Global Logic India Ltd Vs DCIT (ITAT Delhi)
No adjustment is to be made on account of notional interest on receivables by relying upon Explanation (i), (a) & (c) of section 92B by treating the continued debt balance as an international transaction. Moreover when the taxpayer is debt free company, there is no question of charging any interest on receivables. This issue has also been decided by Hon’ble Delhi high Court in case of Pr.CIT-1 vs M/s. Bechtel India Pvt. ltd. in ITA 379/2016 order dated 21.07.2016. The relevant findings of the order of the Tribunal in assessee’s own case (supra) in paras 14 to 18 which are being reference but not being reproduced for the sake of brevity.
The assessee during the year under consideration had not avail any loan from AEs or unrelated third party and was not incurring any interest cost. Further, there was similar delay in receipt of receivables from others and the assessee was not charging any interest on delay in receipt of receivables against services rendered to unrelated third party.
In such facts and circumstances and following the ratio laid down by the Hon’ble Delhi High Court in Kusum Healthcare Ltd. (supra) and also in line with the findings of the Tribunal in Assessment years 2010-11 & 2012-13, we find no merit in making any adjustment on account of interest due on receivable from its AE. Ground of appeal Nos. 2 to 2.6 raised by the assessee are thus allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against the order dated 31st March, 2013 of the AO passed u/s 144C(1) r.w. section 143(3) of the IT Act, 1961, relating to assessment year 2013-14.
2. The grounds raised by the assessee are as under:-
“1.1 That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as ‘DRP’) under Section 143(3) read with Section 144C of the Income-tax Act, 1961 (‘Act’), is bad in law, violative of principles of natural justice and void ab-initio.
2.1 That the assessing officer erred on facts and in law in making an adjustment of Rs. 4,71,35,199 to the arm’s length price of the ‘international transactions’ of accounts receivable undertaken with the associated enterprise on the basis of order passed by the Transfer Pricing Officer (‘TPO’)/ Dispute Resolution Panel (‘DRP’).
2.2 That the DRP/ TPO erred on facts and in law in re-characterizing the alleged transaction of delay in receipts of receivables as unsecured loans advanced to the associated enterprises.
2.3 That the DRP/ TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an ‘international transaction’, per se, under section 92B of the Act but is a consequence of an ‘international transaction’ undertaken in the form of services rendered to the associated enterprise.
2.4 That the DRP erred on facts and in law in holding that the non-realization of invoice value beyond the stipulated period (as per contract) is a separate international transaction, whose arm’s length price is required to be determined separately.
2.5 Without prejudice, that the DRP/ TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receivables was closely linked to the ‘international transaction’ of export and since the profit earned by the assessee as a percentage of cost is higher than the profit earned by comparable companies, no transfer pricing adjustment was even otherwise required to be made in this regard.
2.6 That the DRP erred on facts and in law in holding that working capital adjustment does not address the mispricing in the case of taxpayer where interest free receivables were outstanding beyond the average period.
2.7 That the DRP/TPO erred on facts and in law in not appreciating that working capital adjustment is more appropriate measure to benchmark the realisation of trade receivables of the appellant instead of application of an interest rate.
2.8 Without prejudice, that the DRP/TPO erred on facts and in law in not appreciating that the appellant has received receivables from unrelated parties with similar delay of period and accordingly the delay in receipt of receivables from unrelated parties should be considered as a valid internal CUP for the purpose of benchmarking.
2.9 Without prejudice, that the DRP/ TPO erred on facts and in law in adding an adhoc mark-up of 400 points on the Libor rate of interest, arbitrarily on account of credit rating risk, security risk, transaction cost etc.
2.10 Without prejudice, that the DRP erred on facts and in law in enhancing the adhoc mark-up of 300 points to 400 bps on the Libor rate of interest, without providing any cogent reasons and without provide reasonable opportunity to the appellant thereby violating the natural principles of justice.
2.11 Without prejudice, that on the facts and in the circumstances of the case and in law, the DRP/TPO erred on facts and in law in not appreciating that the in terms of Master Circular No. 10/2011-12, Reserve Bank of India allows a period of 12 months to all companies for receiving repatriation of export sales proceeds, and therefore, interest if any, ought to be imputed on the period of delay beyond 12 months.
3 That the assessing officer erred on facts and in law in not allowing foreign tax credit of Rs.14,08,409 while computing tax liability of the appellant.
4 That the assessing officer erred on facts and in law in levying interest under Section 234B and Section 234C of the Act.
The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal.”
3. Ground of appeal No.1.1 being general in nature is dismissed. Grounds of appeal No.2.1 to 2.11 relate to the order of the AO in making transfer pricing addition of Rs.4,71,35,199/- being interest on receivables.
4. Facts of the case, in brief, are that the assessee company is engaged in the provision of software development services to GlobalLogic Inc. and other GlobalLogic group companies. It filed its return of income on 27.11.2013 declaring the total income at Rs.33,89,27,640/-. Since the assessee has entered into certain international transactions, the AO referred the matter to the TPO for determination of the ALP of the international transaction. The TPO, during the course of TP assessment proceedings, observed that the assessee has entered into the following international transactions with its AEs :-
