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31-12-2019, Target Sourcing Services, Section 144C, 92CA(1), Tribunal Delhi

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7 months 1 week ago #11907 by amit
Section - 144C, 92CA(1), 92C(3), 234A, 244A
Order Date - 31-12-2019
Favouring - Partly
Court - Tribunal Delhi
Appellant - Target Sourcing Services India Private Limited
Respondent - ACIT
Justice - KULDIP SINGH JM & PRASHANT MAHARISHI AM
Citation - 120Taxpundit28
Appeal No. - ITA No.4132/Del./2017
Asstt. Year - 2013-14

Order

PER : KULDIP SINGH

Appellant, M/s. Target Sourcing Services India Pvt. Limited (hereinafter referred to as ‘the taxpayer’) by filing the present appeal sought to set aside the impugned order dated 20.04.2017 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Act qua the assessment year 2013-14 on the grounds inter alia that :-

“1. That the Hon'ble DRP erred in fact and law by upholding an adjustment of Rs. 19,79,520/- proposed by the Ld. AO/ Ld. TPO with respect to the outstanding receivables being re-characterised as loan deemed to be extended by the Appellant to its Associated Enterprise CAE") and accordingly proceeded to impute an interest on such outstanding receivables from AE and in doing so have grossly erred by:

1.1. Ignoring the fact that working capital adjustment takes into account the impact of outstanding receivables on profitability and therefore, no further imputation of interest is warranted;

1.2. Disregarding the intercompany pricing arrangement and not appreciating the fact that unlike a loan or borrowing, outstanding receivable is not an independent transaction which can be viewed on standalone basis and needs to be examined/aggregated with the commercial transaction as a result of which the debit balance has come into existence;

1.3. Ignoring the fact that Appellant is a debt free company and therefore, imputation of interest on account of blocked funds is unwarranted;

1.4. Ignoring the fact that Appellant has earned higher operating profit to operating cost (OP/OC) margin as compared to the comparable companies and further the additions proposed falls within +/-3% range allowed under the Indian Transfer Pricing regulations; and

1.5. Ignoring the fact that even if the notional interest on the outstanding receivables is being charged, the same should be net-off against the outstanding payables.

2. The Hon'ble DRP has erred in law by upholding the reference made by the Ld. AO to the Ld. TPO by not appreciating that such a reference suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the arm's length price ("ALP"), as is required under Section 92CA(1) of the Act.

3. The Hon'ble DRP has erred in law by upholding the adjustment made by the Ld. TPO/ Ld. AO thereby by not appreciating that while making the said adjustment the Ld. TPO/Ld. AO have not satisfied the conditions set out in section 92C(3) of the Act.

4. That the Ld. AO has erred both in facts and in law, in charging interest under Section 234A, 234B, 234C and 234D of the Act and withdrawing interest u/s 244A of the Act as applicable.”

2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Target Sourcing Services India Pvt. Limited, the taxpayer was incorporated on 26.09.2007 in New Delhi to facilitate sourcing of goods and products from India including identification of vendors, and to provide assistance
vendors in adhering to design standards communicated to them, quality control and follow up with vendor for timely delivery of the goods. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AE) as reported in Form 3CEB as under :-

3. Ld. Transfer Pricing Officer (TPO) noticed that taxpayer has substantial amount of outstanding receivables from the AE which remained outstanding for a prolonged period and no interest has been charged on such amount. Ld. TPO treated the transactions between the taxpayer and its AE as to outstanding receivables as international transactions and proceeded to benchmark the same separately by relying upon the amendment to section 92B of the Income-tax Act, 1961 (for short ‘the Act’) inserting the Explanation (1)(c) to section 92B of the Finance Act, 2012 with effect from 01.04.2002.

4. Ld. TPO observed that since the taxpayer has failed to show that the delay in payment of receivables was compensated by the AE through a setoff of another transaction by declining a contention that no eparate adjustment can be made towards interest on overdue receivables as the entity level results are already considered by the TPO and has also declined the aggregate approach adopted by the taxpayer. Declining the contentions raised by the taxpayer, ld. TPO proceeded to hold that normally in uncontrolled transactions of business, 30 days credit facility is given to make interest free payment and thereafter interest @ 4.4569% per annum that is average of 6 months LIBOR is chargeable on the outstanding amount and consequently, calculated the interest amount on the outstanding receivables at Rs.54,09,237/- as per detailed computation made in Anenxure-1 annexed with the order.

5. The taxpayer carried the matter before the ld. DRP by way of filing objections, who has upheld the proposed additions by rejecting the objections. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal.

6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

7. Ld. AR for the taxpayer challenging the impugned order contended inter ali that re-characterization of outstanding receivables as loan by the TPO extended by the taxpayer to its AE and thereby imputing interest on such outstanding receivables is not sustainable in the eyes of laws; that when working capital adjustment has already taken into account the impact of receivables on the profitability, no further charging of interest is warranted; that transaction of outstanding receivables is not an independent transaction to be examined on standalone basis; that the taxpayer is a debt free company and as such, imputation of interest on account of blocked fund is unwarranted; that when taxpayer has earned higher operating profit to operating cost margin as compared to

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