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TMI Blog2017 (11) TMI 1923X X X X Extracts X X X X X X X X Extracts X X X X ..... . TP Adjustment - interest on outstanding receivables from associated enterprises as determined by the TPO in his order u/s 92CA(3) - whether delay in realization of export proceeds beyond stipulated credit period and continuing debit balance in the account of the associated enterprises amounts to an international transaction u/s 92B? - HELD THAT:- From perusal of records pertaining to AY 2007-08, 2008-09 and 2009-10, it is observed that the assessee has outstanding receivables beyond 145 days in respect of its export sale transactions with its AEs though the quantum of receivables, period of delayed realization may vary in each of these years. In each of these years, the TPO has also categorized these outstanding receivables as an independent transaction and has proposed a transfer price adjustment towards interest on such outstanding receivables beyond 145 days - at the same time, there is not enough material on record which throw light on the exact reasons for such delay in receivables and hence, in view of the same, it cannot be stated with certainty that there seems to be some pattern in delayed realization of export proceeds beyond stipulated credit period and continuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f non-associated enterprises and thus cannot be said to benefit the associated enterprises vis- -vis non-associated enterprises. There is complete uniformity in noncharging of interest on delay in realization of export proceeds and the average period of realization of the export proceeds is titled more in favor of non-associated enterprises, there cannot be any ALP adjustment even applying the CUP method as done by the TPO. Even under the TNMM method which has been applied by the assessee to benchmark its international transaction of export of goods, extending credit period for realization of sale proceeds beyond the prescribed period to the associated enterprise, where the same is considered as an international transaction, is a closely linked transaction with the transaction of export of goods and therefore, the same cannot be treated as an individual and separate transaction which will require an independent benchmarking. The same is in consonance with Rule 10A(d) as well as the concept of aggregation of closely linked transaction supported by the OECD transfer pricing guidelines. It is not the case of the Revenue before us that where such a transaction is aggregated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to A.Y 2007-08 was taken as a lead case for the purpose of present discussion and adjudication of the issues that have been raised before us. In this case, the respective grounds of appeal taken by the assessee and the Revenue are as under:- Assessee s grounds of appeal (ITA No. 567/JP/16) 1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts and in the circumstances of the case in confirming disallowance under section 14A r.w.r. 8D to the extent of ₹ 6,47,319/-. 2. The learned Commissioner of Income-tax (Appeals) has erred in confirming the interest expenses as per rule 8D without appreciating the fact that the learned AO has not recorded his satisfaction having regards to accounts of the appellant. 3. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts and in the circumstances of the case in confirming disallowances ₹ 64,060/- being 10% of business promotion expenses on estimation basis without appreciating the fact that these expenses were incurred wholly and exclusively for the purpose of business. Revenue s grounds of appeal (ITA No. 610/JP/16) 1. Whether on the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Ltd. 313 ITR 340, Hon ble Gujarat High Court in case of CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. 221 Taxman 479, and Hon ble Bombay High Court in case of CIT vs. HDFC Bank Ltd. 366 ITR 505. It was further submitted that the said investments were made for acquiring controlling stake and were part of strategic investments and they were not made with an intention of earning tax free income. Accordingly section 14A does not apply to such investment, in support, reliance was placed on decision of Hon ble Delhi High Court in case of Cheminvest Ltd. v. CIT 378 ITR 33. It was further submitted that disallowance of interest expenditure would not be tenable where AO failed to establish a nexus between interest bearing funds and investment made. In support, reliance was placed on the decision of Hon ble Karnataka High Court in case of Karnataka State Industrial Infrastructure Development Corporation Ltd. 65 taxmann.com 295. It was further submitted that no defect has been pointed out by the ld. AO in the claim of the assessee that no expenses were incurred for the purpose of making investment. It was further submitted that the application of section 14A and rule 8D is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment worth ₹ 3.37 crores have been made by the assessee in the earlier years and not in the yea+r under consideration. Even if one were to consider the availability of interest free funds during the year, it is noted that partner s capital account is worth ₹ 115.70 crores. Further, the secured loans availed by the assessee in form of packing Credit Limit (PCL) and Post Shipment Export Finance (PSEF) from various bank are exclusively for the purpose of purchase of raw material, payment of labour charges and other direct expenses and which thus have a end-use restriction and monitoring by the banks towards the manufacturing and export activity of the appellant. In light of above, we agree with the contention of the assessee that giving the availability