TMI Blog2018 (8) TMI 2105X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined by the AO/TPO before any such adjustment is made. It has also been submitted by the Ld. AR that the impact of the outstanding receivables has been factored in the working capital adjustment. This aspect also requires verification. We restore this issue to the file of the AO/TPO for the purpose of re-examining and re-considering the issue in light of the ratio of the judgment of the Hon ble Delhi High Court in the case of Principal CIT vs. Kusum Health Care Pvt. Ltd (supra) and pass a speaking order as per law after giving proper opportunity to the assessee. Disallowance of depreciation - assessee must use the asset for the purposes of business - HELD THAT:- The issue is squarely covered in favour of the assessee by the judgment of the Hon ble Apex Court in the case of ICDS Ltd. [ 2013 (1) TMI 344 - SUPREME COURT ] held that as long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfied, notwithstanding nonusage of the asset itself by the assessee - it considered the phrase 'use for the purpose of business' in the case of liquidators of Pursa Ltd. [ 954 (2) TMI 1 - SUPREME COURT ] The Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome was filed declaring income at nil and an income of Rs.3,02,28,446/- under the provisions of section 115JB of the Act. In this year, the transfer pricing adjustment in respect of interest on delayed payments was of Rs. 1,58,33,490/-. 2.3 In assessment year 2010-11, the return of income was filed declaring income at nil and of Rs. 11,796,566/- u/s 115JB of the Act. In this year, the transfer pricing adjustment with respect to interest on delayed payment from the AEs was of Rs. 1,59,24,926/-. In assessment year 2010-11, a disallowance of Rs. 5,31,53,415/- was also made by the Assessing Officer on account of depreciation claimed by the assessee on plant and machinery which was not being used by the assessee company. 2.4 In all the three years under consideration, the assessee approached the Ld. Commissioner of Income Tax (A) who upheld the action of the Assessing Officer/Transfer Pricing Officer (TPO) in making the transfer pricing adjustment with respect to notional interest on delayed payment received from the AE. The Ld. Commissioner of Income Tax (A), however, upheld the assessee s claim for depreciation in assessment year 2010-11. 2.5 Now, the assessee is before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in response to the show cause notice, the assessee filed its reply dated 23.11.2013 giving reference to commercial business reasons, uniformity in non-charging interest from AE and Non-AE and to consider the credit period of 180 days against the export realization. Alternatively, the assessee also requested to apply LIBOR instead of SBI PLR rate of 14.88% but the TPO did not consider the submission of the assessee appropriate and proceeded to determine the Transfer Pricing adjustment at Rs. 1,59,24,926/-. 3.3 The Ld. AR further submitted that the interest on overdue receivables is result of sale of goods and when the main transaction has been considered to be at ALP then there is no reason to treat the receivables as a separate international transaction. The Ld. AR submitted that receivable mentioned under Explanation to Sec. 92B of the Act does not mean accounts receivable and, thus, the outstanding balance cannot be treated as an independent transaction for transfer pricing adjustment. The Ld. AR further submitted that receivable under clause (c) would apply to loan funds only and, therefore, the charging of interest is applicable only with the lending or borrowing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysis and no separate adjustment is warranted on the delayed recoverable. 3.8 It was further submitted by the Ld. AR that without prejudice to the contention that overdue receivables is not a separate international transaction, it was submitted that even the RBI allows a time limit of 6 months for realizing the export proceeds (now 365 days from year 2013). It was submitted that the RBI is the competent authority for the time being in force for regulating payments and dealings in foreign currency. It was prayed that the credit period of 180/365 days for realizing export proceeds from AE outside India may be considered for making adjustment if any. 3.9 Reliance was placed on the order of ITAT Delhi Bench in the case of AVL India Pvt. Ltd vs. DCIT [ITA No. 4275/Del/2016] in which also the TPO had made adjustment for receivables taking prudent estimate of 30 days credit period at interest rate of 14.88% but the Ld. CIT (A) had allowed and the ITAT confirmed the credit period of 180 days. 3.10 Further reliance was also placed on the following judicial precedents wherein a credit period of 180 days has been accepted by the courts: -DCIT vs. M/s Indo American Jewellery Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compared with comparables whereby assessee has made extra profit of about 41 lacs. Hence, no adjustment whatsoever is warranted. 4.0 Arguing against the Department s appeal, it was submitted by the Ld. AR that the AO disallowed the depreciation on plant machinery on the ground that the assessee company did not put the Plant Machinery to use for the business activities during the year, rather these were out to use by M/s Rialto Enterprises Pvt. Ltd. It was submitted that the AO also alleged that the depreciation is allowable only if the assets were either used actively or passively for the purpose of business but in the instant case the assessee company did not carry out any manufacturing activities. The Ld. AR drew our attention to the relevant portion of the impugned order wherein the Ld. CIT (A) allowed the appeal of the assessee by stating that- I have perused the agreement between the appellant and Rialto Enterprises private limited. As per the said agreement there are annexures of plant and machinery to be provided by the appellant however, the cost of such plant and machinery, date of purchase etc are not available in the said agreement. Therefore, the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that plant and machinery was put to use for business purposes. In such circumstances, depreciation is fully allowable to the appellant. Therefore, the issue raised by the AO during the remand proceedings has no merits and hence deserves to be rejected. 4.2 The Ld. AR placed reliance on numerous judicial precedents to support his contention that it is not necessary that the assets should be used by the assessee itself in order to claim depreciation. 4.3 The Ld. AR summed up his arguments by submitting that: - The plant and machinery placed at Rialto premises were exclusively for manufacturing the products for the assessee company and its associates. - The proprietary rights of assets remained with the assessee company. - The assessee continued to own and maintain the plant and machinery, the costs of maintenance and repairs as well as the depreciation costs. - The price of the products sold to assessee company did not include the depreciation costs. - The plant and machinery were of assessee company s proprietary design, over which it maintained ownership and close control on access as well as measures undertaken to prevent counterfeiting. 4.4 The Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have dealings with foreign AEs would automatically be characterized as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analyzing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-avis that of its comparables, any further adjustment only on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) wherein the Hon ble Apex Court, while examining provision of Section 32 of the Act, held as under: Section requires that the assessee must use the asset for the purposes of business . It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfied, notwithstanding nonusage of the asset itself by the assessee. 8.1 The Hon ble Supreme Court considered the phrase 'use for the purpose of business' in the case of liquidators of Pursa Ltd. v. CIT(1954) 25 ITR 265 (SC). The Hon ble Apex Court pointed out that the critical words which are essentially constituent for the purpose of considering the claim of the assessee was machinery or plant used for the purposes of business, profession or vocation . The words used for the purposes of business obviously means used for the purpose of enabling the owner to carry on the business and earn profits in the business. 8.2 In view of the binding precedent of the Hon ble Apex Court, respectfully following the same, we find no reason to interfere with the findings of the Ld. CIT (A) on the issue and d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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