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TMI Blog2019 (2) TMI 1714X X X X Extracts X X X X X X X X Extracts X X X X ..... gin of such comparables also having receivables and thus we do not find any error in the finding of the Ld. DRP on this issue. Not charging of the interest on two invoices raised on Shan Jewellers Corporation Counsel has not brought on record comparability of the transactions carried out with Associated Enterprises like country to which exported, agreement with parties etc. and thus these transactions cannot be considered for benchmarking the interest on receivables from the Associated Enterprises. Allowing credit of 90 days - We find that this period of 60 days adopted by the Ld. TPO or 90 days requested by the assessee depend on the prevalent business practice in the trade. The Ld. Counsel has pointed out before us that in assessment year 2015- 16 the Ld. TPO himself as considered the receivables beyond the period of 90 days for the purpose of transfer pricing adjustment. We have verified this fact from the order of the Ld. TPO for assessment year 2015-16 available on page 254 to 277 of the paper book. We find from the Annexure-1 to the order of the TPO that receivables beyond 90 days have been considered for transfer pricing adjustment. In view of the rule of consiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, both were heard together and disposed off by way of this consolidated order for convenience. 2. The grounds raised by the assessee in its appeal are reproduced as under: - 1. That the assessment order U/s 143(3} r.w.s. 144C passed by the Assessing Officer ('AO') and addition/ disallowance made by the AO are illegal, bad in law and without jurisdiction. 2. That the additions/ disallowances made are illegal, unjust, highly excessive and are not based on any material on record. The total income of the Appellant has been wrongly and illegally computed by the Assessing Officer at ₹ 1,63,01,178/- as against income declared at ₹ 1,37,85,627 /- thereby making total addition/ disallowance of ₹ 25,15,551/-. 3. That the reference made by the AO to TPO suffers from jurisdictional error as the AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Transfer Pricing Officer ('TPO') for computation of the arm's length price ('ALP'), as is required under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O/AO is highly excessive, arbitrary and unreasonable. 5. Regarding the addition/ disallowance of ₹ 17,89,480/- on account of interest on unrealized export proceeds 5.1 That TPO/ AO grossly erred in law and on facts, in attributing notional interest on unrealized export proceeds 5.2 That the TPO/AO erred in disregarding the fact that export proceeds are realized within the statutorily permitted time limits as prescribed by RBl and has arbitrarily taken 60days.Further he has not given the benefit of notional interest on advance payments and payment received before 60 days to the assesse. 5.2 a That the TPO/AO/DRP in view of facts and circumstances of case and in law erred in characterizing unrealized export proceeds as loans advanced and thereby treating it as a separate international transaction not realizing that the unrealized export proceeds are part and parcel of international transaction on account of export sale. 5.3 That the TPO/AO/DRP failed to appreciate the appellant has not charged any interest on outstanding export receivables to non AEs and therefore, transaction with AE is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. The additions made cannot be justified by any material on record and also excessive. 10. The explanation given in the evidence produced, material placed that has been made available on record has not been properly considered and judicially interpreted and the same do not justify the additions/ allowances made. 11. That interest U/s 234A, 234B and 234C of the Income Tax Act, 1961 has been wrongly and illegally charged and has been wrongly worked out. 12. The AO has erred in initiation of proceedings u/s 271(1)(c ) of the Act. The above grounds are without prejudice to each other. 3. The grounds raised by the Revenue in its appeal are reproduced as under: 1. The Hon ble DRP has erred in law and on facts by directing to perform similar interest calculation for the receivable which remains outstanding for more than 60 days subject to the verification that whether the loan is being repaid in US$ or INR respectively. 2. That the appellant craves to leave, add, alter and amend any of the ground of appeal on or before hearing. 3. That the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of interest on overdue receivables and interestfree loan given to Associated Enterprises, applying the rate of interest in accordance with the directions issued. The Ld. TPO recomputed the adjustment to international transaction to ₹ 25,15,551/-as under: S. No. Nature of Transaction TP Adjustment u/s 92CA 1. Interest on grant of loan to AE 4.3561% of 1,66,77,107/- ₹ 7,26,471/- 2. Interest on unrealized export proceeds 4.3561 % of receivable ₹ 17,89,080/- Total ₹ 25,15,551/- 6. In compliance with the direction of the Ld. DRP, the Assessing Officer issued final assessment order dated 19/12/2015 making addition of ₹ 25,15,551/-. Against the said order, both the assessee and the Revenue are in appeal before the Tribunal raising the grounds as rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were received by the assessee after delay of substantial period. According to the Ld. TPO non-realisation of the export proceeds within a stipulated time period amounts to international transaction in the form of interest-free loan and needs to be separately benchmarked. The assessee contended that consideration for delayed sale proceeds from the AE is embedded in the sale price and is part of the agreement. This contention of the assessee was rejected by the Ld. TPO as well as by the Ld. DRP. The Ld. TPO benchmarked the interest rate based on the prime lending rate of the State Bank of India and he worked out average rate of interest at 12.26 on the basis of the interest rate for different period reproduced in the assessment order. The Ld. TPO applied this rate for delay in receipt of the proceeds for more than 60 days from the date of the invoice and computed the adjustment to ₹ 1,64,45,999/-. The Ld. DRP, however rejected the prime lending rate of the SBI for benchmarking as the receivables were to be paid to the assessee in foreign currency. The Ld. DRP following the decision of the Hon ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Pvt. Ltd.(2015-TII-09-H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s merely a letter addressed by the Associated Enterprise to the assessee and cannot be termed as an agreement. Supporting the ground of the appeal of the Revenue, the Ld. DR submitted that in the case of the assessee LIBOR rate of Great Britain Pound currency should be applied. 16. We have heard the rival submissions of the parties and perused the relevant material on record. We find that whether the interest on receivable is an international transaction or not has been decided by the Ld. DRP as under : 3.1 Whether it is an international transaction The assessee argued that interest on receivables and on interest free loan, is not an international transaction. The submissions of the assessee and the facts have been carefully considered. Several decisions of the Hon ble ITAT have consistently held this to be an international transaction. Any doubt on this issue has been removed by the Finance Act, 2012 which has inserted Explanation to section 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation, which is for the removal of doubts, clarifies the expression international transaction as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee depend on the prevalent business practice in the trade. The Ld. Counsel has pointed out before us that in assessment year 2015- 16 the Ld. TPO himself as considered the receivables beyond the period of 90 days for the purpose of transfer pricing adjustment. We have verified this fact from the order of the Ld. TPO for assessment year 2015-16 available on page 254 to 277 of the paper book. We find from the Annexure-1 to the order of the TPO that receivables beyond 90 days have been considered for transfer pricing adjustment. In view of the rule of consistency, the period of 90 days credit is found to be reasonable in the trade of the assessee and accordingly we direct the Ld.AO/TPO to compute the transfer pricing adjustment for receivables having delay in receipt of payment more than 90 days. Accordingly the ground of the appeal raised by the assessee in respect of transfer pricing adjustment for interest on receivables are partly allowed for statistical purposes. 21. As far as ground of the Revenue is concerned, we find that the Ld. DRP has observed that the foreign currency involved in the case of receivables from AE is Great Britain Pound and thus dir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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