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TMI Blog2016 (3) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... der the scheme of transfer pricing envisaged by the statute. Learned CIT(A) was in error in not reversing the action of the Transfer Officer. In view of the above discussions, and bearing in mind entirety of the case, we vacate the orders of the authorities below on this point, and direct the Assessing Officer to delete the impugned ALP adjustments - Decided in favour of assessee Addition of interest @14% p.a computed on the delayed realization of amounts of trade debts receivable on account of services rendered from various associated enterprises - Held that:- Once the assessee has contended that the interest is not being charged from anyone, including, of course, the non AEs, and that contention is not disputed to be factually incorrect, it cannot be open to the TPO to make adjustment in the case of delays in realization from the AEs. The treatment being accorded to the AEs and non AEs is the same, and, in such a situation, ALP adjustment cannot be made for delay in realization of monies from the AE. The consideration as to how the assessee would have received interest if money was given to an outsider is irrelevant because it is not a case of extending loan or placing deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orway should be considered at arm's length price under the provisions of the Income Tax Act, 1961 Your appellant submits that the expenses paid under the service level agreements to the head office of the appellant to the tune of ₹ 4,75,20,603/- be considered at arm's length price and should not be subjected to any adjustment. Your appellant further submits that the CIT (A) erred in not considering the profits earned by the IT unit of head office and stating that the appellant is comparing the global profit of the Norway company while the adjustment has been made by the TPO with reference to particular transaction relating to the appellant Your appellant submits that the CIT(A) should have considered the profits earned by the IT Unit of the Head office while computing the arm's length price in respect of payments made under the service level agreements being software charges amounting to ₹ 4,75,20,603/-. 2. The Learned CIT(A) erred in conforming the adjustment made by the ADIT (IT) as proposed by the deputy TPO amounting to ₹ 16,31,771/- u/s 92 CA (3) being 20% of the regional head office expenses paid to head office of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnual accounts of the assessee is based on merely forecasting's. In this method the incomes as well as the expenses of the assessee are forecasted. Every year the budgeted expenses are being decided by the DNV group and being allocated to the assessee based on the method adopted by them. No any instances was shown by the assessee in the submission or even during the course of hearing where it can be said that the assessee has arrived at the actual figure and the assessee has reconciled the differences between forecasted revenue/expenses and actual income/expenses. The assessee has not even filed any details regarding any reconciliation made by it for previous years for forecasted and actual usage of the software. The assessee has submitted that the charges for software usage are based on the number of the users It is seen during the course hearing that the assessee has submitted that it has more user of software during the F.Y. 07-08 than the payment was made for usage. Accordingly the assessee is saying that it has paid actually less amount for the above services and accordingly no excess payment was made. However it is seen th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. The external revenue how arrived has not been submitted by the assessee. What was the amount of the external revenue and how much was the contribution from India and other countries was not explained and submitted by the assessee. Accordingly the expenses as well as income on this head are also appearing to estimation only. The AR of the assessee has tried to explain the methodology of charging regional office expenses during the course of hearing which can be stated as under: .' There is Dubai Regional office. Under it there are several other country who are availing services from this office. The total forecasted revenue of all country is taken by the DNV Group. Then the expense (estimated only) of the Dubai office is also taken Dubai office expenses are divided by the revenue of all the countries. The figure arrived at is allocated in equal rate amount ratio to all the country coming in the region This exercise is done every year in the month of June, July of the earlier year. The result arrived at is taken as effective for the next year from the month of January. The accounting year of the group entity starts from January across the world. For the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the light of the applicable legal position. 9. We have taken note of the fact that the assessee has benchmarked the international transactions on TNMM basis and the Transfer Pricing Officer has neither disputed the assessee s claim that TNMM is the most appropriate method, on the facts of this case, nor the comparables selected by the assessee. In this view of the matter, it was not open to the Transfer Pricing Officer to even reject the benchmarking done by the assessee. In any case, what the TPO has done is to reject the benchmarking done by the assessee and make adhoc ALP additions in the value of international transactions. Such a course of action is not permissible under the scheme of transfer pricing law. Even when a method of ascertaining the ALP is, for good and sufficient reasons, rejected by the TPO, he has to select the most appropriate method, out of the recognised methods under rule 10AB and 10B, and then apply the same. Such an exercise has not been carried out on the facts of this case. The Transfer Pricing Officer has simply made adhoc adjustments, but then, as we have stated earlier, such adhoc adjustments are not permissible. Not only the Transfer Pricing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unrated bonds in the relevant financial period, should have been charged, as an arm s length compensation on such delays. It was in this backdrop that the Transfer Pricing Officer recommended, and the Assessing Officer made, an ALP adjustment of ₹ 7,20,110 on account of interest for delay in realization of receivables. The reasoning adopted by the TPO was as follows: 10.3 The explanation of the assessee was considered but not found acceptable. The assessee failed to get any satisfactory explanation for the delay and only submitted that generally payments are received in time and as per DNV policy and no interest are received or paid for occasional delays. The non recovery of outstanding dues from the AE has resulted in business funds of the taxpayer being blocked with the related parties thereby resulting in loss of revenue that could have been earned by utilizing it for the purpose of business which would have further improved the profit margin of the taxpayer. No independent business enterprise would allow funds to be blocked in any place, but would invest it prudently for earning revenue. Had the taxpayer given this amount to an unrelated person, it would have charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e open to the TPO to make adjustment in the case of delays in realization from the AEs. The treatment being accorded to the AEs and non AEs is the same, and, in such a situation, ALP adjustment cannot be made for delay in realization of monies from the AE. The consideration as to how the assessee would have received interest if money was given to an outsider is irrelevant because it is not a case of extending loan or placing deposit, rather it is a case of amount becoming due as a result of commercial transaction. In any event, when international transactions have been benchmarked on the basis of TNMM, and interest on delay in realization of amounts is only incidental to such transactions rather than a standalone transaction, such an adjustment cannot be made independently. For this proposition, we find support from a coordinate bench decision in the case of Micro Ink Vs ACIT [(2015) 63 taxmann 353 (Ahd)]. In the light of the above discussions, and bearing in mind entirety of the case, we deem it fit and proper to delete the impugned ALP adjustment of ₹ 7,20,110. The assessee gets the relief accordingly. 16. Ground no. 3 is thus allowed. 17. In the fourth ground of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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