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TMI Blog2020 (2) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... n international transaction within the meaning of 92B of the Act. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. Interest on receivables - HELD THAT:- In the instant case also it is established that the transactions with the AEs are at arms length price. All the AEs are 100% subsidiary companies and the assessee is debt free company having large amount of reserves. The department has not made out a case of undue advantage of allowing credit. The Ld.CIT(A) has given finding that the receivables were received in reasonable period and there was no delay. The department did not place any evidence to controvert the finding given by the Ld.CIT(A). Therefore, we hold that there is no case for making adjustment of interest on receivables in the assessee s case. ALP adjustment suggested by the TPO in respect of difference in price charged to assessee s AE when compared sale to non-AE - HELD THAT:- After considering the submissions and data, the TPO has suggested and worked out the adjustments on sale of instant coffee to the AE and computed the same at 1,09,42,509/- which is charged less to the AE compared to the non-AE and called explanation from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue is directed against the order of Commissioner of Income Tax (Appeals)-1, Guntur, dated 16/04/2019 for the Assessment Year 2015-16. 2. The Revenue has raised the following grounds of appeal:- "1. The order of the ld. CIT(A), Guntur is erroneous both in law and on facts of the case. 2. The ld. CIT(A) erred in holding that corporate guarantee provided by assessee company to its subsidiaries is not an international transaction even though various judicial authorities held that offering corporate guarantee to an AE amounts to a service as it improves the creditworthiness of the AE and results in lower interest rate and therefore the corporate guarantee extended by the assessee to its AEs needs to be calculated at arm‟s length. 3. The ld. CIT(A) erred in holding that interest on receivables for extra credit period allowed is not an international transaction. 4. The ld. CIT(A) ought to have appreciated the fact that TPO had rightly made ALP adjustment on sale of instant coffee as the assessee company intentionally changed the method of adoption for TP study as the CUP method results in arm‟s length adjustment. 5. Any other grounds that may be urged at the time o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al has already considered the issue and upheld the order of the ld. CIT(A). For the sake of convenience, the relevant portion of the order in assessee's own case for the A.Y. 2014-15 is extracted as under :- "10. We have heard both the parties and perused the material placed on record. The issue involved in these appeals is with regard to corporate guarantee. On identical facts, in assessee‟s own case, this Tribunal deleted the addition made by the AO and upheld the order of the Ld.CIT(A) in I.T.A. No.191/Viz/2018 dated 28.09.2018. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal in para No.5 to 5.2 which reads as under: "5. We have heard both the parties and perused the material placed on record. During the appeal hearing, the Ld.AR argued that providing corporate guarantee to its AE would not constitute an international transaction as held by various tribunals and hence no adjustment is required. The ld.AR further submitted that the AE is 100% subsidiary of the assessee company, hence it is the obligation of the assessee to extend it‟s support to improve the business and smooth running of the company without any finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (supra) has considered an identical issue which was re-affirmed in the case of Siro Clinpharma (P.) Ltd. v. Dy. CIT [IT Appeal No. 2618 (Mum.) of 2014, dated 31-3-2016). The Bench observed that transfer pricing is a legislation seeking the tax-payers to organise their affairs in a manner compliant with the norms set-out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party can be asked to do an impossibility. Analysing further the Bench observed that though Explanation to Section 92B is stated to be clarificatory, it has to be necessarily treated as effective from the A.Y. 2013-2014 and in this regard, relied upon the observations of the Hon'ble Delhi High Court in the case of Skies Satellite. We have also analysed the case law relied upon by the Ld. D.R. and also the provisions of the Act. In our considered opinion, the view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd., (supra) is one of the possible views on the matter and so long as there is no binding decision of any other Higher Forum taking a contrary view, the one which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of some invoices raised on them by the assessee for supply of instant coffee. The TPO vide show-cause notice dated 10/10/2018 requested the assessee to furnish invoice-wise ageing details of outstanding receivables from the assessee's above AE in respect of all invoices raised during the F.Y. 2014-15 as well as the invoices which are raised in previous financial year, but remained unpaid on the opening day of current F.Y. 2014-15. The TPO has suggested an adjustment of ₹ 91,96,360/- being @ 9% on the opening balance of ₹ 10,21,81,783/-. Accordingly, by considering the same, the Assessing Officer has made the addition. On appeal ld.CIT(A) deleted the same by following the assessee's own case in the A.Y. 2014-15. 