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TMI Blog2018 (3) TMI 1613X X X X Extracts X X X X X X X X Extracts X X X X ..... he arm's length principle envisaged under the Act. In doing so, the Ld. AO/Ld. DRP has grossly erred in: 2.1 re-characterizing the outstanding related party receivable from overseas AEs beyond 30 days period as short term loans advanced to the AEs and imputing interest thereon; 2.2 disregarding the business/ commercial arrangement by not appreciating the fact that unlike a viewed on a standalone basis and needs to be examined with the commercial transaction as a result of which the debit balance has come into existence; 2.3 rejecting the Appellant's contention that the impact of working capital investment made by the Appellant should be evaluated using Transactional Net Margin method ("TNMM") as the most appropriate method rather than independently benchmarking the outstanding receivables of the Appellant by considering State Bank of India Prime Lending Rate ("SBI PLR") for comparability which does not amount to the application of Comparable Uncontrolled Price Method ("CUPM") or any of the "method" defined in the Act; 2.4 ignoring Appellant's contention that, without prejudice to its other arguments, if at all interest is to be imputed, instead of 14.88%, the LI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case by making an adhoc notional addition without providing reasonable basis of computation of disallowance of expenditure to be made under section 14A of the Act read with rule 80 of the Rules. 7.3 Without prejudice to the above, the Ld. AO has erred in disregarding the fact that the disallowance of Rs. 22,464 pertains to the STPI unit of the Appellant and addition made to the income of the Appellant of Rs. 22,464 should be entitled for enhanced deduction under Section 10A of the Act. 8. That the Ld. AO erred in law and on the facts and circumstance of the case by initiating penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income and concealment of income." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. . Inductis (India) Pvt. Ltd. (IIPL), the taxpayer is a wholly owned subsidiary of Inductis LLC. Inductis LLC was acquired by exl Holdings in June 2006. The taxpayer rendered IT Enabled back office research and data analytics service to its Associated Enterprises (AE). During the year under assessment, the taxpayer entered into international transactions as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 2 Inductis Singapore Pte. Ltd. 18,733,824 3 exl Holdings Inc. 12,611,954 Total 402,775,592 8. TPO noticed that the payment on account of sales to AE has been realized by the taxpayer after a long gap and in some cases, after a gap of upto 364 days. TPO taken a view that in trade practice such kind of delay attract penal rate of interest as no independent enterprise would have allowed third parties to make late payment without charging higher prices for the delayed payments. TPO further noticed from the "Charges and Terms of Payments" article that all invoices shall be based on the projects and shall be payable to service provider within 15 days from the date of receipt of invoice by Inductis unless otherwise agreed upon. The TPO after recharacterizing the outstanding receivables as short term loan advanced to the AE proposed to charge interest @ 14.88% (SBI PLR + 300 basis point) for the period of delay in receipt of payment beyond 30 days and thereby computed the arm's length interest at Rs. 2,16,26,206/-. 9. It is also not in dispute that the taxpayer is an IT enabled captive service provider. There are two agreements entered into between the taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment of Rs. 6,36,894/- on account of the interest that should have been charged by the assessee on the outstanding amount from the AE. It is the submission of the ld. counsel for the assessee that in view of the decision of the Hon'ble Delhi High Court in the case of Bechtel India (P) Ltd. (supra) and in the case of Kusum Health Care (P) Ltd. (supra), no adjustment is required on account of notional interest on receivables. We find merit in the above argument of the Id. counsel for the assessee. We find the Hon'ble Delhi High Court in the case of Bechtel India (P) Ltd. (supra) has held that where the assessee is a debt free company the question of receiving any interest on receivables did not arise. Consequently, no adjustment for interest on receivables is required. The decision of the Hon'ble High Court was challenged by the Revenue and the SLP was dismissed by the Hon'ble Supreme Court vide CC No(s).4956/2017 order dated 21.07.2017. 10.1 We also find the Hon'ble Delhi High Court in the case of Kusum Health Care (P.) Ltd. (supra) while deciding an identical issue has observed as under :- "10. The Court is unable to agree with the above submissions. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in recovering the outstanding toward receivables from the AE as per the provisions of section 92CA(3) of the LT. Act. The first issue raised by the assessee in the grounds of appeal is accordingly allowed." 12. In view of what has been discussed above and by following the decision of the coordinate Bench of the Tribunal in Kadimi Tool Manufacturing Co. (P.) Ltd. (supra) which has been confirmed by the Hon'ble High Court as well as Hon'ble Apex Court, we are of the considered view that when undisputedly, the taxpayer is a debt free company, there is no question of charging any interest on receivables by recharacterizing the transaction as loan from its AE and as such, no adjustment on account of arm's length interest on receivables can be made. Consequently adjustment made by the TPO/DRP on account of arm's length interest on receivables is not sustainable in the eyes of law, hence ordered to be deleted. Consequently, Grounds No.2, 2.1, 2.2, 2.3, 2.4, 2.5, 3, 4 & 5 are determined in favour of the taxpayer. GROUND NO.6 13. Ground No.6 is general in nature, hence does not require any specific adjudication. GROUND NO.7, 7.1, 7.2 & 7.3 14. Ld. AR for the taxpayer after arguing fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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