Metlife Global Operations Support Center Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 826/DEL/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9285 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 11-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PURUSHOTTAM ANAND S
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Wholly owned subsidiary; Notional interest
• Section: 92C; 143(3); 234B

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH I-1, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 826/DEL./2015 ASSESSMENT YEAR: 2010-11 METLIFE GLOBAL OPERATIONS SUPPORT CENTER PRIVATE LTD., SUIT MAPLE, PAHARPUR BUSINESS CENTER, 21 NEHRU PLACE, NEW DELHI PAN- AAFCM5000N (APPELLANT) VS. INCOME TAX OFFICER , WARD 16(4) ,NEW DELHI. (RESPONDENT) APPELLANT BY S/ SHRI NAGESHWAR RAO AND PURUSHOTTAM ANAND, ADVOCATES RESPONDENT BY MS . PRINCY SINGLA , SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE AO/TPO PASSED U/S. 143(3)/92CA/144C/ R.W.S. 154 OF THE IT ACT DATED 15.01.2015 PASSED IN PURSUANCE TO THE DIRECTION OF THE DRP DAT ED 16.12.2014 ON THE FOLLOWING GROUNDS OF APPEAL : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER (AO) HAS ERRED IN PASSING THE A SSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME -TAX ACT, 1961 (THE ACT) AFTER CONSIDERING THE ADJUSTMENTS PROPOSED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX, TRANSFER PRICING OFFICER - 2(2), NEW DELHI (TPO) IN HIS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT AND SUBSEQUENTLY CONFIRMED BY THE HONBLE DISPUTE RESOL UTION PANEL (DRP). HOWEVER, A SUBSEQUENT ORDER UNDER SECTION 154 OF TH E ACT DATED 4 DATE OF HEARING 27 .0 9 .2018 DATE OF PRONOUNCEMENT 20 .1 2 .2018 ITA NO. 826/DEL./2015 2 FEBRUARY 2015 WAS ISSUED BY THE LEARNED AO RECTIFYI NG CERTAIN ERRORS APPARENT FROM RECORD. EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER AND WITHOUT PR EJUDICE TO EACH OTHER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, TRANSFER PRICING GROUNDS: 1. THE LEARNED AO / TPO / DRP HAS ERRED IN MAKING A N ADDITION OF INR 11,432,576 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF A TRANSFER PRICING ADJUSTMENT 2. THE LEARNED AO/TPO/DRP HAVE ERRED BY NOT ACCEPTIN G THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN AC CORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES , 1962 (THE RULES). 3. THE LEARNED AO / TPO / DRP HAVE ERRED IN MAKING A N ADJUSTMENT UNDER SECTION 92CA(3) OF THE ACT WITHOUT RETURNING A FINDING ABOUT EXISTENCE OF ANY OF THE CIRCUMSTANCES SPECIFIED IN CLAUSES (A) TO (D) OF SUB- SECTION (3) OF SECTION 92C OF THE ACT. 4. THE LEARNED AO / TPO / DRP HAVE ERRED BY CONSIDER ING OUTSTANDING RECEIVABLES AS A SEPARATE INTERNATIONAL TRANSACTION AND BENCHMARKING THE SAME USING CUP AS THE MOST APPROPRIATE METHOD. 