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2019 (2) TMI 1714 - AT - Income TaxTP adjustment on interest on unrealised export proceeds - Interest on receivable as an international transaction - direction of computing interest for the receivable which remains outstanding for more than 60 days subject to verification whether the loan is being repaid in US dollar or in Indian rupees respectively - HELD THAT - DRP in arriving at the decision that interest on receivable is an international transaction, has followed the decision of the Hon ble Delhi High Court in the case of CIT vs. Cotton Naturals 2015 (3) TMI 1031 - DELHI HIGH COURT . We do not find any error in the finding of the Ld. DRP on the issue and accordingly we reject the contention of the Ld. Counsel that interest receivable is not an international transaction. DRP, following the Hon ble Delhi High Court in the case of Cotton Naturals (supra) has also rejected the contention of the assessee that the interest subsumed in the sale price of the assessee and no separate benchmarking for interest is required. Before us also nothing has been demonstrated that margin of the assessee is better than the margin of such comparables also having receivables and thus we do not find any error in the finding of the Ld. DRP on this issue. Not charging of the interest on two invoices raised on Shan Jewellers Corporation Counsel has not brought on record comparability of the transactions carried out with Associated Enterprises like country to which exported, agreement with parties etc. and thus these transactions cannot be considered for benchmarking the interest on receivables from the Associated Enterprises. Allowing credit of 90 days - We find that this period of 60 days adopted by the Ld. TPO or 90 days requested by the assessee depend on the prevalent business practice in the trade. The Ld. Counsel has pointed out before us that in assessment year 2015- 16 the Ld. TPO himself as considered the receivables beyond the period of 90 days for the purpose of transfer pricing adjustment. We have verified this fact from the order of the Ld. TPO for assessment year 2015-16 available on page 254 to 277 of the paper book. We find from the Annexure-1 to the order of the TPO that receivables beyond 90 days have been considered for transfer pricing adjustment. In view of the rule of consistency, the period of 90 days credit is found to be reasonable in the trade of the assessee and accordingly we direct the Ld.AO/TPO to compute the transfer pricing adjustment for receivables having delay in receipt of payment more than 90 days. Accordingly the ground of the appeal raised by the assessee in respect of transfer pricing adjustment for interest on receivables are partly allowed for statistical purposes. LIBOR rate selection - DRP has observed that the foreign currency involved in the case of receivables from AE is Great Britain Pound and thus directed to apply the LBOR of that currency. But while giving effect to the order of the Ld. DRP, the TPO has applied the LIBOR rate of US dollar observing that invoices have been raised in US dollar. We find that the Ld. DRP given direction following the decision of the Hon ble Delhi High Court in the case of Cotton Naturals (supra) where in the Hon ble High Court has observed that interest rates should be the market determine interest-rate applicable to the currency concerned in which the loan has to be repaid and interest-rate should not be computed on the basis of the interest payable on the currency of the legal tender of the place of the country of residence of the either party. Accordingly, we feel it appropriate to direct the Ld. AO/TPO to verify the currency in which invoices have been raised by the assessee on the Associated Enterprises and apply the LIBOR of the said currency. Accordingly ground No. 1 of the Revenue is allowed for statistical purposes.
Issues Involved:
1. Legality and jurisdiction of the assessment order. 2. Addition/disallowance of ?7,26,471/- on account of interest on loan to AE. 3. Addition/disallowance of ?17,89,480/- on account of interest on unrealized export proceeds. 4. Procedural fairness and opportunity of hearing. 5. Charging of interest under sections 234A, 234B, and 234C. 6. Initiation of proceedings under section 271(1)(c). Issue-wise Detailed Analysis: 1. Legality and Jurisdiction of the Assessment Order: - The assessee contended that the assessment order under section 143(3) read with section 144C was illegal, bad in law, and without jurisdiction. However, these grounds were not specifically argued and were dismissed as infructuous. 2. Addition/Disallowance of ?7,26,471/- on Account of Interest on Loan to AE: - The assessee granted an interest-free loan to its AE, M/s Sidhartha Jewellery (UK) Ltd., which was considered an international transaction. - The TPO initially benchmarked the interest rate using the SBI prime lending rate, but the DRP directed to apply the LIBOR rate plus 400 basis points. - The TPO recomputed the adjustment using the LIBOR rate, resulting in an addition of ?7,26,471/-. - The assessee did not pursue this issue before the Tribunal, and the grounds raised were dismissed as infructuous. 3. Addition/Disallowance of ?17,89,480/- on Account of Interest on Unrealized Export Proceeds: - The TPO treated delayed realization of export proceeds as an interest-free loan and benchmarked it using the SBI prime lending rate, resulting in an initial adjustment of ?1,64,45,999/-. - The DRP directed to apply the LIBOR rate for Great Britain Pound, reducing the adjustment to ?17,89,480/-. - The assessee argued that interest on receivables is not an international transaction and that the consideration for delayed payments was embedded in the sale price. Both contentions were rejected by the DRP and the Tribunal. - The Tribunal upheld the DRP's direction to use the LIBOR rate but modified the credit period for calculating the adjustment from 60 days to 90 days, following the principle of consistency with the assessment year 2015-16. 4. Procedural Fairness and Opportunity of Hearing: - The assessee claimed that the TPO/AO did not provide adequate opportunity to present details substantiating their claims. However, this ground was not specifically argued before the Tribunal and was dismissed as infructuous. 5. Charging of Interest under Sections 234A, 234B, and 234C: - The assessee contended that interest under sections 234A, 234B, and 234C was wrongly charged and calculated. This ground was not specifically argued and was considered consequential, thus not requiring specific adjudication. 6. Initiation of Proceedings under Section 271(1)(c): - The assessee challenged the initiation of penalty proceedings under section 271(1)(c). This ground was also not specifically argued and was considered consequential, thus not requiring specific adjudication. Separate Judgments: - The Tribunal issued a consolidated order for both the assessee's and the Revenue's appeals. - The assessee's appeal was partly allowed for statistical purposes, specifically modifying the credit period for calculating interest on receivables. - The Revenue's appeal was allowed for statistical purposes, directing the AO/TPO to verify the currency in which invoices were raised and apply the appropriate LIBOR rate. Conclusion: - The Tribunal upheld the adjustments made by the TPO/DRP with modifications, ensuring the application of appropriate interest rates and credit periods. - Procedural grounds and contentions regarding the legality of the assessment order were dismissed as infructuous. - The decision emphasizes the importance of consistency and proper benchmarking in transfer pricing adjustments.
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