M/s Avnet India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 757/BANG/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1529 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 23-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2011
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Notional interest; Capital expenditure
• Section: 143(3); 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.757(BANG.)/2011 (ASSESSMENT YEAR : 2007-08) M/S AVNET INDIA PVT.LTD., NO.402, 4 TH FLOOR, RMZ INFINITY, TOWER B, NO.3, OLD MADRAS ROAD, BANGALORE-560 016 PAN NO.AACCA0481G APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-11(1), BANGALORE RESPONDENT ASSESSEE BY : SHRI PADAMCHAND KHINCHA, CA REVENUE BY : SMT NEERA MALHOTRA, CIT DATE OF HEARING : 09-11-2015 DATE OF PRONOUNCEMENT : 18-11 -2015 O R D E R PER SHRI INTURI RAMA RAO, AM THIS APPEAL BY THE ASSESSEE COMPANY DIRECTED AGA INST THE ORDER DATED 09.06.2011 PASSED BY THE DCIT, CIRCLE-11(1), BANGALORE U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 [HER EINAFTER REFERRED TO AS THE ACT IN SHORT] RELATING TO ASSESSMENT YEAR 2007-08. IT(TP)A NO.757(BANG)/2011 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSE E-COMPANY ARE AS UNDER: 1.THE ORDER THE LEARNED AO AND THE DIRECTIONS OF T HE LD.DRP IS OPPOSED TO THE LAW AND FACTS OF THE CASE. 2. THE ORDER OF THE LD.AO AND THE DIRECTIONS OF THE LD.DRP IS FRAUGHT WITH THE FOLLOWING ERRORS IN JUDGMENT. A. WIDENING OF THE DEFINITION OF THE TERM INTERNATIONAL TRANSACTIONS IS NOT PERMISSIBLE. I. THE DELAY IN THE COLLECTION OF THE AMOUNT DUE BY ITS CUSTOMER WHO IS AN ASSOCIATED ENTERPRISE BEING TREA TED AS A LOAN BY BRINGING IT WITHIN THE PURVIEW OF THE DEF INITION OF INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTIO N 92B(1) OF THE ACT. IT IS SUBMITTED IS ERRONEOUS. II. DEFINITION OF THE TERM INTERNATIONAL TRANSACTI ON AS DEFINED IN THE STATUTE DOES NOT INCLUDE DELAY IN TH E COLLECTION FROM THE CUSTOMER AS A TRANSACTION AS TH E COLLECTION OF AMOUNT AGAINST SALES/SERVICES RENDERE D IS PART OF THE SALES TRANSACTION ITSELF AND HENCE, THE RE CANNOT BE ANOTHER INDEPENDENT TRANSACTION IN THE FORM OF C OLLECTION OF THE DUES FOR THE SERVICES RENDERED. III. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE O BJECTS THAT THE REFERENCE MADE Y THE LD. AO RELATED ONLY TO THE POINT OF ALP IN RESPECT OF INTERNATIONAL TRANSACTI ONS OF PROVISION OF SERVICE AND THE SAID REFERENCE DOES NO T COVER AN ALLEGED INTEREST FREE LOAN TRANSACTION SUPPOSED TO HAVE BEEN ENTERED INTO BY THE ASSESSEE AND THE POTENTIAL LOSS IT(TP)A NO.757(BANG)/2011 3 RAISING THERE FROM AND, THEREFORE PRIOR TO THE INSE RTION OF SEC.92CA(2A) W.E.F.1.6.2011, THE TPO COULD NOT HAVE EXERCISED JURISDICTION ON ANY NEW TRANSACTION WHICH WAS NOT REFERRED TO HIM AND HENCE THE ADJUSTMENT DIRECT ED BY THE TPO ON THE QUESTION OF INTEREST CHARGEABLE TO OUTSTANDING RECEIVABLES IS WITHOUT JURISDICTION