Bechtel India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 6530/DEL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3136 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 03-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 21-12-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMRINDER KUMAR; T M SHIVAKUMAR
• Assessee Lawyers: ANKIT BHATIA
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Question of law; Corroborative evidences; Avoidance of tax; Onus to prove
• Section: 143(3); 92B; 234B; 115JB; 37(1); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI S.V. MEHROTRA, VICE PRESIDENT AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.6530/DEL/2016 ASSESSMENT YEAR : 2012-13 BECHTEL INDIA PVT. LTD., 418, NAURANG HOUSE, 21, K.G. MARG, NEW DELHI. PAN: AAACB0298A VS. ACIT, CIRCLE-4(2), ROOM NO.398D, CR BUILDING, IP ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NISHANT SAINI, ADVOCATE & SHRI ANKIT BHATIA, CA DEPARTMENT BY : SHRI T.M. SHIVAKUMAR, CIT, DR & SHRI AMRINDER KUMAR, CIT, DR DATE OF HEARING : 03.04.2017 DATE OF PRONOUNCEMENT : 16.05.2017 ORDER PER S.V. MEHROTRA, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) READ W ITH SECTION 144C OF ITA NO.6530/DEL/2016 2 THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 24.11.2016 IN RELATION TO THE ASSESSMENT YEAR 2012- 13. 2. BRIEF FACTS OF THE CASE ARE THAT BACHTEL, USA HA D SET UP A SUBSIDIARY COMPANY IN INDIA VIZ., THE ASSESSEE, BEC HTEL INDIA PVT. LTD. (BIPL) IN APRIL, 1994 TO RENDER ENGINEERING SUPPORT SERVICE IN RESPECT OF ENGINEERING DESIGNS AND DRAWINGS. THE ASSESSEE EXEC UTES ENGINEERING DESIGN AND DRAWING FOR VARIOUS OVERSEAS AES TO SUPP ORT THE OVERSEAS OFFICES TURNKEY PROJECT EXECUTIONS. THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING AN INCOME OF RS.56,76,79,230/- UND ER THE NORMAL PROVISIONS OF THE INCOME-TAX ACT AT ADJUSTED BOOK P ROFIT OF RS.5,34,52,420/- U/S 115JB OF THE INCOME-TAX ACT. DURING THE YEAR, THE ASSESSEE HAD REPORTED THE FOLLOWING INTERNATIONAL T RANSACTIONS IN FORM 3CEB:- NATURE OF TRANSACTION METHOD VALUE OF TRANSPORTATION PROVISION OF ENGINEERING DESIGN RELATED SERVICES TN MM 2,41,35,50,058 PROVISION OF FINANCIAL AND ACCOUNTING SUPPORT SERVICES TNMM 58,819,101 PROVISION OF IT INFRASTRUCTURE SUPPORT SERVICES TNM M 185,065,757 REIMBURSEMENT OF EXPENSES (PAID) TNMM 53,087,566 REIMBURSEMENT OF EXPENSES (RECEIVED) CUP 178,315,11 1 ITA NO.6530/DEL/2016 3 3. ACCORDINGLY, THE REFERENCE WAS MADE TO LD. TPO F OR DETERMINING THE ARMS LENGTH PRICE (ALP). THE LD. TPO ISSUED A SHOW CAUSE NOTICE DATED 1 ST MAY, 2016 TO THE ASSESSEE AS DETAILED BELOW:- EXAMINATION OF THE BALANCE SHEET REVEALS RECEIVABL ES THEREBY IMPLYING THAT THE PAYMENT FOR THE INVOICES RAISED BY YOU HAV E NOT BEEN RECEIVED WITHIN THE STIPULATED TIME AS PROVIDED IN YOUR SERV ICE AGREEMENT WITH YOUR AE. IN THIS REGARD, YOU ARE REQUESTED TO FURNI SH THE TIME PERIOD FOR PAYMENT AS PER YOUR SERVICE AGREEMENT WITH YOUR AE. HOWEVER, TO BE REASONABLE AND FAIR TO THE ASSESSEE, INSTEAD OF CHA RGING PENAL INTEREST, THE DELAYED PAYMENTS ARE BEING TREATED AS UNSECURED LOA NS ADVANCED TO THE AES AND IT IS PROPOSED TO CHARGE A NORMAL RATE AS P ER THE ANNUAL AVERAGE YIELD OF CORPORATE BONDS PERTAINING TO CREDIT RATIN G OF YOUR AE FOR THE PERIOD OF DELAY IN RECEIPT OF PAYMENT BEYOND THE TI ME STIPULATED IN THE SERVICES AGREEMENT. THE INTEREST RATE HAS BEEN CHA RGED ON THE BASIS OF PREVAILING AVERAGE SBI BASE RATE DURING THE YEAR. YOU ARE REQUESTED TO FURNISH CREDIT RATING OF ALL THE AES FOR THE F.Y. 2 010-11 WITH WHOM YOU HAVE UNDER TAKEN AFORESAID TRANSACTIONS. YOU ARE R EQUESTED TO FURNISH AE WISE AND INVOICE WISE DETAILS ALONG WITH THE PER IOD OF DELAY IN RECEIPT OF PAYMENT AS PER DETAILS BELOW: S.NO. INVOICE NO. DATE OF NVOICE AMOUNT (INR) DATE OF RECEIPT/ PAYMENT (INR) PERIOD OF DELAY INTEREST @11.69% P.A. FOR THE DELAY PERIOD YOU ARE ALSO REQUESTED TO GIVE SIMILAR DETAILS OF R ECEIVABLES OUTSTANDING AS ON 01.04.2010. IN CASE NO PAYMENT TERMS IS SPECIFIED IN THE SERVICE AGREEMENT/INVOICE RAISED TO THE AE, YOU ARE REQUEST ED TO GIVE AVERAGE RECEIVABLE PERIOD FOR THIRD PARTY TRANSACTIONS. IN CASE THERE ARE NO SUCH THIRD PARTY TRANSACTIONS, THE DETAILS OF AVERAGE PAYABLE PERIOD FOR AE TRANSACTIONS SHOULD BE MENTIONED. ITA NO.6530/DEL/2016 4 4. THE ASSESSEE, IN ITS REPLY, VIDE LETTER DATED 12 TH DECEMBER, 2014, RAISED THE FOLLOWING OBJECTION TO THE BENCHMARKING OF THE RECEIVABLES:- A) RECEIVABLES WERE NOT SEPARATE INTERNATIONAL TRANSAC TIONS; B) RE-CHARACTERISATION OF RECEIVABLES WAS NOT PERMITTE D; AND C) NON-APPLICATION OF SBI BASE RATE FOR BENCHMARKING. 5. THE ASSESSEE ALSO FURNISHED THE FOLLOWING INFORM ATION:- I. TIME PERIOD OF PAYMENT AS PER SERVICE AGREEMENT WITH AE TIME PERIOD OF PAYMENT AS PER SERVICE AGREEMENT WIT H AE IS 60 DAYS. II. CREDIT RATING FOR ALL AES FOR FY 2011-12. III. INVOICE WISE DETAILS OF OUTSTANDING RECEIVABLE S AS PER SPECIFIED FORMAT. 