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TMI Blog2023 (1) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer (AO) to a Transfer Pricing Officer u/s. 92CA of the Act. 3. During the course of proceedings under section 92CA of Act, the Transfer Pricing Officer (TPO) observed that the assessee has not charged its AE interest in respect of unrealized amounts outstanding (receivables from the AE) for FY 2017-18. The TPO held that receivable is international transaction and selected CUP method as most appropriate method and computed arm's length interest rate at 13.675% being the SBI short term deposit interest rate. The TP adjustment of Rs. 3,73,77,565/- was made by the TPO for extended credit period provided to the AE beyond a period of 30 days. The relevant findings by the TPO are summarized below: ➣ The TPO has stated that working capital adjustment does not cover entire outstanding amounts, since it is restricted to certain amounts only and is computed on the basis of amounts at the beginning and the end of the year. On the other hand, the computation of interest on receivables is based on day wise analysis which is more detailed to working capital adjustment. ➣ The TPO relied on the decision of ITAT in the case of M/s Ameriprise P Ltd vs ACIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate at 13.675% considered by TPO was incorrect. In this regard, the assessee submitted that the receivables due from the AE is denominated in USD. Accordingly, LIBOR without basis points should be adopted as a basis for benchmarking. 5. To support the above contention, the assessee relied on the decision of Indegene Lifesystems (P.) Ltd. [2017] 85 taxmann.com 60 (Bangalore - Trib.), where the Tribunal has held that LIBOR rate should be adopted as a benchmark rate for foreign currency loans advanced to AEs. 6. The DRP, however, confirmed the action of the TPO and held that the ITAT Delhi in the case of Techbooks International Pvt Ltd,(ITA No. 240/Del/2015/ AY 2010-11/ dated 6 July 2015) has held as under: "The ld. AR contended that the Agreement between the assessee and its AE does no provide for any charging of interest and, hence, there can be no question of any notional/hypothetical interest income as has been determined by the TPO. To support the non-charging of interest, he relied on the judgment of the Horrible Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Union of India and Others (2014) 368 ITR 1 (Born.). He buttressed the same argument by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hereby clarified that-- (i) the expression "international transaction" shall include-- (a)...................... (b)...................... (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;....' 13.6. On circumspection of the relevant part of the Explanation inserted with retrospective effect from 1.4.2002, thereby also covering the assessment year under consideration, there remains no doubt that apart from any long-term or short-term lending or borrowing, etc., or any type of advance payments or deferred payments, 'any other debt arising during the course of business' has also been expressly recognized as an international transaction. That being so, the payment of interest or receipt of interest on the loans accepted or allowed in the circumstances as mentioned in this clause of the Explanation, also become international transactions, requiring the determination of their ALP. If the payment of interest is excessive or there is no or low re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that, the assessee has filed before the Ld. TPO the Working Capital Adjustment computation which is overlooked. 10. Be that as it may, we do not agree with the submission of the Ld.AR that, no separate adjustment for interest on the delayed receivables is to be computed when assessee is not charging interest on delayed receivables from unrelated third parties. This is so because, after the insertion of explanation to section 92B(1), payment or deferred payment or receivables or any debt arising during the course of business falls under the expression "international transaction". Therefore in our view, the expanded meaning of international transaction as contemplated in clause (i) of explanation to section 92B(1), any delay in realisation of receivables from the associated enterprises would certainly fall within the ambit of international transaction. 11. However, as the receivables are closely associated to the primary rendering of software development services, a credit period has to be granted to the AE and has to be considered along with the main international transaction being the sale of software service development. 12. We therefore are of the view that the adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X
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