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Income Tax Appellate Tribunal, DELHI BENCH, ‘T’: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI BRAJESH KUMAR SINGH
per clause-(1) of para 52 of the aforesaid order. In view of the facts as discussed by us earlier in this order, we are of the considered view that the assessee has not carried out the basic operations of agricultural activity as per the tests laid in the judgment of the Hon’ble Supreme Court in the case of CIT Vs.
Raja Benoy Kumar Sahas Roy (Supra) and has thus has failed to discharge the burden cast upon it that its case comes within the parameters for seeking exemption of Rs.124,59,41,832/- as claimed u/s 2(1A) r.w.s. 10(1) of the Act.
14.9. Therefore, in view of the above facts and following the order dated 18.12.2017 of the Co-ordinate Bench in the case of the assessee, we confirm the order of the Ld. CIT(A) in confirming the disallowance of agricultural income amounting to Rs.124,59,41,832/- claimed u/s 2(1A) r.w.s. 10(1) of the Act and treating it a business income by the AO. Ground nos.1 to 3 of the appeal are dismissed. assessee that the Ld. CIT(A) erred in not giving directions to assess the total income of the assessee as per normal provisions of the Act by making necessary adjustments as per section 28 to 43B of the Act filed vide letter dated 26.07.2024 in relation to the above grounds is also dismissed as no submission were made in respect of this additional ground.
15. Ground nos. 4 to 10 of the appeal are against TP adjustment made by the Assessing Officer on account of delayed receipt of receivables from AE's. The Assessing Officer had made an adjustment of Rs.67,17,965/-, which after giving effect to the order of the CIT(A), the adjustment on account of account receivable stood reduced to Rs. 37,03,330/-.
15.1. The Assessing Officer had made the adjustment of Rs.67,17,965/- on the basis of report of the TPO u/s 92CA(3) of the Act dated 27.10.2016. In this regard, the TPO had issued a show-cause notice to the assessee after noting the major international transactions undertaken by the assessee with its AE during the FY 2012-13. According to the TPO, the assessee failed to submit any reply even after due date and therefore he had no other option left but to calculate the interest on all the receivables for the whole year by giving a grace period of 30 days. Thereafter, the Assessing Officer relied upon various case laws and in support of his action and applied the interest rate of LIBOR plus 400 basis points to be the most appropriate CUP.
The details of the transactions noted by the Assessing Officer and the show-cause and the comments regarding non-receipt of reply of the assessee is reproduced as under:-
“4. The major international transactions undertaken by assessee with its ASSESSEE, and during the F.Y. 2012-13 are as under:-
S. No. Nature of transaction Method used by Amount in Rs. Assessee 1 Purchase of Parent seeds 1,10,19,86,129/- 2 Provision of seeds 1,51,23,609/- TNMM conditioning and storage services 3 Sale of seeds 12,96,45,761/- 4 Reimbursement 3,98,70,234/- expenses from AEs Other Method 5 Reimbursement 23,57,642/- expenses to AEs
5. Receivables A show cause dated 18.10.2016 was issued to the taxpayer as per details below: [QUOTE] "2. Examination of the balance sheet reveals receivables thereby implying that the payment for the invoices raised by you have not been received within the stipulated time as provided in your service agreement with your AE. In this regard, you are requested to furnish the time period for payment as per your service agreement with your AE. However, to be reasonable and fair to you (the assessee), instead of charging penal interest, the delayed payments are being treated as unsecured loans advanced to the AEs for the period of delay in receipt of payment beyond the time stipulated in the services agreement. You are requested to furnish details as to whether the invoices were raised in INR(Domestic currency) or in foreign currency. In case of the invoices raised in domestic currency, the interest rate is proposed to be charged on the basis of mark-up on prevailing average SBI base rate(300 basis points) during the year. Whereas in case the invoices have been raised in foreign currency, the interest rate is proposed to be charged on the basis of Mark-up on prevailing LIBOR rate(400 basis points) during the year." [UNQUOTE) The taxpayer failed to submit any reply, even after the due date. TPO contacted the taxpayer via all possible communication means like email, telephone call, speed post etc. As TPO had no other option left, so the interest was calculated on all the receivables, for the whole year by giving a grace period of 30 days.”
