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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI ARUN KUMAR GARODIA
M/s. Naunce Transcription Services India Pvt. Ltd., First Floor, Block B, Salalpuria Aura, Khata No. 434/170, The DCIT, Marathahalli – Sarjapur Outer Ring Road, vs. Circle – 5 (1) (1), Kaverappa Layout, Bangalore. Kadubeesanahalli, Bangalore – 560 103. PAN: AAACF3465F APPELLANT RESPONDENT Appellant by : Shri Vishal Kalra, Advocate Respondent by : Shri G. Guruswamy, CIT-DRP Date of hearing : 05.11.2018 Date of Pronouncement : 07.11.2018 O R D E R
Per Shri A.K. Garodia, Accountant Member
This is the appeal of the assessee which was earlier heard and decided by the Tribunal as per its order dated 28.11.2017. Subsequently, the assessee filed a Miscellaneous Petition and as per the order dated 20.04.2018 in M.P. No. 73/Bang/2018, the Tribunal has recalled this earlier Tribunal order dated 28.11.2017 for the limited purpose for deciding ground nos. 5 and 6 of the assessee’s appeal because these two grounds were rejected as per the earlier Tribunal order on this basis that this issue was not raised before the lower authorities but in the order in M.P. No. 73/Bang/2018 dated 20.04.2018, it is held by the Tribunal that the finding of the Tribunal vide para 12 of the earlier Tribunal order are contrary to material on record and therefore, the Tribunal order was recalled for the limited purpose of adjudicating ground nos. 5 and 6 of the assessee’s appeal. Hence now we have to decide ground nos. 5 and 6 of assessee’s appeal. These grounds are as under. “5. That the AO / DRP / Transfer Pricing Officer ("TPO") erred on facts and circumstances ofthe case and in law in treating trade receivables amounting to INR 16,73,14,145, outstanding from the IT(TP)A No. 307/Bang/2016 Page 2 of 5 Associated Enterprises ("AE"), as an international transaction and re- characterizing the same as loan.
6. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily adopting 13.46% as the rate of interest, which is excessive and unreasonable.”
At the very outset, the ld. AR of assessee placed reliance on a Tribunal order rendered in the case of Bechtel India Pvt. Ltd. Vs. DCIT in dated 21.12.2015 and he submitted a copy of this Tribunal order and our attention was drawn to para 14.7 to 16 of this Tribunal order and it was submitted that it was held by the Tribunal in this case by following another Tribunal order rendered in the case of Kusum Healthcare Pvt. Ltd. as reported in TS-129-ITAT-2015(Del)-TP that no separate adjustment for interest on receivables are warranted in the hands of the assessee. At this juncture, the bench wanted to know about the credit period allowed to the AE for payment against receivables and whether actual credit allowed is more than this or not. In reply, the ld. AR of assessee submitted a chart in respect of various invoices raised during 31.07.2010 to 30.09.2010 and pointed out that the agreed credit period was 180 days and in respect of some of the invoices, the actual credit period allowed was 243 days and in some cases 212 days and in some other cases, 182 days and he submitted that if for the extra credit period allowed, interest is worked out on the basis of 3 months LIBOR for March 2011 + 200 (annual) Basis Points, the chargeable interest rate comes to 0.81% for excess period and the amount of such interest is only Rs. 3,38,702/-. Regarding the credit period as per agreement, he submitted that the relevant agreement is available on pages 187 to 217 and as per page no. 187 of paper book, the credit period allowed is 180 days. Regarding charging of interest at LIBOR + 200 Basis Points (annual) as per the chart of the assessee, it was submitted that in Assessment Year 2014-15, the AO himself has accepted charging of interest at LIBOR + 400 Basis Points. He submitted copy of the order of TPO for Assessment Year 2014-15 being dated 30.10.2017 and drawn our attention to para 18 of this order of TPO and pointed out that TPO in that year has worked out the rate of interest at 4.3836% on the basis of LIBOR-6 months + 400 basis points. He submitted that although the assessee has not accepted this rate of interest charged by the TPO in that year and assessee is in appeal IT(TP)A No. 307/Bang/2016 Page 3 of 5 against the same but in any case, the chargeability of interest in the present year should not be more than this. As against this, the ld. DR of revenue submitted that not only the invoices raised during July 2010 to September 2010 are considered in the chart submitted by the learned AR of the assessee but the invoices raised in whole of the present year along with the opening balance as on 01.04.2010 should be considered for this purpose. He also placed reliance on a Tribunal order rendered in the case of Logix Micro Systems Ltd Vs. ACIT (42 SOT 525).
