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TMI Blog2023 (10) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... e of carrying out its activities. Because of withholding of funds in case of outstanding receivables, there would be deficit of funds and would be required to borrow the funds to carry out day-to-day activities, albeit those funds would be available to the assessee at the prevailing rate of interest in India. Hence, the SBI short term rate would be the appropriate rate for the purpose of determining the ALP on the outstanding amount. Now, in light of the above, we do not find any reason to take a contrary view as we have taken in the case of Apachi Footware India Private Limited ( 2023 (4) TMI 521 - ITAT HYDERABAD ). As submitted that the AO has not been given any grace period for making the payment - We notice that in AO s order, it is mentioned that the assessee has failed to provide any service agreement / invoice to the Assessing Officer. Therefore, in the absence of any such contemporaneous evidence showing the grace period, the Assessing Officer has granted 30 days. In our view, the normal trend to be followed is 30 days. However, in the case of Apache Apache Footware India Private Limited (supra), based on the agreement, we have accepted it to 60 days. In the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant; 6. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO having accepted the primary transactions to be at arms length under Transactional Net Margin Method ought not to have separately benchmarked outstanding receivables as it is subsumed in the main transaction. 7. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in considering the fact that neither the AE charges to Appellant in case of delay in outstanding payables nor the Appellant charges to AE in case of delay of the amount receivable. 8. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in not considering the fact that the Appellant has not charged interest in respect of belated trade receipts from Non-AE and as such the Appellant adopted a consistent practice of not charging interest for belated trade receivables from AE transaction also. 9. Without prejudice that TNMM is the most appropriate method, the AO ought to have appreciated that internal CUP method is the second most appropriate method. 10. That on the facts and circumstances of the case, the Ld. AO/ Ld. TPO erred in not granting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 38,74,591/- to be added to the income of the assessee. 2.1. Consequently, a draft assessment order was passed on 24.09.2021 with total income to be assessed u/s 143(3) r.w.s. 144C(1) of the Income Tax Act at Rs. 16,48,95,494/-. Thereafter, against the proposed draft order, assessee filed objections before the DRP 1, Bengaluru, who vide its order dt.10.06.2022 directed the TPO to adopt SBI short term deposit rates for subject year as ALP interest rate and compute the adjustment. Taking into consideration, the order giving effect dt.07.07.2022, assessment was completed determining the taxable income at Rs. 16,48,95,494/-. 3. The solitary issue raised is with respect to trade receivables outstanding by the assessee from it s Associated Enterprise (hereinafter referred to as A.E. ). During the year under consideration, as per the Transfer Pricing Officer s order, trade receivables by the assessee from it s A.E. works out to Rs. 6,19,93,459/-. 4. The Assessing Officer, after affording an opportunity of hearing, has determined the interest on trade receivables u/s 92B(1) of the Act by applying the SBI short-term deposit rates. The relevant finding given in Paras 6.3 to 6.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is not bound to agree that the payment was made exclusively and wholly for the purpose of the business. In MadhowjlOharamshiMfg Co Ltd v CIT (78 ITR 62), the Supreme Court held that the appointments of the selling agent and the managing agent and the agreements to pay compensation for termination of their contracts formed a chain of sham or colourable transactions designed to withdraw large sums of tax free money. In JK Cotton Mfrs Ltd v CIT (101 ITR 221) it was held that the circumstances indicated that the expenses incurred were not dictated by commercial expediency, but were inspired by profit hunting and tax avoidance motive and hence, could not be allowed as deduction, In McDowell Co Ltd v CTO (154 ITR 148) the Apex Court upheld Revenue's right to disregard a transaction and look at its substance, if it was undertaken as an anti-avoidance tool. The tax consequences of interlocking, interdependent and predetermined transactions were to be judged by reference to its subscribers. A series of transactions into which steps that had no commercial purpose apart from the avoidance of tax liability had been inserted, had to be ignored. 5. Feeling aggrieved, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to be made to the total income. As the SBI short term deposit rate is an index rate adopted under Indian conditions to charge interest it is not an adhoc rate as contended by the assessee. Therefore, we reject the plea of the assessee to adopt LIBOR rate for the purpose of computing interest on outstanding receivables. 6. Feeling aggrieved with the findings of DRP, the assessee is now in appeal before us. 7. The first contention made by the assessee before us is that the assessee has a trade outstanding payable to its AE to an extent of Rs. 21,35,64,228/- which is higher than the trade outstanding receivables from it s AE which is to the extent of Rs. 6,19,93,459/-. Therefore, no adjustment can be made in the hands of the assessee towards the trade receivables as there is a negative balance. 7.1. The second contention made by the assessee before us is that the lower authorities have applied SBI short term deposit rate for short term fixed deposits interest to bench mark and compensate the interest to the assessee for the outstanding due. It was submitted that despite the SBI term deposit rate, the Libor + 200 basic points are required to be applied. 8. On the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 7,11,80,351 1.00 30-45 days -- -- -- 45-60 days -- -- -- =60 days 29 11,63,338 0.02 Sub total (B) 519 62,38,68,941 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 A.E. and therefore, is not liable to be compensated for the delay in receiving the receivable is concerned, the same in our view, suffers from inherent flaw as in the T.P. analysis, the TPO is required to examine whether the assessee had supplied the product / services to it s A.E. at Arm s Length Price or not ? If by providing the services / goods at a discounted rate or permitting the assessee to receive the payment after a long period of 60 days or 90 days, then it will amount to permitting the A.E. to use the working capital of the assessee for the purposes of earning the profit. No prudent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we do not find any reason to deviate from our view taken in the case of Apache (supra). With respect to the other decision relied upon by the ld.AR for the assessee, it is interesting to note that in the said decision, the co-ordinate Bench of the Tribunal came to the conclusion that Libor + 200 points are required to be applied on the interest received on advances, and that decision was made in the case of foreign currency. However, the point remains that our decision in the case referred to herein was not brought to the attention of the co-ordinate Bench of the Tribunal while passing the said decision. 14. Further, it is relevant to mention that LIBOR (London Interest Bank Rate) is applicable in the case of lending by one bank to the other. However, in the case of assessee like before us, which is doing a business for earning the profit cannot be equated with the bank loan taken by the bank from another bank. In the case of Enterprise, which is rendering the services or manufacturing or supplying the products, there are lot of factors which are materially different than lending of money. Further, if one person is manufacturing, rendering services, then the same cannot be equ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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