of interest free funds over and above the secured loans and also the fact that the secured loans had a specific end-use restriction, the investments have been made from its internal accruals in the earlier years and given that no expenditure has been incurred, no disallowance u/s 14A is warranted. Further, the decision of Hon ble Bombay High Court in case of HDFC Bank Ltd. (Supra) and Hon ble Gujarat High Court in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and has not proposed any transfer pricing adjustment in respect of the said transactions. The assessee s TNMM method of determination of arm s length price in respect of its sale and purchase transactions with its AEs and operating margin of 6.15% has thus been accepted by the TPO. At the same time, the TPO, on perusal of the financial statements of the assessee, observed that the assessee has substantial amount of outstanding receivables from the AEs which remained outstanding for a long period of time and no interest had been charged on such amount. The TPO decided to examine the said transactions by invoking his powers under section 92CA(2A) and 92CA(2B) of the Act and issued a detailed show cause notice to the assessee which reads as under:- Perusal of the financials of the assessee company shows that you have substantial amount of outstanding receivables from the AEs, which have remained outstanding for a prolonged period and no interest had been charged on such amount. A perusal of the copies of invoices raised to AEs during the year reveal that the terms of payment have not been honoured and there is a considerable delay in payment as per the period stipulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of Fair and reasonable rate of Interest:- In the case at hand, payments have been extended to the AE by an Indian company. It is also a fact that the risk perception of a bank is very different from that of a commercial entity like yours that does not allow such a long period for realization in the normal course of business. In your case, the risk faced is higher. Therefore, it is considered prudent that interest equal to the prime lending rate of the State Bank of India be applied on this account. The PLR of SBI was 11.05% for the FY 2006-07 and 300 basis points to be added for risk including lack of security, forex, processing fee, credit rating and loan tenure is considered appropriate. Therefore, a total of 14.05% markup is considered to be appropriate. 3. * * * * * * 4. Determination of Arm s Length Interest due from AEs:- Subject the above remarks, the interest is calculated in the Annexure-1 to 4 of this notice. The ledger accounts were taken as furnished by the assessee. The interest calculated in the annexure is tabulated below. The credit period as per Payment Term in the Invoices raised has been allowed. The assessee has been allowed the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by making the provision explicitly clear and the receivables were always covered under the definition of international transaction even prior to amendment. 14. It was further held by the TPO that explanation (i)(a) and (c) of section 92B recognizes sales and receivables arising during the course of business as separate transaction. Requiring determination of ALP of the interest chargeable on excess period of credit allowed to an associated enterprise, it has to be computed having regard to the arm s length principle and it is independent of other transactions entered into by the assessee with the AEs. 15. Regarding assessee s contention that over dues receivable from AEs cannot be compared to the loan whether secured or unsecured, the TPO held that the transaction has been considered to be similar to the loan transaction and since the assessee has not charged any interest from its AEs, it is required to be examined and charge arm s length interest by considering the rates prevailing in independent transaction. 16. It was further held by the TPO that real income theory is not applicable in the context of chapter X. Further, it was held that the business expediency does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the TPO has emphasized time and again in his order, right from the show-cause notice to her final analysis, is whether the tax payer could have extended such facility to any unrelated party similar to that of the AE without charging adequate compensation. In response, the assessee submitted that it has extended similar credit facility to non-AEs without charging any interest. The TPO though acknowledged the said fact but refused to accept the same. Under the CUP method which has been invoked by the TPO (which we will discuss latter whether the same is warranted in the instant case or not), the TPO is required to evaluate the arm slength character of a controlled transaction by comparing the price and conditions to the price and conditions of similar transactions between the taxpayer and an unrelated party ( internal CUP ), or between two unrelated parties ( external CUP ). The immediate question that comes to our mind is that where internal CUP is available, would there be a necessity to examine the external CUP and can the latter be held to present a more reliable outcome in the facts of the present case. We find that the same was appreciated by the ld CIT(A) who on appeal by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale proceeds from both the AEs and Non AE customers. This being so, the judgments of Hon ble ITAT Jaipur in case of Vaibhav Gems Ltd VVF Ltd Hon ble Bombay High Court in case of Indo American Jewellery Ltd Hon ble ITAT Mumbai in case of Tech Mahindra and ITAT Delhi Bench in the case of Bausch Lomb Eyecare (India) (P) Ltd. cited (supra) are squarely applicable in assessee s case. Thus, in view of facts and circumstances of the case as discussed above, thereof, the adjustment in respect of notional interest on delayed realization of sale proceeds is hereby deleted. Assessee gets a benefit of ₹ 1,87,41,073/- on account of notional interest charged for delay in realization of export sales invoices from associated enterprises. 