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2019 (12) TMI 902 - AT - Income TaxTP Adjustment - Comparable selection - TPO rejected M/s. R System International Ltd. as comparable on the ground that this company is having different financial year ending i.e. December - CIT(A) directing Transfer Pricing Officer to include M/s. R System International Ltd. as comparable - HELD THAT - When financial results are available in the public domain and result of M/s. R. Systems International Ltd. has been recasted on the basis of audited quarterly result and audited financial results, we are of the considered view that no error has been committed by the ld. CIT (A). So, we find no ground to interfere into the findings returned by the ld. CIT (A) on this issue, hence ground no.1 is determined against the Revenue. Benchmarking of receivables on the ground that receivables were not separate international transactions - recharacterisation was not permitted, non-application of SBI base rate for benchmarking etc. and has given invoice details of receivables along with their duration, proceeded to apply the interest @ 11.69% to bring the transactions qua receivables at arm s length by deeming the receivables outstanding beyond the period stipulated in the service agreement/invoice as deemed loan advanced - HELD THAT - Following the order passed by the Tribunal in taxpayer s own case for AY 2009-10 2018 (4) TMI 926 - ITAT DELHI we are of the considered view that in the instant case, the period of outstanding receivables is ranging between 25 days to 365 days and facts and circumstances are identical, so no interest can be charged on the receivables with AEs, hence ld. CIT (A) has rightly ordered to delete the addition. Consequently, ground no.2 is determined against the Revenue.
Issues Involved:
1. Inclusion of R. System International Ltd. as a comparable for benchmarking international transactions. 2. Application of nil rate as arm's length interest rate on outstanding receivables from AE. Issue-wise Detailed Analysis: Issue 1: Inclusion of R. System International Ltd. as a Comparable The Revenue challenged the CIT(A)'s directive to include R. System International Ltd. as a comparable for benchmarking the international transactions, arguing that the data for FY 2010-11 was not available and that audited recasting of data might distort profitability. The TPO had rejected R. System International Ltd. as a comparable due to its different financial year ending in December. However, the CIT(A) included it by recasting the period from 01.04.2014 to 31.03.2011 based on audited quarterly results and financial results. The Tribunal upheld the CIT(A)'s decision, emphasizing that the financial results were available in the public domain and correctly recasted, thus finding no error in the CIT(A)'s inclusion of R. System International Ltd. as a comparable. Issue 2: Application of Nil Rate as Arm's Length Interest Rate on Outstanding Receivables from AE The TPO applied an interest rate of 11.69% on outstanding receivables, treating them as deemed loans advanced beyond the stipulated period in the service agreement/invoice. The CIT(A) deleted the addition made on account of interest adjustment on receivables, relying on the Tribunal's decision in Indo American Jewellery Ltd. vs. DCIT, which was upheld by the High Court. The Tribunal noted that in the taxpayer's own case for AY 2009-10, no interest was imputed on receivables despite delays ranging from 38 to 1718 days, as similar delays existed in transactions with unrelated parties where no interest was charged. Following the precedent, the Tribunal held that no interest could be charged on receivables with AEs, affirming the CIT(A)'s deletion of the addition. Conclusion: The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decisions on both issues. The inclusion of R. System International Ltd. as a comparable was deemed appropriate, and the application of nil rate as the arm's length interest rate on outstanding receivables from AE was justified based on the taxpayer's consistent practice and comparable uncontrolled transactions.
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