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TMI Blog2010 (10) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority is referring the entire gamut of international transactions for the consideration of the TPO. The purpose of an ALP analysis itself is in the larger context of anti-evasion measures. In the present case, the outstanding balance of receivables did not generate out of domestic transactions. Those receivables did generate from international transactions carried out by the assessee with its AE in USA. Therefore, there is no basis in arguing that the receivables are strange to the international transactions and, therefore, those receivables would not come under the purview of the jurisdiction of the TPO. The outstanding receivables is the financial result of the international transactions concluded by the assessee company with AE in USA and, therefore, the income effect arising, if any, to that outstanding receivables is very much a relevant aspect of ALP. Therefore, as a legal proposition we hold that the TPO is having the jurisdiction to examine the issue of outstanding receivables and non-charging of interest thereon. Additional income to be added in the present case as part of ALP analysis - What is made in an analysis of ALP is the evaluation of the said financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the benefit that would have been earned by the AE in USA. On the other hand, in calculating the cost factors of the assessee in India, it is more appropriate to consider the potential loss suffered by the assessee in India by not bringing the receivables within the normal period. In fact, the said potential loss of the assessee in India is the ALP factor which contributes to the additional income attributable to the assessee. Therefore, instead of the US rate, the TPO is justified in adopting the Indian rate. Adopting the Indian rate - As it is not proper to rely on PLR of the State Bank of India. This is because if the funds were brought in time and those funds were properly deployed, the assessee company may earn an income at the maximum rate applicable to deposits and not at the rate applicable to loans. Therefore, we vacate the direction of the TPO to adopt the PLR rate of 10.25%. Instead we find it appropriate to adopt a reasonable rate that would be available to the assessee on short-term deposits. ALP interest rate determination - As held that the period chargeable to interest has to be recomputed and a reasonable deposit rate has to be applied for calculating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational transactions reported by the assessee company were in the categories of purchase of capital equipment, purchase of computer software, provision for software development and consultancy services and bad debts previously written off restated in the relevant previous year. She examined the pricing of all the above transactions by analysing under Transactional Net Margin Method. She found that the transactions were entered at ALP. She, therefore, accepted the prices in respect of the above transactions as ALP compatible. 5. But the TPO further found that on the last day of the previous year a total amount of Rs. 7,73,23,619 has shown as debts receivable from its AE-Homestar USA. She further noticed that out of the above, an amount of Rs. 5,52,25,261 was outstanding for more than six months. She found that by parking this huge amount at the disposal of Homestar USA, the AE, the assessee is depriving the funds otherwise available in its hands and aversely affecting the profitability of the assessee. The assessee s explanation before the TPO was that the delay in collecting the receivables was due to the difference in the billing patterns followed by Logix India and Homestar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed of. 8. The assessee company is aggrieved by the order of the Commissioner of Income-tax(A) in all its entirety and, has filed the second appeal before us. The Revenue is aggrieved on the direction of the Commissioner of Income-tax(A) that LIBOR/US FED rate should be taken as the interest-rate. This is the only dispute in the appeal filed by the Revenue. 9. We heard Shri K. R. Pradeep, the learned Chartered Accountant appearing for the assessee company and Smt. Preethi Garg, the learned Commissioner of Income-tax-III, appearing for the Revenue. 10. The detailed grounds raised by the assessee in its appeal are reproduced below : "(i)That the order of the authorities below insofar as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law; (ii)The total income/loss computed is hereby disputed; (iii)That the arm s length interest of Rs. 56,60,486 determined by the TPO and adopted by the Assessing Officer is hereby disputed; (iv)That the communication/order of the Transfer Pricing Officer is without jurisdiction, against the law, facts, circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was no method prescribed under the Act or the Rules, having regard to the nature of transaction entered into by the assessee. Consequently, as per law no uncontrollable Arm s Length transaction could be identified; (xvi)The Commissioner of Income-tax(A) erred in restoring the matter back to TPO/Assessing Officer even after the TPO confirming that there were no comparable transaction." 11. The grounds raised by the assessee regarding the jurisdiction of the TPO, recording of reasons before making reference to TPO, providing opportunity to the assessee before making the reference, the onus of the department to establish tax avoidance, all are rejected in the light of the decision of ITAT, Bangalore, Special Bench, rendered in the case of Aztec Software Technology Services Ltd. v. Asstt. CIT [2007] 107 ITD141. 12. Another legal objection raised by the learned Chartered Accountant appearing for the assessee is that the reference made by the Assessing Officer related only to the point of ALP in respect of international transactions and the said reference does not cover the aspect of delay in collecting the receivables and the potential loss raising therefrom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is a fact that huge amount of receivables were outstanding at the end of the relevant previous year. The receivables were due from the AE in USA with which the assessee has concluded international transactions. The total of such outstanding balance as on 31-3-2004 was Rs.7,73,23,609 out of which an amount of Rs.5,52,24,261 were outstanding for more than six months. The reason stated by the assessee company for the delay in collecting the receivables is that there is a difference in the billing patterns followed by the assessee and Homestar USA, the AE. But in spite of such a contention before the lower authorities as well as before the Tribunal, the assessee has not demonstrated the real difference between the billing patterns and that how the difference would contribute to the accumulation of receivables to such a huge extent. We find that the said explanation offered by the assessee company is rather logical than substantive. Of course, to a certain extent, there may be a timing difference because of the different billing patterns followed by the assessee company, its AE- Homestar USA and the clients of the AE. But the timing difference could be acted upon only if the impact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the TPO should not go into this question of parking of funds with its AE in USA. If the funds are repatriated into India on ordinary within the normal period, the assessee would have been in a position to pay all its working capital loan or other loans, if any, and/or earning some income from an appropriate investment of those repatriated funds. This potential loss is definitely a factor to be considered while evaluating the financial impact of the international transactions concluded by the assessee with its AE in USA. Therefore, we agree with the arguments of the Revenue and uphold the finding of the TPO that an additional income is to be added in the present case as part of ALP analysis. 18. In the facts and circumstances of the case, the main contention of the assessee company is dismissed. 19. Next we have to consider the reasonableness of the directions issued by the Commissioner of Income-tax(A) on which the Revenue has also come in appeal. 20. One of the directions given by the Commissioner of Income-tax(A) is that a reasonable period may be provided as interest-free period and no interest be calculated for such interest-free period. Interest is to be calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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