Ingersoll-Rand(India) Ltd., Bangalore V. DCIT CR11(4), Bangalore

ITA 228/BANG/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1512 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR CITIIIDR
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Presumptive income; Transfer pricing; International transaction; Notional interest; Revised return
• Section: 92C; 92D; 142(1); 234B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER IT(TP)A NO. 228/BANG/2015 ASSESSMENT YEAR : 2010-11 INGERSOLL RAND (INDIA) LTD., PLOT NO.35, KIADB INDUSTRIAL AREA, BIDADI, BANGALORE 562 109. PAN: AAACI 3099Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI SANJAY KUMAR, CIT-III(DR) DATE OF HEARING : 06.10.2015 DATE OF PRONOUNCEMENT : 05.11.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 24.12.2014 OF THE ASSESSING OFFICER PASSED U/S. 143 (3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S 'THE ACT']. 2. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUF ACTURING AND/OR TRADING OF AIR COMPRESSORS, FEEDER CRUSHERS, LOADER S, VIBRATORY IT(TP)A NO.228/BANG/2015 PAGE 2 OF 24 COMPACTORS, LIGHT TOWERS, UTILITY VEHICLES AND PAVE RS. RETURN OF INCOME FOR THE A.Y. 2010-11 WAS FILED BY THE ASSESSEE ON 8 .10.2010 DECLARING AN INCOME OF RS.27,81,885 WHICH WAS PROCESSED U/S. 143 (1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTIC E U/S. 143(2) ISSUED ON 9.9.2011 AND NOTICE U/S. 142(1) ISSUED ON 12.12. 2013. 3. THE INFORMATION CALLED FOR WAS FURNISHED ON 23.1 2.2013 AND EXAMINED BY THE ASSESSING OFFICER. THE CASE WAS RE FERRED TO THE TPO FOR DETERMINATION OF THE ARMS LENGTH PRICE (ALP) U/S. 92CA OF THE ACT. AS PER THE ORDER OF THE TPO DATED 30.01.2014, DRAFT ASSESS MENT ORDER WAS PASSED ON 24.2.2014 AGAINST WHICH OBJECTIONS WERE F ILED BY THE ASSESSEE BEFORE THE DRP. THE LD. DRP UPHELD THE DRAFT ASSE SSMENT ORDER AND FINAL ASSESSMENT ORDER WAS PASSED BY THE AO ON 24.12.2014 . 4. THE TPO MADE A TP ADJUSTMENT OF RS.1,64,44,290 T O THE RETURNED INCOME OF THE ASSESSEE IN VIEW OF DETERMINATION OF ALP AS FOLLOWS:- SUMMARY OF TP ADJUSTMENTS (RS.) PAYMENT OF MANAGEMENT FEES 1,53,40,000 INTEREST CHARGED ON AE DEBTS OUTSTANDING EXCEEDING SIX MONTHS 11,04,290 TOTAL 1,64,44,290 COMPUTATION OF TOTAL INCOME RETURNED INCOME (AS PER REVISED RETURN): RS.78,77, 81,515 ADD: DIFFERENCE OF ALP DETERMINED BY THE TPO U/S. 92CA(4) OF THE ACT : RS. 1,64,44, 290 --------------------- TOTAL TAXABLE INCOME RS.80,42,25,805 --------------------- IT(TP)A NO.228/BANG/2015 PAGE 3 OF 24 5. AGGRIEVED BY THE FINAL ORDER PASSED BY THE AO AD OPTING THE TP ADJUSTMENT MADE BY THE TPO, THE ASSESSEE IS IN APPE AL BEFORE US ON THE FOLLOWING GROUNDS:- 1) THE LEARNED ASSESSING OFFICER (AO), THE LEAR NED JOINT COMMISSIONER OF INCOME TAX (TRANSFER PRICING OFFICE R II), BANGALORE (TRANSFER PRICING OFFICER OR TPO) AND THE HONORABLE DISPUTE RESOLUTION PANEL (DRP) HAVE ERR ED IN LAW AND FACTS OF THE CASE IN PROPOSING A TRANSFER PRICI NG ADJUSTMENT UNDER SECTION 92CA OF THE INCOME-TAX ACT, 1961 (TH E ACT) AMOUNTING TO RS. 1,53,40,000 ON ACCOUNT OF PAYMENT OF COST CONTRIBUTION CHARGES BY THE APPELLANT AND WHILE DOI NG SO: 1.1. THE LEARNED TPO, AO AND THE HONBLE DRP ERRED IN CONSIDERING THE ARMS LENGTH PRICE TO BE WITH RESPE CT TO THE PAYMENTS MADE BY THE ASSESSEE TOWARDS COST CONTRIBU TION CHARGES TO ITS ASSOCIATED ENTERPRISE (AE). 1.2. THE LEARNED TPO, AO AND THE HONBLE DRP ERRED IN HOLDING THAT THE INTERNATIONAL TRANSACTIONS CANNOT BE AGGREGATED IN THE APPLICATION OF TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR THE TRANSFER PRICING ANALYSIS WITHOUT APPRECIAT ING THE FACT THAT THE PRINCIPLE OF AGGREGATION OF CLOSELY LINKED TRAN SACTIONS IS A WELL-ESTABLISHED RULE PRESCRIBED BY THE ORGANISATIO N FOR ECONOMIC CO-OPERATION AND DEVELOPMENT GUIDELINES ( OECD GUIDELINES) AND REFERRED TO FOR GUIDANCE IN VARIOU S RULINGS OF INCOME TAX APPELLATE TRIBUNALS (ITAT). 