5. THE LEARNED AO / TPO / DRP HAVE ERRED BY CONSIDER ING OUTSTANDING RECEIVABLES AS A LOAN EXTENDED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE AND IMPUTING INTEREST ON THE SAME, THEREBY MAKING A N ADJUSTMENT OF INR 11,432,576 TO THE RETURNED INCOME OF THE APPELLANT. 6. THE CUP ANALYSIS UNDERTAKEN BY THE TPO AND UPHELD BY DRP IS FLAWED AND DOES NOT REPRESENT AN UNCONTROLLED TRANS ACTION. 7. THE LEARNED AO / TPO / DRP FAILED TO APPRECIATE TH AT ONCE WORKING CAPITAL ADJUSTMENT IS GRANTED, NO SEPARATE ADJUSTMENT IS REQUIRED ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES. ITA NO. 826/DEL./2015 3 8. THE LEARNED AO/TPO/DRP HAVE ERRED IN RE-COMPUTING THE ARMS LENGTH MARGIN OF INTERNATIONAL TRANSACTION PERTAINI NG TO IT-ENABLED SERVICES. 9. THE LEARNED AO HAS GROSSLY ERRED IN INITIATING PE NALTY PROCEEDINGS UNDER SECTION 271 (1 )(C) OF THE ACT. 10. THE LEARNED AO HAS ERRED IN LEVYING INTEREST UND ER SECTION 234B OF THE ACT WHILE COMPLETELY DISREGARDING THE PROVISION S OF THE ACT AND THE JUDICIAL PRECEDENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 30.09.2010 DECLARING INCOME OF RS. 15,47,056/-. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE A SSESSEE. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE LD. AO OBSERVED THAT TH E ASSESSEE HAS ENTERED IN THE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE E NTERPRISES WORTH RS. 1,15,84,12,481/-. THEREFORE, THE SAME WAS FORWARDED TO THE LD. TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LE NGTH PRICE (ALP). THE ASSESSEE, METLIFE GLOBAL OPERATIONS SUPPORT CENTER PVT. LTD. (MGOSC) IS A PRIVATE LTD. CO. AND INCORPORATED ON 11.04.2008 WHI CH IS A WHOLLY OWNED SUBSIDIARY COMPANY OF MSPL AND RENDERS THE FOLLOWIN G BUSINESS PROCESS OUTSOURCING AND INFORMATION TECHNOLOGY (IT) ENABLED SERVICES TO MSPL : ACTUARIAL DATA COMPILATION AND ANALYSIS ADMINISTRATION SERVICES FINANCE ACCOUNTING AND ADMINISTRATIVE CORPORATE SER VICES INVESTMENT ANALYSIS AND REPORTING CASE IMPLEMENTATION SERVICES TRANSCRIPTION SERVICES FINANCIAL CONTROL AND REPORTING PROCESS CORRESPONDENCE SERVICES QUALITY ASSURANCE FUNCTIONS BILLING AND REMITTANCE PROCESS PRE-AND POST UNDERWRITING REVIEW ITA NO. 826/DEL./2015 4 CLAIMS REPORTING SERVICES AND CLINICAL CONSULTATION PROCESS FOR CLAIM ADMINISTRATION BROKER OPERATIONS ACCOUNT MANAGEMENT DISTRIBUTION SUPPORT AND OTHER RELEVANT SERVICES 3. BEFORE US, THE MAIN ISSUE INVOLVED IS REGARDING RECEIVABLES. THE OTHER ISSUES ARE CONSEQUENTIAL. THE LD. AUTHORISED REPRES ENTATIVE ARGUED