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TMI Blog2022 (7) TMI 1355X X X X Extracts X X X X X X X X Extracts X X X X ..... t') were satisfied in the instant case. Accordingly, the order passed by the Ld. TPO is without jurisdiction. The Hon'ble Dispute Resolution Panel - 2 ('DRP') erred in upholding the actions of the Ld. AO/ Ld. TPO. 2. Assessment proceedings are time barred as per Section 144C(13) of the Act 2.1. The Ld. AO erred in not completing the assessment within the time limit prescribed as per section 144C(13) of the Act. The order passed under section 143(3) read with section 144C(13) of the Act by the Ld. AO was served on the Appellant on November 29, 2018 whereas the due date for completion of the assessment was October 31, 2018. 3. Erroneous treatment of foreign exchange loss pertaining to Foreign Currency Convertible Bonds as operating in nature 3.1. Given the facts and circumstances of the case, the Ld. AO/ Ld. TPO erred in considering foreign exchange loss on Foreign Currency Convertible Bonds ('FCCBs.) as operating in nature while computing the margins of the Appellant for transfer pricing purposes. The Hon'ble DRP erred in upholding the actions of the Ld. AO/ Ld. TPO disregarding the directions of the Hon'ble Income-tax Appellate Tribunal, Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. AO/ Ld. TPO. 6.2. The Ld. AO/ Ld. TPO erred in not appreciating that creation of trade receivables was a secondary transaction arising out of international transactions with AEs which has already been benchmarked at the time of income recognition. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 6.3. The Ld. AO/ Ld. TPO erred in not appreciating that the underlying agreement does not have a clause for interest on outstanding balance and hence no such interest is payable by AEs. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 6.4. Without prejudice to the above, the Ld. AO/ Ld. TPO failed to appreciate that interest on trade receivables, to the extent prudently applicable, has been implicitly factored by the Appellant in pricing its transactions with its Associated Enterprises and could be verified using a working capital adjustment. 7. Erroneous levy of interest under section 234A and 234B 7.1. The Ld. AO has erred in levying interest of INR 17,80,158 under section 234A of the Act, despite the Appellant furnishing return of income within the prescribed due date of November 30, 2014. The Hon'ble DRP has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding Rs. 15 crores, and accordingly reference was made to the transfer pricing officer under 92CA of the Act. 2.2 On receipt of reference under 92CA, the Ld.TPO called upon the assessee to file economic details of the international transaction, with the associated enterprise. Upon receipt of the details, the Ld.TPO observed that, following were the international transaction between the assessee and its AE: 2.3 The Ld.TPO observed that assessee had used OP/OC as the PLI for computing its margin at 15.63%. The Ld.TPO noted that assessee treated foreign exchange fluctuation as operating in nature for computing the PLI of tested party of the comparables. The assessee used 4 comparables for SWD service segment. Applying TNMM as the most appropriate method, computed the arms length margin. The PLI in the hands of the comparable was determined by considering weighted average method for the preceding 3 years by the assessee. The Ld.TPO after verifying the details observed that the margin of the comparables computed by the assessee was at 12.56%. 2.4 Dissatisfied with the transfer pricing study by the assessee, the Ld.TPO applied certain filters and short listed a set of following 6 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that, also in respect of unrealised foreign exchange gain on FCCBS, whether to be treated as income or not, was also concluded in favour of assessee in assessee's own case in ITA No. 689/Bang/2014 which forms part of the order passed by this Tribunal for A.Y. 2010-11. It is submitted that following the view in A.Y. 2010-11, assessee did not claim foreign exchange gain of FCCB for acquisition of capital asset in the computation of income and the same was treated as operational income while computing margin under the transfer pricing provisions. 6. The Ld.DR submitted that the same may be verified and considered in accordance with law. 7. We have perused the submissions advanced by both sides in the light of records placed before us. 8. We note that Coordinate Bench of this Tribunal for A.Y. 2010-11 in assessee's own case considered the issue by observing as under: "10.1. Coming to the issue in Ground Nos. 16 & 17, the facts are that assessee has issued FCCBs amounting to Rs. 780.75 Crores for the purpose IT(TP)A Nos.373 & 374/Bang/2015 of acquisition of Subex America INC, a overseas subsidiary. The investment in Subex America's INC amounting to Rs. 774.95 Crores app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in this batch of civil appeals broadly we have before us two categories. In the first category, we are concerned with exchange differences arising in foreign currency transaction on revenue items. In such category, we are concerned with the assessee(s) incurring loss on revenue account. In that category, we are concerned with the provisions of ss. 28, 29, 37(1) and 145 of the IT Act, 1961 ("1961 Act"). In the second category of cases, we are concerned with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets. In other words, in the second category of cases, we are concerned with the assessee(s) incurring liabilities on capital account. In such cases, we are required to consider the provisions of s. 43(1), 43A (both, before and after amendment vide Finance Act, 2002)." Thereafter in para 22 of its judgment it dealt with cases where the fluctuation is on account of capital items as follows:- "Facts in M/s Honda Siel Power Products Ltd. (Civil Appeal arising out of SLP(C) No. 7632/08) Capital account case : 22. The main issue which arises for determination in this batch of civil appeals is : whether the assessee was entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compulsion. Consequently, the amount received on account of exchange fluctuation to the tune of Rs.16,35,77,977/- was to be treated as revenue receipt and the Assessing Officer erred in reducing it in the income of the assessee while computing the deduction under Section 80HHE. The Hon'ble Madras High Court held that the claim of the revenue was unsustainable. The Hon'ble Court held that since the amount had direct nexus with the capital raised, the assessee's claim that the same was capital receipt and hence not taxable was correct. 42. In our view the facts of the case in the decision of the Madras High Court in the case of PVP Ventures Ltd. (supra), is identical to the facts of the case of the Assessee in this appeal. FCCBs are instruments issued to investors for raising funds which is repayable after certain period. It is a debt instrument. The increase or decrease in liability on account of fluctuation in foreign exchange as on the date of the Balance sheet would increase or decrease the liability of the Assessee and such liability would be on capital account. Therefore the gain or loss would be on capital account and not taxable. We accordingly hold in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in CC No. 4956/2017. 10.2 It has been submitted by Ld.AR that outstanding receivables are closely linked to main transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 10.3 On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of invoices, amounts to an international transaction and ALP of such international transaction has to be determined by Ld.TPO. In so far as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 10.6 We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15-7-2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act. Alternatively, it also argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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