6. THE LD. TPO, REFERRING TO AMENDMENT OF SECTION 9 2CA(2A) INTRODUCED BY THE FINANCE ACT, 2011 W.E.F. 01.06.20 11 AND PROSPECTIVE AMENDMENT OF SECTION 92CA(2B) INTRODUCED BY FINANCE ACT, 2012 W.E.F. 01.06.2012, POINTED OUT THAT TPO SHOULD DETE RMINE ALP OF ITA NO.6530/DEL/2016 5 INTERNATIONAL TRANSACTIONS WHICH COMES TO HIS NOTIC E DURING THE COURSE OF PROCEEDINGS PENDING BEFORE HIM. HE FURTHER EXAMINED THE ASSESSEES OBJECTION THAT RECEIVABLES WAS NOT AN INTERNATIONAL TRANSACTION AND, IN THIS REGARD, REFERRED TO THE AMENDMENT BEING EXPLAN ATION (1) (C) TO THE SECTION 92 TO BE INSERTED BY FINANCE ACT, 2012 W.E. F. 01.04.2002 AMENDING THE TERM INTERNATIONAL TAXATION BY INCLU DING THEREIN THE FOLLOWING:- CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS. 7. FROM THIS, HE CONCLUDED THAT ANY TYPE OF ADVANCE , PAYMENTS OR DEFERRED PAYMENTS ARE RECEIVABLE OR ANY OTHER DEBT DURING THE COURSE OF BUSINESS ADVANCEMENT IS COVERED UNDER THE DEFINITIO N OF INTERNATIONAL TRANSACTION. THE LD. TPO FURTHER POINTED OUT THAT IN THIS CASE, ADMITTEDLY, THE TAX PAYER HAD PROVIDED BENEFIT TO I TS AE BY WAY OF ADVANCEMENT OF INTEREST FREE LOAN IN THE GARB OF DE LAYED RECEIPT OF RECEIVABLES. HE OBSERVED THAT THESE FUNDS COULD HA VE BEEN OTHERWISE DEPLOYED FOR AT LEAST EARNING INTEREST INCOME. THE REFORE, THE TAX PAYER ITA NO.6530/DEL/2016 6 HAD INCURRED COST IN CONNECTION WITH A BENEFIT AND SERVICES PROVIDED TO THE AE BY WAY OF DELAYED RECEIPT OF RECEIVABLE. HE POINTED OUT THAT NO PAYMENT TERMS HAVE BEEN SPECIFIED AS PER SERVICE AG REEMENT OR THE INVOICE AND, THEREFORE, AS PER PRUDENT ESTIMATE PAY MENT PERIOD OF 30 DAYS SHALL BE ALLOWED FOR PAYMENT OF SALES/SERVICE. ANY DELAY BEYOND THE AFORESAID PERIOD WOULD BE BENCHMARKED ACCORDING LY. THE LD. TPO DID NOT ACCEPT THE ASSESSEES CONTENTION THAT RECEI VABLE TRANSACTION SHOULD BE BENCHMARKED USING A COMBINED TRANSACTION APPROACH. HE REFERRED TO A PLETHORA OF DECISIONS ON THE ISSUE TH AT TRANSACTION BY TRANSACTION APPROACH HAS TO BE ADOPTED AND, THEREFO RE, TRANSACTION RELATING TO RECEIVABLES NEEDS TO BE BENCHMARKED SEP ARATELY. IN ORDER TO FIND OUT COST OF FUNDS BLOCKED IN INTRA GROUP LOANS , HE ADOPTED CUP AS THE PRIME LENDING RATE OF SBI TO WHICH 300 BASIS PO INTS WAS BEING ADDED TO TAKE INTO ACCOUNT THE VARIOUS FACTORS OF THE RIS KS. IN SUPPORT OF HIS CONTENTION, HE RELIED ON THE DECISION IN THE CASE O F CHEIL INDIA PVT. LTD. (ITA NO.1230/DEL/2014) FOR ASSESSMENT YEAR 2009-10, WHEREIN IT HAS BEEN UPHELD THAT FOR BENCHMARKING OF INTEREST CHARG EABLE ON DELAYED RECEIVABLES BASED ON SBI BASE RATE WAS PROPER. HE, AFTER CONSIDERING ALL ITA NO.6530/DEL/2016 7 THESE ASPECTS, INTEREST RATE OF 12.60% WAS ADOPTED FOR CHARGING OF DEEMED LOAN ADVANCED FOR THE PERIOD OF RECEIVABLES OUTSTANDING BEYOND THE PERIOD STIPULATED IN THE SERVICE AGREEMENT/INVO ICE. LD. TPO HAS, ACCORDINGLY, DIRECTED FOR ADJUSTMENT ON ACCOUNT OF ALP OF THE RECEIVABLES AT RS.1,28,97,839/-. BEFORE THE LD. DR P, THE ASSESSEE HAD RAISED VARIOUS OBJECTIONS WHICH HAVE BEEN METICULOU SLY DEALT WITH BY THE LD. DRP. THE FIRST OBJECTION WAS IN REGARD TO T REATING THE RECEIVABLES AS A SEPARATE INTERNATIONAL TRANSACTION WHICH OBJEC TION WAS REJECTED IN VIEW OF THE INSERTION OF EXPLANATION 1(C) TO SECTIO N 92B FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT IN CIT VS. COTTON NATURALS PVT. LTD., 2015-TII-09-HC-DEL-TP . THE SECOND OBJECTION WAS IN REGARD TO SEPARATE BENCHMARKING OF THE TRANSACTIONS RELATING TO RECEIVABLES. IN REGARD TO THE ASSESSEES OBJECTION FOR RE-CHARACTER IZATION OF TRANSACTION, LD. DRP POINTED OUT THAT RE-CHARACTERIZATION OF TRA NSACTIONS WAS POSSIBLE ONLY WHEN THE UNDERLYING INTERNATIONAL TRANSACTIONS ARE CONTINUOUS AND CLOSELY LINKED. THE BURDEN OF PROVING THAT THE TRA NSACTIONS ARE CLOSELY LINKED ARE ON THE ASSESSEE. HOWEVER, THE ASSESSEE HAD FAILED TO DISCHARGE ITS BURDEN OF PROOF. THE LD. DRP FURTHER OBSERVED THAT EVEN IF ITA NO.6530/DEL/2016 8 THE TRANSACTIONS WERE TO BE AGGREGATED AND ONLY ENT ITY LEVEL PROFITS CONSIDERED, IT WAS ESSENTIAL FOR THE ASSESSEE TO HA VE SHOWN THAT THE COMPARABLE SELECTED BY THE ASSESSEE, WERE ALSO COMP ARABLE FROM THE PERSPECTIVE OF HAVING RECEIVABLES ON WHICH NO INTER EST HAD BEEN CHARGED. THE ASSESSEE HAD FAILED TO DEMONSTRATE THAT SELECTE D COMPARABLES HAD SIMILAR OVERDUE RECEIVABLES AND NO SEPARATE ADJUSTM ENT WAS REQUIRED ON INTEREST OF OVERDUE RECEIVABLES. THE LD. DRP FURTH ER OBSERVED THAT THE ASSESSEE FAILED TO SHOW THAT THE DELAY IN PAYMENT O F RECEIVABLES WAS COMPENSATED BY THE AE THROUGH A SET OFF IN ANY OTHE R TRANSACTION. HE FURTHER POINTED OUT THAT ANY SET OFF REQUIRES THAT BOTH THE TRANSACTIONS