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TMI Blog2020 (1) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... from AE and in doing so have grossly erred by: 1.1. Ignoring the fact that working capital adjustment takes into account the impact of outstanding receivables on profitability and therefore, no further imputation of interest is warranted; 1.2. Disregarding the intercompany pricing arrangement and not appreciating the fact that unlike a loan or borrowing, outstanding receivable is not an independent transaction which can be viewed on standalone basis and needs to be examined/aggregated with the commercial transaction as a result of which the debit balance has come into existence; 1.3. Ignoring the fact that Appellant is a debt free company and therefore, imputation of interest on account of blocked funds is unwarranted; 1.4. Ignoring the fact that Appellant has earned higher operating profit to operating cost (OP/OC) margin as compared to the comparable companies and further the additions proposed falls within +/-3% range allowed under the Indian Transfer Pricing regulations; and 1.5. Ignoring the fact that even if the notional interest on the outstanding receivables is being charged, the same should be net-off against the outstanding payables. 2. The Hon'ble DRP has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has failed to show that the delay in payment of receivables was compensated by the AE through a setoff of another transaction by declining a contention that no separate adjustment can be made towards interest on overdue receivables as the entity level results are already considered by the TPO and has also declined the aggregate approach adopted by the taxpayer. Declining the contentions raised by the taxpayer, ld. TPO proceeded to hold that normally in uncontrolled transactions of business, 30 days credit facility is given to make interest free payment and thereafter interest @ 4.4569% per annum that is average of 6 months LIBOR is chargeable on the outstanding amount and consequently, calculated the interest amount on the outstanding receivables at Rs. 54,09,237/- as per detailed computation made in Anenxure-1 annexed with the order. 5. The taxpayer carried the matter before the ld. DRP by way of filing objections, who has upheld the proposed additions by rejecting the objections. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Limited 8.82% 3 Gradiente Infotainment Limited (207.01%) 4 Quadrant Communications Limited 11.14% 5 Times Innovative Media Limited 13.19% Average (29.61%) PLI TSS India's Margin Working capital adjusted margins of comparables OP/OC 19.48% (29.61%) 2.1.8 The above analysis empirically demonstrates that the differential impact of working capital of the tested party vis-a-vis its comparables has already been factored in the profitability of the Assessee which is less than working capital adjusted margin of the comparables. Hence, the Assessee humbly submits that keeping in view the above factual position any further adjustment on the pretext of outstanding receivables is uneconomical, unwarranted and wholly unjustified. 2.1.8.1 Further, the Assessee would like to place reliance on the case of Kusum Healthcare Private Limited Vs. ACIT (ITA No. 6814/Del/2014)], wherein the Hon'ble ITAT has evaluated the need to undertake working capital adjustment and concurred with the contentions of the Assessee that working capital adjustment takes into account the impact of outstanding receivables on the profitability. The relevant ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs returned by the Tribunal on this issue of deferred payment of receivables by returning following findings :- "9. Mr. Raghvendra Singh, learned counsel appearing for the Revenue submitted that the ITAT overlooked the fact that the expression "international transaction" as defined in Explanation (i)(c) to Section 92B of the Act included "payments or deferred payment or receivable or any other debt arising during the course of business", and therefore, the outstanding receivables could by themselves constitute an international transaction. He further referred to the OCED Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paras 3.48 & 3.49 under Chapter III para A.6.1 of the said Guidelines titled "Different types of comparability adjustments" spoke of the need to eliminate differences that may arise from different accounting practices between controlled and uncontrolled transactions. In particular, it was noted under para 3.49 that "a significantly different level of relative working capital between the controlled and uncontrolled parties may result in further investigation of the comparability characteristics of the potential comparable."Mr. Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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