1.3. THE LEARNED TPO, AO AND THE HONBLE DRP ERRED IN SELECTING COMPARABLE UNCONTROLLED PRICE METHOD (CU P) AS THE MOST APPROPRIATE METHOD IN DETERMINING THE ARMS LE NGTH PRICE OF PAYMENT TOWARDS MANAGEMENT FEES TO AE DESPITE THE L EARNED TPO NOT FOLLOWING THE PROVISIONS PRESCRIBED IN CLAU SE (A) OF THE SUB-RULE (1) OF RULE L0B OF THE RULES FOR DETERMINA TION OF ALP IN RELATION TO AN INTERNATIONAL TRANSACTION UNDER CUP. 1.4. THE LEARNED TPO, AO AND THE HONBLE DRP ERRED IN IGNORING THE EVIDENCES SUBMITTED BY THE ASSESSEE TO PROVE THAT IT WAS IN NEED OF SERVICES, SERVICES WERE ACTUALLY REN DERED AND THE BENEFIT WAS DERIVED FROM THE SERVICES OBTAINED FROM THE AE. IT(TP)A NO.228/BANG/2015 PAGE 4 OF 24 2) THE LEARNED TPO, AO AND THE HONBLE DRP HAVE ER RED IN IMPUTING NOTIONAL INTEREST ON THE OUTSTANDING RECEI VABLES AMOUNTING TO RS.. 11,04,290/- FROM THE AES AND WHIL E DOING SO: 2.1. THE LEARNED TPO, AO AND THE HONBLE DRP ERRED IN IMPUTING INTEREST ON THE OUTSTANDING RECEIVABLES FR OM THE AES IGNORING THE FACT THAT THE ASSESSEE FOLLOWED THE SA ME POLICY OF NOT CHARGING ANY INTEREST ON TRADE RECEIVABLES FROM BOT H AES AS WELL AS NON-AES. 2.2. WITHOUT PREJUDICE, THE LEARNED TPO AND AO OUG HT TO HAVE BEEN NETTED OFF THE OUTSTANDING PAYABLES PERTAINING TO THE DUES OWED BY THE ASSESSEE FROM THE OUTSTANDING RECEIVABL ES FROM AES BEFORE PROPOSING TRANSFER PRICING ADJUSTMENT IN CON NECTION WITH NOTIONAL INTEREST ON OUTSTANDING RECEIVABLES FROM A ES. 2.3. WITHOUT PREJUDICE, THE LEARNED TPO, AO AND TH E HONBLE DRP HAS ERRED IN NOT PROVIDING THE REASONABLE PERIO D AS INTEREST FREE PERIOD FOR WHICH NO INTEREST HAS TO BE DETERMI NED BY CALCULATING THE NOTIONAL INTEREST FOR THE ENTIRE YE AR (FOR 12 MONTHS) ON OUTSTANDING RECEIVABLES FROM AES AMOUNTI NG TO RS. 74,91,793. 2.4. THE LEARNED TPO, AO AND THE HONBLE DRP HAVIN G ACCEPTED THE TRANSACTIONAL NET MARGIN METHOD (TNMM ) AS THE MOST APPROPRIATE METHOD HAD FAILED TO APPRECIATE TH AT THE OPERATING MARGIN OF THE ASSESSEE IS HIGHER THAN THE ARITHMETIC MEAN OPERATING MARGIN OF COMPARABLE COMPANIES EVEN AFTER WORKING CAPITAL ADJUSTMENT WHICH PROVIDES AMPLE EVI DENCE THAT THE ADDITIONAL COMPENSATION IF ANY, REQUIRED TOWARD S THE CREDIT PERIOD IS ALREADY FACTORED IN THE PRICING OF THE GO ODS SOLD/SERVICES RENDERED TO ITS AES. 2.5. THE LEARNED TPO, AO AND THE HONBLE DRP ERRED IN DETERMINING THE CREDIT RATING OF THE AES AS BB ON ADHOC BASIS AND THEREBY IMPUTING INTEREST ON THE OUTSTANDING RE CEIVABLES FROM THE AES AT A RATE OF 14.74% WHICH WAS DERIVED BASED ON THE ANNUAL AVERAGE YIELD FOR BB RATED BOND FOR 5 YEAR OR MORE TERM AT 12.28% PLUS ADHOC 20% PREMIUM WHICH WAS OBTAINED FROM CRISIL UNDER SECTION 133 (6) OF THE ACT. IT(TP)A NO.228/BANG/2015 PAGE 5 OF 24 CORPORATE TAX 3) SHORT CREDIT OF TAXES DEDUCTED AT SOURCE (TDS) - THE LEARNED AO HAS ERRED IN GRANTING A CREDIT FOR TDS T O THE EXTENT OF RS. 5,92,70,316 AS AGAINST RS. 6,05,12,937 CLAIMED BY THE ASSESSEE IN THE REVISED RETURN OF INCOME, THUS RESU LTING IN A SHORT CREDIT OF RS. 12,42,621. 4) INTEREST UNDER SECTION 234B - THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT AMOU NTING TO RS. 2,31,864. THE APPELLANT CRAVES TO LEAVE/TO ADD TO/TO ALTER/TO AMEND/TO RESCIND/TO MODIFY THE GROUNDS HEREIN ABOVE OR PRODU CE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING THIS APPEAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DURING THE F.Y. 2009-10, THE ASSESSEE HAS ENTERED INTO INTERNATIONA L TRANSACTIONS WITH ITS ASSOCIATES ENTERPRISES (AES) AND BASED ON THE FAR ANALYSIS AND AVAILABILITY DATA, TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS SELECTED AS THE MOST APPROPRIATE METHOD. THE ASSESSEE EARNE D OPERATING PROFITS TO TOTAL COSTS (OP/TC) OF 13.30% AS AGAINST THE OP/TC OF 13.08% EARNED BY THE COMPARABLE COMPANIES. ACCORDINGLY, WITH THE A PPLICATION OF TNMM, THE INTERNATIONAL TRANSACTIONS HAVE BEEN CONCLUDED BY THE ASSESSEE TO BE AT ARMS LENGTH. 7. IT IS NOW SUBMITTED BEFORE US THAT THE TPO AND T HE DRP ERRED IN MAKING A TP ADJUSTMENT OF RS.1,53,40,000 ON ACCOUNT OF PAYMENT OF COST CONTRIBUTION CHARGES BY THE ASSESSEE. THE BRIEF F ACTS WITH REGARD TO THIS ISSUE ARE THAT THE ASSESSEE RECEIVED SERVICES FROM ITS AE IN THE AREA OF IT(TP)A NO.228/BANG/2015 PAGE 6 OF 24 ADMINISTRATION, FINANCE, TREASURY, TAX AND STRATEGY ETC. THESE SERVICES ARE UTILIZED BY THE ASSESSEE TO UNDERTAKE ITS BUSIN ESS OPERATIONS IN INDIA. IN ORDER TO LEVERAGE THE EXPERTISE OF INGERSOLL-RAN D COMPANY, ASSESSEE ENTERED INTO A COST CONTRIBUTION AGREEMENT WITH ING ERSOLL-RAND COMPANY. IN THIS CONNECTION, THE ASSESSEE HAS MADE THE PAYME NT OF RS.2,57,42,489 TOWARDS THE COST CONTRIBUTION CHARGES DURING FY 200 9-10 RELATING TO FOLLOWING PERIODS: - PERTAINING TO FY 2009-10 - RS. 1,53,40,000 - PERTAINING TO FY 2008-09 - RS. 1,04,02,489 (THI S PAYMENT IS REFLECTED AS PRIOR PERIOD ITEM IN THE AU DITED FINANCIAL STATEMENTS OF FY 2009-10). 