WHICH SET OFF EACH OTHER SHOULD BE BENCHMARKED SEPA RATELY AND THE ALP MUST, FIRSTLY, BE DETERMINED SEPARATELY FOR THESE T RANSACTIONS. HE REFERRED TO OECD GUIDELINES AND POINTED OUT THAT TH E SAME RECOGNIZES THAT A SET OFF DOES NOT MEAN THAT BOTH THE TRANSACT IONS SHOULD NOT BE AT ARMS LENGTH. THE GUIDELINES ALSO SAY THAT THE ONU S OF DEMONSTRATING THE EXISTENCE OF A SET OFF BUILT INTO TWO TRANSACTIONS WAS ON THE ASSESSEE. IT WAS FOR THE ASSESSEE TO ESTABLISH SET OFF WHICH REQ UIRE SUPPORTING EVIDENCE. THE LD. DRP FURTHER POINTED OUT THAT THE ASSESSEES CONTENTION ITA NO.6530/DEL/2016 9 THAT NO SEPARATE ADJUSTMENT CAN BE MADE TOWARDS INT EREST ON OVERDUE RECEIVABLES AS THE ENTITY LEVEL RESULTS HAD ALREADY BEEN CONSIDERED BY THE TPO WAS NOT ACCEPTABLE BECAUSE CONSIDERATION OF ENT ITY LEVEL RESULTS DOES NOT PRECLUDE EXAMINATION OF INDIVIDUAL TRANSAC TIONS TO SEE WHETHER THEY ARE AT ARMS LENGTH. HE POINTED OUT THAT TNMM , AS ITS VERY NAME SUGGESTS, IS THE TRANSACTIONAL NET MARGIN METHOD. IT CANNOT BE INTERPRETED AS THE OVERALL NET PROFIT METHOD. AN AG GREGATE APPROACH DOES NOT MEAN THAT IF AN ASSESSEE RECEIVES LESS THAN THE ALP ON TRANSACTIONS AND MORE THAN THE ALP IN ANOTHER TRANSACTION, THEN, BOTH TRANSACTIONS ARE TO BE AUTOMATICALLY AGGREGATED AND NO TP ADJUSTMENT MADE. HE POINTED OUT THAT, IN FACT, IN SUCH A CASE, TP ADJUSTMENT IS STILL REQUIRED TO BE MADE IN RESPECT OF THE TRANSACTIONS WHERE THE PRICE RECEIVED WAS LESS THAN THE ALP. THE LD. DRP, ACCORDINGLY, UPHELD THE TPOS ACTION IN BENCHMARKING THIS TRANSACTION USING CUP AS THE MOST APPROPRIATE METHOD. ONE OF THE MAJOR CONTENTIONS OF THE ASSESS EE WAS THAT SINCE WORKING CAPITAL ADJUSTMENT HAS BEEN MADE, THEREFORE , NO SEPARATE ADJUSTMENT IN REGARD TO RECEIVABLES BE MADE BECAUSE THE ADJUSTMENT RELATING TO RECEIVABLES HAS ALREADY GOT SUBSUMED IN THE WORKING CAPITAL ITA NO.6530/DEL/2016 10 ADJUSTMENT. THE LD. DRP POINTED OUT THAT WORKING C APITAL ADJUSTMENT TAKES INTO ACCOUNT ONLY TRADE CREDITORS AND NOT CRE DITS RECEIVED TOWARDS CAPITAL ITEMS AND FROM VARIOUS GROUP CONCERNS OR LO ANS, ETC. ONLY OPENING AND CLOSING BALANCE OF TRADE DEBTORS/CREDIT ORS AND INVENTORY ARE CONSIDERED FOR THIS PURPOSE. THE LD. DRP FURTHER OB SERVED AS UNDER:- 2. THESE FACTS SHOW THAT THE WORKING CAPITAL ADJUS TMENT DOES NOT COVER THE ENTIRE OUTSTANDING AMOUNTS, SINC E IT IS RESTRICTED TO CERTAIN AMOUNTS ONLY, AND IS COMPUTED ON THE BASIS OF AMOUNTS AT THE BEGINNING AND THE END OF THE YEAR . ON THE OTHER HAND, THE COMPUTATION OF INTEREST ON RECEIVAB LES IS BASED ON A DAY WISE ANALYSIS WHICH IS MUCH MORE DETAILED, COMPARED TO THE OPENING AND THE CLOSING BALANCES ONLY TAKEN FOR COMPUTING WORKING CAPITAL ADJUSTMENT. SUCH DETAILE D ANALYSIS OF WORKING CAPITAL ADJUSTMENT IS NOT POSSIBLE BECAU SE THE PUBLICLY AVAILABLE DATA FOR COMPARABLES IS LIMITED TO OPENING AND CLOSING BALANCES APPEARING IN THE BALANCE SHEET S. IN VIEW OF THESE FACTS, THE WORKING CAPITAL ADJUSTMENT DOES NOT ENTIRELY COVER THE ADJUSTMENT TOWARD INTEREST ON RECEIVABLES . TO ILLUSTRATE, IF RECEIVABLES THOUGH OUTSTANDING THROU GHOUT THE YEAR, WERE REDUCED TO NIL AT THE END OF THE YEAR, THIS WO ULD NOT HAVE ANY IMPACT ON THE WORKING CAPITAL ADJUSTMENT, SINCE THAT DEPENDS ON THE CLOSING BALANCE WHICH IS NIL. HOWEV ER, THE COMPUTATION OF INTEREST ON RECEIVABLES WOULD TAKE T HIS INTO ACCOUNT AS IT CONSIDERS THE OUTSTANDING BALANCE THR OUGHOUT THE YEAR. ITA NO.6530/DEL/2016 11 8. THE LD. DRP RELYING ON THE DECISION OF ITAT IN A MERIPRISE INDIA PVT. LTD. VS. ACIT, 2015-TII-347-ITAT-DEL-TP, REJEC TED THE ASSESSEES CONTENTION THAT THIS ADJUSTMENT IS NOT REQUIRED AS WORKING CAPITAL ADJUSTMENT TAKES INTO ACCOUNT THE DELAY. THE NEXT O BJECTION OF THE ASSESSEE WAS THAT THE ADJUSTMENT TOWARDS INTEREST O N DELAYED RECEIVABLES WAS NOT WARRANTED AS THE ASSESSEE WAS A ZERO DEBT C OMPANY. THIS PLEA WAS REJECTED OBSERVING THAT ALP IS THE PRICE WHICH COULD HAVE BEEN PAID IN AN UNCONTROLLED TRANSACTION. THE LD. DRP DEMONST RATED THAT EVEN THOUGH MARGINAL COST IS ZERO, STILL THE GOODS WILL COMMAND PRICE. THE LD. DRP FURTHER OBSERVED IN PARA 2 AS UNDER:- FURTHER, THE ASSESSEES BALANCE SHEET SHOWS SUBSTA NTIAL CURRENT LIABILITIES AND ALSO LOANS AND ADVANCES. THE P&L A /C SHOWS SIGNIFICANT INCOME FROM INTEREST AND THE ASSESSEE HAS ALSO DEBI TED INTEREST OF RS.64,79,897/-. IT IS APPARENT THAT IF THE ASSESSE E HAD RECEIVED ITS RECEIVABLES FROM ITS AE WITHIN TIME, IT COULD HAVE REDUCED ITS INTEREST PAYMENT, OR INCREASED THE INTEREST INCOME. THE ASS ESSEE HAS ALSO FAILED TO DEMONSTRATE THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR EXTENDING THIS SPECIAL FACILITY TO ITS AE. THE BUR DEN OF PROVING ANY SUCH CLAIM WAS ON THE ASSESSEE HOWEVER, THE ASSESSE E HAS FAILED TO SUBSTANTIATE THIS CLAIM. 