23. During the course of hearing, the ld. AR submitted that assessee firm also made sales to non AEs, during the year under consideration, where it had unpaid receivable at the year end. It was submitted that the assessee firm provided uniform credit, both to AEs and nonAEs/third parties, of 145 days and did not charge any interest, on such unpaid receivables, from both type of the customers. Additional days, taken beyond due date, for making paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l consideration for ensuring a long and healthy relationship as persuasive value. 18.2 In the case of Indo American Jewellery Ltd. (supra ), Hon'ble Bombay High Court while affirming the ITAT decision has held that there being uniformity in assessee's act in not charging interest both from AE and non AE and delay in realization in both the cases is same, notional interest cannot be considered with ALP on delayed realization. This has been further followed by the ITAT in the case of Lintas India P. Ltd. (supra ) Mastek Ltd. (supra ). 18.2 In view of above facts, respectfully following these judicial precedents we are of the view that the adjustment in relation to notional interest on outstanding receivables cannot be made in the case of the assessee. This ground of the assessee is allowed . 27. Our reference was also drawn to the decision of ITAT Jaipur Bench in the case of Vaibhav Gems Ltd. (ITA No. 01/JP/2014), wherein the Jaipur Bench, following the ratio laid down in the above mentioned judgments of Indo American Jewellery Ltd. (Supra) and Bausch Lomb Eyecare (India) (P.) Ltd. (Supra), had deleted the adjustment made by the TPO, with respect to notional int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from an independent enterprises in this case. Once the assessee has contended that the interest is not being charged from anyone, including, of course, the non AEs, and that contention is not disputed to be factually incorrect, it cannot be open to the TPO to make adjustment in the case of delays in realization from the AEs. The treatment being accorded to the AEs and non AEs is the same, and, in such a situation, ALP adjustment cannot be made for delay in realization of monies from the AE. The consideration as to how the assessee would have received interest if money was given to an outsider is irrelevant because it is not a case of extending loan or placing deposit, rather it is a case of amount becoming due as a result of commercial transaction. 29.2 Excellence Data Research Private Limited vs. ACIT (2016) 48 CCH 51 Hyd Trib Since in the case before us, the facts and circumstances are similar and more particularly the TPO has not taken into consideration that the fact that the assessee has also not charged the interest not receivable from the non AE, we comply the assessee s plea on this ground. Accordingly Ground No. 14 to 17 are allowed . 29.3 ACIT vs. Gitanjali E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. However with respect to delayed realization of debts, the TPO re-characterized the said transaction as an unsecured loan. The Hon ble Delhi High Court in the case of EKL Appliances Limited [(2012) 345 ITR 241 (Del), held that recharacterization of a transaction is possible in only two situations i.e. (i) where the economic substance of a transaction differs from its form and (ii) where the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. None of these conditions is satisfied in the present case. The form and substance of the transactions are the same. The TPO has not brought on record any material to demonstrate and establish that the form and substance of transactions are different. It is not the case of the Transfer Pricing Officer that the export transaction was a sham transaction to finance the AE. Whatever are the terms of realization of the exports proceeds with the non-AEs, the same are the terms of realization of exports from the non AEs. 32. It was further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to neutralize the impact of inter se relationships between the AEs and it is, therefore, not the delay simplictor in payment but delay in payment vis-a-vis similar situations with non-AEs (i.e. independent enterprises) which is of crucial consideration, such a comparison cannot be based on the hypothesis as to what would have, in the wisdom of the TPO, happened if assessee was to have similar transactions with non-AEs. The comparison has to be based on real transactions of similar nature, if at all such transactions have taken place. When no such transactions have taken place, as in instant case, there is obviously no occasion of any comparison. The stand taken by the revenue, therefore, is not only quite detached from commercial reality but also wholly untenable in law. In any case, what can be examined on the touchstone of arm's length principles is the commercial transaction itself, as a result of which the debt balance has come into existence, and the terms and conditions, including terms of payment, on which the said commercial transaction has been entered into . The international transaction is exports of goods which been benchmarked on TNMM basis and which is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective effect from 01.04.2002. As per this explanation, capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payment or deferred payment or receivable or any other debt arising during the course of business is now deemed as international transaction. 