8. ACCORDINGLY, THE LEARNED TPO HAS PROPOSED THE TP ADJUSTMENT IN CONNECTION WITH THE COST CONTRIBUTION CHARGES MADE PERTAINING TO BOTH THE PERIODS MENTIONED ABOVE. COST CONTRIBUTION TOWARDS INTRA-GROUP SERVICES (GRO UND NO.1.1) 9. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT LOWER AUTHORITIES ERRED IN TREATING THE ARMS LENGTH PRIC E (ALP) OF THE COST TOWARDS MANAGEMENT FEES TO BE NIL HOLDING THAT THERE IS N O JUSTIFICATION FOR THE ABOVE MENTIONED PAYMENTS AND DOUBTING WHETHER THE S ERVICES WERE ACTUALLY RENDERED IN CONNECTION WITH THE BUSINESS O F THE ASSESSEE. IT(TP)A NO.228/BANG/2015 PAGE 7 OF 24 10. IT WAS SUBMITTED THAT DURING THE YEAR ASSESSEE HAS PAID ITS AE A TOTAL SUM OF RS. 2,57,42,489 AS COST CONTRIBUTION C HARGES IN CONNECTION WITH INTRA-GROUP SERVICES. THE NATURE OF SERVICE/ BENEFITS DERIVED BY ASSESSEE HAS BEEN PROVIDED BELOW:- 11. IT WAS SUBMITTED THAT THE PAYMENTS AMOUNTING TO RS.2,57,42,489 TOWARDS COST CONTRIBUTION CHARGES IS REFLECTIVE OF AN ARMS LENGTH CHARGE. IT(TP)A NO.228/BANG/2015 PAGE 8 OF 24 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE RECEIVED SERVICES FROM ITS AE IN THE AREA OF ADMINISTRATION, FINANCE, TREASURY, TAX AND STRATEGY ETC. AND THESE SERVICES ARE UTILIZED BY ASSESSEE TO UNDERTAK E ITS BUSINESS OPERATIONS IN INDIA. IT WAS STATED THAT THE LNTRA- GROUP CHARGES ARE INCURRED CENTRALLY BY THE AE AND ALLOCATED TO THE VARIOUS GR OUP AFFILIATES INCLUDING ASSESSEE ON THE BASIS OF HEADCOUNT AND THE ANNUALIZ ED SALES AND THE COSTS REPRESENT THE ACTUAL COSTS INCURRED BY THE AE IN THE CAPACITY OF A CENTRALIZED SERVICE PROVIDER AND ARE ALLOCATED AMON GST THE CONCERNED AFFILIATES ON A RATIONAL, LOGICAL AND SYSTEMATIC BA SIS. 12. THE LD. COUNSEL FOR THE ASSESSEE HIGHLIGHTED TH E GUIDELINES POSTULATED BY THE ORGANISATION FOR ECONOMIC COOPERA TION AND DEVELOPMENT (OECD) WITH RESPECT TO THE ALLOCATION OF COSTS IN RESPECT OF INTRA-GROUP SERVICES. IT WAS SUBMITTED THAT THE OEC D GUIDELINES RECOGNIZE THAT WHILST THE DIRECT CHARGE METHOD MAY BE THE MOS T PRACTICALLY CONVENIENT METHOD, SUCH A METHOD MIGHT BE DIFFICULT TO APPLY I N PRACTICE IN MANY CASES FOR MNE GROUPS. THE GUIDELINES RECOGNIZE THAT UNDER SUCH CIRCUMSTANCES MNE GROUPS MAY FIND THEY HAVE FEW ALTERNATIVES BUT TO USE COST ALLOCATION AND APPORTIONMENT METHODS WHICH OFTEN NECESSITATE S OME DEGREE OF ESTIMATION OR APPROXIMATION, AS A BASIS FOR CALCULA TING AN ARMS LENGTH CHARGE. THE OECD GUIDELINES ALSO PROVIDE ILLUSTRAT IVE BASIS FOR THE ALLOCATION METHODOLOGY [PARA 7.22 & 7.23 OF OECD GU IDELINES]. IN THIS REGARD THE RELEVANT PARAGRAPH 7.25 OF THE OECD GUID ELINES WAS POINTED OUT WHICH IS REPRODUCED BELOW:- IT(TP)A NO.228/BANG/2015 PAGE 9 OF 24 THE ALLOCATION MIGHT BE BASED ON TURNOVER, OR STAF F EMPLOYED, OR SOME OTHER BASIS. WHETHER THE ALLOCATION METHOD IS APPROPRIATE MAY DEPEND ON THE NATURE AND USAGE OF THE SERVICE. FOR EXAMPLE, THE USAGE OR PROVISION OF PAYROLL SERVICES MAY BE M ORE RELATED TO THE NUMBER OF STAFF THAN TO TURNOVER, WHILE THE ALL OCATION OF THE STAND-BY COSTS OF PRIORITY COMPUTER BACK-UP COULD B E ALLOCATED IN PROPORTION TO RELATIVE EXPENDITURE ON COMPUTER EQUI PMENT BY THE GROUP MEMBERS. 13. IT WAS SUBMITTED THAT THE ASSESSEE HAS, IN ACCO RDANCE WITH THE STIPULATIONS AS MENTIONED IN THE OECD GUIDELINES, A DOPTED A RATIONAL, SYSTEMATIC AND LOGICAL METHODOLOGY FOR THE PAYMENT OF COST CONTRIBUTION CHARGES. IT WAS POINTED OUT THAT THE METHODOLOGY OF ALLOCATION FOLLOWED IS STANDARD, UNIFORM, HARMONIZED AND CONSISTENT ACROSS THE ENTITIES OF THE INGERSOLL GROUP OF COMPANIES. FURTHER IT WAS STATED THE DETAILED WORKINGS PROVIDING THE ALLOCATIONS OF COST AMONG VARIOUS ING ERSOLL GROUP COMPANIES WAS SUBMITTED TO THE LEARNED TPO DURING THE ASSESSM ENT PROCEEDINGS. 14. IT WAS SUBMITTED THAT THE BASIS OF ALLOCATION F OLLOWED ACROSS GROUP COMPANIES IS IDENTICAL TO THE ONE ADOPTED FOR ALLOC ATING INTRA GROUP CHARGES TO INDIA. THE AE IN THE CAPACITY OF A CENTRALIZED S ERVICE PROVIDER ENTERS INTO AGREEMENTS WITH ALL THE CONCERNED AFFILIATES IN RES PECT OF THE ALLOCATION OF COSTS. IT WAS FURTHER SUBMITTED THAT AN ANALYSIS OF THE FACTS AS SET OUT IN THE AFOREMENTIONED PARAGRAPH WOULD PROVIDE AMPLE EVIDEN CE TO THE FACT THAT THE ALLOCATION OF INTRA GROUP CHARGES BY THE AE TO THE ASSESSEE ADHERES TO THE TENETS OF THE INDIRECT ALLOCATION MECHANISM PRO VISIONS AS STIPULATED UNDER PARAGRAPH 7.25 OF THE OECD GUIDELINES. IT WA S POINTED OUT THAT THE IT(TP)A NO.228/BANG/2015 PAGE 10 OF 24 AE HAS CHARGED ONLY THE ACTUAL COSTS INCURRED AND T HERE IS NO MARK-UP CHARGED ON THE SAME. 15. RELIANCE WAS PLACED ON CIRCULAR NO. 87-2R DATED 27 SEPTEMBER, 1999 OF THE CANADA CUSTOMS AND REVENUE AGENCY WHERE IN THE ABOVE HAS BEEN EXPLAINED BY MEANS OF AN EXAMPLE:- FOR EXAMPLE, IN MANY CASES, THE SERVICES PROVIDED THROUGH INTRA- GROUP ARRANGEMENTS ARE ADMINISTRATIVE OR ANCILLARY IN NATURE, AND THE PARTICIPANTS WOULD ONLY HAVE BEEN PREPARED TO C ENTRALIZE THE ACTIVITY IF THEY COULD SHARE IN THE COST SAVINGS. C OST MAY REPRESENT AN ARMS LENGTH CHARGE IN SUCH SITUATIONS . 