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TMI Blog2018 (8) TMI 2105X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order. 2. Brief facts of the case are that the assessee is engaged in the business of trading of wide range of products for personal care use. It is engaged in the distribution of oral care products primarily falling under health care segment consisting of toothbrush, toothpaste, dental floss etc. The assessee is a subsidiary of Gillette India Group of Companies. 2.1 For assessment year 2008-09, the return of income was filed at a loss of Rs. 3,57,402/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") at a total income of Rs. 2,21,93,140/- after making an adjustment in respect of transfer pricing adjustment of Rs. 2,25,50,540/-. This adjustment was made on account of non-charging of interest on delayed payments received from the Associated Enterprises (AE). 2.2 In assessment year 2009-10, the return of income was filed declaring income at nil and an income of Rs.3,02,28,446/- under the provisions of section 115JB of the Act. In this year, the transfer pricing adjustment in respect of interest on delayed payments was of Rs. 1,58,33,490/-. 2.3 In assessment year 2010-11, the return of income was filed declaring income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reported international transactions. The Ld. AR further submitted that the TPO had held all the international transactions to be at arm's length price, but had made an adjustment of Rs. 1,59,24,916/- on account of outstanding receivables from the AEs beyond the alleged standard credit period of 30 days @ interest rate of 14.88% based on PLR of State Bank of India. 3.2 The Ld. AR elaborated that during the Transfer Pricing proceedings, the TPO observed that the balance sheet of the assessee was showing receivables as on 31st March, 2010 and the TPO required the assessee to explain as to why the receivables which were outstanding beyond the agreed period should not be treated as separate international transactions and why interest @ 14.88% on such receivables should not be computed to determine the ALP of such receivables. It was further submitted that in response to the show cause notice, the assessee filed its reply dated 23.11.2013 giving reference to commercial business reasons, uniformity in non-charging interest from AE and Non-AE and to consider the credit period of 180 days against the export realization. Alternatively, the assessee also requested to apply LIBOR inste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Book. 3.6 Without prejudice, it was further submitted, that the assesse has, in the Transfer Pricing proceedings, also submitted the updated margins of the comparables at the instance of the TPO which comes to (3.39%) as compared to the assessee's PLI of 4.72% and place at page 114 of the paper book. It was submitted that this has not been discussed by the TPO in its order. 3.7 The Ld. AR also submitted that in the case of the assessee, the transaction of recoverables has sprung up and is an off-shoot of sales transaction. It was submitted that the transaction of sales with the AE were, admittedly, at ALP and the margins earned by the assessee were higher than that of the comparables and, therefore, the transaction of delayed recoverable, if at all, it is to be treated as a separate transaction, the same gets subsumed in the overall TNMM analysis and no separate adjustment is warranted on the delayed recoverable. 3.8 It was further submitted by the Ld. AR that without prejudice to the contention that overdue receivables is not a separate international transaction, it was submitted that even the RBI allows a time limit of 6 months for realizing the export proceeds (now 365 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n overdue trade receivables to the Associated Enterprises, LIBOR be applied instead of the Indian SBI base rate for the ALP determination. The Ld. AR placed reliance on the following judicial precedents: - Tech Mahindra Limited ITA. No. 1176/Mum/2010 -Siva Ventures Ltd. v ACIT (TS-218-ITAT-2013)(CHNY) - Cotton Naturals [TS-117-HC- 2015-DEL-TP] -GSS Infotech Ltd [TS-298- ITAT-2016(HYD)-TP] 3.13 It was further submitted that the 6 months LIBOR rate for AY 2010-11, was 1.10 % and even if this is increased by 150 basis points it will become 2.60%.The adjustment on account of overdue receivables, if any, will be around Rs.3 Lacs based on 180 days credit period and 2.60% LIBOR rate as per the calculations enclosed in Annexure-IV. It was submitted that this amount of adjustment gets subsumed into the extra PLI margins earned by assessee as compared with comparables whereby assessee has made extra profit of about 41 lacs. Hence, no adjustment whatsoever is warranted. 4.0 Arguing against the Department's appeal, it was submitted by the Ld. AR that the AO disallowed the depreciation on plant & machinery on the ground that the assessee company did not put the Plant & Machinery to us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the following observations of the Ld. CIT (A): "During the remand proceedings, the AO has raised a new issue that even the depreciation of plant and machinery used by M/s Rialto Enterprises Pvt. Ltd. for manufacturing should not be allowed to the appellant. Although the AO's claim is not entertainable at the stage of appellate proceedings against the penalty order. However, the claim of the AO is prima-facie not maintainable as depreciation is always allowable even when the plant and machinery is leased out and is being used by the other person. Here, in the appellant's case, the plant and machinery is being used by a concern which exclusively manufactures products for the appellant and plant and machinery is maintained by the appellant itself. Therefore, there remains no doubt regarding the ownership as well as the fact that plant and machinery was put to use for business purposes. In such circumstances, depreciation is fully allowable to the appellant. Therefore, the issue raised by the AO during the remand proceedings has no merits and hence deserves to be rejected. " 4.2 The Ld. AR placed reliance on numerous judicial precedents to support his contention that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT (A) has dismissed all the contentions raised by the assessee before him by relying on the various judicial precedents which he has duly quoted in the impugned order. The Ld. AR has also argued at length and has placed reliance on a plethora of case laws with respect to each limb of his contention. We find that the Hon'ble Delhi High Court, also being the jurisdictional High Court for the assessee, has dealt this issue in Principal CIT vs. Kusum Health Care Pvt. Ltd reported in 2017-TII-28-HC-Delhi TP and has held in Para 10 of the judgment as under: "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 characterized 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 hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of re-examining and re-considering the issue in light of the ratio of the judgment of the Hon'ble Delhi High Court in the case of Principal CIT vs. Kusum Health Care Pvt. Ltd (supra) and pass a speaking order as per law after giving proper opportunity to the assessee. The assessee shall be at liberty to take all/any of the pleas raised before us and shall also be at liberty to file relevant workings/computations. 7.0 Accordingly, the three appeals of the assessee stand allowed for statistical purposes. 8.0 Coming to the department's appeal challenging the action of the Ld. CIT (A) in deleting the disallowance of depreciation, we find that the issue is squarely covered in favour of the assessee by the judgment of the Hon'ble Apex Court in the case of ICDS Ltd. vs. CIT reported in (2013) 29 taxmann.com 129 (SC) wherein the Hon'ble Apex Court, while examining provision of Section 32 of the Act, held as under: "Section requires that the assessee must use the asset for the "purposes of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilized for the purpose of business of the assessee, the requirement of section 32 will stand satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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