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2020 (12) TMI 294 - AT - Income TaxTP Adjustment - Addition relating to Arm s Length Price Adjustment towards interest on receivables from AE s - Finding on the No.of days delay in receivables - HELD THAT - Coordinate bench of this tribunal in the case of Infor (India) Pvt. Ltd 2020 (12) TMI 235 - ITAT HYDERABAD held that with the introduction of Explanation to section 92B, interest on receivables constitute international transaction and separate adjustment is required to be made on account of interest on delayed payments. Therefore we, hold that the Ld. DRP/TPO/AO is justified in imputing the interest on deferred receivable as international transaction accordingly we, uphold the order of the DRP/AO and dismiss the assessee's appeal in these grounds. Interest on receivables - receivables represent the trade receipts and the same are required to be received in foreign exchange - The Tribunal in the case of M/s. Value Labs Technologies 2020 (9) TMI 1149 - ITAT HYDERABAD has held that in the case of export turnover, which required to be received in foreign exchange, the international transaction shall be considered at LIBOR 200 basis points rate after the expiry of credit period. Also in the case of Cambridge Technology Enterprises Ltd 2019 (11) TMI 1112 - ITAT HYDERABAD Tribunal held that notional interest has to be charged at LIBOR interest rates as the receivables are in foreign exchange - we hold that interest rate should be charged on receivables at LIBOR 200 points. Accordingly, we direct the AO/TPO to charge interest at LIBOR 200 basis points. Credit period - TPO has allowed 30 days and no agreement was placed by the assessee before us. However, in the case of M/s. Value Labs(Supra), on which reliance was placed by the assessee, this Tribunal held that interest to be charged in the case of delay between 90 to 120 days and in the case of Infor (India) Pvt. Ltd., ITAT allowed 90 days. Considering the facts and merits of the case, we hold that 120 days is reasonable period in this case, hence, we direct the AO/TPO to allow 120 days credit period and charge interest over and above the outstanding period of 120 days. Netting of interest - counsel argued that interest on payables is to be netted against the outstanding receivables - HELD THAT - This issue has been considered by the DRP and in the absence of details, the assessee's request for adjustment was rejected. No details are furnished by the assessee even before us with regard to netting of payables against receivables. We, therefore, reject the ground of the assessee on this issue of netting out of payables against the receivables.
Issues Involved:
1. Charging of interest on outstanding receivables. 2. Determination of applicable interest rate. 3. Allowance of credit period. 4. Netting of outstanding payables against receivables. Detailed Analysis: 1. Charging of Interest on Outstanding Receivables: The core issue in the appeal is the charging of interest on outstanding receivables. The Transfer Pricing Officer (TPO) identified outstanding receivables of ?59,17,71,560/- and proposed to charge notional interest at 14.5%, based on SBI deposit rates. The assessee contended that these receivables were related to international transactions and not in the nature of advances or loans. The TPO, referencing clause 'c' to Explanation to Section 92B, which includes receivables as international transactions, rejected the assessee's objections and suggested an adjustment of ?6,54,11,154/-. The Dispute Resolution Panel (DRP) upheld this adjustment, directing the Assessing Officer (AO) to charge interest till the end of the financial year. The assessee's appeal to the Tribunal argued that the interest on receivables should be subsumed in working capital adjustments and that no separate adjustment was necessary. 2. Determination of Applicable Interest Rate: The assessee alternatively argued that if interest were to be imputed, it should be based on LIBOR rates instead of SBI rates, given the receivables were in foreign exchange. The Tribunal noted that the TPO had used SBI Fixed Deposit rates, but in cases involving foreign exchange receivables, the LIBOR + 200 basis points rate should be applied. This was consistent with previous Tribunal decisions in similar cases. 3. Allowance of Credit Period: The TPO allowed a credit period of 30 days, which the assessee contested, requesting a 120-day credit period. The Tribunal, considering precedents and the specifics of the case, directed the AO/TPO to allow a 120-day credit period and charge interest only for delays beyond this period. This decision was influenced by similar rulings in the cases of M/s. Value Labs Technologies and Infor (India) Pvt. Ltd. 4. Netting of Outstanding Payables Against Receivables: The assessee argued for netting off outstanding payables of ?13,08,87,984/- against receivables. The DRP rejected this due to the lack of detailed information from the assessee. The Tribunal upheld this rejection, noting the absence of details even during the appeal. Conclusion: The Tribunal partly allowed the appeal, directing the AO/TPO to: - Charge interest on outstanding receivables at LIBOR + 200 basis points. - Allow a credit period of 120 days. - Reject the netting of payables against receivables due to insufficient details. The Tribunal emphasized that receivables constitute a separate international transaction and that interest must be imputed if receivables are realized beyond the agreed period. This decision aligns with the amendment to Explanation to Section 92B, which includes any debt arising during the course of business as an international transaction.
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