16. IT WAS THEREFORE EMPHASIZED THAT THE AE IN THE CAPACITY OF A CENTRALIZED SERVICE PROVIDER PROVIDES AN ELEMENT OF COST SAVING TO THE GROUP AS A WHOLE, OF WHICH THE ASSESSEE IS ALSO AN INTEGRAL PART. THIS BEING THE CASE, THE COSTS CROSS CHARGED BY THE AE W OULD IN ITSELF BE DEMONSTRATIVE OF AN ARMS LENGTH CHARGE. AGGREGATION APPROACH WITH THE APPLICATION OF TNMM A ND SELECTION OF MOST APPROPRIATE METHOD (GROUND NOS. 1.2 AND 1.3) 17. IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE LEARNED TPO IN THE TRANSFER PRICING ORDER HAS REJECTED THE AGGREGA TION OF INTERNATIONAL TRANSACTION MADE BY THE ASSESSEE BY USING THE TNMM AS MOST APPROPRIATE METHOD AND PROPOSED TO APPLY COMPARABLE UNCONTROLLE D PRICE (CUP) METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION PERTAINING IT(TP)A NO.228/BANG/2015 PAGE 11 OF 24 TO PAYMENT OF INTRA-GROUP SERVICES. IT WAS SUBMITT ED THAT THOUGH THE LEARNED TPO HAS PROVIDED THAT CUP SHOULD BE CONSIDE RED AS THE MOST APPROPRIATE METHOD, HE HAS FAILED TO SUBSTANTIATE H OW CUP METHOD CAN BE APPLIED IN INSTANCE CASE, AS HE HAS NOT IDENTIFIED ANY UNCONTROLLED COMPARABLE TRANSACTIONS TO ENABLE THE APPLICATION O F CUP METHOD. IT WAS SUBMITTED THAT CONSIDERING THE MATURITY OF THE DATA BASES, NATURE AND TYPE OF INFORMATION AVAILABLE AS WELL AS THE NATURE OF T HE INTERNATIONAL TRANSACTIONS, IT WOULD BE EXTREMELY CUMBERSOME, IF NOT IMPOSSIBLE TO OBTAIN COMPARABLE DATA ON AN INDEPENDENT BASIS. HENCE COND UCTING A BENCHMARKING ANALYSIS TO DETERMINE THE ALP OF THE I NTERNATIONAL TRANSACTIONS SEPARATELY WOULD BE A DIFFICULT TASK. 18. IN LIGHT OF THE ABOVE, IT WAS REITERATED THAT T O DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF INTRA-GROUP SERVICES, TNMM HAS TO BE APPLIED FOLLOWING THE AGGREGATION AP PROACH AS THE TRANSACTIONS ARE CLOSELY LINKED AND INTEGRAL TO THE MANUFACTURING OPERATIONS OF THE ASSESSEE AND THEREFORE THE DETERMINATION OF ALP ON AN AGGREGATE BASIS WOULD BE MORE APPROPRIATE. BENEFITS DERIVED BY ASSESSEE FROM INTRA-GROUP SERVI CES (GROUND NO. 1.4) 19. IT WAS SUBMITTED BY THE ASSESSEE THAT THE LOWER AUTHORITIES HAVE ERRED IN IGNORING THE EVIDENCES SUBMITTED BY THE AS SESSEE TO PROVE THAT IT WAS IN NEED OF SERVICES AND SERVICES WERE ACTUALLY RENDERED AND BENEFIT IT(TP)A NO.228/BANG/2015 PAGE 12 OF 24 WAS DERIVED FROM THE SERVICES OBTAINED FROM THE AE. FURTHER, THE GUIDANCE, ADVICE AND SUPPORT OBTAINED FROM THE EXPE RIENCED AND KNOWLEDGEABLE TEAM OF THE AE HELPED IN MANAGEMENT O F THE OPERATIONAL AND CORPORATE ACTIVITIES REDUCING SIGNIFICANTLY THE LEVEL OF SENIOR PERSONNEL REQUIRED LOCALLY, AND PROVIDED FOR A HIGHER DEGREE OF CO-ORDINATION OF THE ACTIVITIES AMONG ASSESSEE AND ITS FOREIGN AFFILIATE S. IT WAS SUBMITTED THAT THE KEY BENEFITS TO THE ASSESSEE BY AVAILING THE IN TRA-GROUP SERVICES INCLUDE, BUT ARE NOT LIMITED TO:- ACCESS TO HIGH QUALITY SERVICES ON AS AND WHEN SUCH A NEED ARISES BASIS; THE STAFF PROVIDING THE SERVICES HAVE UNEQUALLED KNOWLEDGE OF THE BUSINESS AND THE ISSUES, COMPARED TO THIRD P ARTY PROVIDERS; SOME OF THE SERVICES PROVIDED BY THE AE WOULD NO T LIKELY BE OBTAINABLE FROM THIRD PARTY SERVICE PROVIDERS, AND IT MAY NOT BE PRUDENT FROM A BUSINESS AS WELL AS COMMERCIAL PE RSPECTIVE TO AVAIL SOME OF THE SERVICES PROVIDED BY THE AES, DIRECTLY FROM THIRD PARTY SERVICE PROVIDERS; IT IS PRACTICALLY AND FINANCIALLY NOT POSSIBLE F OR THE ASSESSEE TO EMPLOY SUCH EXPERIENCED PERSONNEL ON A STAND-ALONE BASIS. FURTHER, PROCURING SUCH ASSISTANCE FROM THIRD PARTY CONSULTANTS WOULD HAVE PROVEN TO BE EXTREMELY COSTL Y FOR THE ASSESSEE: FURTHER, DUE TO THE DIRECT INVOLVEMENT OF ADMINI STRATIVE AND EXECUTIVE MANAGEMENT TEAMS, THE LEVEL OF STAFF AND MANAGEMENT REQUIRED AT THE RECIPIENT ENTITY LEVELS GET REDUCED. THIS FURTHER PROVIDES FOR A HIGHER DEGRE E OF COORDINATION OF THE ACTIVITIES AMONG THE FOREIGN AF FILIATES. THIS GREATER DEGREE OF COORDINATION IN TURN