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TMI Blog2016 (1) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... an Associated Enterprise being treated as a loan by bringing it within the purview of the definition of 'International Transaction" as defined under section 92B(1) of the Act. It is submitted is erroneous. ii. Definition of the term 'international transaction' as defined in the statute does not include delay in the collection from the customer as a transaction as the collection of amount against sales/services rendered is part of the sales transaction itself and hence, there cannot be another independent transaction in the form of collection of the dues for the services rendered. iii. Without prejudice to the above, the assessee objects that the reference made y the ld. AO related only to the point of ALP in respect of international transactions of provision of service and the said reference does not cover an alleged interest free loan transaction' supposed to have been entered into by the assessee and the potential loss raising there from and, therefore prior to the insertion of sec.92CA(2A) w.e.f.1.6.2011, the TPO could not have exercised jurisdiction on any new transaction which was not referred to him and hence the adjustment directed by the TPO on the question of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes an intentional concealment of income/a deliberate act to conceal any particular - thus not warranting levy of penalty under section 271. c. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the AO in so far as it relates to above issue may be dropped. d. The assessee craves leave to add, alter, amend and delete any of the grounds that may be urged at the time of hearing". 2.1 The assessee company has also raised additional grounds which are as under; Additional Grounds: "1. The ld. ADIT, TP-IV, Bangalore has erred in making an adjustment to total turnover on a premise that interest ought to have been received on the over dues from the AE's ignoring the dues owed by the assessee to AEs in such calculation, which when considered would warrant no adjustment total income. 2. The ld. ADIT,TP-IV, Bangalore has erred in making an adjustment to the total income by inputting interest without appreciating that the same was outside the fold of section 5 not having been accrued or received or deemed to be so accrued or received. 3. At any rate and without prejudice, outstanding are not an international transactions but on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar to an unrelated party in India with the same financial health as that of the tax payer's associated enterprises is considered, In view of the above discussion, the interest rate of 14% p.a (average yield on unrated bonds for the AY: 2006-07) was proposed to be adopted as the uncontrolled interest rate to arrive at the interest charged at arm's length. The tax payer in its letter dated 05-03-2010 did not raise any specific objection on the interest rate except arguing that no interest is chargeable on the receivables based on business prudence". 4.1 Consequent to the TPO order, the learned AO passed a draft assessment order dated 25-08-2010 incorporating the adjustment proposed by the learned TPO. 5. Being aggrieved by the draft assessment order, the assessee company filed objections before the Hon'ble DRP contending inter-alia that extension of credit period cannot be treated as international transaction, and the TPO had no jurisdiction to determine whether a transaction is at arm's length or not which had not been referred to him by the AO. The objections have been overruled by the Hon'ble DRP and confirmed the action of the learned TPO. 6. Being aggrieved by this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE. As per Rule 10A(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregate and clubbing of closely linked transaction are permitted under said rule. This concept of aggregation of the transaction which is closely liked is also supported by OCED transfer pricing guidelines. In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation what is to be considered is that one transaction is follow-on of the earlier transaction and then the subsequent transaction is carried out and dependent wholly or substantially on the earlier transaction. In other words, if two transactions are so closely liked that determination of price of one transaction is dependent on the other transaction then for the purpose of determining the ALP, the close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a transaction of loan or advance to the AE but it is only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan is available. Accordingly, we direct the AO/TPO to re-do the exercise of determination of the ALP in terms of above observation". Respectfully following the above decision, we hold that there can be no separate international transaction of 'interest' in the international transaction of sale. Early or late realization of sale proceeds is only incidental to transaction of sale, but not a separate transaction in nature. Since we hold that the impugned transaction of interest on delayed realization of sale proceeds is not international transaction, it is not necessary to adjudicate upon the additional grounds raised by the assessee company. Hence, the appeal is treated as partly allowed for statistical purposes.
9. In the result, the appeal filed by the assessee is partly allowed for statistical purpose.
Order pronounced in the open Court on the 18th November, 2015. X X X X Extracts X X X X X X X X Extracts X X X X
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