ONLY FOR THE ADJUSTMENT REGARDING RECEIVABLES AND ALTERNATIV ELY ON WORKING CAPITAL ADJUSTMENT. ON PERUSAL OF THE DETAILS SUBMITTED BY THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE, THE LD. TRANSFER P RICING OFFICER OBSERVED THAT THE PAYMENT ON ACCOUNT OF SALES TO ASSOCIATE ENTER PRISES IS REALISED AFTER SIGNIFICANT TIME PERIOD AND THAT THE REALISATION OF PAYMENT WILL RISE TO MORE THAN A YEAR WHICH IS NON-REALISATION OF PAYMENTS FR OM AES WITHIN THE PERIOD SPECIFIED IN THE AGREEMENT. HE FURTHER OBSERVED THA T SUCH TYPE OF REALISATION IN TRADE PRACTICE CARRIES SOME KIND OF PENAL RATE O F INTEREST DEPENDING ON CASE TO CASE AND NO INDEPENDENT ENTERPRISES WOULD HAVE A LLOWED THE 3 RD PARTIES TO MAKE LATE PAYMENTS OR ELSE WOULD HAVE CHARGED HIGHE R PRICES FOR DELAYED PAYMENTS. THE LD. TPO REFERRED TO THE AGREEMENTS RE GARDING CHARGES AND TERMS OF PAYMENT AND NOTED THAT ALL INVOICES, SHALL BE BASED ON THE PROJECTS AND SHALL BE PAYABLE TO SERVICE PROVIDER WITHIN 30 DAYS FROM THE DATE OF RECEIPT OF INVOICE BY ASSOCIATE ENTERPRISES. THEREF ORE ANY DELAY IN REALISATION OF PAYMENT BEYOND 30 DAYS SHOULD ATTRACT PENAL INTE REST. THIS VERY DESCRIPTION CLEARLY SHOWS THAT THE PAYMENT IS TO BE MADE WITHIN 90 DAYS FROM THE DATE OF RECEIPT OF INVOICE. HOWEVER, NO PENAL I NTEREST HAS BEEN SPECIFIED IN THE INVOICES. THE LD. TPO CALCULATED TRADE INTEREST ON DELAYED PAYMENTS AS PER TABLE BELOW. ITA NO. 826/DEL./2015 5 PARTICULARS INVOICE DATE TOTAL BILLED (IN INR) PARTY DUE DATE REALISATION DATE DELAY IN REALLSA TION INTEREST ON DELAYED TIME (@14.88%) ITES FOR APR 09 28 - 05 - 2009 7,34,72,840 27 - 06 - 2009 01 - 07 - 2009 4 1,11,77 1TES FOR MAY - JUNE 09 08 07 - 2009 15,11,04,098 07 - 08 - 2009 24 - 09 - 2009 48 27,81,79 ITES FOR ]ULY09 06 - 08 - 2009 8,35,70,771 05 - 09 - 2009 04 - 12 - 2009 90 29,07,93 ITES FOR AUG09 Z2 - 09 - 2009 8,70,41,545 22 - 10 - 2009 04 - 12 - 2009 43 14,34,12 ITES FOR SEPT 09 22 - 10 - 2009 9,64,78,867 21 - 11 - 2009 20 - 01 - 2010 60 22,25,27 TTES FOR 0CT 09 22 - 11 - 2009 11,22,29,550 20 - 12 - 2009 20 - 01 - 2010 31 13,30,05 ITES FOR N O V 09 29 - 12 - 2009 11,82,21,795 28 - 01 - 2010 20 01 - 2010 0 ITES FOR DEC 09 20 - 01 - 2010 12,02,66,821 19 - 02 - 2010 05 - 03 - 2010 14 6,41,60 ITES FOR J AN 10 19 - 02 - 2010 13,03,64,371 20 - 04 - 2010 05 - 03 - 2010 0 ITES FOR FEB 10 24 - 03 - 2010 8,31,72,979 23 - 05 - 2010 12 - 04 - 2010 0 ACCRUAL FOR MARCH 10 10,34,18,820 1,15,93,42.457 1,14,32,576 THE ASSESSEE HAD SUBMITTED TRANSFER PRICING STUDY REPORT BEFORE THE TRANSFER PRICING OFFICER (TPO). AFTER EXAMINATION O F DOCUMENTS SUBMITTED BY THE ASSESSEE, THE TPO EXCLUDED SOME OF THE