FACILIT ATES INCREASED SALES AND MORE EFFICIENT USE OF THE RESOU RCES; PROVIDE OPERATIONAL EFFICIENCIES (E.G. BETTER TR AINING, STAFF RECRUITMENT AND RETENTION AND IT PLATFORMS) AND TO PROMOTE OPPORTUNITIES OF CROSS SELLING TO MAXIMISE REVENUES ; IT(TP)A NO.228/BANG/2015 PAGE 13 OF 24 REDUCED COSTS - MANY FUNCTIONS CAN BE CARRIED OU T CENTRALLY FOR THE BENEFIT OF THE ENTIRE GROUP, BY REDUCING DU PLICATION, PROVIDING DEDICATED RESOURCES AND THE BENEFITS OF E CONOMIES OF SCALE. INGERSOLL GROUP HAS A BRAND NAME AND REPUTATION IN THE MARKET BECAUSE OF THE LEVEL AND QUALITY OF THE SERV ICES PROVIDED TO THE CLIENTS. THEREFORE, LACK OF SUPPORT FROM INGERSOLL GROUP MAY ADVERSELY IMPACT THE ABILITY OF IRIL TO PROVIDE QUALITY SERVICES TO THE CLIENT. FURTHER, FA ILURE TO HAVE CORRECT/APPROPRIATE POLICIES COULD LEAD TO CONTROL RISKS FURTHER ARISING LEADING TO LOSS OF REVENUE OR UNEXPECTED RI SE IN THE COST OF THE BUSINESS. EVIDENCE TO DEMONSTRATE THAT THE SERVICES ARE INDEE D RENDERED BY THE AE 20. IT WAS SUBMITTED BY THE ASSESSEE THAT WITH A VI EW TO SUBSTANTIATE THAT IT HAS INDEED OBTAINED THE SERVICES OF AE, THE FOLLOWING INFORMATION/DOCUMENTS WERE PROVIDED TO THE LEARNED TPO DURING THE ASSESSMENT PROCEEDINGS:- DETAILED DESCRIPTION OF THE INTRA-GROUP SERVICES RENDERED BY THE AE (PAGE 99 OF THE PAPER BOOK) COST CONTRIBUTION AGREEMENT ENTERED BETWEEN IRIL AND INGERSOLL RAND COMPANY DATED JANUARY 1, 2009 (PAGE 349 OF THE PAPER BOOK) LEDGER EXTRACTS ALONG WITH SAMPLE COPY OF INVOIC E IN CONNECTION WITH THE INTRA-GROUP SERVICES (PAGE 355 OF THE PAPER BOOK) THE DETAILED WORKING PROVIDING THE ALLOCATION OF COSTS BY INGERSOLL RAND COMPANY TO VARIOUS GROUP AFFILIATES OF INGERSOLL GROUP INCLUDING IRIL (PAGE 358 OF THE PAP ER BOOK) EVIDENCE OF COMMUNICATION IN THE FORM OF ELECTRO NIC MAILS I MEETINGS I PRESENTATIONS MADE TO DEMONSTRATE SERVIC ES PROVIDED (PAGE 362 AND 431 OF THE PAPER BOOK). IT(TP)A NO.228/BANG/2015 PAGE 14 OF 24 CUSTOMER MANAGEMENT ETC. PAPERBOOK ) 21. BASED ON THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT IT IS REASONABLE TO VIEW THAT THE PAYMENT MADE TOWA RDS COST CONTRIBUTION AMOUNTING TO RS. 2,57,42,489 IS AS PER THE INTERNAT IONALLY ACCEPTED TRANSFER PRICING PRINCIPLES AND ACCORDINGLY REFLECTIVE OF AN ARMS LENGTH CHARGE. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS:- 1. FESTO CONTROLS (P) LTD. [IT(TP)A 969/BANG/2011]. 2. MCCANN ERIKSON (P) LTD. [ITA NO.5871/DE;/2011]. 22. WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL I N THE CASE OF DRESSER RAND INDIA PVT. LTD. [ITA NO.8753/MUM/2010] UPHELD THE PAYMENT OF COST CONTRIBUTION CHARGES AND DELETED THE ADDITI ONS MADE BY THE AO OBSERVING AS FOLLOWS:- IT(TP)A NO.228/BANG/2015 PAGE 15 OF 24 IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDU CTS HIS BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVE NUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT S NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACC OUNTANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AND YET HE MAY DEC IDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGE MENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEES WISDOM IN DOING SO. WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVE D ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT IS NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE ANY ROLE IN DETERM INING ARMS LENGTH PRICE OF THAT SERVICE. THE REAL QUESTION WHICH IS TO BE DETERMINED IN S UCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPE NDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NO T IS ALSO NOT RELEVANT. THE ASSESSEE HAS FILED A HUGE COMPILATION OF PAP ERS, INCLUDING COPIES OF REPORTS, EMAILS AND OTHER DOCUMENTS EVIDE NCING THE RENDERING OF SERVICES. THERE IS NO INFIRMITY IN THIS CONTRIBUTION BEING TAKEN AS AN ARMS LENGTH CONTRIBUTION TO THE COSTS. THERE IS NO OBJECTIVE WAY IN WHICH USE OF SERVIC ES CAN BE MEASURED AND AS IS THE COMMERCIAL PRACTICE EVEN IN MARKET FA CTORS DRIVEN SITUATION, THE COSTS ARE SHARED IN ACCORDANCE WITH SOME OBJECTIVE CRITERION, INCLUDING SALES REVENUES AND NUMBER OF E MPLOYEES. IN ANY CASE, THE ASSESSEE HAS ADOPTED TNMM AS MO ST APPROPRIATE METHOD, AND THE REVENUE AUTHORITIES HAVE NEITHER MA DE AN EFFORT TO SHOW AS TO HOW THIS METHOD IS NOT APPROPRIATE TO TH E FACTS OF THIS CASE, NOR SHOWN AS TO WHICH OTHER PRESCRIBED METHOD OF ASCERTAINING ARMS LENGTH PRICE OF SERVICES RECEIVE D WILL BE MORE