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TMI Blog2023 (6) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... O shall keep in mind the profile and business activities of the assessee, the international transaction entered into by the assessee as mentioned in form 3CB. The above said exercise shall be carried out by the TPO, after following the due process of law and after affording opportunity of hearing to the assessee. TPO may apply any method as may be applicable in the facts of the present case after affording opportunity of hearing to the assessee as provided under Rule 10B of Income Tax Rules . As we are remanding back the TP adjustment to the file of the Ld. transfer pricing officer, we also deem it appropriate to remand back the addition on account of trade receivable to the file of the Ld. transfer of pricing Officer, with the direction to recompute the trade receivables in the light of our decision in the case of Apache Footwear India Pvt [ 2023 (4) TMI 521 - ITAT HYDERABAD] . We direct the AO to determine the ALP and compute the same by adding notional interest @ 6% on the receivable beyond a period of 60 days. This ground is partly allowed. - ITA. No. 181/Hyd/2019 - - - Dated:- 31-5-2023 - Shri Rama Kanta Panda, Accountant Member And Shri Laliet Kumar, Judicial Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, no interest can accrue to the appellant. 10) The learned DRP erred in directing the TPO and the Assessing Officer to work out the rate of interest applicable to the short term deposits. The learned DRP ought to have held that no interest is chargeable. 11) The learned DRP erred in holding that the credit period of 30 days is reasonable and that the interest is chargeable if the credit is allowed for more than 30 days. 12) Any other ground or grounds that may be urged at the time of hearing. 2. Brief facts of the case : The brief facts of the case are that assessee company engaged in the business of Shipping Intermediary services, filed its return of income on 14.10.2010 declaring loss of Rs. 46,80,71,728/-. Later, the revised return was filed declaring a loss of Rs. 55,45,32,778/-. The case was taken up for scrutiny under CASS and assessment was completed u/s. 143(3) determining the loss at Rs.54,03,36,593/-. Subsequently, a notice u/s. 148 was issued on 10.12.2015. In response to the notice, assessee submitted that the return filed on 14.10.2010 may be considered as the return filed in response to the notice issued u/s. 148. Copy of rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encies Sdn Bhd Reimbursement by AE 3,93,978 3. The taxpayer has carried out the economic out the economic analysis in the TP report and has summarized the International transactions as under (Table 2): Nature of International transaction Amount (Rs.) MAM PLI Margin of taxpayer Margin of comparables Liner agency services 5,48,75,630 TNMM NA NA NA Container Line Income 2,41,35,243 CUP NA NA NA Container Line Expenses 3,14,59,961 CUP NA NA NA Slot Hire Income 5,38,495 CUP NA NA NA Slot Hire Income 26,15,701 CUP NA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to the AEs. The data has been perused. The taxpayer has given the list of AE transactions and the non-AE transaction, however, it Is not known how the prices have been compared. What is the break-up of the cost which is sought to be compared. For example the first entry for the month of April, 2011 with the AE Mexican Container Line pte. Ltd., Singapore states that amount of Rs.54,85,923 being credited towards F F @ 10.5% of 5,48,75,630. It is not known how this has been compared with the non- AE transaction whose list running into 242 items. 7. Thus as the taxpayer failed to provide the CUP data or the TNMM data, which would enable the TPO to verify the transaction, it was proposed to reject the TP document and compute the Arm s Length Price applying PSM. The taxpayer was show caused vide letter dated 15-10-2017. The taxpayer has filed its reply which has again enclosed the copy of TP document which is the same as that which was filed earlier. It is also stated that they earn agency commission on the inbound and outbound transactions @ 10.5% as per the agency agreement. This rate of commission is quite high as compared to the going rate of other companies who earn around ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03,02.371 Thus the arm's length price of international transaction Liner Agency Services is computed as above and the sum of Rs. 9,03,02,371/- is treated as adjustment u/s. 92CA of LT. Act and the total income of the taxpayer will be enhanced accordingly u/s 92CA(3) of the LT. Act. 8.2 Slot Hire Income: As per the RPT disclosure the following are the details: Sales =Rs.31,54,196 Expenses =Rs.27,03,287 Balance =Rs4,50,909 50% of Rs. 4,50,909 = Rs.2,25,455 Less: Retained by the taxpayer = Rs.NIL Short fall proposed as adjustment =Rs/2,25,455 Thus the arm's length price of international transaction Slot Hire Income is computed as above and the sum of Rs. 2,25455/- is treated as adjustment u/s. 92 CA of LT. Act and the total income of the taxpayer will be enhanced accordingly u/s 92CA(3) of the LT. Act. 9. Interest on delayed trade receivables: It is obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up to 10 years 8.75 9 9 9 8 The taxpayer was asked to submit the details of raising the invoice and subsequent receipt. The taxpayer has furnished the details called for vide submissions dated 2510.2017. Interest is calculated after giving a credit period of 30 days on the outstanding receivables based on SBI term deposit rates. So, applying above interest rates, Arm's length price of transaction is determined at Rs.23,025,211. As tax-payer has taken value of transaction to be 'Nil', adjustment u/s 92CA of Rs. 23,025,211 'is to be made for assessment year 2014 15 on account of this transaction. The Arm s Length Price and the adjustment of international transaction is as under:- S. No. International transaction Arm s Length Price (Rs) Adjustment(Rs.) 1 Receivables 39,15,633 39,15,633 39,15,633 10. Summary of adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP, and in support of such plea, a computation was filed. 