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TMI Blog2020 (2) TMI 1567X X X X Extracts X X X X X X X X Extracts X X X X ..... ions on loan - TPO rejected the ALP of the assessee and instead required to charge interest @ 14.88% (being SBI PLR + 300 basis points) - HELD THAT:- As decided in own case [ 2018 (5) TMI 1972 - ITAT DELHI] since the assessee has received interest from its AE in France, applying prime lending rate of RBI is not proper In any case, since the assessee is receiving interest on FD @ 7.56%, interest received from AE @ 8.46% can be considered at ALP. Therefore, no TP adjustment is called for. Comparable selection - Companies as Government of India Undertakings - HELD THAT:- WAPCO Ltd and Antrix Corporation Ltd. are Government of India Undertakings, we hold that these two companies cannot be held as comparable with the assessee company and are to be rejected. So far as Edserv Softsystems Ltd. is concerned, it is the submission of the ld. Counsel for the assessee that the TPO, in the succeeding years has not considered this company as a functionally comparable company and has agreed with the assessee in considering the company as a functionally non-comparable. We, therefore, deem it proper to restore this issue to the file of the AO/TPO with a direction to verify the analysis done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake of convenience. 3. First we take up ITA No.7723/Del/2017 (A.Y. 2010-11) 4. Grounds of appeal No.1 to 3 raised by the assessee read as under:- The following grounds are independent of and without any prejudice to one another: Availing of lntra group services (adjustment of INR ₹ 2,28,44,668) 1. On the facts and law, the Hon'ble Commissioner of Income Tax (Appeal)-38 ['Hon'ble CIT(A)'] has erred in upholding the arm's length price of the transaction related to availing of Intra group services amounting to INR 2,28,44,668. 2. On the facts and in law, the Hon'ble CIT (A), erred in adopting an adhoc basis to uphold the adjustment to the extent of 50% while accepting the Appellant's contentions that questioning the commercial expediency is not permissible and that the services were availed by the Appellant 3. On the facts and in law, the Hon'ble CIT (A) erred in concluding that it is not possible to quantify the value of services received, thereby ignoring the methodical allocation basis of the cost of services and benchmarking analysis using Transaction Net Margin Method ('TNMM') already provided by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , given the nature of proprietary and specific services provided to the Appellant (which cannot be provided by any other third party service provider) by associated enterprise, it can said that the said services are neither shareholder services nor duplicative in nature. I have considered the arguments of the AR and the order of TPO. In light of various judicial precedents including CIT vs EKL Appliances Ltd., [2012] 345 ITR 241, Dresser-Rand India Pvt. Ltd. v. Additional Commissioner of Income Tax, 2012 (13) ITR (Trib) 422 and Commissioner of Income Tax-I vs. Cushman and Wakefield India Pvt. Ltd. (ITA No. 475/2012), it has been clearly established that it is beyond the powers of the Transfer Pricing Officer to question the commercial wisdom of the Assessee. The TPO's authority is restricted to determining the ALP for international transactions referred to him by the AO. The TPO, after a consideration of the facts, can state that the ALP is 'nil' given that an independent entity in a comparable transaction would not pay any amount. Further, the Delhi High Court in case of Bausch and Lomb Eyecare Private Limited has held that recharacterization of transaction and ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . should disregard the actual transactions or substitute other transactions for them. Restructuring of legitimate business transactions would be a wholly arbitrary exercise the inequity of which could be compounded by double transaction created where the other tax administration does not share the same views as to how the transaction should be structured. For this proposition, we draw support from the judgment of the Hon'ble jurisdictional High Court of Delhi in the case of EKL appliances 344 ITR 241. 13. In the same judgment, the Hon'ble High Court observed that The character of transaction may derive from relationship between the parties rather than be determined by normal commercial conditions as may have been structured by the tax payer to avoid or minimize tax. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flimsy grounds. We find that the allocation in respect of services provided by Shri John Yoshimura Regional head of offices is on the basis of time spent by him in relation to ATKBO. In our considered opinion, this allocation is logical and sound on the facts of the case. There are email evidences wherein it has been mentioned that Shri John Yoshimura was responsible for advising on various performances/review of Indian partners. Moreover, specific dates of physical presence of Shri John Yoshimura in India are exhibited at pages 1417, 1419 and 1420 of the paper book. 20. Considering the cost allocation chart exhibited elsewhere supported by evidences placed as exhibits in the paper book, we do not find any merit in the transfer pricing adjustments made by DRP/TP/Assessing Officer on this count and the same is directed to be deleted. 8. Since the facts of the impugned assessment year are identical to the facts of the case decided by the Tribunal in the assessee s own case, therefore, respectfully following the order of the Tribunal, we direct the A.O./TPO to delete the addition. The grounds raised by the assessee are accordingly allowed. 