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TMI Blog2025 (3) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed under section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Dispute Resolution Panel ("Hon'ble DRP"). Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. The learned Assessing Officer/TPO/DRP, have erred in law and on facts and circumstances of the case, by making an addition of INR 5,593,455 to the total income of the appellant in respect of interest on outstanding receivables arising from the main international transactions i.e., provision of support services and rating support services by the appellant to its associated enterprise ("AE"). The said addition is illegal, bad in law and is liable to be deleted as Assessing Officer/TPO/DRP, have erred in- 1.1. Not appreciating that interest on receivables is not covered in the definition of international transaction as defined under section 928 of the Act and as such is not an independent international transaction. 1.2. Delinking the inter-company receivables arising from the main international transactions i.e., provision of support services and rating support services ("main service transactions") and proceeding to benchmark the same as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to credit rating and back-office support services to its group entities (100% captive entity). During the year, the assessee entered into the following international transactions with its Associated Enterprises ("AEs") which were scrutinized during the assessment proceedings :- S.No. Nature of International transaction Value (in INR) Method used Margin earned by SPSA Arm's length range determined by the TPO (post DRP directions) Adjustment post DRP directions 1 Provision of rating support 11,39,86,892 Transactional Net Margin Method 15.00% 6.50% to 33.62% with median 24.32% NIL 2 Provision of business support services 49,45,69,545 11.40% 7.19% to 14.84% with median 13.53% NIL Further, the TPO imputed interest on outstanding receivables from AEs realized beyond 60 days by deeming them as unsecured loan advanced by the assessee to its AEs, resulting into an adjustment of Rs. 55,93,455 by relying on various decisions." 3. Aggrieved with the above order, assessee filed objections before the ld. DRP and ld. DRP after considering the detailed submissions of the assessee held as under: "(xxii) Hence, on the specific facts of the case, the Panel observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer Pricing Officer. (xxix) The benchmark methods do not envisage "netting off" and further, netting off requires exact matching of period of outstanding. A receivable due outstanding for 180 days cannot be netted off with a payable of 10 days. The Transfer Pricing scheme does not have provisions for netted benchmarking. (xxx) Thus, keeping in view the facts of the case, the Ld. TPO has rightly determined the Arm's Length Price of interest on deferred receivables and trade receivables." 4. At the time of hearing, ld. AR of the assessee submitted as under: "In this regard, we wish to submit that the Assessee is a debt free Company and therefore no adjustment at all can be made relying on jurisdictional Delhi High Court Judgement in the case of Bechtel India Pvt Ltd where Department's SLP has also been dismissed by Hon'ble Supreme Court. The contention of the Assessee are further discussed in detail below : A. Assessee is a Debt Free company: The assessee is a zero debt/debt free company as it does not have any borrowings from both internal as well as external sources. Accordingly, the assessee has not paid any interest expense to its lenders/creditors durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in working capital deployed by the assessee and comparables have been adjusted and factored in and once working capital adjustment is allowed, the same subsumes and accounts for the differences and hence no further addition is warranted. * While the Ld. DRP principally concurred with the view to allow working capital adjustment [Refer Para 7.7.1 (xii) on Page 36 of Appeal set], it erred in giving erroneous finding that the assessee has not given the reliable data for the computation of working capital adjustment and consequently rejected the claim for working capital adjustment. This is factually incorrect as all data has been duly submitted before the Ld. TPO IDRP [Refer DRP objections on Page 140 of appeal set]. The Assessee has also filed a rectification application before the Ld. DRP which is pending disposal. Hence, as DRP has in principle agreed with the fact that to allow working capital adjustment but states that no data was filed (which is incorrect), hence, it is also prayed that the Assessee is entitled to the working capital adjustment. * Once the working capital adjustment is allowable, no further adjustment on account of receivables is required/mandated in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he average credit period of the Assessee for FY 2019-20 i.e. 92 days is less than the average debtor days of the comparables taken by the TPO i.e. 105 days and therefore no adjustment should be sustained in this case as even our average is much lesser than the average of the comparable companies. * It is also submitted that while there is no standard methodology to determine industry practice for credit period, the same is always dependent on a year-to-year basis and on the basis of final set of the comparable companies taken by the TPO. In this year, if we apply the same, the average debtor days of the com parables will be 105 days (the average credit period of the Assessee is much lesser). * Further, the Assessee computed average receivable/debtor days of comparable companies selected by the Ld. TPQ in the TP assessment order for main service transactions i.e., 91 days which was also submitted to the Ld. DRP [Refer DRP objections on Page 189 of Appeal set). The average receivable/debtor days of comparable companies post directions of the DRP now i.e. 105 days (Computation enclosed as Annexure 1 to this synopsis) may be considered, on a without prejudice basis, to establish ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation from its AE. We noticed that the assessee has actually incurred finance cost of Rs. 201,871/- and majority of the finance cost consist of penal interest paid to revenue u/s 234B/C of the Act. Technically there is no finance cost of employment for any debt or borrowings. If that is the case, the passing of benefit to its AE is ruled out. We cannot apply the provisions of the Act blindly without show casing how it is falling under the short term loan or financial transaction. Even though Ld DRP tried to distinguish the Bechtel India case, however, unless it is brought on record that this particular transaction falls within the framework of financial transaction, you cannot invoke the provisions mechanically. 8. The term of settlement is subjective and depends upon the mutual agreement and industry practice. We noticed that the average credit period of the assessee is 92 days against the average credit period in the case of comparable companies determined at 105 days. Since the assessee is debt free company and has recovered the remittances within the terms agreed between them and there is no red flag of excessive delay in remittance which gives the impression that the AE is en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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