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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 ..... ceivables of 38,74,591 to the income of the Appellant without appreciating the facts of the case. 3. That on the facts and circumstances of the case and in law, the Ld. AO/Ld. TPO erred in treating the outstanding receivables as international transaction u/s 92B of the Act. 4. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in ignoring the fact that the balance of outstanding payable with Associated Enterprises (AE) is more as compared to the outstanding balance of the receivables with AE. 5. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO erred in not appreciating the fact that the receivables are a result of the business transactions of the Appellant and cannot be segregated from integral part of the operations of the Appellant; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal provisions and at income of Rs. 14,78,03,870/- u/s 115JB of the Income Tax Act, 1961. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued to the assessee on 22.09.2019 which was duly served upon the assessee. During the year under consideration, the assessee company had entered into international transactions within the meaning of section 92CA of the Act. Thereafter, the case was referred to the Transfer Pricing Officer (TPO) in order to get arm's length price of those transactions determined by the TPO. The TPO vide order u/s 92CA(3) of the Act dt.31.07.2021 proposed an amount of Rs. 38,74,591/- in respect of interest on delayed receivables as the transfer pricing adjustment. Accordingly, made adjustment u/s 92CA amounting to Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be divided between the respective parties to the transactions:" 6.5 Above provisions read with the well-established doctrine of 'substance over form' (applied by the Courts in numerous judicial decisions) indicate that transfer pricing regulations are to be applied keeping in mind the overall scheme of the taxpayer's business arrangement. In Swadeshi Cotton Mills Co Ltd v CIT (6311R 57) the Supreme Court held thai the mere existence of an agreement between two parties on the supply of goods or services did not mean that the Revenue authority had not discretion in deciding whether the payment had been made wholly and exclusively for the pul~r.sa of business. Merely because of the existence of an agreement, the Income-tax Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Logik Microsystems Erd (ITA No.423/Bang/2019 dated 07.10.2010) (2010-TI I-50-ITAT Bang-TP), under similar factual circumstances, wherein it was observed, "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 property deployed, the assessee company may earn an income at the maximum rate applicable to deposits and not at the rate applicable to loans. We find it appropriate to adopt a reasonable rate that would be available to the assessee on short-term deposits". Accordingly, the TPO is directed to adopt the SBI short term deposit interest rate for the subject year as the ALP interest rate and re-compute the adjustment 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 bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marked in accordance with law. We are reproducing hereinbelow the chart filed by 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 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 Total (A) + (B) 3520 7,10,54,46,805 10. From the perusal of the Chart, it is absolutely clear that there were 519 invoices valued at Rs. 62,38,68,941/- for which the payments were due beyond the credit period 60 days. In our v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew 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 business man would venture into this kind of activity and permit a third party to use the working capital of the assessee and earn profit thereon. In the present case, though the assessee was required to maintain the T.P. Study and file the same before the TPO to show that the assessee's transactions with it's A.E. were at Arms Length however, nothing has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vances, 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 equated by with the lending money business. Prices, remuneration and risk for money lending and the other manufacturing and trading activities, are entirely different. 15. Further, in the present case, the assessee has supplied the services to it's AE and the AE is due to make the payment for the services / goods received by it to the assessee. Assuming, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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