COMPARAB LES AND INCLUDED SOME NEW COMPARABLES EITHER ON ACCOUNT OF FUNCTIONAL DIS SIMILARITY OR INSUFFICIENT FINANCIAL INFORMATION OR DIFFERENT FINANCIAL YEARS ETC., PASSED HIS ORDER ON 20.01.2014 DIRECTING THE ASSESSING OFFICER TO ENHAN CE THE INCOME OF THE ASSESSEE BY RS. 9,00,86,343/- ON ACCOUNT OF DIFFERE NCE IN THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTION OF PROVISI ON OF IT ENABLED SERVICES ( RS. 7,86,53,767) AND RECEIVABLES ( RS. 1,14,32,576) . THE AO ACCORDINGLY, MADE DRAFT ASSESSMENT ORDER ON 12.03.2014. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE LD. DISPUTE RESOLUTION PENAL (DRP), WHO REJECTED THE OBJECTIONS OF THE ASSESSEE VIDE ORDER DATED 16.12.2014. ACCORDINGLY, IN COMPLIANCE TO THE DIREC TIONS OF DRP, THE AO MADE FINAL ASSESSMENT ORDER ON 06.01.2015. ON RECTIFICAT ION APPLICATION FILED BY ASSESSEE U/S 154 DATED 05.01.2015, THE LD. TPO, HO WEVER, RESTRICTED THE ADDITION ONLY WITH RESPECT TO RECEIVABLES TO THE E XTENT OF RS. 1,14,32,576/- ITA NO. 826/DEL./2015 6 AND DELETED THE ADDITION OF RS.7,86,53,767/- WITH R ESPECT TO PROVISION OF IT ENABLED SERVICES. THE AO ACCORDINGLY ALSO MADE RECT IFICATION VIDE ORDER DATED 04.02.2015 U/S. 154 IN FINAL ASSESSMENT. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE LD. AUTHORISED REPRESENTATIVE REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED TO MAKE ADDITION AS PER PROVISIONS OF SEC TION 92CA (3) OF THE INCOME TAX ACT, 1961. HE ALSO OBJECTED REGARDING APPLICATI ON OF CUP METHOD ADOPTED BY THE TPO FOR ADDITION ON RECEIVABLES. THE LD. TPO DID NOT CONCUR WITH ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE AND MO DIFIED THE LIST OF COMPARABLES COMPANIES FOR DETERMINING THE ALP OF TH E IMPUGNED TRANSACTIONS. THE LD. TPO DID NOT AGREE WITH THE AS SESSEES CONTENTIONS AND IN VIEW OF EXPENDED DEFINITION OF INTERNATIONAL TRANS ACTION INSERTED RETROSPECTIVELY, PROCEEDED TO BENCHMARK THE INTERES T ON INTER-COMPANY OUTSTANDING RECEIVABLES (ARISING ON ACCOUNT OF PROV ISION OF IT-ENABLED SERVICES) BY TREATING IT AS ADVANCING OF UNSECURED LOAN TO ITS AE AND COMPUTED NOTIONAL INTEREST THEREON. ACCORDINGLY, WHILE PREPA RING TP DOCUMENTATION, THE ASSESSEE DID NOT REPORT OUTSTANDING RECEIVABLES AS A SEPARATE INTERNATIONAL TRANSACTION. HOWEVER, THE FINANCE ACT, 2012 THE DEF INITION OF INTERNATIONAL TRANSACTION WAS RETROSPECTIVELY AMENDED TO INCLUDE INTER-COMPANY RECEIVABLES AS A SEPARATE INTERNATIONAL TRANSACTIO N. 5. IT WAS NEXT SUBMITTED THAT A PERSON CANNOT BE EX PECTED TO DO WHAT HE CANNOT REASONABLY PERFORM. THIS IS ALSO KNOWN AS TH E PRINCIPLE OF IMPOSSIBILITY OF PERFORMANCE (ALSO KNOWN AS THE M AXIM OF LEX NON COGIT AD