15.2. Aggrieved with the said order, the assessee filed an appeal before the ld. CIT(A), where inter-alia the assessee submitted that it is a debt free company and therefore receiving of any interest on receivable was not justified in its case. In this regard, the assessee relied upon the decision of Co-ordinate Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., vs DCIT, Circle 4(2), New Delhi (ITA no 1478/Del/2015) which was subsequently confirmed by the Hon’ble Delhi High Court and the SLP against the same was dismissed by Hon’ble Supreme Court.
The relevant submission of the assessee before the Ld. CIT(A) in this regard is reproduced as under:-
Principal Commissioner of Income Tax Vs M/s Bechtel India Private Limited - Supreme Court of India -(TS-591-SC-2017-TP) - July 21,2017 (Copy enclosed vide Annexure 2) We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, arises, on the facts of this case. The special leave petition is dismissed" Principal Commissioner of Income Tax vs M/s Bechtel India Private Limited - Delhi High Court :TS-508-HC-2016(DEL)-TP) - July 21,2016 / Copy enclosed vide Annexure 3) “4. As far as question (B) concerning the adjustment for interest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assesse is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned." Bechtel India Pvt. Ltd., vs DCIT, Circle 4(2), New Delhi (ITA no 1478/Del/2015) dated December 21,2015 - Delhi ITAT( Copy enclosed vide Annexure 4) “15.1. It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE's. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments.”
16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee.” 15.3. However, the ld. CIT(A) did not make any comment regarding the above contention of the assessee but relying upon the decision of Co-ordinate Bench in the case of Ameriprise India AY 2009-10 and of the Mumbai Bench of the Tribunal in the case of Tecnimont ICB Ltd. vs DCIT (2013) 32 taxmann.com 357 (Mum. Trib.) justified the action of the Assessing Officer but reduced the addition by directing the Assessing Officer to apply LIBOR rate plus 200 basis points from 400 basis points as computed by the TPO and the Assessing Officer. The relevant finding of the Ld. CIT(A) in para no.4.3 to 4.5 of her order is reproduced as under:-
“4.3. I have carefully gone through the submissions of the appellant, the assessment order and the assessment record. The facts of the case are that the TPO passed order u/s 92CA(3) dated 27.10.2016. The TPO 3(3)(1), New Delhi observed that in view of the receivables from foreign AEs i.e. Pioneer Overseas Corporation, USA of Rs. 12,21,87,074/- and from Pioneer Pakistan Seed Co. Ltd. of Rs. 4,20,43,090/-, interest on the receivables was at international transaction and accordingly computed interest @ of 4.4569% for 11 months amounting to Rs.67,17,965/- and recommended that the assessing officer should make an a TP adjustment for the said international transaction. 4.4 I find that the facts in the case of the appellant can be distinguished from the facts of the above cases referred by Ld. AR of the appellant. The Hon'ble ITAT Delhi in Assessment Year: 2009-10, in the case of Ameriprise India Pvt. Ltd. (PAN AAFCA3489B) vs. Asstt. Commissioner of Income Tax Circle 1(1), New Delhi lays down the principle of charging interest as International Transaction on delayed payment of receivables from AEs. It has been held that the non-realization of invoice value beyond the stipulated period is a separate international transaction, whose ALP is separately determinable. "The International transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the International Transaction of rending of services...... The TP adjustment on account of interest on delayed realization of invoice value... depends on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May; period allowed for realization is two months; and the invoice is actually realized on 31st December; Notwithstanding the fact that interest on such late realization would become chargeable for a period of 6 months (from 1st July to 31st December) but the amount of invoice will not be receivable as at the end of the financial year on 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months." 4.5 It may further be mentioned that Hon'ble ITAT, Mumbai bench in the case of Tecnimont ICB Ltd. vs. DCIT (2013) 32, taxman.com
357 has also held that transfer pricing adjustment can be made on account of interest for period beyond the agreed credit period. In light of the TPO's report, if the appellant did not have sufficient surplus funds to lend, it may borrow such funds from banks or others, then cost of borrowings in India would be relevant. Also if the surplus funds were to be invested in existing business or expansion into new businesses, the return also would be linked with domestic interest rates. So, the entire opportunity cost to the appellant, will be with reference to the interest rates prevailing in India. TPO has applied LIBOR rate + 400 basis points applicable to the ECBs having average maturity period between 3 and 5 years after taking into consideration the foreign exchange risk. The Ld TPO has carried out Interest adjustment for a flat period of 11 months after applying the grace period of 30 days from due date. Hence, I hold that the CUP to be used is the Libor to which 200 basis points is being added to take into account the various factors / risks as already discussed in the order of TPO, reducing the addition above LIBOR rate + 200 basis points from 400 basis points as computed by TPO and AO. Hence, this ground of appeal is partly allowed.”
16. Aggrieved with the order of the ld. CIT(A), the assessee is in appeal before us on the following grounds:-
4. That the CIT(A) has erred in law and on facts in treating receivables from AE as a separate international transaction and benchmarking it separately.
5. That CIT(A) has erred in law in ignoring Trade payable transactions and considering Trade Receivables in isolation when all the transactions belong to a single class of transactions and have been benchmarked accordingly in TP Report.
6. That the CIT(A) has erred in law and on facts by re - characterizing the nature of outstanding receivables as loan advanced to AEs when the same is not permitted under the Act and charging interest on the same.
That the CIT(A) has erred in law by determining the Comparable Uncontrolled Price ("CUP") method as the most appropriate method without providing and analyzing any comparable uncontrolled transactions).
That whether on the facts and circumstances of the case and in law the CIT(A) was justified in upholding the addition made by the Transfer Pricing officer thereby ignoring the fact that Associated Enterprises with whom sales /other 7375/Del/2018 transactions were made were treated in similar fashion as the Non AEs and no interest was charged even from Non AEs.
9. That the CIT(A) has erred in law by not following the principles laid down by Honb'le Supreme Court of India in case of M/s Bechtel India Private Limited.
That the CIT(A) erred in rejecting the without prejudice claim made by the appellant and upholding the adjustment made for a flat period of 11 months without verifying the actual period of delay if any.” 16.1. Further, with respect to the above issue, the assessee has filed an additional ground of appeal vide letter dated 26.07.2024 and also without prejudice ground in terms of Rule- 11 of the Income Tax (Appellate Tribunal) Rules 1963 as under:-
“That on the facts and circumstances of the case and in law, CIT(4) ought to have appreciated that since operating margin of the appellant is higher than the working capital adjusted margin of the comparable companies, no adjustment on account of interest on receivables is warranted. Without prejudice, that on the facts and circumstances of the case and in law, CIT(A) erred in not giving directions to assess the total income of the Appellant as per normal provisions of Act by making necessary adjustments as per sections 28 to 43B of the Act." 16.2. We find that all the facts relevant for adjudication of the aforesaid additional grounds are already on record. The additional grounds raised by the assessee are purely legal in nature. Hence, in view of the decision of the Hon’ble Supreme Court in the case of NTPC Limited vs CIT 229 ITR 383(SC), these additional grounds are hereby admitted and taken up for adjudication.
16.3. In this regard, the ld. AR filed a written synopsis giving a factual position and contending the various proposition as under:-
“The appellant is primarily engaged in the activities of cultivation and sale of commercial hybrid seeds. The company purchases the parent seeds form Pioneer Overseas Corporation India Branch (POC IB) and cultivates them, to grown commercial hybrid seeds on agricultural land situated in India, taken on lease at various locations in Andhra Pradesh, Karnataka, Gujarat and Rajasthan. The commercial hybrid seeds are sold to unrelated parties in India through distributors and retailers across the country. During the year, the appellant entered into the following international transaction with associated enterprise: S. No. Name of the Party Nature of Amount Received Transactions /Receivables 1 Pioneer Overseas Sale of Hybrid 8,76,02,672 Corporation US seeds to AE Reimbursement of 3,45,84,402 Expenses from AE 2 Pioneer Pakistan Sale of Hybrid seeds 4,20,43,090 Seeds Co. Ltd. to AE
The TPO made an adjustment of Rs. 67,17,965 in respect of outstanding receivables from the associated enterprises. While calculating the adjustment on account of outstanding receivables. the TPO computed interest at the rate of 4.4569% for 11 months on invoices outstanding for a period of more than 30 days. The CIT (A), while principally confirming the adjustment, directed the TPO to compute the adjustment on account of account receivable by taking the LIBOR rate+ 200 basis points as against 400 basis points considered by the TPO. After giving effect to the order of the CIT (A), the adjustment on account of account receivable stands reduced to Rs. 37,03,330. It is submitted that the adjustment made by the TPO in respect of interest on receivables is not sustainable for the reasons submitted as under:
The TPO has re-characterized the alleged delay in receipt of receivables from the associated enterprises as unsecured loans advanced to the associated enterprise and sought to impute notional interest on the delay in receipt of receivable, at the rate of LIBOR + 450 basis points. The said delay of remittances cannot be re-characterized as unsecured loans advanced to the associated enterprise and imputing of the notional interest thereon, considering it to be in the nature of unsecured loan, is not in accordance with law and is not sustainable for the following reasons as under: 1. No transaction involved 2. Transaction of accounts receivables cannot be re- characterized as unsecured loans 3. Without prejudice- the interest cost has already been suitably factored in the sale price: 4. Appellant is a debt free company 5. No interest charged from third party customers 6. No interest paid by the appellant on outstanding payables to associated enterprises 7. Without prejudice-Incorrect computation of interest. 16.4. In respect of each such proposition at the sr. No.1 to 7, the assessee relied upon various case laws as referred in the written synopsis filed by the assessee.
16.5. In this regard, the submission of the assessee on its contention at Sr. No.4 that it was a debt free company as above is reproduced as under:-
4. Appellant is a debt free company It is submitted that the appellant is a debt free company and there are no long term or short terms loans in the balance sheet of the appellant. The Hon'ble Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd. vs. DCIT (ITA No. 1478/Del/2015) deleted the adjustment on account
of outstanding receivables on the basis that the assessee is a debt free company. The decision of the Hon'ble Tribunal was upheld by the Hon'ble Delhi High Court in on the basis that the assessee is a debt free company and therefore, the question of receiving any interest on receivables does not arise. SLP filed by the revenue against the decision of the Hon'ble High Court was dismissed by the Hon'ble Supreme Court. Accordingly, the decision in the case of Bechtel (supra), which has reached finality with the decision of Hon'ble Supreme Court, squarely applies to the case of the appellant and therefore, no adverse inference can be drawn with respect to delay in receipt of receivables in the case of appellant. Similar adjustment on account of alleged delay in realization of receivables was deleted by the Hon'ble Delhi High Court in the case of Pr CIT vs Boeing India Pvt Ltd (ITA No. 71/2022). The SLP filed by the Revenue was dismissed by the Hon’ble Supreme Court in SLP (Civil) Diary No. 49813/2023. Reliance can also be placed on the decision of Hon’ble Tribunal of Delhi Bench in the case of McKinsey Knowledge Centre India (P.) Ltd [163 Taxmann.com 188(Delhi. Trib.) wherein Hon'ble Tribunal deleted the adjustment made on account of outstanding receivables since the company is a debt free company and had not borrowed any funds for its business activity. Following the decision in the case of Bechtel (supra), the Delhi Bench of Tribunal in the following cases too, upon finding that the appellant as a debt free company, deleted the adjustment made in relation to receivable: * Kadimi Tool Manufacturing Co. (P) Ltd. vs. DCIT (87 taxmann.com 42) * McKinsey Knowledge Centre India (P.) Ltd. Vs DCIT [2019] 111 taxmann.com 102 (Delhi - Trib.) * McKinsey Knowledge Centre India (P.) Lid. Vs DCIT (ITA No 5817/Del/2016) * Inductis (India) Private Ltd. vs. ITO (ITA No. 2075/Del/2015)| 7375/Del/2018 * Global Logic India Ltd. vs DCIT (ITA No.7621/Del/2017) In view of the aforesaid, since the appellant has not availed any loan and is a debt free company, there could not be any inference of providing benefit to the associated enterprise by not charging interest on delayed receivables. In view of the aforesaid, no adjustment is required to be made in the case of the appellant on account of the alleged delay in realization of receivables.
16.6. The ld. CIT-DR relied upon the findings of the TPO and the order of the Ld. CIT(A) and the case laws relied thereupon to submit that interest on delayed realization of receivables is a separate international transaction and, therefore, requires separate benchmarking.
16.7. We have considered the rival submissions and perused the material available on record. As noted above, the assessee in its submissions has stated that the assessee is a debt free company and therefore no TPO Adjustment on account of interest receivables could be made in its case and has relied upon the order of the Co-ordinate Bench of the Tribunal in the case of Bechtel India Pvt. Ltd.(supra), which has been affirmed by the Hon’ble Delhi High Court and the SLP against the same has been dismissed by the Hon’ble Apex Court. The relevant extract of the said orders are reproduced as under:-
(AY 2010-11) order dated 21.12.2015 “This is an appeal filed by the assessee against the assessment order dated 30.01.2015, of ld. DCIT Circle 4(2) u/s 143(3) r.w. sec 144C of I.T. Act, 1961 for A.Y. 2010-11.
Brief facts of the case are as under: The assessee filed its return of income declaring total income of Rs.33,42,28,149/-. Subsequently the same was revised to Rs.33,39,32,080/-.
The assessee is a captive service provider, providing (a) engineering design and related services, (b) financial and accounting support (‘FAS’) services and (c) IT Infrastructure support services (‘IT Infra’) to its Associated Enterprises (‘AEs’), to support the oversea office’s turnkey project execution. The international transactions entered into by the assessee are as under: S. No. International Transaction Amount (in Rs.) 1. Engineering services/Other services 114,37,93,036/- 2. Financial and accounting support services 4,57,02,508/-
3. IT infrastructure support services. 5,50,04,596/- 4. Reimbursement of expenses(paid) 6,70,973/- 5. Reimbursement of expenses(received) 21,97,07,529/-
For benchmarking the international transactions, assessee selected TNMM as the most appropriate method (MAM), with Operating Profit to Total Cost(OP/TC) as Profit level Indicator (PLI). The approach followed by the assessee in the TP Study has been encapsulated in the table below: Nature of Amount Most Results International (In INR Appropriate Transaction crores) Method & Profit Level Indicator (‘PLI’) Appella No. of Margin of nt’s PLI Comparables Comparables in TP Study* Provision of 114.38 Method: 13.04% 6 11.79% engineering TNMM design and PLI: OP/TC related services Provision of FAS 4.57 Method: 15.00% 10 14.37%
services TNMM PLI: OP/TC Provision of IT 5.50 Method: 17.56% 4 17.26% infrastructure TNMM support services PLI: OP/TC Reimbursement 0.07 Method: of expenses TNMM (paid) PLI: OP/TC Not applicable Reimbursement 21.97 Method: of expenses TNMM (received) PLI: OP/TC
5. The ld. TPO disagreed with the various filters used by the assessee in the TP study. The detailed submissions, workings and evidences provided during the course of the TP assessment proceedings, was considered by the ld. TPO, and thereafter he selected the final set of comparables based on the application of additional/modified filters in all three segments. The final comparable adopted by ld. TPO are as under: I. Engineering design and related services S. No. Company Name OP/Cost (%)* 1. Kirloskar Consultants Ltd. 15.64% 2. Mahindra Consulting Engineers Ltd. 23.50% 3. TCE Consulting Engineers Ltd. 25.88% 4. IBI Chematur Ltd. 52.66% 5. Kitco Ltd. 14.01% 6. Cades Digitech Private Ltd. -5.71% Mean 21.00% II. Financial and accounting support services S. No. Company Name OP/Cost (Forex as operating) (%)* 1. Accentia Technologies Ltd. 43.62% 2. Cosmic Global Ltd. 18.28% 3. E4e Healthcare Ltd. 32.67% 4. Fortune Infotech Ltd. 19.62% 5. iGate Global Solutions Ltd. 18.21% 6. Infosys BPO Ltd. 31.61% 7. TCS E-Serve International Ltd. 51.51% 8. TCS E-Serve Ltd. 66.35% 9. Jindal Intellicom Ltd. 14.19% 10. Microland Ltd. -3.11% Mean 29.30% III. IT Infrastructure support services S. No. Company Name OP/Cost (Forex as operating) (%)* 1. Accentia Technologies Ltd. 43.62% 2. Cosmic Global Ltd. 18.28% 3. E4e Healthcare Ltd. 32.67% 4. Fortune Infotech Ltd. 19.62% 5. iGate Global Solutions Ltd. 18.21%
6. Infosys BPO Ltd. 31.61% 7. TCS E-Serve International Ltd. 51.51% 8. TCS E-Serve Ltd. 66.35% 9. Jindal Intellicom Ltd. 14.19% 10. Microland Ltd. -3.11% Mean 29.30%
The ld. TPO further observed that the payment received from the AE was not as per the terms of the service agreement. The Ld.TPO therefore held that the assessee has provided benefit to its AE, by way of advancement of interest free loan in the garb of delay of receipt of receivable. The ld.TPO used CUP method by selecting credit period of 30 days and applying the rate of 14.88%. xxxxxxxxxxxxx 14.7 During the course of the proceedings before TPO, he observed that payments on account of sales to the AE, is realized after a significant time period. The ld.TPO ascertained that payment for invoices raised by the assessee has not been paid within the stipulated time as provided in the service agreement and accordingly treated the delayed payments as loan facility advanced to the AE’s. The ld.TPO charged 14.88% interest for the delayed period, beyond a period of 30 days. The ld. DRP upheld the adjustments made by the ld.TPO.
14.8. The ld.AR submitted that during the financial year, the assessee had entered into international transactions pertaining to provision of support services to its AE’s. In this regards, the details of the invoices raised and the payment received with dated were submitted before the TPO/DRP. The ld.AR has submitted that thought there was no credit period that was specified in the service agreement, however the assessee had agreed a credit period of 60 days with its AE’s. The ld.AR submits that it has sufficient cash balance to manage its cash flow requirements. 14.9. He further submitted that the assessee does not earn any interest on the current account maintained with the bank. Except for interest earned from fixed assets, the assessee has not earned any interest, on any advances paid to third parties. The ld.AR further submitted that being a captive undertaking, the assessee does not render similar services to any other concern. He submitted that, excess credit period arises, only when there is a standard credit period for the services sold at the same price to independent enterprises. He submitted that the cost of funds blocked in the credit period was inbuilt in the sale price. 14.10. The ld.AR relies on the judgment of Indo American Jewellery in wherein it has been held that the transaction of sale and lending are distinctly set out as per section 92 of the Act. The Tribunal further held that interest income is associated more with lending or borrowing of money and not with sale. The Tribunal further held while determining the ALP of sale transaction, all relevant aspects, including credit period allowed, are taken into consideration and that interest aspect is embedded in the sale price. The Tribunal held that there can be no separate international transaction of interest, on outstanding receivables and that early of late realization of the sale proceeds is incidental to transaction of sale. The l d.AR also places his reliance on the Delhi Tribunal decision in the case of Kusum Healthcare Pvt.Ltd., reported in TS-129-ITAT-2015(Del)- TP. 14.11. The ld. DR relied on the orders of the authorities below.
From the submissions of both the parties we observe as under; 15.1. It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE’s. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments.
In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee. Ground no. 3 of the assessee’s appeal is there by allowed. Decision of Hon’ble Delhi High Court in of 2016 “4. As far as question (B) concerning the adjustment for interest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned.
The appeal is dismissed.” SLP Dismissed by Hon’ble Supreme Court in CC No(s).4596/2017 “We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, arises, on the facts of this case. The special leave petition is dismissed.” 16.8. However, on perusal of the balance sheet of the assessee for FY 2012-13 relevant to AY 2013-14, it is seen that Term Borrowing’ as against nil in FY 2011-12 relevant to AY 2012-13. The schedule-6 of the balance sheet reflecting ‘Short Term Borrowing’ on page no.1019 is reproduced as under:-
16.9. Thus, the above claim of the assessee that it was a debt free company during the year requires verification and as noted above the assessee did not file the details before the Ld. TPO and the ld. CIT(A) also did not verify the above contention/submission of the assessee. On the issue of interest on receivables the Hon’ble Delhi High Court in the case of PCIT vs Kusum Health Care Pvt. Ltd.(2017) 398 ITR 66(Del.) in para no.10 and 11 has observed as under:-
“10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign associated enterprises would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way.
The court finds that the entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this court in CIT v. EKL Appliances Ltd. [2012] 209 Taxman 200/345 ITR 241/345 ITR 241 (Delhi).” 16.10. Thus, it is seen that the Hon’ble Delhi High Court has observed iner-alia that in order to justify adjustments on the issue of receivables, the TPO has to establish a pattern wherein, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. Even though in this case, the Assessing Officer has made said adjustments for AY 2013-14, 2014-15 and 2015-16 but in view of the submissions made by the assessee before us that I. No interest charged from third party customers 7375/Del/2018 II. No interest paid by the appellant on outstanding payables to associated enterprises III. Without prejudice-Incorrect computation of interest the TPO will have to verify as to whether there is any pattern in not charging interest on the receivables from its AEs so as to benefit the associated enterprise in some way, which has not been done by the TPO in this case.
16.11. Further, the Assessing Officer is also required to examine in view of the above observations of the Hon’ble Court regarding the factoring of the impact of the receivables on the working capital of the assessee and whether in such a situation further adjustment on the basis of outstanding receivables would be required in the case of the assessee or not. This has also been raised by the assessee by way of additional ground of appeal as referred in para no.16.1 as above.
17. Therefore, in view of the above facts and discussion, we deem it fit to restore the entire issue in dispute to the file of the ld. AO/ TPO to consider the applicability of the decision of Hon'ble Delhi High Court rendered in Kusum Healthcare (supra) in its true spirit vis a vis the pattern followed by the assessee and also to consider the alternative argument made by the Id AR computation of the interest on the outstanding receivables and decide the entire issue in accordance with law. Accordingly, ground Nos. 4 to 10 and the additional ground 1 raised by the assessee are allowed for statistical purposes.
The assessee had further filed additional grounds of appeal in terms of Rule-11 of the Income Tax (Appellate Tribunal) Rules 1963 claiming deduction of Education Cess computed on returned income and dividend distribution tax paid by the appellant before the due date of filing of return of income for the subject assessment year. The said additional ground was not pressed by the assessee, hence, the same is dismissed as not pressed.
19. This is an appeal of the assessee for AY 2014-15. Grounds No. 1 to 2 pertain to claim for exemption agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own grounds. transfer pricing adjustment amounting to Rs.20,37,553/- on account of delayed receipt of receivables from AE's. Since the facts are identical to the case of the assessee for AY 2013-14, we the ground of the assessee for statistical purpose.
21. This is an appeal of the assessee for AY 2015-16. Grounds No. 1 to 2 pertain to claim of agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in /2018 and dismiss the aforesaid grounds.
22. Ground no.3 of the appeal raised by the assessee is reproduced as under:-
“3. That the Ld AO has erred in not following the directions given by DRP in its final order with respect to the additions made by AO in its Draft Order on account of Capital Expenditure (Rs. 78 lacs), Provision of Doubtful Debts and CSR (Rs. 19.22 Crores) and Gratuity / Bonus /Compensated Absence (Rs. 3,20,55,753/-) and passed the order without verifying the facts.” 22.1. In this case, draft assessment order (hereinafter referred as DAO) dated 14.12.2018 was passed by the Addl. CIT, Special Range-7, New Delhi. The reasoning given by the Assessing Officer in respect of the above additions in para no.4, 5 and 6 on page no.54 of DAO is reproduced as under:-
4. Addition on account of capital expenditure: Vide notice under section 142(1) dated 15.10.2018, the assessee was required that as per Point no. 21(a) of audit report it has claimed capital expenditure in the Profit and loss account Rs. 78,00,000/-(7778000+22000) but not added to income in the computation of income, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 22.10.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say therefore, capital expenditure of Rs. 78,00,000/- is added to the income of the assessee. (Addition: Rs. 78,00,000/-) 5. Addition on account of Provision for doubtful debts and responsibility activities: Vide notice under section 142(1) dated 05.11.2018, the assessee was required that it has debited provision for doubtful debts Rs. 11,69,00,000/- and responsibility activities Rs. 7,53,00,000/- which are not of allowable nature, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 09.11.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say. The expenses claimed by the assessee are not of allowable nature therefore, added to the income of the assessee. (Addition: Rs. 19,22,00,000/-) 6. Addition on account of unexplained gratuity, bonus and compensated absence. Vide notice under section 142(1) dated 15.10.2018, the assessee was required that as per Point no. 26(i)(B)(a) of audit report it has claimed gratuity, bonus and compensated absence in the Profit and loss account Rs. 3,20,55,733/- 12282872+15781974+3990887) but not paid before the due date of filing return under section 139, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 22.10.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say
therefore, gratuity, bonus and compensated absence of Rs. 3,20,55,733/- are disallowed under section 43B and added to the income of the assessee.” 22.2. Against the above disallowances, the assessee filed an appeal before the DRP. The DRP vide it order dated 25.07.2019 gave the following directions in respect of ground no.3 as under:-
2.3 Ground no. 3: 3. That the Ld. AO has erred in law and on facts in making additions on account of Capital Expenditure (Rs.78 lacs), Provision of Doubtful Debts and CSR (Rs.19.22 Crores) and Gratuity/Bonus/Compensated Absence (Rs.3,20,55,753/-) without application of mind. DRP Directions: 2.3.1 The assessee has submitted that "capital expenditure of INR 78 lacs represents capital goods purchased which has correctly been disallowed but depreciation as per Section 32 of the Income Tax Act amounting to INR 17,76,50,304/- as mentioned in Tax Audit Report should have been allowed". The AO is directed to allow depreciation as per law. 2.3.2 In respect of Provision of Doubtful Debts and CSR, the assessee has not objected to the disallowance per se but has simply submitted that the La. AO has mistakenly considered the amount of Provision for Doubtful debts as Rs.11.69 Cr. Instead of Rs.7.53 cr. as shown in Note 26 of financials of FY 2014-15 (Refer Pg. No. 1118 of Paper Book 4) and similarly for expenses towards CSR activities taken as Rs. 7.53 cr. Instead of Rs.3.38 Cr. The AO is directed to take the correct figures for disallowance. In respect of Gratuity/Bonus/Compensated Absence, it has been submitted that the Ld. AO has disallowed the amount of gratuity (Rs.1,22,82,872), Bonus (Rs.1,57,81,974) and compensated absences (Rs.39,90,887) which were not paid by the company on or before filing the return of income. However, the Ld. AO has not given the allowances u/s. 43B of the payments (Gratuity of Rs.43,72,643/-, Bonus of Rs.1,50,84,665/- and compensated absences of Rs.17,88,235/-) made during and before filing the return of income which should have been allowed the appellant company and is evident from Clause 26 of the Tax Audit Report. The AO is directed to verify the same and allow the expenses to the extent paid before the due date for filling of return.
7375/Del/2018 2.3.4 The assessee has also contended that the deduction of profit on sale of fixed assets of Rs.1,39,58,198/- should have been allowed by the AO since such profit or loss is not to be included in the taxable income and the same should be considered in the block of assets. The AO is directed to verify the same from the fixed asset schedule of the financial accounts and reduce the taxable income accordingly.” 22.3. The Assessing Officer passed the final order u/s 143(3) of the Act r.w.s. 144C(13) of the Act on 30.09.2019. On its perusal, it is seen that the Assessing Officer did not make the necessary verifications as directed by the ld. DRP and simply made the additions without any discussions.
22.4. Against the above order, the assessee is in appeal before us.
22.5. During the course of hearing, both the parties agreed that the matter may be set-aside to the file of the Assessing Officer for verifying the directions of the DRP and pass the necessary order after the said verification as per law.
Considering the facts of the case and the request of both the parties, the above three matters as raised in the ground no. 3 of the appeal are set-aside to the file of the Assessing Officer for verifying the directions of the DRP and pass the necessary order after the said verification as per law. Ground no.3 of the appeal is allowed for statistical purpose.
Order pronounced in the open court on 06th August, 2025