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TMI Blog2021 (3) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be quashed; GROUNDS RELATING TO TP ADJUSTMENT WITH RESPECT TO INTEREST ON DELAYED TRADE RECEIVABLES 1. The lower authorities have erred in: (i) Computing a transfer pricing adjustment on account of notional interest on outstanding receivables amounting to Rs. 5,73,74,225/-. (ii) Re-characterizing the outstanding trade receivables as on 31St March, 2014 as a loan transaction, without appreciating that the outstanding trade receivable from the AE is not an international transaction within the meaning of term as per section 92B of the Act; (iii) Without prejudice, assuming that receivable is an international transaction, the lower authorities have erred in not appreciating that receivable is not separate transaction from the sale of services from which it is arising. (iv) Not appreciating that the outstanding trade receivables from its AE is arising from the provision of IT enabled services to AE and it should not again be tested separately while computing arm's length price; (v) Not appreciating that no separate adjustment of notional interest on receivables is warranted when after working capital adjustment the Appellant" s operating margin are at arm" s le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 26.12.2017 incorporating the TP adjustment. The AO further disallowed Rs. 5,28,888/- towards provision for rent. Aggrieved, by the Draft Assessment Order, the assessee filed objections before the DRP. 6. Before the DRP, with regard to ITeS segment, it was submitted that the TPO had selected four comparables viz. Infosys BPO Ltd., Microland Ltd., B N R Udyog Ltd. (Seg) and Crossdomain Solutions Pvt. Ltd. and arrived at the average margin of the comparables at 23.41%. The TPO computed the Appellant's margin at 19.47% and made an adjustment of Rs. 3,59,22,610/-. 7. The DRP in its order dated 05.09.2018 rejected B N R Udyog Ltd (seg) as a comparable to the assessee and held other three companies are comparable. Post exclusion of BNR Udyog, since the assessee's margin was within arm's length range, the TPO in the OGE Order to DRP Order dated 18.09.2018, deleted the entire TP adjustment with respect to ITES segment. 8. On the issue of Interest on trade receivables, the TPO treated the outstanding receivables from AE as advancement of loan and computed the arm's length interest adopting 6-month LIBOR plus 400 basis points at 4.3836%. TP Adjustment was computed at Rs. 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 167 days (page 107 of appeal papers). As per the RBI Master Circular no. 8/2010-11 dated 1.7.2010, for average maturity period upto 3 years, the maximum cost ceiling is LIBOR plus 200 basis points. The relevant extract from page 24 of the RBI Master Circular is given below:- Average maturity period of the loan on invocation All-in-cost ceilings over 6 month LIBOR* Up to 3 years 200 basis points Three years and up to five years 300 basis points More than five years 500 sis points * for the respective currency of borrowing or applicable benchmark 15. It was therefore submitted that the TPO's approach of computing ALP for interest is not correct. The DRP rejected the approach of the TPO and directed to adopt Short-term Deposit interest rate of SBI. The assessee submits that the receivables from the AEs are denominated in US dollars. Therefore USD-LIBOR rate should be considered to benchmark the rate of interest in computation of arm's length rate. The ld. DR submitted that the DRP's direction to adopt Short-term Deposit interest rate of SBI should be quashed. In support of the contention that LIBOR should be adopted and domestic interest rate cannot be adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. DCIT I.T.A. No. 503/HYD/2017 Page 493 19. The ld. AR submitted that a view favourable to the assessee should be adopted and credit period of 9 months should be considered as reasonable credit period. Accordingly interest should be charged only for receivable beyond 9 months. 20. It was further submitted that interest should be computed only for the relevant year. In case of opening outstanding receivables from AE, the TPO has computed the interest from the date of invoice till the date of receipt of amount. The TPO has therefore computed interest for months falling before the beginning of the current previous year. 21. Similarly, for invoices raised during the year, the TPO has computed the interest from the date of invoice till the date of receipt of amount. The TPO has therefore computed interest for months falling beyond the end of the current previous year. 22. In this regard, the ld. AR submitted that only income of current year can be assessed by the AO/TPO. The methodology adopted by the TPO to compute the interest for months before the beginning of the current previous year and for months beyond the current previous year is not sustainable in law. The impugned asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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