10 At the outset, Ld.AR has submitted that the issue involved in this case is squarely covered by the decision of the coordinate bench of the tribunal in assessee's own case for the A.Y. 2014-15 and submitted that same may be followed. 11. Ld.DR relied on the order of the Assessing Officer. 12. We have heard both the sides, perused the material available on record and orders of the authorities below. 13. In this case, the TPO suggested the adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arted in the case of receivables when the PLI is comparable. Hon‟ble ITAT Hyderabad in the case of Cura Logistics relied upon by the assessee held that on trade advance, no interest is leviable, relying on the decision of GSS Infotech Ltd. Vs. ACIT (supra).In the case of Bartronics India Ltd., ITAT Hyderabad has held that if the work contract is within the ALP, there is no separate requirement for bench marking the interest on trade advances. The assessee relied on the decision of this tribunal in GVK Power & Infrastructure Ltd. vs ACIT Circle-2(1) dated 18/05/2018 where in ITAT held that no notional interest is chargeable on delayed payments. For ready reference we extract the relevant para of the ITAT‟s order in GVK Power & Infrastructure Ltd which reads as under: 12. Even otherwise as observed from the order of the TPO on three occasions, there was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson SumiInfotech & Designs Limited Vs. DCIT reported In (2018) 52 CCH 0122 Delhi, and Hon'ble ITAT Delhi hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... American Jewellery Ltd., (supra), squarely apply to the facts of the case. 5.1. Considering the nature of business of assessee and the facts explained above, we are of the view that there was no justification for the authorities below to make adjustment to the income declared by assessee. Recently, the ITAT, I-2 Bench in the case of Terradata India Pvt. Ltd., vs. ACIT in ITA.No.7885/Del./2017 vide order dated 21st February, 2018, following the order in the case of same assessee, in which the decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT vs. M/s. Kusum Healthcare Pvt. Ltd., (supra), have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of interest on receivables. We, accordingly, set aside the orders of the authorities below and delete the entire addition. 6. In the result, appeal of the assessee is allowed. The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n receivables in the case of the assessee, accordingly, we delete the interest levied on receivables and allow the appeals of the assessee for the assessment year 2011-12 and 2012-13." 7.1 The Ld.AR also relied on the decision of GVK Power & Infrastructure Ltd. Vs. ACIT, 94 taxmann.com 415 of this bench on similar issue. For ready reference we extract para No.12 of the said order which reads as under: 12. Even otherwise as observed from the order of the TPO on three occasions, there was a delay of receivables and pointed out by the Ld. A.R. the assessee is not indulged in any systematic or organized activity of allowing the undue credit to the AEs. The assessee relied on the decision of Motherson SumiInfotech& Designs Ltd. (supra), and Hon'ble ITAT Delhi held as under: "We have considered the rival submission and perused the material available on record. The assessee has given several reasons to explain that it being a business transaction, commercial consideration should have been considered by the authorities below. It was explained that the long term business relation with the customer and A.E. predicate waiver of this right. The interest is only associated with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the order in the case of same assessee, in which the decision of Hon'ble jurisdictional Delhi High Court in the case of Pr. CIT v. M/s. Kusum Healthcare Pvt. Ltd. (supra) have been relied upon, allowed the appeal of assessee on the similar ground. In view of the above discussion and in the light of various decisions above and facts of the case, we are of the view that the adjustment to the income of the assessee is wholly unjustified on account of interest on receivables. We, accordingly, set aside the orders of the authorities below and delete the entire addition." The department has not made out case of systematic planning of allowing the undue credit to the AE. Further Ld.AR relied on the decision of Pr.CIT v. B.C. Management Services (P.) Ltd. [2018] 89 taxmann.com 68/253 Taxman 138/403 ITR 45 (Delhi) where in Hon'ble Delhi High court held that delayed payment made by AE cannot be treated as part of income. For ready reference we extract the relevant part of the order of the Hon'ble Delhi High court which reads as under: "9. With respect