We have considered the rival submissions. First of all, we examine the applicability of Tribunal order rendered in the case of Bechtel India Pvt. Ltd. vs. DCIT (supra) on which reliance has been placed by ld. AR of assessee. In this case, the Tribunal order is on this basis that it is not justifiable to presume that borrowed funds have been utilized to pass on the facility to its AE for making delayed payment beyond the agreed period because the assessee has not been found paying interest to its creditors and in such circumstances, it is not justifiable to presume so. But this Tribunal order is not on this aspect that when a fixed credit period is allowed to any customer, the prices charged are on the basis of such credit period allowed to the assessee and if the actual credit period allowed is more than the agreed credit period then the prices to be charged has to be more and chargeability of such extra price is not dependent on this aspect that assessee is having interest bearing borrowed funds or not because even in a case where the assessee is not using any interest bearing borrowed funds then also the prices to be charged to the customers whether AE or not will be depending on an agreed credit period to be allowed to the customer and if the actual credit period allowed is more than the agreed credit period then it has to be accepted that earlier price charged as per the agreement is less than the actual prices which is to be charged and in such situation, TP adjustment is called for. Hence in the present case, this Tribunal order is not applicable because in the present case, we are deciding the issue on this basis as to whether the prices charged by the assessee to its AE is proper in the light of this fact that extra credit is allowed by assessee to its AE which is more than the agreed credit period.
IT(TP)A No. 307/Bang/2016 Page 4 of 5 4. Now we examine the applicability of the Tribunal order cited by ld. DR of revenue which is rendered in the case of Logix Micro Systems Ltd Vs. ACIT (supra). In that case also, in Para no. 15 of that Tribunal order, it is noted by Tribunal that huge amount of receivables were outstanding at the end of the relevant previous year and the receivables were due from the AE in USA with which the assessee has concluded international transactions and the total of such outstanding balance as on 31.03.2004 was Rs.7,73,23,609/- out of which an amount of Rs.5,52,24,261/- were outstanding for more than six months. Under these facts, the TP adjustment in that case on account of high receivables was upheld by the Tribunal and therefore, in the present case, this Tribunal order supports the case of the revenue.
As per the discussion above, we feel that in the present case also, this has to be worked out as to how much amount was received beyond the agreed credit period by the assessee from its AE and the same should be considered as a separate international transactions and appropriate interest on that account should be brought to tax in the present case as TP adjustment. The working given by the ld. AR of assessee in this regard is placed on record but this working is only in respect of debtors as on 31.03.2011 but if the debts are already liquidated during the year but the receipt was after expiry of agreed credit period then the amount of such realization during the present year beyond the agreed credit period should also be considered for this purpose. Hence on this issue, we restore the matter back to the file of AO/TPO for fresh decision by examining the agreement between the assessee and its AE in respect of agreed credit period because as per the agreement dated 01.10.2010 copy of which is available on pages 187 to 217 of paper book, only those receivables are covered which are arising after this date but in respect of those receivables which has arisen before 01.10.2010 if any, there must be some other agreement which may contain different credit period terms and therefore, such agreement should also be examined and those receivables are also be examined which are already liquidated in the present year because even if payments were already received from the AE in the present year itself, it has to be seen as to whether such payment received from the AE in the present year are received within agreed credit period or beyond it and the total IT(TP)A No. 307/Bang/2016 Page 5 of 5 delayed payment received or not received up to 31.03.2011 should be worked out for the purpose of this TP adjustment.
Now regarding rate of interest to be adopted for working out interest on such delayed payment from AE, we find that in Assessment Year 2014-15, as per its order dated 30.10.2017, the TPO himself has adopted the interest rate using LIBOR- 6 months + 400 basis points and the same was worked out at 4.3836% for Financial Year 2013-14. In our considered opinion, the same basis of LIBOR – 6 months + 400 basis points as applicable for Financial Year 2010-11 should be considered in the present case also. We hold accordingly. The AO/TPO is directed to work out the TP adjustment on this account at the rate of 6 months LIBOR + 400 basis points for the relevant Financial Year i.e. Financial Year 2010-11 on the total amount received or receivable by the assessee from its AE beyond the agreed credit period considering the actual delay in number of days. These two grounds are decided accordingly.
These two grounds are partly allowed for statistical purposes.
In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on the date mentioned on the caption page.