2020 (2) TMI 1611 - AT - Income Tax

TP Adjustment - interest on receivables - treating the receivables outstanding beyond 60 days from associated enterprises (AEs) as deemed loan and charging notional interest on the basis of LIBOR plus 300 basis points - HELD THAT - DRP first of all has given direction to the TPO to give working capital adjustment by taking average opening and closing balance of the inventories and receivable/ payables credit debtors and creditors for the relevant year and the issue of adjustment on account of outstanding receivables. DRP on the basis of direction in A.Y. 2014- 15 held that the TPO has rightly allowed 60 days credit period and but has wrongly applied SBI PLR rate plus 300 basis point. The TPO should apply LIBOR plus basis points for making the adjustment on account of interest. Since in assessee s own case the Tribunal has held that once working capital adjustment has been made then no separate adjustment is called for on interest of receivables. The Tribunal has followed the judgment of Hon ble Delhi High Court in the case of PCIT vs. Kusum Healthcare Pvt. Ltd 2017 (4) TMI 1254 - DELHI HIGH COURT As already direction for working capital adjustment has been given by DRP therefore we hold that no Transfer Pricing Adjustment on account of interest on payment of receivables can be made separately. Thus the Transfer Pricing Adjustment on account of interest on receivable is deleted. - Decided in favour of assessee.

Summary

Issues:
Transfer Pricing Adjustment on interest receivables outstanding beyond 60 days from associated enterprises (AEs).

Analysis:

Issue 1: Transfer Pricing Adjustment on Interest Receivables
- The appeal was filed against the final assessment order for the Assessment Year 2015-16 challenging the Transfer Pricing Adjustment on interest receivables beyond 60 days from AEs.
- The Tribunal in the assessee's case for the Assessment Year 2014-15 held that no Transfer Pricing Adjustment on interest receivables can be made as it gets subsumed in the working capital adjustment.
- The Transfer Pricing Officer (TPO) applied SBI PLR rate and calculated interest at 13% on outstanding receivables beyond 60 days, making an adjustment of &8377; 7,79,48,469.
- The Dispute Resolution Panel (DRP) directed the TPO to apply LIBOR plus basis points for the interest adjustment on outstanding receivables.
- The Tribunal, following the judgment of the Hon'ble Delhi High Court in a related case, held that no separate adjustment is required on interest of receivables once working capital adjustment is made.
- The Tribunal compared the profit margins of the appellant company with comparables and concluded that the higher margin compensates for the credit period extended to AEs, aligning with established Transfer Pricing principles.
- The Tribunal referred to a decision affirmed by the Hon'ble High Court of Delhi, directing the deletion of the Transfer Pricing Adjustment on interest receivables.
- Thus, the Tribunal allowed the appeal, deleting the Transfer Pricing Adjustment on interest receivables for the year in question.

This detailed analysis covers the Transfer Pricing Adjustment issue on interest receivables outstanding beyond 60 days from associated enterprises, highlighting the arguments, decisions, and legal principles involved in the judgment.