9. Grounds of appeal No.4 and 5 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the cases referred by Ld. Counsel for the appellant. Hon ble ITAT Delhi in ITA NO. 2010/Del/2014 Assessment Year: 2009-10, in the case of Ameriprise India Pvt. Ltd. PAN No.: - AAFCA3489B vs. Asstt. Commissioner of Income Tax Circle 1(1), New Delhi lays down the principle of charging interest as International Transaction on delayed payment of receivables from AEs. It has been held that the non-realization of invoice value beyond the stipulated period is a separate international transaction, whose ALP is separately determinable. The International transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the International Transaction of rending of services The TP adjustment on account of interest on delayed realization of invoice value... depends on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May ; period allowed for realization is two months; and the invoice is actually realized on 31st December; Notwithstanding the fact that interest on such late realization would become chargeable for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent company ATK UK. DRP further observed that the credit rating of ATK Finance cannot be sole guiding factor. DRP was of the view that the interest rate equal to prime lending rate of RBI during the year under consideration should be applied and accordingly direct the TPO. 24. We find that the assessee has earned interest on fixed deposits @ 7.56%. In our considered opinion, since the assessee has received interest from its AE in France, applying prime lending rate of RBI is not proper In any case, since the assessee is receiving interest on FD @ 7.56%, interest received from AE @ 8.46% can be considered at ALP. Therefore, no TP adjustment is called for. We direct accordingly. 14. Ground of appeal No.6 reads as under:- 6. That the learned AO has erred, in law and on facts, in proposing to levy interest under section 234A, 234B, 234C and 234D of the Act. 15. After hearing both the sides, we are of the opinion that levy of interest u/s 234A, 234B, 234C and 234D of the Act is mandatory and consequential in nature. Accordingly this ground is dismissed. 16. Ground No.7 relating to levy of penalty u/s 271(1)(c) being premature at this juncture is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s even though the same are functionally not comparable to the Appellant. 4.3 Disregarding the plea of the Appellant that the transaction of provision of management consultancy services can be considered to be arm's length even by application of internal TNMM as the Appellant has provided similar services to third parties also at lower net margin. 20.1 Facts of the case, in brief, are that the TPO during the TP assessment proceedings, did not concur with the analysis undertaken in the TP documentation in relation to international transaction related to provision of management consultancy services provided to AEs and reimbursement of expenses from AEs. 20.2 The TPO in his order u/s 92CA(3) has undertaken the following approach in respect of these international transactions:- a) He did not agree with the multiple year data used in the TP documentation in relation to comparable companies and was of the view that the financial information of comparable companies pertaining to FY 2008-09 should only be used. b) He applied certain filters (in addition to those applied in the TP documentation) to reject/accept certain comparables which are as under:- - Rejected compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi Bench of the Tribunal in the case of Genzyme India Private Ltd. in ITA No.892/Del/2014, he submitted that this company was excluded from the list of comparables. 20.7 So far as WAPCOS Ltd. (Seg.) is concerned, he submitted that it is a MINI RATNA Public Sector Enterprise under the aegis of the Union Ministry of Water Resources and provides services in all facets of water resources, power and infrastructure sectors in India and abroad. This being a Government of India Undertaking and also involved in Government project cannot be held as a comparable company since such projects are conducted on a social motive. 20.8 So far as Antrix Corporation Ltd. is concerned, he submitted that this is also a wholly owned Government of India company under the administrative control of Department of Space. It is the commercial arm of Indian Space Research Organisation (ISRO) largely involved in building satellites. Therefore, the key services offered by this company being functionally dissimilar to that of the assessee company, it cannot be held as a comparable company. He accordingly submitted that these three comparables be excluded from the list of comparables. 20.9 The ld. DR, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on outstanding receivables (adjustment of INR ₹ 59,50,217) 5. On facts and in law, the Hon'ble CIT(A) has erred in not appreciating that the outstanding receivables are a result/consequence of the Appellant's international transaction with its AE and are not a separate international transaction per se; therefore, do not warrant determination of a separate ALP under section 92C of the Act owing to the following; 5.1 That no interest was charged on outstanding receivables from third parties in an arm's length scenario in the non-AE segment by the Appellant. 5.2 That no interest was charged on outstanding payables of the Appellant by the AEs; therefore, no such notional interest is warranted for outstanding receivables of the Appellant. 6. On facts and in law, the Hon'ble ClT(A) has erred in applying an arbitrary rate of 14.77% on the alleged international transaction of interest on outstanding receivables by doing the following: 6.1 Applying SBI Base Rate of 12.77% for benchmarking the compensation on alleged over-dues which were result of an international transaction denominated in foreign currency. 6.2 Applying State Bank of India's ( S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months. 11.4 It may further be mentioned that Hon ble ITAT, Mumbai bench in the case of Tecnimont ICB Ltd. vs. DCIT (2013) 32, taxman.com 357 has also held that transfer pricing adjustment can be made on account of interest for period beyond the agreed credit period. In light of the TPO s order, if the appellant did not have sufficient surplus funds to lend, it may borrow such funds from banks or others, then cost of borrowings in India would be relevant. Also if the surplus funds were to be: invested in existing business or expansion into new businesses, the return also would he linked with domestic' interest rates. So, the entire .opportunity cost to the appellant, will be with reference to the interest rates prevailing in India. Hence, I hold that the CUP to be used is the prime lending rate (PLR) of SBI to which 200 basis points is being added to take into account the various factors/ risks as already discussed in the order of TPO, reducing the addition abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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