38. It was submitted that such amendment to section 92B is an amendment to substantive law since it resulted in enhancement of the scope of international transactions as envisaged under erstwhile section 92B of the Act. The subject amendment though stated to be clarificatory should be treated as effective from Assessment Year 2013-14 onwards. Reliance was placed on the decision of the Hon ble Delhi High Court in the case of New Skies Satellite BV [TS-64-HC -DEL (2016)] held that amendments though originally notified as clarificatory may turn out to be substantive in fact and such a substantive amendment is incapable of being given retrospective effect. Relevant extracts of the said order is reproduced hereunder:- Undoubtedly, the legislature is competent to amend a provision that operates retrospectively or prospect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f last resort, the amendments can be made prospective only[ Ref County of Sacramento v State (134 Cal App 3d 428) and In re Marriage of Davies (105 III App 3d 66)] (Emphasis, by underlining, supplied by us) 39. It was submitted that the ITAT Mumbai Bench, relying on the ratio laid down by the Hon ble Delhi High Court in the above mentioned case, in its order dated 31.03.2016, in the case of Rusabh Diamonds (2016) 158 ITD 0564 (Mumbai), has held that since explanation to Section 92B has increased the scope of International Transaction, such amendment though stated to be clarificatory and stated to be effective from 1st April 2002, has to be necessarily treated as effective from, at best, Assessment Year 2013-14. Relevant extracts of the said order is as under:- .if the 2012 amendment does increase the scope of international transaction under section 92B, as is our considered view, there is no way it could be implemented for the period prior to this law coming on the statute i.e. 28th May 2012. The law is well settled. It does not expect anyone to perform an impossibility. Reiterating this settled legal position, Hon ble Supreme Court has, in the case of Krishnaswamy S PdVs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance in the account of the associated enterprises amounts to an international transaction u/s 92B of the Act in light of explanation to section 92B inserted by the Finance Act 2012 which has been specifically invoked by Transfer Pricing Officer. The said explanation to section 92B reads as under:- Explanation.-For the removal of doubts, it is hereby clarified that- (i) the expression international transaction shall include- (a) the purchase, sale, transfer, lease or use of tangible property including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity or any other article, product or thing; (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business' has also been expressly recognized as an international transaction. That being so, the payment/non-payment of interest or receipt/non-receipt of interest on the loans accepted or allowed in the circumstances as mentioned in this clause of the Explanation, also become international transactions, requiring the determination of their ALP. If the payment of interest is excessive or there is no or low receipt of interest, then such interest expense/income need to be brought to its ALP. The expression 'debt arising during the course of business' in common parlance encompasses, inter alia, any trading debt arising from the sale of goods or services rendered in the course of carrying on the business. Once any debt arising during the course of business has been ordained by the legislature as an international transaction, it is, but, natural that if there is any delay in the realization of such debt arising during the course of business, it is liable to be visited with the TP adjustment on account of interest income short charged or uncharged. Under such circumstances, the contention taken by the assessee before the TPO that it is not an international transaction, turns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that would justify a TPO concluding that the figure of receivables beyond 145 days constitutes an international transaction by itself. From perusal of records pertaining to AY 2007-08, 2008-09 and 2009-10, it is observed that the assessee has outstanding receivables beyond 145 days in respect of its export sale transactions with its AEs though the quantum of receivables, period of delayed realization may vary in each of these years. In each of these years, the TPO has also categorized these outstanding receivables as an independent transaction and has proposed a transfer price adjustment towards interest on such outstanding receivables beyond 145 days. However, at the same time, there is not enough material on record which throw light on the exact reasons for such delay in receivables and hence, in view of the same, it cannot be stated with certainty that there seems to be some pattern in delayed realization of export proceeds beyond stipulated credit period and continuing debit balance in the account of the associated enterprises which intends to benefit the associated enterprises and amounts to an international transaction in terms of explanation to section 92B of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or design or practical and new design or any other business or commercial rights of similar nature; (c) capital financing, including any type of long -term or short -term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; (d) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression intangible property shall include - (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises, either