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TMI Blog2023 (2) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... ciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must LIBOR + 300 basis points in accordance with the principles laid down in case of CIT vs. Cotton Naturals (I) Pvt. Ltd [ 2015 (3) TMI 1031 - DELHI HIGH COURT] by considering a credit of 90 days. Mistake in the computation of income - Computation of tax liability u/s 115JB - increase in book profit u/s 115JB and computation of tax liability - computational errors - adjustment on account of deferred tax - HELD THAT:- As per explanation to Section 115JB(2) of the Act, the amount of deferred tax, if any, credited to statement of profit and loss is to be reduced while calculating the amount of book profits as per MAT provisions.Accordingly, in the instant case, the deferred tax which has been credited to statement of profit and loss account was reduced w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the impact of outstanding receivables of the controlled transactions vis-à-vis the uncontrolled transactions in determining the arm's length margin and no separate benchmarking is required; d) Not appreciating the facts and circumstances surrounding the receivables and re[1]characterising the outstanding receivables as unsecured loans advanced to AEs; e) Not following any statutorily prescribed method and without doing any comparability benchmarking as prescribed under Chapter X of the Act. Without prejudice to the above f) Not considering netting off of outstanding receivables and payables from/ to AEs; g) Considering SBI short-term deposit rates for imputing notional interest instead of LIBOR; and h) Considering credit period of 45 days instead of the industry average credit period 31.9609% of adjustment amount of INR 41,71,929 = INR 13,33,386 3. Ground on erroneous initiation of penalty under section 270A of the Act Ld. AO was not justified and rather grossly erred in law and in facts by initiating penalty proceedings under section 270A of the Act by falsely stating that the Assessee has under[1]reported the income. NA 4. Increase in book profits u/s 115JB and comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tices issued by the Ld. TPO. During the FY 2016-17, the Assessee had entered into the international transactions of provision of back office support services in the nature of IT enabled services. The Assessee applied TNMM as the most appropriate method and computed its margin that was within the range of the adjusted PLI (OP/OC) (i.e. after undertaking working capital adjustment to adjust for differences in receivables and payables) of the comparables selected by the Assessee in its TP study report. Accordingly, the transaction of provision of IT enabled services was concluded by the Assessee to be at arm's length. Ld.TPO after considering the submissions by the assessee proposed adjustment in relation to interest on delayed collection of receivables by applying the 6 months LIBOR plus 400 basis points after granting credit period of 30 days. 2.5 Subsequently, the draft assessment order dated 06/04/2021 was passed by the National Faceless Assessment Centre (NFAC'). In the said order the NFAC proposed to make the following variations to the returned income of the Assessee: Particulars Amount (in INR) Returned Business Income 7,28,16,601 Add: Disallowance of arm's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat, the authorities below disregarded business/commercial arrangement between the assessee and its AE's, by holding outstanding receivables to be an independent international transaction. The Ld.AR placed reliance on decision of Hon'ble Delhi Tribunal in Kusum Healthcare Pvt. Ltd. vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. reported in (2017) 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. Reliance was also placed on the decision of Hon'ble Delhi Tribunal in case of Bechtel India vs DCIT reported in (2016) 66 taxman.com 6 which was subsequently upheld by Hon'ble Delhi High Court vide order dated 21/07/16 in ITA No. 379/2016, also upheld by Hon'ble Supreme Court vide order dated 21/07/17, in CC No. 4956/2017. 2.11 It was submitted by the 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 when the company agree to provide for extending credit period with mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting its ALP. He referred to decision of Hon'ble Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble Delhi Bench in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., reported in (2013) 215 Taxmann 108, dealt with question of law as under: "(c) `Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?" 3.2 Ld.CIT DR submitted that, while answering above question, Hon'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions." 4.1 In view of the above, we deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of deferred tax, if any such amount is credited to the statement of profit and loss. 5.3 In light of the above, as per explanation to Section 115JB(2) of the Act, the amount of deferred tax, if any, credited to statement of profit and loss is to be reduced while calculating the amount of book profits as per MAT provisions. 5.4 Accordingly, in the instant case, the deferred tax which has been credited to statement of profit and loss account amounting to INR 16,57,043 was reduced while computing the book profits in the return of income filed by the Assessee. However, the same is not considered in the computation sheet annexed to the Order passed by the Ld. AO. 6. The Ld.AR submitted that with respect to interest u/s 201(1A) of the Act, explanation to Section 115JB states as under: "Explanation 1.-For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or ……… Explanation 2.-For the purposes of clause (a) of Explanation 1, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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