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TMI Blog2015 (7) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of interest, if any, on delayed recovery of export receivables should be after reducing the advances received from AE's for the purpose of export. From the record, we found that so called delay repatriation from foreign AE's, TPO/ AO, while working out deemed notional interest has considered interest rate of 12.25% p.a. (SBI PLR). As per our considered view the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. Thus computation of interest is restored back to the file of AO for recomputing the interest on delayed payment of receivables, keeping in view our above observation. In respect of the expenditure incurred on behalf of the AEs and which was reimbursed by the AE, the AO also levied interest thereon. We found that the recovery of expenses was beyond the normal period of 60 days. Recovery of expenses beyond the normal period was in the nature of deemed loan in the hands of AEs and require transfer pricing adjustment. Accordingly, we do not find any infirmity in the transfer pricing adjustment made. However, we direct the AO to charge int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tar WLL PO Project services 4,09,28,739 Transaction with AE s PE in India 6 Tecnimont SpA India Project office Execution of EPC Project 156,69,36,279 Reimbursement of expenses to AEs Recovery of expenses from AEs *All transactions were aggregated and benchmarked using TNMM at segment level TNMM- Transactional Net Margin Method. The TPO accepted all the transactions to be at arm s length price ( LP ). However, the learned TPO made an adjustment of ₹ 10,36,49,646/- by charging notional interest for delayed recovery of export receivables and delayed recovery of expenses from AE s till the date of transfer pricing order (i.e. 25th January, 2013). The assessment was completed by the AO under Section 143(3) read with Section 144C (13) of the Act. An order dated 24 December 2013 was issued assessing the assessee at total income of ₹ 67,96,55,391, thereby confirming the transfer pricing adjustment of ₹ 10,36,49,646 on account of notion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of section 92B itself, even as it is modestly described as 'clarificatory' in nature, it is an issue to be examined whether an enhancement of scope of this anti avoidance provision can be implemented with retrospective effect. Undoubtedly, the scope of a charging provision can be enlarged with retrospective effect, but an anti-avoidance measure, that the transfer pricing legislation inherently is, is not primarily a source of revenue as it mainly seeks compliant behavior from the assessee vis-a-vis certain norms and these norms cannot be given effect from a date earlier than the date norms are being introduced. However as we have decided the issue in favour of the assessee on merits and even after taking into account the amendments brought by the Finance Act 2012 we need not deal with this as aspect of the matter in greater detail. 4. It was also the contention of ld. AR that since the margin earned from its AE transactions is higher as compared to similarly placed comparable companies, the element of interest for delayed payment is subsumed in the higher mark-up charged. In view of the same, adjustment on account of notional interest on outstanding balances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing is not applicable. As against, in the facts of the present case, the transaction entered by the assessee (located in India) is with PE or its AE (located in India) and hence, it was held by Hyderabad Tribunal in the case of IJM (India) Infrastructure Ltd., 28 ITR (trib) 176 that any transaction of Indian enterprise with PE of foreign company in India would be treated as transaction between two residents and hence, the transfer pricing provisions would not apply in such situation. 6. On the other hand, ld. DR relied on the order of the lower authorities and contended that in respect of export to associate enterprise the amount was recovered after a period of 60 days, therefore, the TPO was justified in directing to charge interest at SBI PLR rate of 12.25% as the benchmarked rate for delay in recovery of export receivable beyond the normal credit period of 60 days. 7. We have considered rival contentions, carefully gone through the orders of the authorities below. We have also deliberated on the judicial pronouncements cited at bar by ld. AR and ld. DR in the factual matrix of instant case. From the record we found that the assessee company had provided EPC servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into account while computing the interest chargeable. 10. We also found that operating margin earned by the assessee on provision of EPC services (17.03% OP/ OC) from its AEs transactions is higher than the margin earned on its non-AE transactions. Since the transactions are intrinsically linked and the assessee under the TNMM fits within the arm's length, the assessee should be given due credit for the same while computing chargeable interest for delayed payment. 11. The Mumbai Tribunal in the case of Goldstar Jewellery Limited Vs JCIT (ITA No 6570/Mum/2012) held that since sale price of the product or service was always influenced by the credit period allowed by the seller, the transaction of sale to the AE and credit period allowed in realization of sale proceeds are closely linked and the price determined for such sale is after consideration of the credit period provided by the seller. Further, it was also held that for the purpose of determining the ALP of sale transaction, the transaction of excess credit period provided by the seller to the AE is required to be aggregated with the sale transaction by the seller to the AE and cannot be benchmarked separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the outstanding payables from that AE. 14. From the record, we found that so called delay repatriation from foreign AE's, TPO/ AO, while working out deemed notional interest has considered interest rate of 12.25% p.a. (SBI PLR). As per our considered view the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. In this regard, reliance is placed on the following decisions, wherein the Hon'ble Tribunals has upheld use of LIBOR for the purpose of benchmarking loan/advance given to foreign AE's: i. Everest Kanto Cylinder Ltd Vs ACIT (L TU) (ITA No 7073/Mum/2012) (Mumbai Tribunal) ii. M/s PMP Auto Components P. Ltd, (ITA NO.1484/Mum/2014) dated 22 August 2014 iii. Hinduja Global Solutions Ltd Vs ACIT (145 ITD 361) (2013) (Mumbai Tribunal) iv. Tata Autocomp Systems Ltd Vs ACIT (52 SOT 48) (2012) (Mumbai Tribunal) v. Tata Autocomp Systems Ltd Vs ACIT (ITA No 1320 of 2012) (Approved by Bombay High Court) vi. Four Soft Ltd Vs DClT (142 TT J 358) (2011) (Hyderabad Tribunal) vii. Everest Kanto Cylinder Ltd Vs ACIT (L TU) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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