or both of them are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing of money, or any other transaction having a bearing on the profits, incomes, losses or assets of such enterprises as also transaction in the nature of cost or expense sharing arrangement. The question that we must address ourselves to is whether a continuing debit balance constitutes a 'transaction' in terms of the provisions of Section 92B. 5. A continuing debit balance, in our humble understanding, is not an international transaction per se, but is a result of the international transaction. In plain words, a continuing debit balance only reflects that the payment, even though due, has not been made by the debtor. It is not, however, necessary that a payment is to be made as soon as it becomes due. Many factors, including terms of payment and normal business practices, influence the fact of payment in respect of a commercial transaction. Unlike a loan or borrowing, it is not an independent transaction which can be viewed on standalone basis. What can be examined on the touchstone of arm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging any interest during such period would not amount to international transaction whereas Section 92B(1) of the Income Tax Act, 1961, refers to 'any other transaction having a bearing on the profits, income, losses or assets of such enterprise' . Rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back for fresh consideration of the Tribunal. While doing so, at page 3-4 of the judgment, Their Lordships observed as follows: 2. So far as question (c) is concerned, counsel for the parties state that in view of the amendment to Section 92B(1) of the Income Tax Act, 1961 ('Act' for short) by Finance Act, 2012 with retrospective effect from 1st April 2002, the question as framed may be restored to the file of the Tribunal for fresh decision in light on the amendment. Accordingly, this issue is remitted to the file of the Tribunal for fresh decision on merits 25. The observations so made by Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year before us as well. Undoubtedly, the amendment is said to be retrospective but then the question really is whether just stating the law to be retrospective will make it retrospective in effect. 30. The fact that judicial precedents, prior to the insertion of Explanation to Section 92B, held that a continuing debit balance, on a standalone basis, does not constitute an international transaction required to be benchmarked assumes considerable significance in the light of a new judicial development that we will deal with in a short while now. In the present case, we are dealing with a situation in which the amendment was made with retrospective effect and it covered certain issues which were already subjected to a judicial interpretation in a particular manner. The judicial interpretation so given was certainly not the end of the road. The matter could have been carried in appeal before higher judicial forums. If the decision of a judicial body does not satisfy the tax administration, nothing prevents them from going to the higher judicial forum or from so amending the law, with prospective effect, that there is no ambiguity about the intent of legislature and it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m shift in the approach to the amendments made in Section 263 in the very first full budget of the present Government. 32. What has, however, been done in the case before us is to amend the law with retrospective effect. Of course, it happened much before the current awareness about the evils of retrospective taxation having been translated into action. 33. Dealing with such a situation, Hon'ble Delhi High Court has, in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/68 taxmann.com 8, observed as follows: '30. Undoubtedly, the legislature is competent to amend a provision that operates retrospectively or prospectively. Nonetheless, when disputes as to their applicability arise in court, it is the actual substance of the amendment that determines its ultimate operation and not the bare language in which such amendment is couched .. 36. A clarificatory amendment presumes the existence of a provision the language of which is obscure, ambiguous, may have made an obvious omission, or is capable of more than one meaning. In such case, a subsequent provision dealing with the same subject may throw light upon it. Yet, it is not every time that the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken by the judiciary whether it is indeed clarificatory or not. This determination, i.e. whether the amendment in indeed clarificatory or is the amendment to overcome a judicial precedent, assumes great significance because when it is found that the purpose of such interpretive statute, or clarificatory amendment, is correct a judicial interpretation of prior law, which the legislature considers inaccurate, the effect is prospective . 