9911796707
TMI Blog2017 (10) TMI 1615X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities" for brevity) are bad in law and liable to be quashed. GROUNDS RELATING TO TRANSFER PRICING (LEGAL ISSUES): 2. The learned AO has erred in making a reference to TPO for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The Honorable DRP has erred in confirming the action of the Assessing officer. 3. The lower authorities have erred in: (i) Making transfer pricing adjustment of Rs. 14,42,77,085/-. (ii) Passing the order without demonstrating that the Appellant had motive of tax evasion; and (iii) Not appreciating that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in law. 4. The learned AO/TPO has erred in determining TP adjustment in final assessment order at Rs. 14,42,77,085/- without giving basis of computation and without following all the directions of the DRP. GROUNDS RELATING TO TRANSFER PRICING (SOFTWARE DEVELOPMENT): 5. The lower authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction, the lowerauthorities have erred in not appreciating that receivable is not separate transaction from the sale from which it is arising; 10. The lower authorities have erred in: (i) Not appreciating that the Appellant had adopted TNMM at entity level, in which process, the receivables were considered as closely linked transaction and hence were subsumed and accordingly already considered; (ii) Not appreciating that once the net profit margin is tested on the touchstone of arm's length price, it pre-supposes that all the aspects of income and expenditure are also considered and accordingly benchmarked; and (iii) Not appreciating that once working capital adjustment considering receivables/payables to AE is done, no separate adjustment for notional interest can be made. 11. Without prejudice, the lower authorities have erred in adopted excessive interest rate and not adopting LIBOR as the basis for benchmarking. 12. The lower authorities have erred in computing interest for entire 12 months and not from the date of invoice and only for the excess credit period. 13. The learned AO/TPO have erred in not following directions of the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the tribunal order rendered in the case of Och-Ziff Real estate India Pvt. Ltd. vs. DCIT in ITA No. 358/bang/2016 dated 24.08.2017 copy on pages 234 to 252 of the paper book. 4. As against this, learned DR of the revenue supported the assessment order and the order of DRP. He also submitted that on page on page 7 of the order of DRP, it was noted that the TPO has allowed interest free period of 30 days as agreed to in terms of the agreement with AE and on page 9 of the order of DRP, the A. O. was directed to compute the no. of days of delay after allowing credit period of 30 days and there is no dispute on this aspect that the agreed period of payment is 30 days and for that agreed period, no interest is charged but for the credit allowed in excess of agreed period, the transaction, this is an independent transaction. Regarding rate of interest as per LIBOR, it was submitted that the DRP has followed the tribunal order rendered in the case of M/s Logix Systems Ltd. in ITA No. 524/Bang/2009. 5. We have considered the rival submissions. First, we examine the applicability and ratio of the judgment of Hon'ble Delhi High Court rendered in the case of CIT vs. Kusum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-04 amounted to Rs 440.97 crores including trading sales of Rs 48.29 crores pertaining to goods partly imported from the associated enterprises and also purchased locally. The major international transactions undertaken by the assessee were also noticed by him and he has listed the same at page 2 of the order passed by him on 20.03.2006 under Section 92CA (3) of the Act. It is noticed from the order that there are 13 types of international transactions entered into by the assessee in the previous relevant year 2003-04. The TPO accepted all of them to be Arm's Length Transactions, except the payment of brand fee/ royalty of Rs 3,42,97,940/-. The corresponding figure for the assessment year 2002-03 is Rs 3,99,51,000/-. We may clarify that the revenue has filed before us the order passed by the TPO for the assessment year2003-04 on 20.03.2006, but the order passed by the TPO for assessment year 2002-03 has not been made available. This, however, is not material because it is common ground that the facts and the controversy arising in both the assessment years are the same so far as the ALP is concerned. Reverting to the order of the TPO, he considered the payment of brand fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Pvt. Ltd. vs. CIT in ITA No. 6814/Del/2014 dated 31.03.2015, copy on pages 205 to 217 of the paper Book. In this case, the tribunal has not examined and decided this aspect as to whether extra credit allowed to AE can be considered an independent international transaction and therefore, for deciding this aspect, this tribunal order is not relevant. 9. The third tribunal order on which the reliance is placed is rendered in the case of M/s Dell International Services India Pvt. Ltd. vs. JCIT in ITA No. 308/Bang/2015 dated 17.06.2016, copy on pages 223 to 233 of the paper Book. In this case, as per Para 7, the tribunal has proceeded straightaway on this basis that allowing a credit period on receivable from AE is not an independent international transaction without examining and deciding this aspect and therefore, the tribunal has not examined and decided this aspect as to whether extra credit allowed to AE can be considered an independent international transaction and therefore, for deciding this aspect, this tribunal order is also not relevant. 10. In our considered opinion, to the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a credit will be allowed and therefore, that is an independent international transaction and hence, separate bench making has to be done and TP adjustment is to be made as per law.This is worth noting that by allowing extra credit in excess of agreed period of 30 days, profit shifting is there because if credit period is more, prices go up which is not done in the present case since, the prices are determined on the basis of 30 days credit period. 12. Having decided this aspect, now we decide the rate of interest for such benchmarking. We find that this aspect is covered by the tribunal order rendered in the case of M/s Goldstar Jewellery Ltd. vs. JCIT in ITA No. 6570/Mum/2012 dated 14.01.2015. This was held in this case that extra credit allowed can be considered as an independent international transaction and the same be compared with internal CUP being average cost of the total funds available to the assessee. Respectfully following this tribunal order, we direct the A. O. to find out the cost of the total funds available to the assessee and the same should be adopted as internal CUP for benchmarking of this independent international transaction i.e. allowing extra credit in ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
