2022 (3) TMI 1459 - AT - Income Tax

TP Adjustment - Payment of interest on trade credits - Arms length price of international transaction of payment of interest on trade credits to its AE - ALP determined by ld TPO at Rs Nil - HELD THAT - We find that the transaction of outstanding payable by the assessee to non- AE is a separate international transaction in terms of provisions of explanation 1 c of section 92 B - There are no reasons to hold that above transaction is interlinked with other transactions and therefore should be aggregated - LD TPO holding so found that there is an internal CUP available as for capital-financing assessee is paying interest to AE and not paying any interest to NON AE. Mostly Internal CUP would provide highly accurate results. In this case the difference in credit period is a differentiating factor only for the purposes of purchase transaction. For capital financing the moment the credit period is over both the outstanding of AE as well as NON AE stands at Par. We note that assessee has submitted before the learned CIT (A) that the facts noted by the learned TPO that in past also the assessee has not paid any interest is incorrect. Submission made before him clearly shows that for Assessment Year 2010-11 the assessee has paid 1, 92, 146/- for Assessment Year 2011-12 15, 02, 059/- for Assessment Year 2012-13 29, 79, 359/- and for Assessment Year 2013-14 27, 82, 845/-. However that does not make any difference in benchmarking international transaction of current AY. Benchmarking of Payment of interest on outstanding beyond credit period to AE is also not impacted by the margins earned by the assessee or consideration of working capital adjustment. In view of the above facts we uphold benchmarking made by Transfer Pricing Officer of the above payment interest at Rs. Nil. Accordingly the grounds of the appeal assessee are dismissed.

Summary

Issues:
Determination of Arms length price of an international transaction of payment of interest on trade credits.

Analysis:
The issue in this case revolves around the determination of the Arms length price of an international transaction involving the payment of interest on trade credits to an Associated Enterprise (AE). The Transfer Pricing Officer (TPO) determined the Arms length price at Nil, leading to an adjustment in the assessment order. The assessee challenged this decision before the CIT (A) and subsequently before the Appellate Tribunal.

The assessee argued that the transaction should be benchmarked by aggregating it with other international transactions using the Transactional Net Margin Method (TNMM). The assessee contended that there was a significant difference in the credit period allowed by Non AEs (30 days) and AEs (90 days). The assessee also provided evidence of interest payments made to AEs in previous assessment years to support their case.

On the other hand, the Revenue supported the TPO's decision, arguing that the payment of interest to AEs was correctly disallowed since no interest was paid to Non AEs. The Revenue emphasized the presence of an internal Comparable Uncontrolled Price (CUP) and asserted that the TPO's method was appropriate.

Upon careful consideration, the Appellate Tribunal upheld the TPO's benchmarking decision. The Tribunal noted that the transaction with Non AEs constituted a separate international transaction, distinct from other transactions, and should not be aggregated. The Tribunal agreed with the TPO's view that the internal CUP was available due to the differing credit periods between AEs and Non AEs.

Although the assessee provided evidence of interest payments to AEs in previous years, the Tribunal maintained that it did not impact the benchmarking of the current year's transaction. The Tribunal also clarified that the working capital adjustment and margins earned by the assessee did not affect the benchmarking of the interest payment transaction. Ultimately, the Tribunal dismissed the appeal, upholding the TPO's decision to benchmark the interest payment at Nil.

In conclusion, the Appellate Tribunal's decision affirms the TPO's benchmarking approach for determining the Arms length price of the international transaction involving the payment of interest on trade credits to AEs, emphasizing the presence of an internal CUP and the distinct nature of the transaction with Non AEs.