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TMI Blog2024 (12) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the learned that lower authorities have correctly benchmarked them separately. Period for which interest has been calculated is to be limited to the year under consideration as interest accrued in other years cannot be taxed in this year - Only interest the extent of the financial year have been made by the learned TPO. Looking at the last 4 entries of the computation, it is clear-cut that the addition had been made of ₹ 5.65 crores. The adjustment should have been restricted only up to 365 days. Therefore, there is a computational error in the addition made by the learned transfer pricing officer. Measures taken by the reserve bank of India for dealing with the Covid 19 pandemic - The financial year for which the relevant relaxation is made by the RBI starts from 1 April 2020. Here in impugned appeal financial year is 1-4-2019 to 31-3-2020. Therefore, for the financial year before us, the above relaxation by Reserve Bank of India does not apply. Therefore, the circular cited of the Reserve Bank Of India does not help the case of the assessee. Thus, we reject reliance on extended time period for this AY is not relevant at all. Even otherwise RBI circular has extended the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO / AO that if the working capital adjustment is made, if allowable in accordance with the law, the above adjustment of interest on overdue realization of trade receivable would not be required. MAT computation u/s 115JB - HELD THAT:- The book profit income has been taken by the learned AO at ₹ 4,664,431,180/ against ₹ 4,262,848,182/ shown by the assessee. We do not find any adjustment made to the book profit in the assessment order. Therefore, apparently there is an error which needs to be rectified. Therefore, the learned assessing officer is directed to compute the correct book profit u/s 115JB and consequent tax thereon. Accordingly ground number 7 of the appeal is allowed. Non-grant of advance tax, tax deduction at source, tax collection at source credits and foreign tax credit - We find that, if the above credit is not given to the assessee, the learned assessing officer is directed to grant the same after proper verification. - Shri Prashant Maharishi, Vice President And Shri Prakash Chand Yadav, Judicial Member For the Appellant : Shri Padamchand Khincha, CA For the Respondent : Shri D.K. Mishra, CIT(DR)(ITAT), Bengaluru. ORDER PER PRASHANT MAHARISHI, VICE PR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO but looking at the statutory provisions, he noted that it has come to his notice, in view of the statutory provisions, overdue receivables is an international transaction of capital financing which needs to be benchmarked separately. The ld. TPO proposed the interest rate based on the average of SBI PLR (13.27%) if the invoices are raised in domestic currency and if invoices are raised in foreign currency, interest is to be benchmarked on prevailing LIBOR rate + mark up. Accordingly, the ld. TPO listed 216 invoices where there is a delay exceeding 30 days and computed interest on such receivables by adopting 6.871 % of LIBOR and proposed a total adjustment of Rs. 14,05,46,884 by passing an order u/s. 92CA(3) of the Act on 22.6.2023. 6. Accordingly, a draft assessment order was passed which was objected before the ld. DRP, who issued directions on 31.5.2024. However, before the Ld. DRP, the assessee objected that :- (i) outstanding receivables from AEs cannot be considered as a separate international transaction but is interlinked and connected with sale transaction itself and therefore it cannot be benchmarked independently. (ii) by questioning the outstanding, the ld. TPO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturned income of INR 4,26,28,48,182 Grounds relating to legal validity of the order passed by the learned AO 5. The Ld. AO have erred on the facts, in circumstances of the case and in law in not passing the final assessment order within the time limit as provided under Section 153 of the Act i.e., the outer limit for passing of the final assessment order for AY 2020-21 would be 30 September 2023, thus making the assessment proceedings time barred and bad in law and thereby it should be quashed. Transfer Pricing Grounds 6. The Ld. AO/TPO/DRP have erred in law and fact by imputing notional interest on outstanding trade receivables from Associated Enterprises ('AEs'). While doing so: 6.1 Erred, in law and on facts, by making an upward addition of INR 14,05,46,884 to the total income of the Appellant on account of adjustment of notional interest on outstanding trade receivables from its AEs. 6.2 Erred in law and on facts, by treating receivables from AE as international transaction separate and distinct from the international transaction of providing contract research services and contract manufacturing services to its AEs. 6.3 Erred in law and on facts, in not considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Gains from Business or Profession ( PGBP ) as the book profits u/s 115JB of the Act. 7.2 The Ld. AO has erred in law and on facts, by making an addition of Rs. 40,15,82,998 to the books of the Appellant (i.e., by considering the PGBP income as book profit) directly in the computation sheet annexed to the assessment order without proposing any addition to book profits either in the Show Cause Notice ( SCN ) or in the assessment order. 7.3 The Ld. AO has erred in law and on facts, in considering the PGBP income as book profits which is not as per the provisions of section 115JB of the Act. Further, no adjustment can be made for computation of the book profits unless specifically provided u/s 115JB of the Act Non-grant of advance tax, TDS, TCS credits and FTC The Ld. AO has erred in law and on facts: 8.1 in not considering that Biocon Research Limited ( BRL ) had merged with the Appellant during the year under dispute and disregarding the credit claimed (i.e., advance tax, TDS/TCS) by the Appellant, as per the order of the National Company Law Tribunal under the approved merger scheme. 