AND AGAINST THE LAW. IV. THE LD.TPO OUGHT TO HAVE APPRECIATED THAT NEITH ER ACCOUNTING PRINCIPLES NOR TRADE PRACTICE CONSIDER D ELAYED PAYMENTS BY A CUSTO0MER, AS AN INDEPENDENT TRANSACT ION AS THE SAME IS PART OF THE SALE TRANSACTION AND GEN ERALLY, WHEN THE CUSTOMER DELAYS THE PAYMENT THE SEELER/SUP PLIER ALWAYS FIRST TRIES TO RECOVER THE GOODS BACK AND HE NCE, VIEWING SUCH CUSTOMER DUES AS AN INDEPENDENT TRANSACTION IS INCORRECT AND UNKNOWN TO THE TRADE A ND LAW. V. THE DIRECTION BY THE DRP, IS AN ATTEMPT TO WIDEN THE SCOPE OF THE DEFINITION OF INTERNATIONAL TRANSACTIO N EVEN BY IMPORTING A DEEMING FICTION TO THE SECTION WHICH I S AGAINST THE WELL SETTLED PRINCIPLES OF INTERPRETATION OF ST ATUTES. VI. THE DIRECTION HAS ERRED IN HOLDING THAT THE DEC ISION BY THE HONBLE MUMBAI ITAT IN THE CASE OF NIMBUS COMMUNICATIONS LTD. VS ACIT IS NOT APPLICABLE TO THE FACTS OF THE CURRENT CASE. VII. WITHOUT PREJUDICE TO THE ABOVE, THE LD.TPO HAS ERRED IN PRESUMING A MARKET-LENDING RATE FOR A LOAN TRANSACT ION AS THE RATE OF INTEREST CHARGEABLE TO A CUSTOMER UPON THE DELAY OF DUES. THE LD.TPO HAS ERRED IN COMPARING A DELAYED PAYMENT BY A CUSTOMER WITH A LENDING TRANSA CTION IT(TP)A NO.757(BANG)/2011 4 FOR THE PURPOSE OF ASCERTAINING THE RATE OF INTERES T CHARGEABLE. VIII. WITHOUT PREJUDICE TO THE ABOVE, EVEN PRESUMIN G THAT INTEREST IS RECOVERABLE FROM A CUSTOMER WHO DELAYED THE PAYMENTS, THE LD.TPO OUGHT TO HAVE CONSIDERED ONLY SIMILAR TRANSACTION IN THE CASE OF COMPARABLE COMPA NIES. THE LEARNED TPO OUGHT TO HAVE VERIFIED THE DEBTS DU E FOR MORE THAN SIX MONTHS IN THE CASE OF ALL PUBLISHED A CCOUNTS AND FOUND OUT THE INTEREST CHARGED/EARNED BY THE COMPARABLE COMPANIES IN SUCH A SITUATION AND APPLIE D THE SAME RATE OF INTEREST IN THE INSTANT CASE. IX. THE LD.TPO OUGHT TO HAVE APPRECIATED THAT IN TH E CASE OF COMPARABLE COMPANIES, WHEN THEIR CUSTOMER DELAY THE DUES, NO INTEREST IS LEVIED AND NORMALLY, CERTAIN D ISCOUNTS ARE GIVEN TO THE CUSTOMER TO INDUCE HIM TO MAKE THE PAYMENT AND THUS, THE LD.TPO HAS ERRED IN LEVYING I NTEREST AT THE MARKET RATE FOR THE DELAYED PAYMENT BY THE CUSTOMER WHO IS AN AE. B. THE LD.AO HAS ERRED IN NOT APPRECIATING THE FACT THAT NEITHER THE AMOUNT OF CAPITAL EXPENDITURE OF RS.6,0 0,000/- DEBITED UNDER THE HEAD OTHER EXPENSES NOR THE ADJUSTMENTS BEING MADE TO THE RETURNED INCOME UNDER SECTION 92CA CONSTITUTES AN INTENTIONAL CONCEALMENT OF INCOME/A DELIBERATE ACT TO CONCEAL ANY PARTICULAR THUS NOT WARRANTING LEVY OF PENALTY UNDER SECTION 271. C. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE AO IN SO FAR AS IT RELATES TO ABOVE ISSUE MAY BE DROPPED. IT(TP)A NO.757(BANG)/2011 5 D. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, AMEND A ND DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 2.1 THE ASSESSEE COMPANY HAS ALSO RAISED ADDITIONAL GROUNDS WHICH ARE AS UNDER; ADDITIONAL GROUNDS: 1. THE LD. ADIT, TP-IV, BANGALORE HAS ERRED IN MAK ING AN ADJUSTMENT TO TOTAL TURNOVER ON A PREMISE THAT INTE REST OUGHT TO HAVE BEEN RECEIVED ON THE OVER DUES FROM T HE AES IGNORING THE DUES OWED BY THE ASSESSEE TO AES IN SU CH CALCULATION, WHICH WHEN CONSIDERED WOULD WARRANT NO ADJUSTMENT TOTAL INCOME. 