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2020 (11) TMI 1018 - AT - Income TaxTP Adjustment - treating outstanding receivables from AEs as a separate international transaction and making adjustment by way of imputation of interest thereon - HELD THAT - As outstanding receivables from AEs would constitute a separate international transaction on which imputation of interest is to be made by applying LIBOR 200 basis points as under - a. In respect of invoices raised in earlier years by the assessee on its AEs, where the amounts were realized during the year under consideration but beyond the agreed credit period, imputation of interest is to be made from first day of April or from the expiry of the agreed credit period (i.e 30 days as accepted by ld DRP) whichever is later till the date of realization of debts. b. In respect of invoices raised during the year on its AEs, where the amounts were realized during the year itself but beyond the agreed credit period, imputation of interest is to be made from the date of expiry of agreed credit period till the date of realization of debts. Accordingly, the grounds raised by the assessee for A.Yrs. 2013-14 and 2014-15 with regard to transfer pricing adjustment made on account of imputation of interest on outstanding receivables from AEs are disposed off in the aforesaid manner. Determination of ALP @5% of reimbursement from AE - Marking up@5% on the expenses being the travel cost of deputed employees paid on behalf of AE and recovered the same at cost from AEs as related to provision of services - HELD THAT - We find that no arguments were advanced by the ld. AR with regard to these grounds. We find that the ld. DRP had dismissed this issue on the ground that assessee has not filed any details to demonstrate that these were mere reimbursements on cost to cost basis. Accordingly, the ld. DRP found it appropriate to direct the ld. TPO to apply mark up of 5% (as against 10% adopted by the ld. TPO) and recompute the adjustment. No efforts were taken by the assessee before us to improve its case beyond what was stated before ld. DRP with regard to this issue. Hence, we do not deem it fit to interfere with the directions of ld. DRP and consequentially in the final assessment order passed by the ld. AO pursuant to directions of ld. DRP in respect of this ground. Accordingly, the ground raised on mark up on reimbursements is hereby dismissed. Direction of the ld. DRP to adopt mark-up of 10% on the reimbursement received by the assessee from AEs - HELD THAT - We find that the ld. TPO had adopted on adhoc basis of 10% mark-up on reimbursement from AEs which was reduced by the ld. DRP to 5%. We have already held in assessee‟s appeal in respect of this issue that assessee had not provided any further details to prove that the reimbursement from AE was done on cost to cost basis. In the absence of those details, there is nothing wrong in adopting mark-up on some reasonable basis. We find that mark-up of 5% adopted by the ld. DRP is reasonable in the facts and circumstances in the instant case and does not warrant any interference thereon. Accordingly, the ground No.1 raised by the revenue is dismissed.
Issues Involved:
1. Whether outstanding receivables from AEs constitute a separate international transaction and if imputation of interest thereon is justified. 2. Determination of ALP @5% of reimbursement from AE. 3. Seeking credit for TDS and payment of self-assessment tax. 4. Chargeability of interest u/s.234B and 234C of the Act. 5. Benchmarking receivables due from overseas AEs by applying LIBOR rates. 6. Adoption of mark-up on reimbursement received by the assessee from AEs. Issue-wise Detailed Analysis: 1. Outstanding Receivables from AEs as Separate International Transaction: The primary issue in all appeals was whether the outstanding receivables from AEs should be treated as a separate international transaction and if imputation of interest on them is justified. The assessee argued that outstanding receivables do not constitute a separate international transaction and should not attract transfer pricing adjustments. However, the DRP dismissed this preliminary plea, stating that outstanding receivables effectively lock the assessee's funds with the AE, necessitating compensation in the form of interest. For assessment years 2010-11 to 2012-13, the tribunal held that no transfer pricing adjustment could be made on outstanding receivables by way of imputation of notional interest, as Clause C of Explanation to Section 92B, introduced by the Finance Act 2012, has only prospective effect from A.Y. 2013-14. For assessment years 2013-14 and 2014-15, it was held that outstanding receivables from AEs do constitute a separate international transaction. The tribunal directed the TPO to impute interest using LIBOR + 200 basis points on invoice-to-invoice basis for receivables beyond the agreed credit period. 2. Determination of ALP @5% of Reimbursement from AE: The assessee contested the 5% mark-up on expenses related to travel costs of deputed employees reimbursed by AEs. The tribunal found no arguments or evidence from the assessee to demonstrate that these were mere reimbursements on a cost-to-cost basis. Consequently, the tribunal upheld the DRP's direction to apply a 5% mark-up, finding it reasonable. 3. Seeking Credit for TDS and Payment of Self-assessment Tax: For A.Y. 2010-11, the assessee sought credit for TDS and self-assessment tax payments. The tribunal directed the AO to verify the records and supporting evidence and grant the credit as per law. 4. Chargeability of Interest u/s.234B and 234C of the Act: The tribunal noted that the chargeability of interest under sections 234B and 234C is consequential in nature and directed the AO to address this as per the law. 5. Benchmarking Receivables Due from Overseas AEs by Applying LIBOR Rates: For A.Y. 2011-12, the assessee raised an additional ground to benchmark receivables from overseas AEs using LIBOR rates. The tribunal admitted this ground and applied the same decision as in the regular grounds, directing the TPO to use LIBOR + 200 basis points for imputation of interest. 6. Adoption of Mark-up on Reimbursement Received by the Assessee from AEs: The revenue challenged the DRP's direction to adopt a 5% mark-up on reimbursements instead of the TPO's 10%. The tribunal upheld the 5% mark-up, considering it reasonable and finding no further details from the assessee to prove cost-to-cost reimbursements. Summary of Decisions: - Assessee Appeals Partly Allowed: For A.Y. 2010-11, 2011-12, 2012-13, 2013-14, and 2014-15, the tribunal partly allowed the assessee's appeals, directing adjustments based on LIBOR + 200 basis points for certain periods and dismissing other grounds. - Revenue Appeal Dismissed: For A.Y. 2010-11, the revenue's appeal was dismissed, upholding the DRP's 5% mark-up on reimbursements. - Stay Applications Dismissed as Infructuous: For A.Y. 2012-13 and 2014-15, the stay applications were dismissed as infructuous. Conclusion: The tribunal provided detailed directions on the treatment of outstanding receivables from AEs, reimbursement mark-ups, and credit for TDS and self-assessment tax. The decisions were based on the specific facts and circumstances of each assessment year, ensuring compliance with the applicable legal provisions and judicial precedents.
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