36. It is very important to bear in mind the fact that right now we are dealing with amendment of a transfer pricing related provision which is in the nature of a SAAR (specific anti abuse rule), and that every anti abuse legislation, whether SAAR (specific anti abuse rule) or GAAR (general anti abuse rule), is a legislation seeking the taxpayers to organize their affairs in a manner compliant with the norms set out in such anti abuse legislation. An anti-abuse legislation does not trigger the levy of taxes; it only tells you what behaviour is acceptable or what is not acceptable. What triggers levy of taxes is non-compliance with the manner in which the anti-abuse regulations require the taxpayers to conduct their affairs. In that sense, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being outside the scope of 'international transaction', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesaid guidance of Hon'ble Delhi High Court, would not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards. 50. We find that the Coordinate Bench in Rishabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considered the decision of the Hon ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increases the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarificatory and stated to be effective from 1st April 2002. We have also gone through other Coordinate Bench decisions in case of Gitanjali Exports Corporation (supra) and Siro Clinpharm Private limited (supra) where similar view has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tstanding balance from Associated Enterprises was amounting to ₹ 8.76 crores. As that amount was outstanding for more than year, taking the rate of interest at 10%, the Transfer Pricing Officer determined the interest receivable at ₹ 87.66 lacs and added the same to the international transaction cost. 4. On appeal, the CIT(A) held that the total outstanding amount was ₹ 8.73 Crores and out of which the amount outstanding from the Associated Enterprises was to the extent of ₹ 5.11 Crores and the balance amount of ₹ 3.62 Crores was outstanding from non Associated Enterprises. Relying on the Board Circular no. 12 of 2001, the CIT(A) further held that in the present case, the profit of one Associated Enterprise is negligible and the other Associated Enterprise has incurred losses and therefore it cannot be said that the assessee had transfered any profit to the Associated Enterprises outside India by not charging interest on the outstanding payment which has been realised after the due date and accordingly deleted the interest charged on late realisation of the export proceeds. 5. On appeal filed by the Revenue, the ITAT upheld the order of CIT(A). W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the declared consideration to arrive at an arms length price. 4. The Tribunal by the impugned order rendered a finding of fact that the respondent-assessee has not charged any interest from third parties i.e. Non Associated Enterprises on delayed payments exceeding more than 300 to 400 days from the sale of goods. Consequently, it holds that once such delayed payment in respect of sale of goods made to third parties carries no interest, then adding of notional interest to delayed payments made by the Associated Enterprises is not called for. 5. Further, the impugned order places reliance upon the order of this Court in Income Tax Appeal (L) No. 1053 of 2012 (Commissioner of Income Tax-9 vs. M/s Indo Amercian Jewellery Ltd.) rendered on 8th January, 2013. In the above case a similar question was not entertained by this Court on the ground that there is complete uniformity in the act of the assessee therein in not charging interest from Associated Enterprises and Non Associated Enterprises for delay in recovery of its sale proceeds. 6. In the present case also the Tribunal has rendered a finding of fact that the interest is not being charged in case of sales made to Non-A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld CIT(A) and the abovesaid facts and finding of the ld CIT(A) remain uncontroverted before us. 56. In the instant case, we therefore find that there is complete uniformity in the act of the assessee in not charging interest from both the associated enterprises and non-associated enterprises and the average period of realization of the export proceeds is titled more in favor of non-associated enterprises and thus cannot be said to benefit the associated enterprises vis- -vis non-associated enterprises. 57. Further, as we have noted initially that the TPO had emphasized time and again in his order, right from the show-cause notice to her final analysis, as to whether the tax payer could have extended such facility to any unrelated party similar to that of the AE without charging adequate compensation. Interestingly, in this regard, the TPO acknowledged the fact the assessee has extended similar credit facility to non-AEs without charging any interest but he refused to accept the same and went ahead and computed ALP adjustment by way of notional interest applying CUP method. It is this fallacy in stand of the Revenue that we find is not in consonance with the transfer pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e export proceeds is titled more in favor of non-associated enterprises, there cannot be any ALP adjustment even applying the CUP method as done by the TPO. 59. Finally, even under the TNMM method which has been applied by the assessee to benchmark its international transaction of export of goods, extending credit period for realization of sale proceeds beyond the prescribed period to the associated enterprise, where the same is considered as an international transaction, is a closely linked transaction with the transaction of export of goods and therefore, the same cannot be treated as an individual and separate transaction which will require an independent benchmarking. The same is in consonance with Rule 10A(d) as well as the concept of aggregation of closely linked transaction supported by the OECD transfer pricing guidelines. It is not the case of the Revenue before us that where such a transaction is aggregated with transaction of extending credit period for realization of sale proceeds beyond the prescribed period to the associated enterprise, it will require any further ALP adjustment than what has been determined by the assessee and accepted by the TPO. In the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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