9. IN VIEW OF THE ABOVE DISCUSSION, THE LD. DRP REJ ECTED THE ASSESSEES CLAIM THAT NO SEPARATE ADJUSTMENT WAS WA RRANTED IN REGARD TO ITA NO.6530/DEL/2016 12 RECEIVABLES. THE ASSESSEE IS IN APPEAL BEFORE US RA ISING THE FOLLOWING GROUNDS:- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/LD. TRANSFER PRICING OFFICER ('TPO')/ LD. DISPUT E RESOLUTION PANEL ('DRP') ERRED IN MAKING AN ADDITION OF INR 46 ,88,262/- TO THE RETURNED INCOME OF THE APPELLANT BY IMPUTING INTERE ST ON RECEIVABLES FROM THE ASSOCIATED ENTERPRISES BEYOND THE CREDIT P ERIOD OF THE APPELLANT ON AN AD HOC BASIS, UNDER SECTION 92 OF T HE ACT. THUS, IN PASSING THE ORDER, THE LD. AO/LD. TPO/LD. DRP GROSS LY ERRED IN: 1.1. RE-CHARACTERIZING THE RECEIVABLES DUE AFTER A CERTAIN CREDIT PERIOD AS UNSECURED LOANS ADVANCED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES; 1.2. NOT APPRECIATING THAT WORKING CAPITAL ADJUSTM ENT HAS BEEN CARRIED OUT AND ACCEPTED BY THE LD. DRP AND THAT TH E ARM'S LENGTH PRICE DETERMINATION FOR OUTSTANDING RECEIVABLES IS SUBSUMED WITHIN THE ARM'S LENGTH PRICE DETERMINATION OF THE PRINCIPAL I NTERNATIONAL TRANSACTION ITSELF; 1.3. SELECTING AN AD HOC INTEREST RATE OF LIBOR PL US 400 BPS WHILE COMPUTING THE ADDITION; AND 1.4. COMPLETELY DISREGARDING THE ORDER PASSED BY HON'BLE INCOME TAX APPELLATE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR ASSESSMENT YEARS 2010-11 AND 2011-12 WHICH IS SQUARELY APPLICA BLE IN THE INSTANT CASE AS WELL, THUS VIOLATING THE PRINCIPAL OF JUDIC IAL DISCIPLINE. 1.5. COMPLETELY DISREGARDING THE ORDER PASSED BY T HE HON'BLE DELHI HIGH COURT IN THE APPELLANT'S OWN CASE FOR ASSESSME NT YEAR 2010-11 WHICH IS SQUARELY APPLICABLE IN THE INSTANT CASE AS WELL, THUS VIOLATING THE PRINCIPAL OF JUDICIAL DISCIPLINE. ITA NO.6530/DEL/2016 13 3. THAT THE LD. AO HAS ERRED IN CHARGING INTEREST U NDER SECTION 234B AND 234C OF THE ACT AMOUNTING TO INR 990,007 A ND 160,583 RESPECTIVELY. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PRO CEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 10. THE LD. COUNSEL SUBMITTED THAT THE LD. DRP HAS PROVIDED WORKING CAPITAL ADJUSTMENT IN ITS DIRECTIONS WHICH TAKES IN TO ACCOUNT THE IMPACT OF OUTSTANDING RECEIVABLES ON THE PROFITABILITY. T HEREFORE, NO SEPARATE ADJUSTMENT IS WARRANTED ON ACCOUNT OF OUTSTANDING R ECEIVABLES. THE LD. COUNSEL REFERRED TO THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 CONTAINED AT PAGES 196 TO 218 OF THE PAPER BOOK AND POINTED OUT THAT THE TRIBUNAL HAS HE LD THAT THE ASSESSEE IS A DEBT FREE COMPANY AND, THEREFORE, IT WAS NOT JUST IFIABLE TO PRESUME THAT BORROWED FUNDS HAD BEEN UTILIZED TO PASS ON THE FAC ILITY TO ITS AES. THE TRIBUNAL, RELIED ON THE DECISION OF KUSUM HEALTHCARE PVT. LTD., TS/129/ITAT/2015/DEL/TP FOR HOLDING THAT NO SEPARATE ADJUSTMENT WAS WARRANTED ON ACCOUNT OF INTEREST ON RECEIVABLES. T HE LD. COUNSEL FURTHER ITA NO.6530/DEL/2016 14 POINTED OUT THAT HON'BLE DELHI HIGH COURT WHILE DIS MISSING THE APPEAL OF THE REVENUE, HAS HELD AS UNDER:- 4. AS FAR AS QUESTION (B) CONCERNING THE ADJUSTMEN T FOR INTEREST NO RECEIVABLES, THE COURT FINDS THAT THE ITAT HAS RETU RNED A DETAILED FINDING OF FACT THAT THE ASSESSEE IS A DEBT FREE CO MPANY AND THE QUESTION OF RECEIVING ANY INTEREST ON RECEIVABLES D ID NOT ARISE. CONSEQUENTLY, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION AS FAR AS THIS ISSUE IS CONCERNED. 11. THE LD. COUNSEL FURTHER REFERRED TO THE DECISIO N OF THE TRIBUNAL IN THE CASE OF ACTIS GLOBAL SERVICES PVT. LTD. (ITA NO.30/DEL/2015 ) DATED 10 TH DECEMBER, 2015, WHEREIN IN PARA 59, THE TRIBUNAL, INTER ALIA, HAS OBSERVED AS UNDER:- 59. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. AS FAR AS ID. COUNS EL'S PLEA BASED ON THE DIRECTIONS OF DRP FOR AY 2009-10 IS CONCERNED, WE F IND THAT IN THE SAID ASSESSMENT YEAR THE ASSESSEE HAD OBJECTED TO THE TP O NOT ALLOWING WORKING CAPITAL ADJUSTMENT AND SINCE THIS ADJUSTMEN T WAS DIRECTED TO BE ALLOWED BY ID. DRP, THEREFORE, A SEPARATE ADDITION ON THIS GROUND WAS NOT REQUIRED. HOWEVER, IN THE PRESENT ASSESSMENT YE AR, ID. TPO HAD DENIED THE WORKING CAPITAL ADJUSTMENT AND THE SAME HAS NOT BEEN ASSAILED BEFORE US. UNDER SUCH CIRCUMSTANCES, THE M ATTER NEEDS TO BE RESTORED BACK TO THE ID. TPO TO VERIFY THE ASSESSEE 'S CONTENTION REGARDING ALL THE INVOICES OUTSTANDING BEING FOR LESS THAN SI X MONTHS AND, IF, THE SAME IS FOUND TO BE CORRECT, THEN NO ADDITION IS CA LLED FOR IN VIEW OF THE ITAT DECISION IN THE CASE OF M/S LOGIX MICRO SYSTEM S LTD. (SUPRA). ONE OF THE PLEA OF ID. COUNSEL FOR THE ASSESSEE WAS THA T THE ENTIRE FUNDS ARE ITA NO.6530/DEL/2016 15 RECEIVED FROM PARENT COMPANY. HOWEVER, THIS PLEA HA S BEEN TAKEN FOR THE FIRST TIME AND WAS NOT TAKEN BEFORE LOWER REVENUE A UTHORITIES. THEREFORE, THIS ASPECT ALSO NEEDS TO BE CONSIDERED BY ID. TPO WHILE DECIDING THIS ISSUE DE NOVO. IN THE RESULT, GROUND NO. 9 IS ALLOW ED FOR STATISTICAL PURPOSES. 