8.2 in unjustifiably reducing the advance tax credit by INR. 6,60,00,000 i.e., from INR 1,21,10,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom AE has resulted from such business operations, they are inter-linked and could not have been separately benchmarked. ii. He further submitted that even otherwise, if working capital adjustment is granted to the assessee, it would have resulted into a better margin in favour of assessee and therefore even otherwise this adjustment could not have been made. He referred to the order u/s. 92CA(3) to support his contention. iii. He further referred to page 868 onwards wherein the TP study report is placed and drawn our attention to para 5.4.2 stating that since there are significant differences in working capital between the tested party (assessee) and the comparable companies, appropriate adjustment may be required so that closely linked international transactions are properly determined. He submits that there is no adjustment made by the assessee in its TP study report. He referred to the similar observations in case of every other international transaction. He ultimately referred to page 972 of PB to submit that since the operating margin of the assessee of 15% of Operating Cost is within the arm s length range of 8.22% and 15.92% of the international transactions entered into by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that in view of the disruption caused by COVID-19 pandemic, the time period for realisation and repatriation of export proceeds made upto or on 31.7.2020 has been extended to 15 months from the date of export. This Circular is issued to enable the exporter to realize their receipts from COVID affected countries within the extended period. Thus, his argument was that when the RBI has extended the period, the overdue receivable does not remain overdue, but merely due and therefore international transaction cannot be determined by considering only 30 days credit period but should be granted 15 months from the date of export. 12. Accordingly, he submitted that adjustment made by the ld. TPO and confirmed by the ld. DRP is not correct. 13. The learned CIT DR vehemently supported the orders of the learned that lower authorities and submitted that the transaction of overdue receivable from associated enterprises is a separate international transaction and cannot be benchmarked with the normal transaction of sale or services. The transaction of sale and services ends as soon as agreed period of credit is over. He referred to the order of the learned TPO wherein he has dealt with all argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her material is shown. There is no such material placed before us. Therefore, we uphold the finding of the learned lower authorities that the outstanding dues beyond an agreed credit period in the case of the assessee are separate international transaction, requires to be benchmarked separately and cannot be clubbed together with other transaction mentioned in para 11 B of form number 3CEB and therefore the learned that lower authorities have correctly benchmarked them separately. 16. With respect to the argument of the learned authorized representative that there is a finding by the learned transfer pricing officer that period for which interest has been calculated is to be limited to the year under consideration as interest accrued in other years cannot be taxed in this year. He referred to paragraph number 5.23 of the TP order. He further referred the chart of computation and submitted that at serial number 213 216 the learned TPO has computed the interest on delay for 518 days and 422 days, which is beyond financial year and therefore this adjustment could not have been made. We have carefully considered the paragraph number 5.23 of the order of the learned providing officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not recharacterised the transaction but has merely applied the law and benchmarked the arm's-length price of the international transaction of overdue receivable from associated enterprises. 19. With respect to the commercial expediency in keeping the outstanding receivable, no facts are produced before the Ld. lower authorities or before us that there is any commercial expediency from the side of the assessee to keep the outstanding receivable from the associated enterprises beyond the due dates. This is also apparent from the fact that there are almost 216 entries listed by the learned TPO delay ranging from 61 to 548 days. Reason of delay or any commercial expediency therein is also not placed before us or the learned lower authorities. Accordingly, this argument is also rejected. 20. The learned authorized representative has further argued that setting off and netting of the outstanding receivable with outstanding payables should be made and thereafter if there is any outstanding which is beyond due date or credit period only that should have been considered for making the adjustment. We fully agree with the learned authorized representative that if the sum is receivabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve adjustment would be eliminated. Assessee has also relied upon several judicial precedents before us stating that working capital adjustment subsumed accrued interest on trade receivables, no separate adjustment should be made. The decisions relied upon include Kusum healthcare private limited versus ACIT (ITA number 765 of 2016) [398 ITR 66 (Delhi)], Teradata India private limited versus ACIT [IT appeal number 8054 (Delhi), Cox Kings India private limited versus ITO (ITA number 982/M/2007) and Xchanging solutions Ltd case in ITA number 1294/Bangalore/2012. As these arguments have not been advanced before the learned transfer pricing officer or learned dispute resolution panel, but is now advanced before us stating that in the transfer pricing study report the assessee has stated that it reserves its right of claiming working capital adjustment, we restore this issue back to the file of the learned transfer pricing officer/learned assessing officer with a direction to the assessee to show before the learned TPO / AO that if the working capital adjustment is made, if allowable in accordance with the law, the above adjustment of interest on overdue realization of trade receivable w ..... 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