2.3.2 Having considered the submissions. and on perusal of the details filed, we note that the TPO's computation of adjustment under PSM is erroneous as it had taken into account only the expenses incurred by the Indian entity in arriving at the profit. The assessee had given a computation in Annexure-I, wherein the expenses incurred by the Singapore AE was also taken into account, and it was contended with reference to such computation that the agency income earned by the assessee is at ALP. On perusal of such information, it is seen that the assessee had not furnished the profit earned by the Singapore AE in regard to the India based operations. The revenue of the AE taken for comparison related to its global operations and in view of the geographical differences, it cannot be taken for comparison. Further the assessee had not filed any information or documentation as to the nature of revenue earned by the AE from its global operations. Therefore the computation given by the assessee is not reliable. 2.3.3 It was further submitted that assessee had gross revenue of Rs.41.52,12,647/- from Liner Agency income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .15 A plea was raised that the assessee is not charging interest on non AE and therefore interest cannot be imputed from AEs. However the assessee failed to furnish details of receivables outstanding from non-AEs, the credit period agreed, the delay in realisation etc. for comparison. As this plea was not demonstrated with evidence, the same is rejected. 2.4.16 As regards ALP interest rate, we note that the Hon'ble (TAT, Bangalore, in the case of Logix Micro System cited (supra) in similar circumstances, while upholding the Indian rate of interest, in paragraph 23 of its order, held that While adopting the Indian rate, it is not proper to rely on PLR of the State Bank of India, This is because if the funds were brought in time and those funds were properly deployed, the assessee company may earn an income at the maximum rate applicable to deposits and not at the rate applicable to roans. Therefore, we vacate the direction of the TPO to adopt the PLR rate of 10.25%. Instead we find it appropriate to adopt a reasonable rate that would be available to the assessee on short-term deposits . Accordingly, we are of the .' view that short term deposit rates of interest of St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DR had submitted that that the DRP had wrongly applied the any other method(residential method) for benchmarking the transaction which is in accordance with law. It was further contended by the Ld.dR that the Tribunal, had consistently direct the TPO to apply the SBI rate of 6% with the credit. 60 days in respect of trade receivable. He relied upon the decision of the Tribunal in the case of Apache Footwear India Pvt.Ltd. ITA 568/HYd/2022 in support of its contention. 9. We have heard the rival submissions and perused the material on record. Undoubtedly while deciding the ground, the Ld. DRP had compared the revenue earned by the logistic division with the agency functions performed by the assessee . Admittedly the linear agency business carried out by the assessee cannot be compared with the agency functions performed by the assessee. For both the activities, the FAR are different and therefore both cannot be compared for the purpose of benchmarking the linear agency functions. In the opinion of the bench, the residual method applied by the Ld. DRP, was without any basis and therefore the same is required to be quashed. In the present case the international transaction referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee which is to the following effect : APACHE FOOTWEAR INDIA PVT. LTD / AY 2018-19 Export Receivables Realisation pattern during A.Y. 2018-19 Particulars Total Number of Invoices during the A.Y. 2018-19 Amount Export Invoice value in Rs. % of invoices realized to total invoices raised during the year A) Realised within credit period 3,001 6,48,15,77,864 91.22 B) Realised beyond credit period of 60 days 10 days 241 36,27,20,363 5.10 10-20 days 204 18,88,04,889 2.66 20-30 days 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r price to a third party or not. If we examine the issue in the abovesaid context, it would be clear that the assessee would charge bank interest or any other interest with a view to compensate itself on account of delay in making the payment. Hence, we do not find any error in the same. 13. The reliance of the assessee in the case of Betchal India Pvt Ltd (supra) is also not correct as A.Y. in that case was 2010-11. By the Finance Act, 2012, the Explanation was inserted in Sec.92B of the Act and by virtue of which payment or deferred payment or receivable or any other debt arising during the course of business has been considered to be an international transaction which is required to be benchmarked. Following the above said Explanation, the co-ordinate Bench for the subsequent assessment years vide order dt.16.05.2017 in the case of Betchal India Pvt. Ltd ITA No.6530/Del/2016 (supra) had decided the issue against the assessee. In view of the above, the decision relied upon by the assessee is of no help to assessee. 14. So far as the argument of the assessee that the assessee is a debt free company and therefore, no borrowed fund was used for making supplies to it s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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