12. THE LD. COUNSEL POINTED OUT THAT IN THE YEAR UN DER CONSIDERATION ALSO THE ASSESSEE CONTINUED TO BE DEBT FREE COMPANY AND FACTS BEING IDENTICAL THE DECISION FOR EARLIER YEAR SHOULD BE F OLLOWED. THE LD. COUNSEL FURTHER REFERRED TO TRIBUNALS ORDER IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2011-12 CONTAINED AT PAGES 219 TO 2 68 OF THE PAPER BOOK AND REFERRING TO PARA 26, POINTED OUT THAT THE ISSUE HAS BEEN RESTORED TO THE TPO FOR EXAMINING THE SIMILARITY OF FACTS FOR BOTH THE YEARS, INTER ALIA, HOLDING AS UNDER:- . IN VIEW OF THE SAME, THE ISSUE IS RESTORED TO THE TPO TO CONSIDER THE SAME AND THE FACTS AS ARGUED BY THE ASSESSEE BE FORE THE ITAT IN 2010- 11 ASSESSMENT YEAR MAY BE DEMONSTRATED TO BE IN EXI STENCE IN THE YEAR UNDER CONSIDERATION ALSO BEFORE THE TPO AS RELIANCE PLACED ON KUSUM HEALTHCARE PVT. LTD. QUA THE FACTS IN THE YEAR UNDE R CONSIDERATION ALSO NEEDS TO BE ESTABLISHED. ACCORDINGLY THE ISSUE IS RESTORED BACK WITH THE ABOVE DIRECTION. 13. THE LD. COUNSEL FURTHER RELIED ON THE DECISION OF ITAT IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SUPRA), WHEREIN IT W AS HELD THAT IF THE ITA NO.6530/DEL/2016 16 IMPACT OF THE CREDIT PERIOD WAS DULY FACTORED AS IN A WORKING CAPITAL ADJUSTMENT WHILE DETERMINING THE ALP, THEN, NO SEPA RATE ADJUSTMENT FOR INTEREST ON RECEIVABLES WAS WARRANTED IN THE HANDS OF THE TESTED PARTY. THE LD. COUNSEL POINTED OUT THAT THE DECISION IN KU SUM HEALTHCARE PVT. LTD. HAS BEEN FOLLOWED IN THE FOLLOWING CASES:- I) INFORMATION SYSTEMS RESOURCE CENTRE PVT. LTD. (TS-2 52-ITAT- 2015-MUM; AND II) GOLD STAR JEWELLERY LTD. VS. JCIT (ITA NO.6520/MUM/ 2012). 14. THE ASSESSEE FURTHER PLACED RELIANCE ON THE ITA T DELHI IN THE CASE OF INDO GERMAN JEWELLERY LTD. (ITA NO.587/MUM/2009) , WHEREIN IT HAS BEEN HELD THAT THE TRANSACTION OF SALE AND LENDING ARE DISTINCTLY SET OUT AS PER SECTION 92 OF THE ACT AND IT WAS HELD THAT INTE REST INCOME IS ASSOCIATED MORE WITH LENDING OR BORROWING OF MONEY AND NOT WITH SALE. IT WAS FURTHER HELD THAT WHILE DETERMINING THE ALP OF THE SALE TRANSACTION, ALL RELEVANT ASPECTS INCLUDING CREDIT PERIOD ALLOWED ARE TAKEN INTO CONSIDERATION AND THAT INTEREST ASPECT IS EMBE DDED IN THE SALE PRICE. IT WAS FURTHER HELD THAT THERE CAN BE NO SEPARATE I NTERNATIONAL TRANSACTION ITA NO.6530/DEL/2016 17 OF INTEREST, OUTSTANDING RECEIVABLES AND THAT EARLY OR LATE REALIZATION OF SALES PROCEEDS IS INCIDENTAL TO TRANSACTION OF SALE . 15. THE LD. DR SUBMITTED THAT FOR THE PROPOSITION T HAT NON-CHARGING OR UNDER CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE FOR THE REALIZATION OF INVOICES AMOUNTS TO AN IN TERNATIONAL TRANSACTION, RELIANCE WAS PLACED ON TECHBOOKS INTER NATIONAL PVT. LTD. VS. DCIT (2015) 63 TAXMANN.COM 114 (DEL TRIBUNAL). THE LD. DR FURTHER REFERRED TO THE ASSESSEES WRITTEN SUBMISSIONS, WHE REIN THE ASSESSEE HAS GIVEN A TABLE IN RESPECT OF NUMBER OF DAYS FOR WHIC H THE AMOUNT REMAINED OUTSTANDING. HE POINTED OUT THAT IF THE P ARTY RAISES ITS INVOICES AT THE FAG END OF THE YEAR, THE RATIOS WILL BE TOTA LLY DIFFERENT FROM THE CASES WHERE THE INVOICES WERE RAISED IN THE BEGINNI NG OF THE YEAR AND DULY COLLECTED BEFORE THE END OF THE YEAR (EVEN IF COLLECTED AFTER 6-8 MONTHS). HE REFERRED TO THE DECISION OF ITAT IN TH E CASE OF MCKINSEY KNOWLEDGE CENTRE PVT. LTD. VS. DCIT, WHEREIN IN PAR A 63 IT HAS BEEN CLEARLY DEMONSTRATED THAT THE AVERAGING OF OPENING AND CLOSING BALANCE AND USING THE RATIO OF SALES TO AVERAGE WRITTEN HAS INHERENT FALLACY. ITA NO.6530/DEL/2016 18 FURTHER, IT HAS BEEN HELD THAT WORKING CAPITAL ADJU STMENT WILL NOT TAKE CARE OF THE BENCHMARKING OF INTEREST ON RECEIVABLES . THE SAME IS REPRODUCED FOR READY REFERENCE:- 63. THE DELHI BENCH IN AMERIPRISE (SUPRA) AND TECHBOOKS (SUPRA) DID NOT APPROVE THE REASONING ABOUT SUCH INTEREST S UBSUMING IN WORKING CAPITAL ADJUSTMENT. IT FOUND THAT THE WORKING CAPI TAL ADJUSTMENT IS IN RESPECT OF INTERNATIONAL TRANSACTION OF RENDERING S ERVICES TO THE AE. INTEREST FOR THE CREDIT PERIOD ALLOWED AS PER THE A GREEMENT IS FACTORED IN THE PRICE CHARGED FOR THE RENDERING OF SERVICES. I N THE OPPUGNATION, THE NON-REALIZATION OF INVOICE VALUE BEYOND THE STIPULA TED PERIOD IS A SEPARATE INTERNATIONAL TRANSACTION, WHOSE ALP IS RE QUIRED TO BE DETERMINED. GRANTING OF WORKING CAPITAL ADJUSTMENT HAS BEEN HELD TO BE CONFINED TO THE INTERNATIONAL TRANSACTION OF RENDER ING OF SERVICES, WHOSE ALP IS SEPARATELY DETERMINABLE. ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION OF INTEREST RECEIVABLE FROM ITS AES FOR LATE REALIZATION OF INVOICES BEYOND SUCH STIPULATED PERIOD IS A SEPARAT E INTERNATIONAL TRANSACTION. ALLOWING WORKING CAPITAL ADJUSTMENT I N THE INTERNATIONAL TRANSACTION OF RENDERING SERVICES HAS BEEN HELD TO HAVE NO IMPACT ON THE DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTI ON OF INTEREST ON RECEIVABLES FROM AES BEYOND THE STIPULATED PERIOD A LLOWED AS PER THE AGREEMENT. IN OUR CONSIDERED OPINION, WHEREAS, THE INTERNATIONAL TRANSACTION OF PURCHASE/SALE OF GOODS FROM/TO AE CO NTEMPLATES COMPARISON OF THE PRICE CHARGED/PAID FOR SUCH GOODS BY IMPLIEDLY INCLUDING THE INTEREST FOR THE PERIOD ALLOWED FOR R EALIZATION OF INVOICES AS PER THE TERMS OF THE AGREEMENT, THE INTERNATIONAL T RANSACTION OF CHARGING INTEREST ON LATE RECOVERY OF TRADE RECEIVABLE COVER S THE PERIOD WHICH STARTS WITH THE TERMINATION OF THE PERIOD OF CREDIT ALLOWED UNDER THE AGREEMENT, WHICH IS SUBJECT MATTER OF THE INTERNATI ONAL TRANSACTION OF PURCHASE/SALE OF GOODS. THERE IS ONE MORE FALLACY I N THE ARGUMENT ABOUT THE SUBSUMING OF INTEREST INCOME IN THE WORKING CAP ITAL ADJUSTMENT. IT IS SIMPLE THAT WORKING CAPITAL ADJUSTMENT IS ORDINARIL Y COMPUTED BY CONSIDERING THE AVERAGE OF THE OPENING AND CLOSING VALUES OF INVENTORIES, RECEIVABLES AND PAYABLES. A TRANSFER PRICING ADJUST MENT ON ACCOUNT OF INTEREST ON DELAYED REALIZATION OF INVOICE VALUE HA S NOTHING TO DO WITH THE CLOSING OR OPENING VALUES. IT DEPENDS ON THE PE RIOD OF REALIZATION ON ITA NO.6530/DEL/2016 19 TRANSACTION TO TRANSACTION BASIS. TO PUT IT DIFFERE NTLY, SUPPOSE AN INVOICE IS RAISED ON 1 ST MAY; PERIOD ALLOWED FOR REALIZATION IS TWO MONTH S; AND THE INVOICE IS ACTUALLY REALIZED ON 31 ST DECEMBER. NOTWITHSTANDING THE FACT THAT INTEREST ON SUCH LATE REALIZATION WOULD B ECOME CHARGEABLE FOR A PERIOD OF 6 MONTHS (FROM 1 ST JULY TO 31 ST DECEMBER), BUT THE AMOUNT OF INVOICE WILL NOT BE RECEIVABLE AS AT THE END OF THE FINANCIAL YEAR ON 31 ST MARCH. AS SUCH, THIS RECEIVABLE WOULD NOT HAVE AN I MPACT ON THE WORKING CAPITAL ADJUSTMENT IN ANY MANNER, BUT WOULD CALL FOR ADDITION ON ACCOUNT OF THE LATE REALIZATION OF INVOICE VALUE FO R A PERIOD OF SIX MONTHS. FOLLOWING THE ORDERS IN AMERIPRISE (SUPRA) AND TECHBOOKS (SUPRA), WE UPHOLD THE VIEW TAKEN BY THE TPO ON THIS ISSUE. INTEREST ON LATE REALIZATION OF INVOICES IS DIRECTED TO CHARGED IN LINE WITH THE DIRECTIONS GIVEN IN THE ABOVE ORDERS OF THE DELHI B ENCH OF THE TRIBUNAL. 16. THE LD. DR ALSO FILED A COPY OF THE DECISION OF THE TRIBUNAL IN AMERIPRISE INDIA PVT. LTD., WHEREIN THE TRIBUNAL HA S REJECTED THE LD. DRPS REASONING ABOUT THE SUBSUMING OF INTEREST ON RECEIVABLES IN THE WORKING CAPITAL ADJUSTMENT. HE POINTED OUT THAT TH IS DECISION ALSO CONSIDERS THE DECISION IN THE CASE OF KUSUM HEALTHC ARE PVT. LTD. AND THE SAME HAS NOT BEEN FOLLOWED OBSERVING THAT THE SAME WAS PASSED WITHOUT CONSIDERING THE AMENDMENT TO SECTION 92B CARRIED OU T BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 WHICH HAS BEEN DULY TAKEN INTO ITA NOS.2010 AND 2757/DEL/2014 BY T HE TRIBUNAL IN ITS LATER ORDER IN TECHBOOK INTERNATIONAL PVT. LTD. (SU PRA). THE LD. DR FURTHER SUBMITTED THAT BY NOT CHARGING INTEREST ON THE OVERDUE AMOUNT ITA NO.6530/DEL/2016 20 FROM ITS FOREIGN PARENT, THERE IS PROFIT SHIFTING F ROM INDIA TO ABROAD. HE REFERRED TO SCHEDULE 15 (PAPER BOOK 128) AND POINTE D OUT THAT THE ASSESSEE HAS EARNED RS.1.87 CRORE INTEREST ON DEMA ND DEPOSITS. HE SUBMITTED THAT INSTEAD OF EARNING INTEREST IN INDIA AND PAYING TAXES IN INDIA, THE FUNDS HAVE BEEN UTILIZED BY ITS AE AND T HUS THERE IS RESULTANT AVOIDANCE OF TAX IN INDIA. AS REGARDS THE ASSESSEE S PLEA THAT IT HAS DEBT FREE FUNDS, HE SUBMITTED THAT THE SAME IS OF LITTLE CONSIDERATION IN TRANSFER PRICING BECAUSE BENCHMARKING IS TO BE DONE IN RESPE CT OF SEPARATE INTERNATIONAL TRANSACTION INVOLVING NON-CHARGING AN D UNDER CHARGING OF INTEREST ON DELAYED RECEIVABLES. THIS PLEA IS RELE VANT ONLY WHEN THE ISSUE REGARDING DISALLOWANCE OF INTEREST U/S 37(1) IS UNDER CONSIDERATION. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RECORD OF THE CASE. THE ASSESSEES GRI EVANCE IS TWO-FOLD. FIRSTLY, WHEN WORKING CAPITAL ADJUSTMENT HAS BEEN M ADE, THEN, NO SEPARATE ADJUSTMENT IS REQUIRED TO BE MADE IN RESPE CT OF ACCOUNTS RECEIVABLES BECAUSE THE SAME GETS SUBSUMED IN THE W ORKING CAPITAL ADJUSTMENT. THE SECOND PLEA OF THE ASSESSEE IS THA T SINCE ITS FUNDS ARE ITA NO.6530/DEL/2016 21 ENTIRELY DEBT FREE, THEREFORE, NO ADJUSTMENT IS WAR RANTED IN REGARD TO LATE REALISATION OF PROCEEDINGS FROM RECEIVABLES. THE AS SESSEES RELIANCE AS NOTED EARLIER, IS ON THE DECISIONS IN ITS OWN CASES FOR ASSESSMENT YEAR 2010-11 AND 2011-12. THE ISSUE HAS BEEN ELABORATELY CONSIDERED IN THE CASE OF AMERIPRISE INDIA PVT. LTD. (SUPRA) AND, AGA IN, IN THE CASE OF MCKINSEY KNWLEDGE CENTRE PVT. LTD. (SUPRA). IN THE CASE OF TECHBOOKS INDIA INTERNATIONAL PVT. LTD. VS. DCIT (SUPRA), TAK ING NOTE OF THE EXPLANATION INSERTED BY THE FINANCE ACT, 2012 TO SE CTION 92B, IT WAS OBSERVED THAT THERE REMAINED NO DOUBT THAT APART FR OM ANY SHORT-TERM OR LONG-TERM BORROWING, ETC., OR EVEN ADVANCE PAYMENTS OR DEFERRED PAYMENTS, ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS HAD ALSO BEEN EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANS ACTION. IN THE SAID DECISION, THE DECISION OF THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. PATNI COMPUTER SYSTEMS WAS ALSO CONSIDERED, WHEREIN HON'BLE BOMBAY HIGH COURT SET ASIDE THE VIEW TAKEN BY THE T RIBUNAL IN VIEW OF AMENDMENT TO SECTION 92B. THE DECISION IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. WAS DULY CONSIDERED IN THE CAS E OF AMERIPRISE INDIA PVT. LTD. AND IT WAS OBSERVED FROM PARA 20 TO 23 AS UNDER:- ITA NO.6530/DEL/2016 22 20. THE LD. AR SUPPORTED THE IMPUGNED ORDER BY RELYING ON A TRIBUNAL ORDER DATED 31.3.2015 PASSED IN KUSUM HEALTHCARE PVT. LTD. VS. ACIT (ITA NO.6814/DEL/2014) IN WHICH IT HAS BEEN HELD TH AT NO ADDITIONAL IMPUTATION OF INTEREST ON THE OUTSTANDIN G RECEIVABLES IS WARRANTED IF THE PRICING/PROFITABILITY IS MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN OF THE COMPARABLES. IN THE OPPOSIT ION, THE LD. DR RELIED ON A LATER ORDER DATED 6.7.2015 PASSED BY THE TRIBU NAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA), IN WHICH THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE DELAYED REALIZATION OF INVOICES FROM AES HAS BEEN UPHELD. THE LD. DR CONTENDED THAT THE ORD ER IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SUPRA), HAS BEEN PASSED WITHOUT CONSIDERING THE AMENDMENT TO SECTION 92B CARRIED OU T BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002, WHICH HAS BEEN DULY TAKEN INTO ACCOUNT BY THE TRIBUNAL IN ITS LATER ORD ER IN TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED AS HIGHLIGHTED AB OVE, THAT THE ASSESSEE ARGUED BEFORE THE TPO THAT INTEREST ON RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION. AT THIS STAGE, IT WOULD BE APPOSITE TO NOTE THAT THE FINANCE ACT, 2012 HAS INSERTED EXPLANATION TO SECTION 92B W ITH RETROSPECTIVE EFFECT FROM 1.4.2002. CLAUSE (I) OF THIS EXPLANATI ON, WHICH IS OTHERWISE ALSO FOR REMOVAL OF DOUBTS, GIVES MEANING TO THE EX PRESSION INTERNATIONAL TRANSACTION IN AN INCLUSIVE MANNER. SUB-CLAUSE (C) OF CLAUSE (I) OF THIS EXPLANATION, WHICH IS RELEVANT F OR OUR PURPOSE, PROVIDES AS UNDER:- ` EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED T HAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SH ALL INCLUDE (A) (B) .. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINES S; . ITA NO.6530/DEL/2016 23 22. ON GOING THROUGH THE RELEVANT PART OF THE EX PLANATION INSERTED WITH RETROSPECTIVE EFFECT FROM 1.4.2002, THEREBY ALSO CO VERING THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE REMAINS NO DOUBT TH AT APART FROM ANY LONG-TERM OR SHORT-TERM LENDING OR BORROWING, ETC., OR ANY TYPE OF ADVANCE PAYMENTS OR DEFERRED PAYMENTS, ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS HAS ALSO BEEN EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANSACTION. THAT BEING SO, THE PAYM ENT/NON-PAYMENT OF INTEREST OR RECEIPT/NON-RECEIPT OF INTEREST ON THE LOANS ACCEPTED OR ALLOWED IN THE CIRCUMSTANCES AS MENTIONED IN THIS C LAUSE OF THE EXPLANATION , ALSO BECOME INTERNATIONAL TRANSACTIONS, REQUIRING THE DETERMINATION OF THEIR ALP. IF THE PAYMENT OF INTER EST IS EXCESSIVE OR THERE IS NO OR LOW RECEIPT OF INTEREST, THEN SUCH I NTEREST EXPENSE/INCOME NEED TO BE BROUGHT TO ITS ALP. THE EXPRESSION DEBT ARISING DURING THE COURSE OF BUSINESS IN COMMON PARLANCE ENCOMPASSES, INTER ALIA, ANY TRADING DEBT ARISING FROM THE SALE OF GOODS OR SERVICES RENDERED IN THE COURSE OF CARRYING ON THE BUSINESS. ONCE ANY DEBT A RISING DURING THE COURSE OF BUSINESS HAS BEEN ORDAINED BY THE LEGISLA TURE AS AN INTERNATIONAL TRANSACTION, IT IS, BUT, NATURAL THAT IF THERE IS ANY DELAY IN THE REALIZATION OF SUCH DEBT ARISING DURING THE COURSE OF BUSINESS, IT IS LIABLE TO BE VISITED WITH THE TP ADJUSTMENT ON ACCOUNT OF INTEREST INCOME SHORT CHARGED OR UNCHARGED. UNDER SUCH CIRCUMSTANCES, TH E CONTENTION TAKEN BY THE ASSESSEE BEFORE THE TPO THAT IT IS NOT AN IN TERNATIONAL TRANSACTION, TURNS OUT TO BE BEREFT OF ANY FORCE. 23. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PATNI COMPUTER SYSTEMS LTD., (2013) 215 TAXMANN 108 (BOM. ) DEALT, INTER ALIA , WITH THE FOLLOWING QUESTION OF LAW:- (C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL DID NOT ERR IN HOLDING THAT THE LOSS SUFFERED BY THE ASSESSEE BY ALLOWING EXCESS PERIOD OF CREDIT TO THE ASSOCIAT ED ENTERPRISES WITHOUT CHARGING AN INTEREST DURING SUCH CREDIT PERIOD WOULD NOT AMOUNT TO INTERNATIONAL TRANSACTION WHEREAS SECTION 92B(1) OF THE INCOME-TAX ACT, 1961 REFERS TO ANY OTHER TRANSACTION HAVING A BEARI NG ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES? 24. WHILE ANSWERING THE ABOVE QUESTION, THE HON BLE HIGH COURT NOTICED THAT AN AMENDMENT TO SECTION 92B HAS BEEN C ARRIED OUT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1. 4.2002. SETTING ASIDE THE VIEW TAKEN BY THE TRIBUNAL, THE HONBLE HIGH CO URT RESTORED THIS ITA NO.6530/DEL/2016 24 ISSUE TO THE FILE OF THE TRIBUNAL FOR FRESH DECISIO N IN THE LIGHT OF THE LEGISLATIVE AMENDMENT. 25. THE FOREGOING DISCUSSION DISCLOSES THAT NON- CHARGING OR UNDER- CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE FOR THE REALIZATION OF INVOICES AMOUNTS TO AN INTERNATI ONAL TRANSACTION AND THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IS REQUIRE D TO BE DETERMINED. 18. IN VIEW OF THE ABOVE OBSERVATIONS, THE RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON EARLIER DECISIONS CANNO T BE ACCEPTED. 19. IN THE CASE OF AMERIPRISE (SUPRA), IT HAS BEEN OBSERVED THAT THE WORKING CAPITAL ADJUSTMENT IS IN RESPECT OF INTERNA TIONAL TRANSACTION OF RENDERING SERVICES TO THE AE. INTEREST FOR CREDIT PERIOD ALLOWED AS PER THE AGREEMENT IS GIVEN IN THE PRICE CHARGED FOR REN DERING OF SERVICES. WHEREAS THE NON-REALISATION OF INVOICE VALUE BEYOND THE STIPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANSACTION WHOS E ALP IS REQUIRED TO BE DETERMINED. GRANTING OF WORKING CAPITAL ADJUSTM ENT IS CONFINED TO THE INTERNATIONAL TRANSACTION OF RENDERING OF SERVI CES, WHOSE ALP IS SEPARATELY DETERMINABLE. ON THE OTHER HAND, THE INT ERNATIONAL TRANSACTION OF INTEREST RECEIVABLE FROM ITS AES FOR LATE REALIZ ATION OF INVOICES BEYOND SUCH STIPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANSACTION. ALLOWING ITA NO.6530/DEL/2016 25 WORKING CAPITAL ADJUSTMENT IN THE INTERNATIONAL TR ANSACTION OF RENDERING OF SERVICES CAN HAVE NO IMPACT ON THE DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTION OF INTEREST ON RECEIVABLE S FROM AES BEYOND THE STIPULATED PERIOD ALLOWED AS PER AGREEMENT. IN THE CASE OF MCKINSEY KNWLEDGE CENTRE PVT. LTD. (SUPRA), AGAIN, THE TRIBU NAL REITERATED THIS REASONING AND, INTER ALIA, OBSERVED THAT: . IN OUR CONSIDERED OPINION, WHEREAS, THE INTER NATIONAL TRANSACTION OF PURCHASE/SALE OF GOODS FROM/TO AE CONTEMPLATES C OMPARISON OF THE PRICE CHARGED/PAID FOR SUCH GOODS BY IMPLIEDLY INCL UDING THE INTEREST FOR THE PERIOD ALLOWED FOR REALIZATION OF INVOICES AS P ER THE TERMS OF THE AGREEMENT, THE INTERNATIONAL TRANSACTION OF CHARGIN G INTEREST ON LATE RECOVERY OF TRADE RECEIVABLE COVERS THE PERIOD WHIC H STARTS WITH THE TERMINATION OF THE PERIOD OF CREDIT ALLOWED UNDER T HE AGREEMENT, WHICH IS SUBJECT MATTER OF THE INTERNATIONAL TRANSACTION OF PURCHASE/SALE OF GOODS. 20. THE TRIBUNAL ALSO EXPLAINED THAT IF AN INVOICE IS RAISED DURING THE YEAR AND THE PROCEEDS ARE REALIZED WITHIN THE YEAR, BUT, BEYOND THE STIPULATED PERIOD OF AGREEMENT, THEN, THE SAME WILL NOT COME WITHIN THE WORKING CAPITAL ADJUSTMENT BECAUSE WORKING CAPITAL ADJUSTMENT IS MADE WITH REFERENCE TO THE OPENING AND CLOSING BALANCES AS ON 1 ST APRIL AND 31 ST MARCH. THEREFORE, RESPECTFULLY FOLLOWING THE DECI SION OF THE TRIBUNAL NOTED ABOVE, WE REJECT THE ASSESSEES CONT ENTION THAT THE ITA NO.6530/DEL/2016 26 INTEREST ON DELAYED PAYMENT OF RECEIVABLES GET SUBS UMED IN THE WORKING CAPITAL ADJUSTMENT ALLOWED TO THE ASSESSEE. THE LD . COUNSEL HAS ALSO ADVANCED AN ARGUMENT THAT SINCE IT WAS DEBT FREE FU ND COMPANY, WHICH FINDING IS NOT DISPUTED, THEREFORE, NO INTEREST COU LD BE ATTRIBUTABLE ON THE LATE REALIZATION OF RECEIVABLES. IN OUR OPINION, TH IS PLEA IS TO BE REJECTED AT THE THRESHOLD BECAUSE, AS NOTED EARLIER, INTERES T ON DELAYED REALIZATION OF RECEIVABLES IS A SEPARATE INTERNATIONAL TRANSACT ION AND, THEREFORE, REQUIRES SEPARATE BENCHMARKING. IT HAS NOTHING TO D O WITH THE OPERATIONS OF THE ASSESSEE COMPANY BEING WITH THE DEBT FREE FU NDS ONLY. 21. AS FAR AS THE ASSESSEES PLEA REGARDING SELECTI NG OF AD HOC INTEREST RATE OF LIBOR+400 BPS WHILE COMPUTING THE ADDITION IS CONCERNED, WE FIND THAT THE LD. DRP HAS DIRECTED TO COMPUTE THE A DJUSTMENT USING THE RATES OF SIX MONTHS LIBOR + 400 BPS ON RECEIVABLES WHICH ARE TO BE PAID TO THE ASSESSEE IN US $ IN ACCORDANCE WITH THE DECISION IN COTTON NATURALS (SUPRA) OF HON'BLE DELHI HIGH COURT, WHERE IN IT HAS BEEN HELD THAT IT IS THE CURRENT YEAR IN WHICH THE LOAN IS TO BE REPAID WHICH DETERMINES THE RATE OF INTEREST AND, HENCE, THE PRI ME LENDING RATE SHOULD ITA NO.6530/DEL/2016 27 NOT BE CONSIDERED FOR DETERMINING THE INTEREST RATE . WE, THEREFORE, DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW ON THIS IS SUE. 22. GROUND NO.2 IS CONSEQUENTIAL 23. GROUND NO.3 IS PREMATURE. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.05.201 7. SD/- SD/- [C.M. GARG] [S.V. MEHROTRA] JUDICIAL MEMBER VICE PRESIDENT DATED, 16 TH MAY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.