IMPOSSIBILIA), WHICH IMPLIES THAT IF IT APPEARS THA T PERFORMANCE OF THE ITA NO. 826/DEL./2015 7 FORMALITIES PRESCRIBED BY A STATUTE HAS BEEN RENDER ED IMPOSSIBLE BY CIRCUMSTANCES OVER WHICH THE PERSONS INTERESTED HAD NO CONTROL, THEN THESE CIRCUMSTANCES WILL BE TAKEN AS A VALID EXCUSE, AS A LSO HELD IN VARIOUS DECISIONS. THE LD. AR HAS RELIED ON THE FOLLOWING DECISIONS IN THIS CONTEXT. (I). SUPDT. OF TAXES, DHUBRI & OTHERS V. ONKARMAL N ATHMAL TRUST & OTHERS (1975) 4 CTR 172 (II). SOUTH EASTERN COALFIELDS LTD. V. JCIT (2002) 260 IT R 1 (III). INCOME TAX OFFICER V. LIC OF INDIA (2001) 79 ITD 27 8 (IV). ACIT V. JINDAL IRRIGATION SYSTEMS LIMITED (1996) 56 ITD164 (V). MAFATLAL APPAREL MFG. CO. LTD. V. DCIT (1998) 61 TT J 323 6. IT WAS THEREFORE, SUBMITTED THAT THAT EARLY OR L ATE REALIZATION OF SALE/ SERVICE PROCEEDS IS INCIDENTAL TO THE TRANSACTION O F SALE/ SERVICE, AND NOT A SEPARATE TRANSACTION IN ITSELF. IN OTHER WORDS, THE SE REPRESENT THE CONSEQUENCE OF AN INTERNATIONAL TRANSACTION AND NOT AN INTERNAT IONAL TRANSACTION PER-SE. IF THE ALP IN RESPECT OF AN INTERNATIONAL TRANSACTION OF SALE IS DETERMINED, THEN THERE CAN BE NO QUESTION OF TREATING NON-RECEIPT OF INTEREST IN SUCH TRANSACTION AS SEPARATE INTERNATIONAL TRANSACTION WARRANTING AN Y FURTHER ADJUSTMENT. ONCE ALP IS DETERMINED IN RESPECT OF THE SALE/SERVICE TR ANSACTION, IT WOULD BE DEEMED TO BE COVERING ALL THE ELEMENTS AND CONSEQUE NCES OF SUCH TRANSACTION OF SALE/SERVICE. THIS IS MORE RELEVANT IN VIEW OF T HE FACT THAT THE ASSESSEE HAD ENTERED INTO INTER-COMPANY AGREEMENT GOVERNING THE PROVISION OF THE AFORESAID SERVICES AND THE TERMS AND CONDITIONS OF THE AGREEMENT WERE CONCLUDED ON ARMS LENGTH BASIS UPON DETAILED NEGOT IATIONS BY THE ASSESSEE WITH ITS AE. HENCE, AFTER HAVING DETERMINED THE ALP IN A SALE/SERVICE TRANSACTION, IT CANNOT BE ASSUMED THAT SEPARATE ADJ USTMENT IS REQUIRED IN RESPECT OF INTEREST THERE FROM, SINCE OUTSTANDING R ECEIVABLES EMANATE FROM THE SERVICE TRANSACTION ITSELF, WHICH HAS ALREADY BEEN BENCHMARKED. THE LD. AR, ITA NO. 826/DEL./2015 8 THEREFORE, SUBMITTED THAT DETERMINATION OF ALP IN R ESPECT OF OUTSTANDING RECEIVABLES FROM INTER-COMPANY TRANSACTIONS IS NOT REQUIRED, ONCE ALP OF INTER-COMPANY TRANSACTIONS HAS BEEN ALREADY DETERMI NED AND NO SEPARATE ADJUSTMENT IS NECESSARY IN THIS REGARD. 