2. THE LD. ADIT,TP-IV, BANGALORE HAS ERRED IN MAKIN G AN ADJUSTMENT TO THE TOTAL INCOME BY INPUTTING INTERES T WITHOUT APPRECIATING THAT THE SAME WAS OUTSIDE THE FOLD OF SECTION 5 NOT HAVING BEEN ACCRUED OR RECEIVED OR DEEMED TO BE SO ACCRUED OR RECEIVED. 3. AT ANY RATE AND WITHOUT PREJUDICE, OUTSTANDING A RE NOT AN INTERNATIONAL TRANSACTIONS BUT ONLY REPRESENT TH E EFFECT OF AN INTERNATIONAL TRANSACTION TO WHICH THE PROVISION S OF CHAPTERS X DO NOT APPLY. 4.WITHOUT PREJUDICE, THE RATE OF INTEREST ADOPTED F OR IMPUTING THE INTEREST INCOME IS VERY EXCESSIVE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS A 100% SUBSIDIARY OF AVNET HOLDINGS LLC. SINCE ITS INCEPT ION IT HAS BEEN IT(TP)A NO.757(BANG)/2011 6 PROVIDING MARKETING SERVICES TO ITS HOLDING COMPANY AND ALSO IN THE TRADING OF ELECTRONIC PRODUCTS. THE RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2007-08 WAS FILED ON 30-01-2008 DECLARING TAXA BLE INCOME OF RS.172,162,090/-. THE ASSESSEE COMPANY IS COMPENSAT ED FOR ITS SERVICES RENDERED TO ITS HOLDING COMPANY IN THE FOR M OF COMMISSION AT A FIXED PERCENTAGE OF VALUE OF GOODS SOLD. THE ASSES SEE COMPANY ALSO ENGAGED IN THE TRADING ACTIVITIES FOR WHICH IT PURC HASES THE GOODS FROM ITS HOLDING COMPANY. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD REPORTED THE FOLLOWING INTERNA TIONAL TRANSACTION WITH ITS AE IN FORM 3CEB, AS UNDER; NATURE OF TRANSACTION AMOUNT IN INR CLAUSE REF OF 3CEB PURCHASE OF TRADED GOODS 184,140,707 8(B) COMMISSION EARNED ON SERVICES 248,414,083 10 REIMBURSEMENT OF EXPENSES 28,544,874 10 COST ALLOCATION (PAYABLE) 2,636,880 12 4. THE LEARNED TPO FOUND THE ABOVE TRANSACTIONS AT ARMS LENGTH. HOWEVER, THE TPO MADE ADJUSTMENT OF RS.2,66,55,491/ - ON ACCOUNT OF DELAY IN REALIZATION OF DUES FROM ITS AE. THE FIND INGS OF THE LEARNED TPO ARE AS UNDER; 7. THE TAX PAYER HAS EXTENDED CREDIT FACILITY SIMILAR TO A WORKING CAPITAL LOAN TO ITS AES WITHOUT CHARGING AN Y INTEREST. IT(TP)A NO.757(BANG)/2011 7 SIMILAR UNCONTROLLED TRANSACTION WOULD HAVE PROVIDE D FOR INTEREST. IN VIEW OF THIS FACT THE INTERNATIONAL TRANSACTION REPRESENTING EXTENDED CREDIT FACILITY WITHOUT CHARGING INTEREST IN NOT AT ARMS LENGTH PRICE WITHIN THE MEANING OF SEC.92C(3)(A)(B) AND (C) OF THE IT ACT, R.W.RULE 10B(1)(A) OF THE IT ACT, THE ARMS LE NGTH INTEREST IS DETERMINED BY FOLLOWING CUP METHOD WHEREIN THE INTE REST RATE IS DETERMINED UNDER THE CIRCUMSTANCES IN WHICH THE TAX PAYER AND ITS ASSOCIATED ENTERPRISES ARE OPENING I.E WHAT IS THE INTEREST THAT WOULD HAVE BEEN EARNED IF SUCH CREDIT IN THE FORM O F WORKING CAPITAL LOAN GIVEN TO UNRELATED PARTIES IN SIMILAR SITUATION AS THAT OF ASSOCIATED ENTERPRISES. SINCE