to the treatment of notional interest by the TPO/AO, the Court is of the opinion that no question of law ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary M/s. Grandsaugree SA, Switzerland in various packing sizes ranging from 45 grams to 500 grams and also in bulk sizes. The TPO's auditor has adopted CUP method and held the same to be at arm's length and did not suggest any adjustment. However, the TPO adopted the same CUP method and made size-wise/ packing size wise comparison of prices and issued a show-cause notice dated 10/10/2018 proposing to adjust/addition of an amount of ₹ 1,09,42,509/- towards the difference in price charges to assessee's above AE when compared with sales to non- AEs. In response to the show-cause notice, the assessee filed a letter dated 18/10/2018 objected for the above proposed adjustment on the ground that the weighted average price of all sized to be compared and not individual size-wife/packing size-wise comparison as done by the Assessing Officer as the sale consists of single product i.e. instant coffee and the material in all sizes of packing are of the same quality. In fact, out of the 11 sizes, only in 2 sizes i.e. 100 grams packing and 200 grams packing, price charged to assessee's AE was lower. In fact, in 6 out of 11 sizes, assessee charged to AE more than non-AE, therefore adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO out to have been followed weighted average method and if that is followed the difference is only between the sale made to AE and non-AE is 1.49% which is permissible as per proviso to sub-section (2) of section 92C of the Act. 19. On the other hand, ld.DR strongly supported the orders passed by that TPO as well as Assessing Officer. 20. We have heard both the sides, perused the material available on record and orders of the authorities below. 21. The assessee has sold instant coffee of 11,43,651 kgs to the AEs to the extent of ₹ 53,50,16,854/- which was in various Store Keeping Units (SKU) ranging from 45 grams to 500 grams including bulk sales in 25 kgs, 250 kgs & 275 kgs. The assessee has reported the sale transaction in both Form 3CEB and in TP study report. The assessee has adopted CUP as the most appropriate method for benchmarking the transaction of sale of instant coffee to AE. The TPO has treated that the data used by the assessee on sample basis in computation of arms's length price is not correct and rejected the CUP analysis. From the details furnished by the assessee, the TPO has observed that there are differences in terms and conditions of sales made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered by the TPO. In view of this, weighted average method is best suited to see any profit shifting from appellant company to AE. The appellant argued that difference works out to 1.49% considering the weighted average method for all the sizes put together which is within the permissible limits hence requested to delete the addition. It was contended that the department adopted TNMM as MAM for the earlier asst. year and not considering the alternative plea to work out ALP on TNMM method by the TPO is unjust. In view of these the appellant requested to delete the addition made by the AO as suggested by the TPO. The undisputed facts emanate from the record are as under: The appellant sold instant coffee to the AE and Non-AE. The appellant sold the same product in different sizes. The price charged to AE varied depending on size of the packaging. The appellant followed CUP method for internal TP report and not suggested any adjustment. Out of 11 sizes of the same product, the TPO compared prices between AE and Non-AE and found in 6 cases the appellant charged higher price to AE when compared to Non-AEs. In three cases, the price charged to AE as noted by TPO, is less than 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per provisions of law. As per proviso to sub-section (2) of section 92C, the difference to the extent of 3% is permissible. We further find that the assessee by submitting all the details explained before the TPO that the assessee has charged for AE as well as non-AE similar prices for the supply of instant coffee and no profit has been shifted to AE, however, the TPO not accepted the explanation given by the assessee and suggested TP adjustment without giving any reasons. The TPO has not given what is the reason for choosing only two sizes 100 grams and 200 grams, when the assessee specifically submitted before the TPO that out of 11 sizes, 6 sizes the assessee has charged high price and submitted that average has to be taken. Without considering the same, the TPO simply suggested adjustment by taking only two sizes, in our opinion, the assessee has discharged the burden casted upon him to show that it has not shifted profits to AE, therefore it is the duty of the TPO to establish that the assessee has shifted profits to AE. In this case, without giving any reason simply suggested TP adjustment by the TPO. We find that TPO is not correct. Thus, we find that the ld.CIT(A) has con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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