TMI Blog2023 (2) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... owed a reasonable opportunity of being heard in accordance with law. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must LIBOR + 300 basis points in accordance with the principles laid down in case of CIT vs. Cotton Naturals (I) Pvt. Ltd [ 2015 (3) TMI 1031 - DELHI HIGH COURT] by considering a credit of 90 days. Mistake in the computation of income - Computation of tax liability u/s 115JB - increase in book profit u/s 115JB and computation of tax liability - computational errors - adjustment on account of deferred tax - HELD THAT:- As per explanation to Section 115JB(2) of the Act, the amount of deferred tax, if any, credited to statement of profit and loss is to be reduced while calculating the amount of book profits as per MAT provisions.Accordingly, in the instant case, the deferred tax which has been credited to statement of profit and loss account was reduced while computing the book profits in the return of income filed by the Assessee. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appreciating the fact that the working capital adjustments undertaken take into account the impact of outstanding receivables of the controlled transactions vis- -vis the uncontrolled transactions in determining the arm s length margin and no separate benchmarking is required; d) Not appreciating the facts and circumstances surrounding the receivables and re[1]characterising the outstanding receivables as unsecured loans advanced to AEs; e) Not following any statutorily prescribed method and without doing any comparability benchmarking as prescribed under Chapter X of the Act. Without prejudice to the above f) Not considering netting off of outstanding receivables and payables from/ to AEs; g) Considering SBI short-term deposit rates for imputing notional interest instead of LIBOR; and h) Considering credit period of 45 days instead of the industry average credit period 31.9609% of adjustment amount of INR 41,71,929 = INR 13,33,386 3. Ground on erroneous initiation of penalty under section 270A of the Act Ld. AO was not justified and rather grossly erred in law and in facts by initiating penalty proceedings under section 270A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90/-. 2.3 The case was selected for scrutiny assessment by the Ld.AO and also referred assessee s case to the Ld.TPO for determination of Arm's Length Price of the international transactions entered by the assessee with the AEs. 2.4 The Assessee made time to time submissions in response to the notices issued by the Ld. TPO. During the FY 2016-17, the Assessee had entered into the international transactions of provision of back office support services in the nature of IT enabled services. The Assessee applied TNMM as the most appropriate method and computed its margin that was within the range of the adjusted PLI (OP/OC) (i.e. after undertaking working capital adjustment to adjust for differences in receivables and payables) of the comparables selected by the Assessee in its TP study report. Accordingly, the transaction of provision of IT enabled services was concluded by the Assessee to be at arm's length. Ld.TPO after considering the submissions by the assessee proposed adjustment in relation to interest on delayed collection of receivables by applying the 6 months LIBOR plus 400 basis points after granting credit period of 30 days. 2.5 Subsequently, the draft ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee with a credit period of 150 days from date of raising of invoice for making payments against the services rendered. (Refer page 181 of Item 5 of the appeal set). Further, it was submitted that the weighted average credit period by the Assessee to AEs -49.32 days is less than the credit period extended to Assessee by third parties. Therefore, the credit period provided by the Assessee is less than the credit period received from third parties. Hence, no adjustment is warranted on outstanding receivables from AEs. 2.10 It was argued by Ld.AR that, the authorities below disregarded business/commercial arrangement between the assessee and its AE s, by holding outstanding receivables to be an independent international transaction. The Ld.AR placed reliance on decision of Hon ble Delhi Tribunal in Kusum Healthcare Pvt. Ltd. vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. reported in (2017) 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. Reliance was also placed on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Hon ble Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon ble Delhi Bench in this case noted a decision of the Hon ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., reported in (2013) 215 Taxmann 108, dealt with question of law as under: (c) `Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis- -vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Provision for current tax 2,35,51,493 2,35,51,493 -Interest on delay in remittance of TDS u/s 201(1A) of the Act 3,29,679 - -Deferred Tax (16,57,043) - Book profits u/s 115JB of the Act 36,84,54,490 36,97,81,854 5.2 In this regard, with respect to adjustment on account of deferred tax, we humbly submit that as per Section 115JB of the Act: Explanation 1.-For the purposes of this section, book profit means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by- if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss. and as reduced by. - (viii) the amount of deferred tax, if any such amount is credited to the statement of profit and loss. 5.3 In light of the above, as per explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorrect total income as per Intimation u/s 143(1) of the Act, which consists of an arithmetical error, thereby leading to adjustment of INR 1,84,174 while computing assessed income of the assessee. Screenshot of the same is mentioned below. 8.1 Further it was submitted that on the facts and in law, the Ld.AO was not justified and has erroneously computed interest u/s. 244A at INR 3,30,884/-, thereby resulting in short grant of interest. Necessary directions may please be given to the Ld.AO in this regard. On the contrary, the Ld.DR submitted that these issues do not arise out of the orders passed by the authorities below and therefore are to be rejected. We have perused the submissions advanced by both sides in the light of records placed before us. 9. We note that the above alleged mistakes are to be looked into in accordance with law by the Ld.AO in order to compute the correct taxable income in the hands of the assessee. The objection of the Ld.DR that these issues do not arise out of the orders passed by authorities below do not have any merit as in a 144C proceedings, the final computation of taxable income is computed by the Ld.AO while passing the final ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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