THE TESTED PARTY IS TAX PAYER, THE PREVALENT INTEREST THAT COULD HAVE EARNED BY THE TA X PAYER BY ADVANCING SIMILAR TO AN UNRELATED PARTY IN INDIA WI TH THE SAME FINANCIAL HEALTH AS THAT OF THE TAX PAYERS ASSOCIA TED ENTERPRISES IS CONSIDERED, IN VIEW OF THE ABOVE DISCUSSION, THE INTEREST RATE OF 14% P.A (AVERAGE YIELD ON UNRATED BONDS FOR THE AY: 2006-07 ) WAS PROPOSED TO BE ADOPTED AS THE UNCONTROLLED INTEREST RATE TO ARRIVE AT THE INTEREST CHARGED AT ARMS LENGTH. THE TAX P AYER IN ITS LETTER DATED 05-03-2010 DID NOT RAISE ANY SPECIFIC OBJECTI ON ON THE INTEREST RATE EXCEPT ARGUING THAT NO INTEREST IS CH ARGEABLE ON THE RECEIVABLES BASED ON BUSINESS PRUDENCE. 4.1 CONSEQUENT TO THE TPO ORDER, THE LEARN ED AO PASSED A DRAFT ASSESSMENT ORDER DATED 25-08-2010 INCORPORATING THE ADJUSTMENT PROPOSED BY THE LEARNED TPO. IT(TP)A NO.757(BANG)/2011 8 5. BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORD ER, THE ASSESSEE COMPANY FILED OBJECTIONS BEFORE THE HONBLE DRP CON TENDING INTER-ALIA THAT EXTENSION OF CREDIT PERIOD CANNOT BE TREATED A S INTERNATIONAL TRANSACTION, AND THE TPO HAD NO JURISDICTION TO DET ERMINE WHETHER A TRANSACTION IS AT ARMS LENGTH OR NOT WHICH HAD NOT BEEN REFERRED TO HIM BY THE AO. THE OBJECTIONS HAVE BEEN OVERRULED BY T HE HONBLE DRP AND CONFIRMED THE ACTION OF THE LEARNED TPO. 6. BEING AGGRIEVED BY THIS ACTION, THE ASSESSE E COMPANY IS BEFORE US WITH THE PRESENT APPEAL. 6.1 THE LEARNED COUNSEL FOR THE ASSESSEE COMPAN Y ARGUED THAT; A) THE TRANSACTION OF RECEIVABLE IS OUTSIDE THE PURVIE W OF INTERNATIONAL TRANSACTIONS B) EVEN ASSUMING THAT IT IS AN INTERNATIONAL TRANSACTI ON, THE NOTIONAL INTEREST SHOULD BE CALCULATED ON THE NET AMOUNT I.E AFTER ADJUSTING THE AMOUNT DUE AND PAID TO THE AE BY THE ASSESSEE COMPA NY C) SINCE THE MAIN TRANSACTION OF SALES TO THE AE IS FO UND TO BE AT ARMS LENGTH, NO FURTHER ADJUSTMENT IS REQUIRED TO BE MAD E. IN SUPPORT OF THIS PROPOSITION OF LAW, HE RELIED ON THE DECISION OF TH E CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF M/S GOLDSTAR JEWELLE RY LTD. VS JCIT IN ITA NO.6570/MUM/2012 DATED 14-01-2015 ALSO IN THE C ASE OF CIT VS M/S COTTON NATURALS (I) PVT. LTD IN ITA NO.233/2014 OF THE HONBLE DELHI HIGH COURT DATED 27-03-2015. IT(TP)A NO.757(BANG)/2011 9 7. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ASS ESSEE COMPANY REPORTED INTERNATIONAL TRANSACTIONS IN ITS TP REPOR T. ON A REFERENCE BY THE AO, THE LEARNED TPO ACCEPTED THAT THE PRICE CHA RGED BY THE ASSESSEE COMPANY ON THESE TRANSACTIONS ARE AT ARMS LENGTH. HOWEVER, THE TPO MADE ADJUSTMENTS ON ACCOUNT OF NOTIONAL INTEREST FO R THE EXCESS PERIOD ALLOWED BY THE ASSESSEE- COMPANY TO ITS AE FOR REAL IZATION OF ITS DUES. THE TPO APPLIED 14% OF INTEREST ON THE OUTSTANDING AMOUNT OF RS. THE LEARNED DRP ALSO HAD ALSO CONCURRED WITH THE FI NDING OF LEARNED TPO. THERE IS NO DISPUTE THAT THE TRANSACTION IN Q UESTION FALLS WITHIN THE AMBIT OF