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TMI Blog2017 (12) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... lthcare Pvt. Ltd. vs. ACIT [2015 (4) TMI 180 - ITAT DELHI] and Bechtel India Pvt. Ltd. (2016 (9) TMI 196 - DELHI HIGH COURT ) wherein SLP filed in the Hon’ble Supreme Court has been dismissed. TPO/DRP/AO have erred in making adjustment on account of arm’s length interest which is not sustainable in the eyes of law, hence no adjustment on account of interest on receivables can be made Not allowing credit of advance tax, TDS, foreign tax and tax paid under MAT provision while computing the tax liability on assessed income - Held that:- While calculating the tax paid under MAT provision, it is required to be deducted from gross tax payable. Similarly, while calculating the tax credit of advance tax, TDS and foreign tax is also required to be set off first in computing the overall tax liability by the taxpayer. Particularly when tax liability of the taxpayer is higher as per peak profit computed under MAT provision of the Act, so AO is directed to recomptue the tax liability by considering the credit of advance tax, the TDS, the foreign tax and tax paid on MAT provision in the light of the decision rendered by Hon’ble Allahabad High Court in the case of CIT vs. Vacment India (2014 (10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 92B of the Act but is a consequence of an 'internal transaction' undertaken in the form of services rendered to the associated enterprise. 2.5 That the DRP/TPO erred on facts and in law in re-characterizing the alleged delay in receipts of receivables as unsecured loans advanced to the associated enterprises and making a transfer pricing adjustment on that basis. Without prejudice, 2.6 That the DRP/TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the 'international transaction' of exports and since the profit earned by the appellant as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 2.7 That the DRP/TPO erred on facts and in law in not appreciating that even after considering adjustment on account of working capital in the margin of the appellant and the comparable companies since the adjusted margin of the appellant is higher than that of comparable companies no interest ought to be imputed on the alleged delay in receipt of receivables. 2.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not an international transaction, per se, under section 92B of the Act but is a consequence of an 'internal transaction' undertaken in the form of services rendered to the associated enterprise. 2.3 That the DRP/TPO erred on facts and in law in re-characterizing the alleged delay in receipts of receivables as unsecured loans advanced to the associated enterprises and making a transfer pricing adjustment on that basis. Without prejudice, 2.4 That the DRP/TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the 'international transaction' of exports and since the profit earned by the appellant as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard. 2.5 That the DRP/TPO erred on facts and in law in not appreciating that even after considering adjustment on account of working capital in the margin of the appellant and the comparable companies since the adjusted margin of the appellant is higher than that of comparable companies no interest ought to be imputed on the allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises 107,691,808 3. The international transactions entered into by the taxpayer qua software development and related services have been found at arm's length by ld. TPO as per TP report prepared by the taxpayer. However, the ld. TPO disputed the international transactions entered into by the taxpayer qua reimbursement of expenses from Associated Enterprise (AE) to the tune of ₹ 10,76,91,808/- on the ground that realization of payments exceed from 30 days to 248 days which is on account of non-realization of payment from its AE as specified in the agreement. 4. The ld. TPO further called upon the taxpayer to show cause as to why the penal interest be not charged from the AE qua the payment made beyond the period of 30 days from the date of receipt of invoice on account of delay in realization of payment. TPO proposed a total of 14.88% mark up to be appropriated on the basis of PLR of SBI at 11.88% for FY 2009-10 and 300 basis points to be added for risk including lack of security processing fee, credit rating and loan tenure and show-cause the taxpayer as to why arm's length interest is determined at ₹ 6,56,56,435/- as adjustment u/s 92CA from the AE. 5. Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r determining the arm's length interest to be charged by the assessee. (iv) The assessee should have used the standard of the return that it would have earned in India if money was lent here to a company with the same economic status as that of AE. (v) The assessee has not been able to provide any substantial argument against the use of the PLR of SBI. The 14.88% rate of return on this particular rating has been calculated in a scientific manner and was also provided in the show cause notice. Hence, following the discussion in the preceding paras the interest is calculated in the Annexure - 1 to 5 and made a part of this order. The ledger account details have been taken as furnished by the assessee. Based on the calculation above, the arm's length interest is determined as ₹ 4,00,31,234/- and accordingly, the same is the proposed adjustment u/s 92CA. The assessing officer shall enhance the income of the assessee by ₹ 4,00,31,234/-." The ld. TPO proposed adjustment u/s 92CA on account of arm's length interest on receivables to the tune of ₹ 4,86,19,810/- for AY 2012-13. 11. Ld. AR for the taxpayer challenging the impugned order contended inter ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing in the accounts of an entity, which may have dealing with foreign AE, would automatically be characterized as an international transaction and decided the issue in favour of the taxpayer by returning following findings :- "10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression 'receivables' does not mean that de hors the context every item of 'receivables' appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of sale and as such no notional interest can be levied by treating the same as unsecured loan. 18. Furthermore it is the case of the taxpayer that when the taxpayer is not charging interest from unrelated third party / non- AE, in case of such delay, no adjustment on interest in case of AE can be made and drew our attention towards the details of invoices raised qua unrelated parties available at page 183A of the paper book wherein delay in realization of the receivables is also up to 218 days for AY 2010-11 and up to 417 days qua AY 2012-13 as per detail of invoices raised on unrelated parties qua AY 2012-13, available at page 236 of the paper book. 19. This issue has been dealt with by Hon'ble Bombay High Court in case cited as CIT-9 vs. M/s. Indo American Jewellery Ltd. in ITA (L) No.1053 of 2012 order dated 08.01.2013 wherein following question was framed :- "B. Whether on the facts and in the circumstances of the case and in law the ITAT was justified in deleting the addition of ₹ 87,66,641/- being internet receivable on outstanding amount due to the Assessee Company from the Associated Enterprises? 20. Aforesaid question was decided in favour of the taxpayer b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and tax paid under MAT provision while computing the tax liability on assessed income. 25. We are of the considered view that while calculating the tax paid under MAT provision, it is required to be deducted from gross tax payable. Similarly, while calculating the tax credit of advance tax, TDS and foreign tax is also required to be set off first in computing the overall tax liability by the taxpayer. Particularly when tax liability of the taxpayer is higher as per peak profit computed under MAT provision of the Act, so AO is directed to recomptue the tax liability by considering the credit of advance tax, the TDS, the foreign tax and tax paid on MAT provision in the light of the decision rendered by Hon'ble Allahabad High Court in the case of CIT vs. Vacment India - 369 ITR 304 (All.). So, Grounds No.4 & 5 in ITA NO.1104/DEL/2015 (AY 2010-11) and Grounds No.3, 4 & 5 in ITA NO.1115/DEL/2017 (AY 2012-13) are determined in favour of the taxpayer. GROUND NO.6 in ITA NO.1104/DEL/2015 (AY 2010-11) AND GROUNDS NO.6 & 7 ITA NO.1115/DEL/2017 (AY 2012-13) 26. The aforesaid grounds qua levy of interest u/s 234B and 234C needs no specific finding being consequential in nature. Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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