APPROPRIATE TO THESE FACTS. IT(TP)A NO.228/BANG/2015 PAGE 16 OF 24 23. SIMILARLY, IN THE CASE OF AWB INDIA PVT. LTD., ITA NO.4454/DEL/2011 , THE DELHI BENCH OF THE TRIBUNAL HAD NOTED THAT THE ASSESSEE HAD PRODUCED EVIDENCE AND THAT THE CONTENTS OF THEREOF WERE FOUN D TO BE AMPLY SUPPORTIVE OF THE ASSESSEES CLAIM. THE TPO HAD R EJECTED TNMM AND ADOPTED CUP METHOD FOR DETERMINING ALP. THE TRIBUN AL HELD THAT THE TPO REMAINED OBLIVIOUS TO THE FACT THAT RULE 10B(1)(A ) STIPULATES COMPARABLE AND UNCONTROLLED TRANSACTIONS WHILE APPLYING THE CUP METHOD. ONLY A GENERAL OBSERVATION WAS MADE BY THE TPO THAT NO IND EPENDENT PARTY WOULD HAVE MADE PAYMENT IN UNCONTROLLED CIRCUMSTANC ES. 24. IN VIEW OF THE ABOVE DECISIONS OF THE DELHI BEN CH OF THE TRIBUNAL IN THE CASE OF DRESSER RAND INDIA PVT. LTD. AND AWB INDIA PVT. LTD . (SUPRA) , WE DELETE THE ADDITION OF RS.1,53,40,000 TOWARDS TP ADJUSTMENT ON ACCOUNT OF PAYMENT OF COST CONTRIBUTION CHARGES MAD E BY THE ASSESSEE. 25. THE NEXT ISSUE IS WITH RESPECT TO THE OBJECTION OF THE ASSESSEE IN MAKING TP ADJUSTMENT IN CONNECTION WITH NOTIONAL IN TEREST OF RS.1,104,290 ON OUTSTANDING RECEIVABLES FROM AES. 26. THE BRIEF FACTS ARE THAT THE DURING THE ASSESSM ENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE DETAILS OF THE RECEIVABLES W ITH ITS AES AND NON AES FOR MORE THAN 6 MONTHS AND LESS THAN 6 MONTHS. THE TPO OBSERVED THAT THERE ARE CERTAIN RECEIVABLES FROM THE AES WHICH AR E DUE EXCEEDING SIX MONTHS AT THE END OF THE FINANCIAL YEAR. THE TPO IN HIS ORDER ARGUED THAT OUTSTANDING RECEIVABLES (AMOUNTING TO RS. 74,91,793 ) FOR A PERIOD IT(TP)A NO.228/BANG/2015 PAGE 17 OF 24 EXCEEDING 6 MONTHS TAKE THE CHARACTERISATION OF A L OAN TRANSACTION FOR WHICH INTEREST IS CHARGEABLE. FURTHER, HE OBSERVED THAT IF INTEREST HAD BEEN CHARGED BY THE ASSESSEE ON ITS AES FOR THE OUTSTAN DING BALANCE, IT WOULD HAVE BEEN INCLUDED IN THE PROFIT OF THE ASSESSEE. 27. ACCORDINGLY, THE TPO DETERMINED THE CREDIT RATI NG OF THE AES AS BB ON ADHOC BASIS AND THEREBY IMPUTING INTEREST ON THE OUTSTANDING RECEIVABLES (BEYOND 6 MONTHS) FROM THE AES AT A RAT E OF 14.74% WHICH WAS DERIVED BASED ON THE ANNUAL AVERAGE YIELD FOR BB RATED BOND FOR 5 YEAR OR MORE TERM AT 12.28% PLUS ADHOC 20% PREMIUM WHICH WA S OBTAINED FROM CRISIL UNDER SECTION 133 (6) OF THE ACT. 28. THEREFORE, THE TPO MADE THE TRANSFER PRICING AD JUSTMENT OF RS. 11,04,290 TOWARDS NOTIONAL INTEREST ON THE RECEIVAB LES FROM AE. 29. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THE COMPUTATION OF NOTIONAL INTEREST BEFORE US AS FOLLOWS:- 30. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE PROPOSING THE NOTIONAL INTEREST ON RECEIVABLES OUTSTANDING FROM A E, THE TPO HAS TRIED TO BRING WITHIN THE AMBIT OF SECTION 92, A TRANSACTION THAT IS NON-EXISTENT. IT IT(TP)A NO.228/BANG/2015 PAGE 18 OF 24 WAS SUBMITTED THAT IN THE ABSENCE OF ANY SPECIFIC P ROVISION IN THE ACT WHICH SEEKS TO TAX ANY HYPOTHETICAL INCOME, THE ASSESSEE CANNOT BE SUBJECT TO TAX IN RESPECT OF HYPOTHETICAL INCOME, I.E., TO S AY AN INCOME WHICH OUGHT TO HAVE BEEN EARNED OR THAT THE ASSESSEE FAILED TO EAR N. IT WAS FURTHER SUBMITTED THAT IN THE PRESENT CASE, SINCE NO INCOME HAS BEEN EARNED OR CAN BE SAID TO HAVE BEEN EARNED BY THE ASSESSEE IN RESPECT OF INTEREST CHARGEABLE FROM AES, THE QUESTION OF APPLYING THE P ROVISIONS OF SECTION 92 OF THE ACT DOES NOT ARISE. 31. SECTION 92(1) OF THE ACT PROVIDES THAT, ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE . FURTHER, SECTION 92B(1) OF THE ACT DEFINES AN INTERNATIONAL TRANSACTION AS UNDER: FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, INTERNATIONAL TRANSACTION MEANS A TRANSACTIO N BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF W HOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBL E OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR L ENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH EN TERPRISES , AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR A PPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INC URRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERP RISES TO MEAN THE ALP IN LENGTH PRICE UNDER SECTION 92C (EMPHASIS SUPPLIED) IT(TP)A NO.228/BANG/2015 PAGE 19 OF 24 32. IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE AS SESSEE THAT THE ABOVE DEFINITION IMPLIES THAT THERE SHOULD BE A REAL TRA NSACTION BETWEEN TWO AES, I.E., A TRANSACTION INVOLVING ACTUAL EXCHANGE OF GO ODS/SERVICES TO CONSTITUTE AN INTERNATIONAL TRANSACTION. IT DOES NOT SEEK TO COVER ANY HYPOTHETICAL TRANSACTION WHICH HAS NOT TAKEN PLACE BETWEEN THE A ES. 33. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TO EXAMINE THE TRANSACTIONS THAT COULD BE SUBJECT TO TAX UNDER THE ACT, IT WOULD BE NECESSARY TO UNDERSTAND THE CONCEPT OF INCOME UND ER THE ACT. SECTION 2(24) OF THE ACT DEFINES INCOME. THE DEFINITION O F INCOME UNDER THE ACT IS OF AN INCLUSIVE NATURE, I.E., APART FROM THE ITEMS LISTED IN THE DEFINITION, ANY RECEIPT WHICH SATISFIES THE BASIC CONDITION OF BEIN G INCOME IS ALSO TO BE TREATED AS INCOME AND CHARGED TO INCOME TAX ACCORDI NGLY. ADDITIONALLY, THE ACT ALSO CONTAINS SPECIFIC PROVISIONS WHICH HAVE A DEEMING FICTION ON INCOME THAT COULD BE SUBJECT TO TAX, E.G. SECTION 1 15JB (MINIMUM ALTERNATE TAX). IT CAN BE CONSTRUED THAT THE ACT PROVIDES FOR TAXING ONLY REAL INCOME WHETHER RECEIVED OR ACCRUED UNDER THE NORMAL PROVIS IONS AND SPECIFICALLY PROVIDES FOR TAXATION OF PRESUMPTIVE INCOME. RELIA NCE WAS PLACED ON THE DECISION OF VODAFONE INDIA SERVICES PVT. LTD. V. UOI (W.P. NO.8 71 OF 2014) LTD. V.. UNION OF INDIA (WRIT PETITION NO.871 OF 20 14) AND THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EVONIK DEGUSSA INDIA P. LTD. V. ACIT (ITA NO.7653/MUM/2011) IN SUPPORT OF ITS CLAIM. IT(TP)A NO.228/BANG/2015 PAGE 20 OF 24 34. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ITAT BANGALORE BENCH IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006- 07 DELETED THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST RELATING T O ALLEGED DELAYED PAYMENT OF RECEIVABLES FROM AES. 35. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT T HE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2006-07 IN IT(TP)A NO.1529/BANG/2010 VIDE ORDER DATED 24.04.2015 WHILE DEALING WITH AN IDENTICAL ISSUE, HAS HELD AS FOLLOWS:- 11.2.2 ON THE FIRST ISSUE OF TAXABILITY OF NOTIONA L INCOME, THE ASSESSEE SUBMITTED THAT THE TPO HAS TRIED TO BR ING WITHIN THE AMBIT OF SECTION 92, A TRANSACTION THAT IS NON-EXIS TENT AND IN THE ABSENCE OF ANY PROVISION IN THE ACT, THE TAX-PAYER CANNOT BE SUBJECTED TO TAX IN RESPECT OF HYPOTHETICAL INCOME . IN THE CASE ON HAND, SINCE NO INCOME HAS BEEN EARNED OR CAN BE SAID TO HAVE BEEN EARNED BY THE ASSESSEE IN RESPECT OF INTEREST CHARGEABLE FROM AES, THE QUESTION OF APPLYING THE PROVISIONS OF SEC TION 92 OF THE ACT DOES NOT ARISE. IN SUPPORT OF THIS PROPOSITION, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCE MENTS :- 1) VODAFONE INDIA SERVICES PVT. LTD. V UOI (W.P. NO .871 OF 2014) 2) EVONIK DEGUSSA P. LTD. V ACIT OSD, CIRCLE 3(1 ) (ITA NO.7653/MUM/2011) OF ITAT, MUMBAI BENCH. 11.2.3 IT WAS ALSO SUBMITTED BY THE ASSESSEE THA T IT HAD NOT CHARGED ANY INTEREST FOR DELAYED REALISATIONS EVEN IN THE CASE OF NON-AE TRANSACTIONS. IT WAS SUBMITTED THAT THE DEBT S WERE OUTSTANDING WITH BOTH THE AES AND NON-AES FOR A PER IOD EXCEEDING THE CREDIT PERIOD PURELY BECAUSE OF BUSIN ESS REASONS AND THAT THIS IS A COMMON BUSINESS PRACTICE PREVAIL ING IN THE INDUSTRY AND THE DELAY IF ANY IN THE PAYMENT IS NOT DUE TO EXTENSION OF CREDIT PERIOD BY THE ASSESSEE TO ITS A ES. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE DECISIO N OF THE HON'BLE IT(TP)A NO.228/BANG/2015 PAGE 21 OF 24 HIGH COURT OF BOMBAY IN THE CASE OF CIT V INDO AMER ICAN JEWELLERY LTD., IN ITA NO.1053 OF 2012. 11.2.4 THE ASSESSEE FURTHER MADE THE FOLLOWING SUBMISSIONS :- (I) THE TPO HAD MENTIONED, IN HIS ORDER UNDER SECT ION 92CA OF THE ACT, THAT DEBTS OUTSTANDING FOR MORE THAN 6 MONTHS IS CONSIDERED FOR MAKING THE T.P. ADJUSTMENT TOWARDS N OTIONAL INTEREST. HOWEVER, THE ACTUAL ADJUSTMENT HAS BEEN M ADE ON THE TOTAL AMOUNT OF RECEIVABLES. IN THIS REGARD, IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THERE WE RE NO RECEIVABLES FROM AES OUTSTANDING FOR MORE THAN 6 MO NTHS. (II) IT WAS SUBMITTED THAT IF AT ALL ANY ADJUSTMEN T HAD TO BE MADE, THE NOTIONAL INTEREST IS TO BE COMPUTED ON TH E NET RECEIVABLES AFTER NETTING OFF PAYABLES TO ALL THE A ES AND NOT ONLY TO THE HOLDING COMPANY, AS TAKEN BY THE TPO. (III) IT WAS SUBMITTED THAT THE TPO HAS ERRED IN A DOPTING AN INTEREST RATE OF 14% BY STATING THAT IN TERMS OF TH E FINANCIAL HEALTH, THE AES OF THE ASSESSEE ARE NOT CONSIDERED FIT TO BE RETURNED EVEN AS BBB (MODERATE SAFETY) AS PER CRISI L RATING. HAVING SO STATED, THE TPO ARBITRARILY CONCLUDED THA T THE INTEREST RATE FOR BBB RATED CORPORATE BOND RATES AT 11.45% A ND WITH AN UPWARD ADJUSTMENT OF 20% TO ARRIVE AT THE CONCLUSIO N THAT THE RATE OF INTEREST OF 14% IS REASONABLE. 11.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD ING THE JUDICIAL DECISION CITED AND PLACED RELIANCE UPON. WE FIND TH AT THE DECISION OF THE ITAT, MUMBAI BENCH, IN THE CASE OF EVONIK DE GUSSA P. LTD. V ACIT OSD, CIRCLE 3(1), MUMBAI (ITA NO.7653/MUM/2011, DT.21.11.2012) OF ITAT, MUMBAI BE NCH IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE IN THE CASE ON HAND. IN THIS DECISION THE ITAT, MUMBAI BENCH AT PARA 28 THE REOF HAS HELD AS UNDER : IT(TP)A NO.228/BANG/2015 PAGE 22 OF 24 28. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSI ONS AND THE ORDERS OF THE TPO AS WELL AS THE DIRECTION OF T HE DRP, WE FIND THAT THE ASSESSEE HAS NO INTEREST LIABILITY AND IT DOES NOT HAVE ANY EXTERNAL BORROWINGS. EVEN IF THE PAYMENTS HAVE BEEN MADE BY THE AE BEYOND THE NORMAL CREDIT PERIOD, THERE IS NO INTEREST COST TO THE ASSESSEE. MOREOVER, THERE IS NO SUCH AGREEMENT WHEREBY INTEREST IS TO BE CHARGED ON SUCH A DELAYED PAYMENT. FROM THE SUMMARY OF PAYMENT SUBMITTED BY THE LEARNED COUNSEL, IT IS SEEN THAT THE BILLING IS DONE ON QUARTERLY BASIS AND, ACCORDINGLY, THE PAYMENT IS BEING RECEIVED. THEREFORE, THE DELAY IS NOT WHOLLY ON ACCOUNT OF LATE PAYMENT BY THE AES ONLY. MOREOVER, THE T.P. ADJUSTMENT CANNOT BE MADE ON HYPOTHETICAL AND NOTIONAL BASIS UNTIL AND UNLESS TH ERE IS SOME MATERIAL ON RECORD THAT THERE HAS BEEN UNDE R CHARGING OF REAL INCOME. THUS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT ADDITION AN ACCOUNT OF NOTIONAL INTEREST RELATING T O ALLEGED DELAYED PAYMENT IN COLLECTION OF RECEIVABLE S FROM THE AES IS UNCALLED FOR ON THE FACTS OF THE PRESENT CASE AND IS, ACCORDINGLY, DELETED. 11.4.2 FOLLOWING THE ABOVE DECISION OF THE ITAT, M UMBAI BENCH IN THE CASE OF EVONIK DEGUSSA INDIA P. LTD. ( SUPRA), WE ALSO HOLD THAT THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST RELATING TO ALLEGED DELAYED PAYMENT IN COLLECTION O F RECEIVABLES FROM AES IS NOT CALLED FOR. HOWEVER, AS CAN BE SEEN FROM THE EXTRACT OF THE DECISION REPRODUCED AB OVE, THE ABOVE DECISION HAS BEEN RENDERED IN THE FACTUAL CON TEXT THAT THERE HAS BEEN NO AGREEMENT FOR CHARGING INTEREST O N DELAYED PAYMENT. WE, THEREFORE, DEEM IT APPROPRIATE TO REMAND THIS ISSUE BACK O THE FILE OF THE ASSESSING OFFICER / TPO FOR EXAMINATION AS TO WHETHER THERE WAS ANY AGREEMENT FOR CHARGING INTEREST ON LATE PAYMENTS OR NOT AND IF IT IS FOUND THAT THERE WAS NO SUCH AGREEMENT , THEN THE T.P. ADJUSTMENT MADE IN THIS REGARD REQUIRES TO BE DELETED. AS THIS ISSUE HAS BEEN DECIDED, IN PRINCIP LE, IN FAVOUR OF THE ASSESSEE BY PLACING RELIANCE ON THE A FORESAID DECISION OF THE ITAT, MUMBAI BENCH (SUPRA), IT IS N OT NECESSARY FOR US TO ADJUDICATE ON THE OTHER GROUNDS OF APPEAL RAISED ON THIS ISSUE. CONSEQUENTLY, THE GRO UNDS IT(TP)A NO.228/BANG/2015 PAGE 23 OF 24 RAISED AT S.NOS.10 TO 13 RELATING TO THE ISSUE OF I NTEREST ON RECEIVABLES ARE DISPOSED OFF ACCORDINGLY. 36. RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE COORDINATE BENCH OF THIS TRIBUNAL CITED SUPRA IN ASSESSEES OWN CASE FOR THE AY 2006- 07, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES ERRED IN MAKING TP ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON OUTST ANDING RECEIVABLES FROM AES AND HENCE THE ASSESSEES GROUND(S) OF APPEAL ON THIS ISSUE IS ALLOWED. 37. THE NEXT GROUND OF APPEAL (GROUND NO.3) BY THE ASSESSEE IS WITH REGARD TO THE SHORT CREDIT OF TAXES DEDUCTED AT SOU RCE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS GRANTED CRED IT FOR TDS TO THE EXTENT OF RS.5,92,70,316 AS AGAINST RS.6,05,12,937 CLAIMED BY THE ASSESSEE IN THE REVISED RETURN OF INCOME, THUS RESU LTING IN A SHORT CREDIT OF RS.12,42,621. WE REMIT THIS ISSUE BACK TO THE FIL E OF THE ASSESSING OFFICER TO EXAMINE AND REWORK THE SHORT CREDIT OF TAXES DED UCTED AT SOURCE. 38. WITH RESPECT TO GROUND NO.4 REGARDING INTEREST U/S. 234B OF THE ACT, CHARGING OF INTEREST IS MANDATORY AND THERE IS NO D ISCRETION IN THE MATTER AS HELD BY THE HONBLE APEX COURT IN THE CASE OF ANJUM M.H. GHASWALA (252 ITR 1) (SC) . WE THEREFORE UPHOLD THE ACTION OF THE AO IN CHAR GING OF THE INTEREST. THE AO IS DIRECTED TO RECOMPUTE INTEREST U/S. 234B AFTER GIVING EFFECT TO THIS ORDER. IT(TP)A NO.228/BANG/2015 PAGE 24 OF 24 39. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 5 TH NOVEMBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.