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TMI Blog2022 (7) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. In view of the same the transfer pricing adjustment made by the AO/TPO is deleted. The ground of appeal is decided in favour of the assessee. - ITA No. 3714/Del./2018 - - - Dated:- 22-6-2022 - SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER And SHRI ANUBHAV SHARMA , JUDICIAL MEMBER ASSESSEE BY : Shri Rishabh Malhotra, AR REVENUE BY : Shri Mrinal Kumar Das, Senior DR ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This is an appeal by the Revenue against the order of the Ld. CIT (Appeals)-44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng cost of the assessee. Accordingly, the assessee claimed that its transaction was at arm's length. 4. The assessee argued that the notional costs of the receivables were subsumed in the pricing of the services rendered. Accordingly, a working capital adjustment was made in the margins of the comparables in its TP study. The weighted average OP/TC (adjusted) of comparable companies was determined to be 20.24% and the mark up earned by the assessee was 27.74%. The assessee therefore argued that transactions of provision of services and outstanding receivables were at arm's length. 5. Without prejudice to the above, the assessee submitted that it had carried out an updated search (vide submission dated 12th July 2016) wherein 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and rule 10B(2)(c) of the Rules to hold that the doctrine of substance over form indicates that transfer pricing regulations are to be applied keeping in mind the overall scheme of taxpayer's business arrangement. 9. The TPO in his impugned order has pointed out that the assessee provided benefit to its AE by way of advancement of interest-free loan in the garb of delay in receipt of receivables. A perusal of the receivables of the assessee from its AEs has been tabulated at para 6.5 of the impugned order of the TPO which shows that in many instances the amount outstanding with the AE's is more than hundred days also. The TPO has stated that the assessee has not put forth any cogent explanation why its receivables are not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment to the margins of the Assessee on the pretext of outstanding receivables is unwarranted and 'wholly unjustified'. 9. Mr. Raghvendra Singh, learned counsel appearing for the Revenue submitted that the ITAT overlooked the fact that the expression international transaction as defined in Explanation (i)(c) to Section 92B of the Act included payments or deferred payment or receivable or any other debt arising during the course of business , and therefore, the outstanding receivables could by themselves constitute an international transaction. He further referred to the OCED Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paras 3.48 3.49 under Chapter 111 para A.6.1 of the said Guid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the supplies made to an AE, the arrangement rejects 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 that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterised the transaction. This was clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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