7. REGARDING RE-CHARACTERIZATION OF OUTSTANDING REC EIVABLES AS UNSECURED LOAN ADVANCED TO AE, IT WAS SUBMITTED THAT THE LEAR NED TPO HAS ERRONEOUSLY RE-CHARACTERIZED OUTSTANDING RECEIVABLES AS UNSECUR ED LOANS ADVANCED BY THE ASSESSEE TO ITS AE, IGNORING THE FACTS AND CIRCUMST ANCES OF THE CASE AND WITHOUT UNDERSTANDING AND APPRECIATING THE BONA-FID E NATURE OF TERMS OF AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AE. THE LEARNED TPO HAS FAILED TO UNDERSTAND AND APPRECIATE THE BONA FIDE N ATURE OF TERMS OF THE WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE AE R EGARDING CREDIT PERIOD ALLOWED TO THE AE. IN THIS RESPECT, HE DREW OUR KIN D ATTENTION TO THE DECISION OF THE JURISDICTIONAL DELHI BENCH OF THE HONBLE ITAT IN THE CASE OF SONY INDIA PRIVATE LIMITED (2008) 114 ITD 448 WHEREIN IT WAS H ELD THAT FORM AND SUBSTANCE OF A TRANSACTION SHOULD BE RESPECTED AS L ONG AS THERE IS A WRITTEN AGREEMENT IN PLACE. IN THE ABSENCE OF INFORMATION T O THE CONTRARY, THE BUSINESS AND COMMERCIAL SUBSTANCE OF A TRANSACTION SHOULD NO T BE CHALLENGED. THE RELEVANT EXTRACTS OF THE DECISION ARE PROVIDED FOR READY REFERENCE AS UNDER: 'WE ARE, THEREFORE, OF THE VIEW THAT TPO AND OTHER R EVENUE AUTHORITIES WERE NOT JUSTIFIED IN EQUATING THIS REIMBURSEMENT W ITH EQUITY OR WINDFALL GAIN OR SUBSIDY OR SOME AD HOC PAYMENT. THE AE HAD C HOSEN TO FUND THE ADVERTISING CAMPAIGN FOR PRODUCTS LAUNCHED UNDER TH E BRAND NAME SONY. THE GENUINENESS OR BONAFIDE OF THE AGREEMENT HAS NOT BEEN DOUBTED OR DISPUTED AT ANY STAGE OF THE PROCEEDING. IN FACT IT HAS BEEN ACCEPTED THAT THE AGREEMENT HAS BEEN GIVEN EFFECT T O AND REIMBURSEMENT RECEIVED BY THE TAXPAYER FROM SONY PACIFIC AS PER A GREEMENT... (EMPHASIS SUPPLIED) ITA NO. 826/DEL./2015 9 8. IN THE INSTANT CASE, IT WAS SUBMITTED THAT SINCE OUTSTANDING BALANCES ARISE IN THE COURSE OF REGULAR DEALINGS WITH ITS AE (AND NOT FROM ADVANCING OF MONEY, INDICATING AN INTENT TO LEND), IT WOULD BE I MPROPER AND BEYOND JURISDICTION OF THE LEARNED TPO TO RE-CHARACTERIZE OUTSTANDING RECEIVABLES (ARISING IN COURSE OF REGULAR DEALINGS OF BUSINESS) AS ADVANCING OF MONEY (IN THE NATURE OF UNSECURED LOAN). THIS VIEW IS ALSO ST ATED TO BE SUPPORTED BY PARA 1.64 OF THE OECD GUIDELINES, WHICH LAY EMPHASIS ON THE FACT THAT IT IS DESIRABLE FOR INCOME-TAX AUTHORITIES TO RECOGNISE AND APPRECI ATE THE ACTUAL TRANSACTIONS UNDERTAKEN BY A TAXPAYER AND THE SAME SHOULD NOT BE DISREGARDED BARRING EXCEPTIONAL CIRCUMSTANCES. THE RELEVANT EXTRACTS OF THE GUIDELINES ARE EXTRACTED AS UNDER : D.2 RECOGNITION OF THE ACTUAL TRANSACTIONS UNDERTA KEN A TAX ADMINISTRATIONS EXAMINATION OF A CONTROLLED TRANSA CTION ORDINARILY SHOULD BE BASED ON THE TRANSACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPL IED BY THE TAXPAYER INSOFAR AS THESE ARE CONSISTENT WITH THE METHODS DESCRIBED IN CHAPTER II. IN OTHER THAN EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NO T DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR T HEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COULD BE COMPOUNDED BY DOUBLE TAX ATION CREATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VI EWS AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. (EMPHASIS SUPPLIED) 9. IN THIS CONTEXT, RELIANCE IS ALSO PLACED ON THE DECISION IN THE CASE OF EVONIK DEGUSSA INDIA PRIVATE LIMITED (ITA NO. 7653/ MUM/2011) AND ABHISHEK AUTO INDUSTRIES LIMITED (2010) 136 TTJ 530 . ON THE STRENGTH OF THESE DECISIONS, IT IS SUBMITTED ON BEHALF OF THE A SSESSEE THAT IT WAS NECESSARY FOR THE INCOME-TAX AUTHORITIES TO ACCEPT AND RECOGN ISE A TRANSACTION AS SUCH AND NOT TO DICTATE OR GOVERN THE TERMS THEREOF. SEV ERAL OTHER DECISIONS OF ITAT ARE ALSO RELIED BY THE LD. AR OF THE ASSESSEE. HE F URTHER SUBMITTED THAT THE CASE ITA NO. 826/DEL./2015 10 LAWS RELIED BY THE REVENUE ARE ON DIFFERENT FOOTING S, THEREFORE, THE SAME ARE NOT APPLICABLE IN THE PRESENT FACTS OF THE CASE. 10. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDE R OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE LOWER AUTHORITIES ARE JUSTIF IED TO MAKE ADDITION ON RECEIVABLES. THEREFORE, THE ORDER OF THE AUTHORITIE S BELOW SHOULD BE RESTORED. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS RECEIVED PAYMENTS BEYOND THE PRESCRIBED PERIOD AS PER AGREEMENTS MADE BETWEEN TH E PARTIES REGARDING SALES REALIZATION. THE LD. TPO HAS RIGHTLY RE-CHARA CTERIZED IT AS UNSECURED LOAN TO AES WITHOUT CHARGING ANY INTEREST. THEY HAVE RIG HTLY SELECTED THE COMPARABLES WHICH ARE FUNCTIONALLY SIMILAR WITH THE ASSESSEES BUSINESS AND ECONOMIC ANALYSIS OF THE COMPARABLES HAS BEEN DONE CORRECTLY. THE FINANCE ACT, 2012 HAS MADE AMENDMENT IN THE DEFINITION OF I NTERNATIONAL TRANSACTIONS WHICH INCLUDES INTER-COMPANY RECEIVABLES AS A SEP ARATE INTERNATIONAL TRANSACTION WITH RETROSPECTIVE EFFECT. THEREFORE, T HE ASSESSEE HAS COMMITTED MISTAKE WHILE PREPARING THE TP STUDY REPORT AND DID NOT INCLUDE THE RECEIVABLES. THE DECISIONS RELIED BY THE LD. AR ARE NOT APPLICABLE TO THE PRESENT CASE. 11. AFTER HEARING BOTH THE SIDES AND PERUSING THE E NTIRE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS NOT CHARGE D ANY INTEREST ON THE INTER- COMPANY RECEIVABLES WHICH HAVE BEEN RECEIVED BEYOND THE PERIOD OF AGREEMENT. THE CASE OF ASSESSEE PERTAINS TO A.Y. 20 10-11, DURING WHICH THE INTER-COMPANY RECEIVABLES WERE NOT INCLUDED IN THE CATEGORY OF INTERNATIONAL TRANSACTION. THE INCLUSION OF SUCH RECEIVABLES IN I NTERNATIONAL TRANSACTION WAS MADE BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT . THEREFORE, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO PERFORM THE FORMALITIE S ENUNCIATED BY THE FINANCE ITA NO. 826/DEL./2015 11 ACT, WHILE PREPARING THE TP STUDY REPORT FOR THE YE AR UNDER CONSIDERATION. IN OTHER WORDS, IT WAS NOT OPEN FOR THE ASSESSEE TO IN CLUDE INTER-COMPANY RECEIVABLE IN THE INTERNATIONAL TRANSACTIONS IN THE TP STUDY REPORT AND THUS, THE ASSESSEE HAD A GOOD EXCUSE FOR THE SAME, AS ALS O HELD IN VARIOUS DECISION RELIED BY THE LD. AR. MOREOVER, THE CASE OF THE ASS ESSEE STANDS ON PARALLEL FOOTINGS AS THE DECISION OF ITAT MUMBAI BENCH IN TH E CASE OF EVONIK DEGUSSA INIDA PRIVATE LIMITED (SUPRA), WHEREIN, THE CO-ORDI NATE BENCH OF TRIBUNAL IN PARA 28 OF THE ORDER HAS OBSERVED AS UNDER : 28. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSI ONS AND THE ORDERS OF THE TPO AS WELL AS THE DIRECTION OF THE DRP, WE FIND THA T THE ASSESSEE HAS NO INTEREST LIABILITY AND IT DOES NOT HAVE ANY EXTERNA L BORROWINGS. EVEN IF THE PAYMENTS HAVE BEEN MADE BY THE A.E. BEYOND THE NORM AL CREDIT PERIOD, THERE IS NO INTEREST COST TO THE ASSESSEE. MOREOVER , THERE IS NO SUCH AGREEMENT WHEREBY INTEREST IS TO BE CHARGED N SUCH A DELAYED PAYMENT. FROM THE SUMMARY OF PAYMENT SUBMITTED BY THE LEARNE D COUNSEL, IT IS SEEN THAT THE BILLING IS DONE ON QUARTERLY BASIS AND, AC CORDINGLY, THE PAYMENT IS BEING RECEIVED. THEREFORE, THE DELAY IS NOT WHOLLY O N ACCOUNT OF LATE PAYMENT BY THE A.ES ONLY. MOREOVER, THE T.P. ADJUSTM ENT CANNOT BE MADE ON HYPOTHETICAL AND NOTIONAL BASIS UNTIL AND UNLESS THERE IS SOME MATERIAL ON RECORD THAT THERE HAS BEEN UNDER CHARGING OF REA L INCOME. THUS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT ADDITION ON ACCOUNT OF NOTIONAL INTEREST RELATING TO ALLEGED DE LAYED PAYMENT IN COLLECTION OF RECEIVABLES FROM THE AES, IS UNCALLED FOR ON THE FACTS OF THE PRESENT CASE AND IS, ACCORDINGLY, DELETED. 12. IN THE CASE IN HAND, THERE IS NO INTEREST LIABI LITY OR ANY EXTERNAL BORROWINGS. IN THE AGREEMENT TOO, THERE IS NO CONDI TION TO CHARGE ANY INTEREST FOR DELAYED PAYMENTS BY THE AES. THE REVENUE COULD NOT BE ABLE TO ADDUCE ANY CONTRARY MATERIAL AGAINST THE AFORESAID DECISIO N. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH, THE LD . AUTHORITIES BELOW ARE NOT JUSTIFIED TO MAKE ADDITION ON INTER-COMPANY RECEIVA BLES, AS COMPUTED BY ITA NO. 826/DEL./2015 12 THEM. ACCORDINGLY, THE APPEAL OF THE ASSESSEE DESER VES TO BE ALLOWED ON THIS COUNT. THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE CONSEQUENTIAL TO THIS ISSUE AND THEREFORE, THE SAME DO NOT NEED SEPARATE ADJUDICATION. 13. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2018. SD/- SD/- (BHAVNESH SAINI) (L.P. SA HU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 TH DECEMBER, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI