TMI Blog2022 (6) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid. Thus we are of the view that the issue has to be restored back to the AO/TPO for determination of ALP afresh with appropriate benchmarking. Assessee has entered into a service agreement with its AE with regard to providing ITeS on 1.10.2009 and later entered into amendment agreement on 26.12.2003 whereby clause 2.3 of the original agreement was amended to increase the credit period to 90 days. This fact has not been taken into consideration by the DRP - Thus direct the TPO to consider the credit period of 90 days while determining the ALP afresh, after providing reasonable opportunity of being heard to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, the any income arising from an international transaction shall be computed having regard to the arm s length price. 6. The assessee adopted Transactional Net Margin Method (TNMM) as the Most Appropriate Method [MAM]. The Operating Profit to Operating Cost ratio has been taken as the Profit Level Indicator [PLI] in TNMM analysis. 7. The assessee filed return of income for AY 2015-16 on 30.9.2016 admitting an income of Rs.16,43,89,350. The case was selected for scrutiny and referred to the Transfer Pricing Officer [TPO]. The assessee s comparables were not accepted by the TPO during the TP proceedings. The TPO on a fresh set of comparables chosen made a TP adjustment of Rs.17,28,28,717 and also calculated interest on outstanding receivables at Rs.7,62,860. 8. The assessee raised objections before the DRP. The DRP granted relief to the assessee on exclusion of various comparables and therefore the TP adjustment was reduced to NIL and the margin of the assessee was determined to be within the arm s length. However, the DRP upheld the adjustment of the TPO with respect to interest on receivables with a direction to reduce the credit period from 90 days to 30 days. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the coordinate Bench of the Tribunal in the case of Applied Materials India Pvt. Ltd. v. ITO in IT(TP)A No.3403/Bang/2018 dated 08.06.2022 has considered the issue of whether interest on receivables is a separate international transaction and held that :- 39. We have considered the rival submissions and perused the material on record. In our opinion, the impugned issue is squarely covered by the decision of the coordinate Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) wherein it was held as under:- 35. The only other issue that remains for adjudication is ground No.15 with regard to recharacterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee s own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:- 23. Ground No. 14-17 alleged b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression international transaction shall include . . . . . (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been correctly determined. 23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol. - Trib.), held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per Explanation to section 92B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: There may be a delay in collection of monies for supplies made, even beyond the agreed lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly. 40. In view of the above discussion and considering the decision of the of the coordinate bench of the Tribunal (supra) and the judgment of the Hon ble High Court of Karnataka in the case of AMD (India) Pvt. Ltd. (supra), we hold that the treatment of interest on deferred receivables is rightly considered as an independent international transaction and benchmarked separately by the revenue authorities. 13. Following the above decision, in the present case we hold that interest on receivable is a separate international transaction which has been rightly considered by the TPO/DRP. 14. With regard to determination of ALP in respect of interest on receivables, we notice that the coordinate Bench of the Tribunal in the case of Barracuda Networks India Pvt. Ltd. in IT(TP)A No.229/Bang/2021 vide order dated 25,10.2021 has held as under:- 43. Having concluded that deferred trade receivables constitute international transaction, we come to the computation of the ALP of the international transaction of 'debt arising during the course of business.& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod. When the interest for realization of trade advances up to 150 days is part and parcel of the price charged from the AE, then the delay up to this extent cannot give rise to a separate international transaction of interest uncharged. Rather interest for the period in excess of normally realizable period in an uncontrolled situation upto 150 days needs to be considered in the determining the ALP of the international transaction of the 'Provision of IT Enabled data conversion services'. This can be done by increasing the revenue charged by the comparable companies with the amount of interest for the period between that allowed by them in realization of invoices and 150 days as allowed by the assessee, so as to bring such comparables at par with the assessee's international transaction of provision of the ITES. To illustrate, if the comparables have allowed credit period of, say, 60 days and the assessee has realized its invoices in 180 days, then interest for 90 days (150 days minus 60 days) should be added to the price charged by the comparables and the amount of their resultant adjusted operating profit be computed. Rule 10B permits making such an adjustment. Sub-ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid. We hold and direct accordingly. All issues on determination of ALP of the transaction are kept open. 15. Following the above decision of the coordinate Bench of this Tribunal, we are of the view that the issue has to be restored back to the AO/TPO for determination of ALP afresh with appropriate benchmarking. We notice that the assessee has entered into a service agreement with its AE with regard to providing ITeS on 1.10.2009 [page 402 of PB] and later entered into amendment agreement on 26.12.2003 [page 414 of PB] whereby clause 2.3 of the original agreement was amended to increase the credit period to 90 days. This fact has not been taken into consideration by the DRP. We therefore direct the TPO to consider the credit period of 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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