9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (2) TMI 896 - AT - Income TaxTP Adjustment - delayed payment treated as unsecured loan advanced to AE s - interest cost to be charged from the AEs for delay in payment beyond the stipulated date - TPO benchmarked the international transactions using CUP method on the delayed payment made by its AEs using LIBOR plus 400 basis points and computed interest at the rate of 4.45% and thereby made an upward adjustment - HELD THAT - When the assessee has already taken in to account the impact of outstanding receivables on profitability while making working capital adjustment of the tax payer vis- -vis of its comparables then any further adjustment on account of delay payment outstanding to AE cannot be recharacterized as unsecured loan. From the perusal of the audited Balance sheet of the assessee which is placed in the paper book filed we find that assessee has no debts on account of secured or unsecured loans meaning thereby that it is a debt free company. We find that Hon ble Delhi High Court in the case of PCIT vs. Bechtel India Pvt. Ltd. 2016 (9) TMI 196 - DELHI HIGH COURT has upheld the order of ITAT wherein the Tribunal had held that when the assessee is debt free company the question of receivable does not arise. Revenue had relied on the decision of Hon ble Delhi High Court in the case of Cotton Natural 2015 (3) TMI 1031 - DELHI HIGH COURT . We find that the facts in the case of Cotton Natural are different and the question before the Hon ble High Court was different and in such a situation we are of the view that the ratio of the aforesaid decision in the case of Cotton Natural (supra) will not be applicable to the case of the assessee in the present case. - Decided in favour of assessee.
Issues Involved:
1. Adjustment of ?51,15,652 to total income concerning interest on outstanding receivables. 2. Non-acceptance of the economic analysis undertaken by the appellant. 3. Charging interest on delayed receipts of receivables from Associated Enterprises (AE). 4. Selection of Comparable Uncontrolled Price Method (CUP) for benchmarking outstanding receivables. 5. TP adjustment for inter-company receivables despite the appellant being a debt-free company. 6. Inter-company receivable days being less than the comparable companies. 7. Applicability of Section 92CE and Rule 10CB concerning receivable days. Detailed Analysis: Issue 1: Adjustment of ?51,15,652 to Total Income The primary grievance of the assessee was the addition of ?51,15,652 made by the AO/TPO as interest on outstanding receivables from its AE. The AO/TPO treated the delayed receivables as an unsecured loan and computed interest using the CUP method (LIBOR plus 400 basis points), resulting in an upward adjustment to the total income. Issue 2: Non-Acceptance of Economic Analysis The assessee contended that its economic analysis, which included working capital adjustments in the TP study report, was not accepted by the AO/TPO. The assessee argued that the outstanding receivables were already factored into the working capital adjustments, and any further adjustment would distort the financial picture. Issue 3: Charging Interest on Delayed Receipts The AO/TPO's characterization of outstanding receivables as unsecured loans and the subsequent interest charge was challenged. The assessee argued that this re-characterization was not permissible under Transfer Pricing regulations. The primary transaction was the provision of IT-enabled services, and interest on receivables was incidental. Issue 4: Selection of CUP Method The assessee disputed the use of the CUP method for benchmarking the outstanding receivables, arguing that no criteria or reasoning were provided for rejecting other methods. The DRP upheld the use of the CUP method, but the assessee maintained that this was erroneous. Issue 5: Debt-Free Company The assessee highlighted that it was a debt-free company, as evidenced by its audited financial statements. The Delhi High Court in PCIT vs. Bechtel India Pvt. Ltd. had held that when a company is debt-free, the question of receivables does not arise. This precedent was cited to argue against the addition. Issue 6: Inter-Company Receivable Days The assessee pointed out that its inter-company receivable days (63 days) were less than those of comparable companies. The DRP did not appreciate this fact, leading to an unjustified TP adjustment. Issue 7: Applicability of Section 92CE and Rule 10CB The assessee argued that the receivable days were less than the 90 days prescribed under Section 92CE and Rule 10CB. This further supported the argument that no addition was warranted. Conclusion: The Tribunal found merit in the assessee's arguments, particularly the fact that the working capital adjustments already factored in the impact of outstanding receivables. Citing the Delhi High Court's decision in Kusum Healthcare Pvt. Ltd., it was held that any further adjustment would distort the financial picture and re-characterize the transaction, which is impermissible. Additionally, the Tribunal noted that the assessee was a debt-free company, aligning with the precedent set in Bechtel India Pvt. Ltd. Consequently, the Tribunal set aside the AO/TPO's action and allowed the assessee's appeal, resulting in the deletion of the ?51,15,652 adjustment. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open court on 17.02.2021.
|