INTERNATIONAL TRANSACTIONS U/S 92B OF THE IT ACT. HOWEVER, THIS TRANSACTION IS NOT AN INDEPENDENT TRANSACTION. IT IS AN INTEGRAL PART OF TRANSACTION OF SALE MADE TO THE AE AND THEREFORE , IT HAS TO BE CONSIDERED ALONGWITH THE MAIN TRANSACTION. THE SIM ILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE CO-ORDINATE BENCH O F MUMBAI IN THE CASE OF M/S GOLDSTAR JEWELLERY LTD. (SUPRA), WHEREI N IT WAS OBSERVED AS UNDER; HOWEVER, THIS TRANSACTION OF ALLOWING THE CREDIT PERIOD TO AE ON REALIZATION OF SALE PROCEEDS IS NOT AN IND EPENDENT INTERNATIONAL TRANSACTION BUT IT IS CLOSELY LINKED OR CONTINUOUS TRANSACTION ALONG WITH SALE TRANSACTION TO THE AE. THE CREDIT PERIOD ALLOWED TO THE ARTY DEPENDS UPON VARIOUS FAC TORS WHICH IT(TP)A NO.757(BANG)/2011 10 ALSO INCLUDES THE PRICE CHARGED BY THE ASSESSEE FRO M PURCHASER. THEREFORE, THE CREDIT PERIOD EXTENDED BY THE ASSESSEE TO THE AE CANNOT BE EXAMINED INDEPENDENTLY BUT HAS TO BE CONSIDERED ALONG WITH THE MAIN INTERNATIONAL TRANSACTION BEING SALE TO THE AE. AS PER RULE 10A(D) IF A NUMB ER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS IN NA TURE AND ARISING FROM A CONTINUOUS TRANSACTIONS OF SUPPLY OF AMENITY OR SERVICES THE TRANSACTIONS IS TREATED AS CLOSELY LIN KED TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AN D, THEREFORE, THE AGGREGATE AND CLUBBING OF CLOSELY LINKED TRANSA CTION ARE PERMITTED UNDER SAID RULE. THIS CONCEPT OF AGGREGAT ION OF THE TRANSACTION WHICH IS CLOSELY LIKED IS ALSO SUPPORTE D BY OCED TRANSFER PRICING GUIDELINES. IN ORDER TO EXAMINE W HETHER THE NUMBER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTIN UOUS SO AS TO AGGREGATE FOR THE PURPOSE OF EVALUATION WHAT IS TO BE CONSIDERED IS THAT ONE TRANSACTION IS FOLLOW-ON OF THE EARLIER TRANSACTION AND THEN THE SUBSEQUENT TRANSACTION IS CARRIED OUT AND DEPENDENT WHOLLY OR SUBSTANTIALLY ON THE EARLIE R TRANSACTION. IN OTHER WORDS, IF TWO TRANSACTIONS A RE SO CLOSELY LIKED THAT DETERMINATION OF PRICE OF ONE TRANSACTIO N IS DEPENDENT ON THE OTHER TRANSACTION THEN FOR THE PUR POSE OF DETERMINING THE ALP, THE CLOSELY LINKED TRANSACTION SHOULD BE AGGREGATED AND CLUBBED TOGETHER. WHEN THE TRANSAC TION ARE INFLUENCED BY EACH OTHER AND PARTICULARLY IN DETERM INING THE PRICE AND PROFIT INVOLVED IN THE TRANSACTION THEN T HOSE TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINE D TRANSACTIONS. IN THE CASE IN HAND, THE CREDIT PER IOD EXTENDED TO THE AE IS A DIRECT RESULT OF SALE TRANSACTION. THEREFORE, NO QUESTION OF CREDIT PERIOD ALLOWED TO THE AE FOR REA LIZATION OF SALE PROCEEDS WITHOUT HAVING SALE TO AE. THE CRED IT PERIOD IT(TP)A NO.757(BANG)/2011 11 EXTENDED TO THE AE CANNOT BE TREATED AS A TRANSACTI ON STAND ALONE WITHOUT CONSIDERING THE MAIN TRANSACTION OF S ALE. THE SALE PRICE OF THE PRODUCT OR SERVICE DETERMINED BET WEEN THE PARTIES IS ALWAYS INFLUENCED BY THE CREDIT PERIOD A LLOWED BY THE SELLER. THEREFORE, THE TRANSACTION OF SALE TO THE AE AND CREDIT PERIOD ALLOWED IN REALIZATION OF SALE PROCEE DS ARE CLOSELY LINKED AS THEY ARE INTER LINKED AND THE TERMS AND C ONDITIONS OF SALE AS WELL AS THE PRICE ARE DETERMINED BASED ON T HE TOTALITY OF THE TRANSACTION AND NOT ON INDIVIDUAL AND SEPARA TE TRANSACTION. THE APPROACH OF THE TPO AND DRP IN ANA LYZING THE CREDIT PERIOD ALLOWED BY THE ASSESSEE TO THE AE WIT HOUT CONSIDERING THE MAIN INTERNATIONAL TRANSACTION BEIN G SALE TO THE AE WILL GIVE DISTORTED RESULT BY DISREGARDING THE P RICE CHARGED BY THE ASSESSEE FROM AE. THOUGH EXTRA PERIOD ALLOW ED FOR REALIZATION OF SALE PROCEEDS FROM THE AE IS AN INTE RNATIONAL TRANSACTION, HOWEVER, FOR THE PURPOSE OF DETERMININ G THE ALP, THE SAME HAS TO BE CLUBBED OR AGGREGATED WITH THE S ALE TRANSACTIONS WITH THE AE. EVEN BY CONSIDERING IT AS AN INDEPENDENT TRANSACTION THE SAME HAS TO BE COMPARED WITH THE INTERNAL CUP AVAILABLE IN THE SHAPE OF THE CREDIT A LLOWED BY THE ASSESSEE TO NON-AE. WHEN THE ASSESSEE IS NOT MAKI NG ANY DIFFERENCE FOR NOT CHARGING THE INTEREST FROM AE AS WELL AS NON- AE THEN THE ONLY DIFFERENCE BETWEEN THE TWO CAN BE CONSIDERED IS THE AVERAGE PERIOD ALLOWED ALONG WITH OUTSTANDIN G AMOUNT. IF THE AVERAGE PERIOD MULTIPLIED BY THE OUTSTANDING AMOUNT OF THE AE IS AT ARMS LENGTH IN COMPARISON TO THE AVER AGE PERIOD OF REALIZATION AND MULTIPLIED BY THE OUTSTANDING FR OM NON-AES THEN NO ADJUSTMENT CAN BE MADE BEING THE TRANSACTIO N IS AT ARMS LENGTH. THE THIRD ASPECT OF THE ISSUE IS THA T THE ARMS LENGTH INTEREST FOR MAKING THE ADJUSTMENT. BOTH TH E TPO AND IT(TP)A NO.757(BANG)/2011 12 THE DRP HAS TAKEN INTO CONSIDERATION THE LENDING RA TES, HOWEVER, THIS IS NOT A TRANSACTION OF LOAN OR ADVAN CE TO THE AE BUT IT IS ONLY AN EXCESS PERIOD ALLOWED FOR REALIZA TION OF SALES PROCEEDS FROM THE AE. THEREFORE, THE ARMS LENGTH INTEREST IN ANY CASE WOULD BE THE AVERAGE COST OF THE TOTAL FUN D AVAILABLE TO THE ASSESSEE AND NOT THE RATE AT WHICH A LOAN IS AVAILABLE. ACCORDINGLY, WE DIRECT THE AO/TPO TO RE-DO THE EXER CISE OF DETERMINATION OF THE ALP IN TERMS OF ABOVE OBSERVAT ION. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE HOLD THAT THERE CAN BE NO SEPARATE INTERNATIONAL TRANSACTION OF INTEREST IN THE INTERNATIONAL TRANSACTION OF SALE. EARLY OR LATE REALIZATION OF S ALE PROCEEDS IS ONLY INCIDENTAL TO TRANSACTION OF SALE, BUT NOT A SEPARA TE TRANSACTION IN NATURE. SINCE WE HOLD THAT THE IMPUGNED TRANSACTION OF INTE REST ON DELAYED REALIZATION OF SALE PROCEEDS IS NOT INTERNATIONAL T RANSACTION, IT IS NOT NECESSARY TO ADJUDICATE UPON THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE COMPANY. HENCE, THE APPEAL IS TREATED AS PARTLY ALL OWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 18 TH NOVEMBER, 2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER P L A C E : BANGALORE D A T E D : 18-11-2015 AM* IT(TP)A NO.757(BANG)/2011 13 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE