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TMI Blog2021 (3) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... ated enterprise from India. Therefore, in our view it is immaterial whether the associated enterprise is making a losses or it is making of profit for working out the operating margin of the assessee. Coordinate bench has inadvertently overlooked that assessee is providing ITeS services to its associated enterprise and amounts outstanding was only in respect of the services provided and that it had not made any loan or had made any advances to its associated enterprise and the sum outstanding was only in respect of services provided and nothing else - We failed to understand why the distinction is required to be made from sale of goods or sale of services. According to us fact that it is for services or goods. According to us, assessee has made advances to the AE for more than usual credit period. In fact, it is an advance of the full reserve and surplus available with the assessee to its associated enterprise. It is immaterial whether the assessee has obtained any loan or has not taken any loan. Therefore, this contention is rejected. In paragraph number (iii) the note states that the coordinate bench did not record that such an amount had the character of making advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are related to the working capital adjustment. Thus, all the grounds of the appeal were also on the same issue of adjustment on account of outstanding receivables. All these grounds were considered and decided against the assessee as the main issue has already been decided against the assessee for the reason that the outstanding receivable from its associated enterprise does not deserve to be considered for granting any working capital adjustment to the assessee. No error in the order of the coordinate bench in following the decision of coordinate bench in assessee s own case. That binds us and has been followed. - MA No. 244/Del/2020 (In ITA No. 6402/Del/2016) - - - Dated:- 23-3-2021 - Ms. Suchitra Kamble, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri C. S. Aggarwal, Sr. Adv, Shri R. P. Mall, Adv For the Revenue : Shri M. Bernwal, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This miscellaneous application is filed in ITA No. 6102/Del/2016 passed for Assessment Year 2012-13 on 06.07.2020. The miscellaneous application states that there are certain inadvertent errors in the order of the coordinate bench and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that working capital adjustment takes into account the impact of outstanding receivables on the profitability. The relevant extract is reproduced below for your Honour reference: Para 7 The appropriate adjustments need to be considered to bring parity in the working capital investment of the assessee and the comparables rather than looking at the receivable independently. Such working capital adjustment takes into account the impact of outstanding receivables on the profitability Para 8 Accordingly, while calculating the working capital adjusted, operating margin on costs of the comparable companies, the impact of outstanding receivables on the profitability has been taken into account. If the pricing/ profitability of the assessee are more than the working capital adjusted margin of the comparables, then additional imputation of interest on the outstanding receivables is not warranted. Para 10 10. The above analysis demonstrates that the differential impact of working capital of the vis-a-vis its comparables has already been factored in the pricing/profitability of the assessee which is more than that working capital adjusted margin of the comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars OP/OC +5% -5% Operating Revenue 1,68,37,87,476 1,76,79,76,850 1,59,95,98,102 Operating Cost 1,45,73,00,531 1,45,73,00,531 1,45,73,00,531 Operating Profit 22,64,86,945 31,06,76,319 14,22,97,571 Operating Margin 15.54% 21.32% 9.76% Prayer In view of the above facts, it is prayed before this august court that the appellant be granted the benefit of working capital adjustment as the appellant is of the belief that should such adjustment be allowed there would not be any additional tax payable on account of notional interest on outstanding receivables. 3.3 It is submitted that in the case synopsis, the assessee in para 3.2.5 has also given a table of unadjusted margin and also the adjusted margins of the comparable adopted by the learned TPO/AO in the final order of. Infact, in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in para 14 of the order, the Hon'ble Tribunal has noted that the in the convenience paper book, the assessee has furnished the financial statements of the associated enterprise dated 31st of December 2008, 2009, 2010 and 2011 showing that associated enterprise has been incurring losses over the period for four years between 2008 and 2011. In fact, the assessee has also furnished the table wherein the profit after tax [PAT] of the associated enterprise were shown to have incurred substantial losses in December 2008 - December 2010 and therefore it was submitted by the assessee that due to the accumulated losses incurred over past few years the associated enterprise and genuine cash crunch and hence on account of the losses and had genuine cash crunch and hence on account of the losses and had genuine cash crunch therefore, there was delay in making the payment of the receivables. It was also submitted and has been noted in the order that despite severe financial hardship, the appellant has constantly been remunerated on a cost +15.50 percentage markup even when the associated enterprises was facing genuine business downturn due to structural pressure faced by the traditiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Tribunal has also not recorded any finding that if the outstanding receivable from the associated enterprise is not in respect of sale of goods/services, then what was the nature of sum outstanding. It is submitted that there is no adverse finding by the learned TPO in the order nor the revenue has raised any such contention and the Hon ble Tribunal while observing aforesaid, did not provide any opportunity to the assessee. It is further submitted that without prejudice, in the absence of any material that the character of the amount had undergone a change from the amounts receivable from the debtors to an advance made, it is submitted is also a mistake committed in the order and is violative of principle of natural justice. 3.6 In respect of second reason given by the Hon ble Tribunal while rejecting the additional ground no. 5.1, the Hon ble Tribunal has inadvertently ignored that once it has been found by the Hon'ble Tribunal that such ground is purely legal ground, then such ground needs to be adjudicated on merits, and whether any ground has been raised before the TPO/DRP is irrelevant. It is submitted that Hon ble Apex Court in the case of National Thermal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recording the aforesaid finding, same has been lost sight off, which constitute a mistake apparent from record which it is most humbly prayed that same be rectified. 4. Further, in the additional ground no. 7, the assessee has contended that Eclrex services Ltd and Exle Infoways Limited are not comparable to the appellant in terms of functions, risks and assets and in respect of such additional ground, the Hon ble Tribunal has held that adjudication of such ground requires the investigation of the fresh facts. It was further held that the learned assessing officer has not made any adjustment with respect to the ITeS segment of the assessee and therefore testing of the comparability of those two comparables mentioned in the ground number seven by the learned authorised representative/assessee is merely an academic exercise. 4.1 It is submitted that aforesaid finding recorded by the Hon ble Tribunal in respect of additional ground no 7, has been recorded by omitting to consider the material on record as in the objections before the learned DRP, the assessee vide its objections no. 7 9 has specifically raised such contention and has also made its detailed submissions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly unjustified. The Hon ble High Court upheld the finding the Hon ble Tribunal by holding as under: 10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression receivables does not mean that de hors the context every item of receivables appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. 11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benchmarking the transaction, CUP method has been applied without understanding the business model/contractual terms of the Appellant (Ground No. 4). iv. And further, no suitable adjustments to account for differences in the risk profile of the Appellant vis- a-vis the comparable companies has been granted (Ground No. 5). 6.1 It is submitted that while disposing off the appeal of the appellant, though in para 22, it has been stated that ground number [1]- [5] of the appeal, along with the additional ground number 5.1 are dismissed, however such grounds as has been raised in the memo of the appeal has not been discussed or adjudicated in the order, and the appeal of the appellant has been disposed off only while discussing the additional ground no. 5.1. It is submitted that in in ground no 4, the applicant has contended comparables selected by the learned TPO for the purpose of determination of the Arm s Length Price were wrongly selected. It was submitted that the comparable selected by the TPO were not carrying out the activities in which the assessee is engaged in. That the assets employed by the assessee and that of comparables was also not same and hence requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulted to the party, which prejudice is attributable to the Tribunal s mistake, error or omission and which error is manifest error then the Tribunal would be justified in rectifying its mistake which had been done in the present case. It is submitted that, applying the ratio laid down in the aforesaid judgment, it would be seen that, there is a fundamental mistake which is manifest in the order of the Tribunal and, therefore, the same deserve to be rectified in terms of provisions contained in section 254(2) of the Act. 9. In fact after analyzing the aforesaid judgment of Honda Siel Power Product Ltd. vs. CIT (supra), the Full Bench of the jurisdictional High Court in the case of Lachman Dass Bhatia Hingwala (P.) Ltd. vs. ACIT reported in [2011] 330 ITR 243 (Delhi) has held as under: Thus understood, it is clear as crystal that their Lordships have held that the fundamental principle is that no party appearing before the Tribunal should suffer on account of any mistake committed by the Tribunal and no prejudice is caused to either of the parties before the Tribunal which is attributable to the Tribunal's mistake, omission or commission and if the same error is a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee was rejected on merits. He submitted that the assessee submitted financial statement of the comparables and there are difference between working capital of the assessee and the comparables of the assessee. He further stated that the cited cases before the coordinate bench in case of Kusum Healthcare Pvt. Ltd Vs. ACIT in ITA No. 765/2016 dated 25.04.2017 and CIT Vs. EKL Appliances Ltd in ITA No. 1068/2011 were not considered. He further referred para No. 6 of the MA stating that ground No. 1 to 5 were not adjudicated and the title appeal of the assessee was dismissed after discussing additional ground No. 5.1. He therefore, reiterated that the order passed by the coordinate bench requires to be recalled. He also submitted a brief note on the issue. 4. The ld DR vehemently stated that coordinate bench has extensively noted the facts of the case in para No. 17 to 20. He further stated that the issue was squarely covers against the assessee as per order of the coordinate bench in assessee s own case. In Para No. 22 also the coordinate bench has considered the order of the DRP where certain credits have been given. In para No. 21 the coordinate bench has furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding was only in respect of services provided and nothing else. We failed to understand why the distinction is required to be made from sale of goods or sale of services. According to us fact that it is for services or goods. According to us, assessee has made advances to the AE for more than usual credit period. In fact, it is an advance of the full reserve and surplus available with the assessee to its associated enterprise. It is immaterial whether the assessee has obtained any loan or has not taken any loan. Therefore, this contention is rejected. 8. In paragraph number (iii) the note states that the coordinate bench did not record that such an amount had the character of making advances is interest free loan which has been the the material statement for not granting any working capital adjustment. The working capital adjustment is required to be given difference in the working capital employed by the different comparables compared to the assessee. In the case of the assessee we have already held that outstanding of associated enterprise was a device employed by the assessee in connivance with its associated enterprise to withdraw the full reserve and surplus available in In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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