9911796707
TMI Blog2024 (6) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and any other evidences that may be filed by the assessee to prove its claim. In this view of the matter and consistent with the view taken by the Coordinate Bench in appellant s own case for the A.Y 2018-19 [ 2023 (6) TMI 258 - ITAT HYDERABAD] we are of the considered opinion that the issue needs to go back to the file of the Assessing Officer/TPO for fresh examination of the facts in light of agreement between the parties and any other evidence that may be filed by the assessee to justify payment of management fees. Thus, we set aside the order of the AO and restore the issue to the file of the AO/TPO. TP adjustment by imputing the interest on outstanding receivables relating to provision of services to its AEs - AO has made TP adjustment in respect of receivable from its AE on the ground that the assessee has allowed abnormal credit period when compared to normal credit period allowed to third parties - HELD THAT:- This issue is no longer res-integra. The Coordinate Bench of the Tribunal in appellant s own case [ 2023 (6) TMI 258 - ITAT HYDERABAD] for A.Y 2018-19 has considered an identical issue and after considering the relevant facts and also by following certain judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Act, 1961 in pursuant to Dispute Resolution Panel-1 direction issued u/s 144C(5) of the I.T. Act, 1961 dated 14.9.2017 and pertains to A.Y 2013-14. 2. The assessee has raised the following grounds: Based on the facts and circumstances of the case and in law, the learned Assessing Officer ( AO )/ Learned Transfer Pricing Officer (TPO ) and the Hon'ble Dispute Resolution Panel ('DRP') erred in: TRANSFER PRICING MATTERS: ALP for management fees 1. Determining the arm's length price in respect of payment towards management services paid to AE as 'Nil': 2. Determining the ALP as NIL, without appreciating that the cost towards management fees is already considered as part of the operating cost in respect of the services transactions, which have been determined to be at arm's length. Interest on Receivables 3. Making TP adjustment by imputing interest on outstanding receivables relating to provision of services to AE's : a) Not appreciating the fact that the receivables are consequential/closely linked to the principal transactions; b) Under TNMM, the working capital adjustments undertaken take into account the impact of outstanding receivables of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic and international clients . The appellant has filed its return of income for the A.Y 2013-14 on 29.11.2013 declaring total income at Rs. 41,85,38,780/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee had entered into international transaction with its AEs and thus to determine the Arm s Length Price (ALP) of international transactions of the assessee with its AEs a reference was made to the TPO. 4. During the course of assessment proceedings, the TPO noticed that the assessee has entered into various international transactions including provisions for market research services, global/regional management allocation overhead fee, payment of trade mark license fee and provisions of I.T. enabled services reimbursement to AEs. The assessee has benchmarked different services under different methods like TNMM. For global/regional management allocation fee and payment of trade mark, the appellant had adopted CUP method and claimed that the transaction with its AEs are at ALP. The learned TPO after considering the relevant international transactions and also taking note of various submissions made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of the Assessing Officer for fresh factual verification to ascertain the nature of services rendered by the AE and management fees paid to the AE. Therefore, he submitted that the issue may be set aside to the file of the Assessing Officer with a direction to reconsider in light of the decision of the Tribunal given for the earlier A.Ys. 10. The learned DR, on the other hand, supporting the order of the Assessing Officer and the DRP submitted that the assessee could not establish nexus between the payment of management fees and services rendered by the AE. The assessee had also failed to prove the cost benefit analysis by filing necessary evidences and also failed to explain how management fees paid by the assessee to its AE is beneficial to its business. Since the assessee could not establish payment of management fees with necessary evidences, the TPO has rightly made adjustment and their order should be upheld. 11. We have heard both parties, perused the material available on record and gone through the orders of the authorities below. The appellant had entered into a global/regional management service agreement with AEs for providing various services. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee to submit all the relevant material before the learned Assessing Officer. Grounds No. 4 to 12 are accordingly treated as allowed for statistical purposes. 12. In this view of the matter and consistent with the view taken by the Coordinate Bench in appellant s own case for the A.Y 2018-19, we are of the considered opinion that the issue needs to go back to the file of the Assessing Officer/TPO for fresh examination of the facts in light of agreement between the parties and any other evidence that may be filed by the assessee to justify payment of management fees. Thus, we set aside the order of the Assessing Officer and restore the issue to the file of the Assessing Officer/TPO. 13. The next issue that came up for our consideration from Ground Nos.3 4 of assessee s appeal is TP adjustment by imputing the interest on outstanding receivables relating to provision of services to its AEs. The learned Assessing Officer has made TP adjustment in respect of receivable from its AE on the ground that the assessee has allowed abnormal credit period when compared to normal credit period allowed to third parties. According to the learned TPO the argument of the assessee that once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench marketing the interest receivable on outstanding receivable from AE, the LIBOR+200 basis points is the appropriate rate of interest to be considered by the Assessing Officer. The relevant findings of the Tribunal are as under: 9. We have considered the submissions on either side. In view of the view taken by the Hon'ble Bombay High Court in Patni Computer Systems (supra), on the amendment to Section 92B of the Act by way of Finance Act, 2012 with retrospective effect from 01/04/2002, it is not open for the assessee to agitate the question as to whether or not the interest on outstanding receivables is an international transaction requiring separate benchmarking. Only issue remains to be considered is in respect of the rate of interest, while placing reliance on the decisions reported in Tecnimont ICB House Vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.), Hon'ble Bombay High Court in PCIT Vs. Tecnimont (P) Ltd., (supra) and CIT Vs. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523 (Delhi). Assessee prayed that LIBOR+200 basis points may be adopted. This aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a resident and an assessee of the said country, observed that such a question must be answered by adopting and applying a commonsensical and pragmatic reasoning and held that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid; that the interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. It is further observed that the interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters; that the interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable; that the currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115, the Hon'ble High Court held that the PLR rate, therefore, would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file of the Assessing Officer for further verification and decide the issue in accordance with the law. 20. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The assessee has paid the trade mark license fees in pursuant to an agreement with licensor Taylor Nelson Sofres Mode Private Limited, UK. The Assessing Officer has disallowed the trade mark license fee on the ground that the assessee could not file necessary agreement to prove the payment. We find the assessee has entered into agreement with the Licensor of trade mark and also paid similar payment for earlier A.Ys. The Tribunal has considered the issue for earlier A.Y 2011-12 in ITA No.627/Hyd/2016 and after considering the relevant agreement between the parties has set aside the issue to the file of the Assessing Officer for fresh verification of the fact. The appellant claims that the appellant for this A.Y had also paid trade mark license fee in pursuant to same agreement between the same parties. Therefore, we are of the considered opinion that the matter needs to go back to the file of the Assessing Officer for further verification in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X
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