that the price charged by the tested party, it cannot be said that the extra credit allowed is not an independent international transaction and not required to be separately benchmarked. In our considered opinion, the first requirement is this that it has to be first decided that whether it is an independent international transaction or not and if it is found that it is not so, then obviously, no separate benchmarking is required but if it is found that it is an independent international transaction then separate bench making has to be done and TP adjustment is to be made as per law irrespective of whether any TP adjustment is required to be made in respect of main transaction of sale. 11. Hence, we first decide this aspect as to whether this is an independent international transaction or not. In our considered opinion, in respect of agreed cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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