Adjustment made due to receivables from AE's
whether built into the TNMM benchmarking
Facts:
Assessee
a BPO entity was carrying receivables from its AE's; that were
benchmarked using TNMM approach. Interest on market prevailing LIBOR +
spread was adopted for benchmarking on these receivables by the TPO and
additions sustained. Assessee's appeal was that when the benchmarking of TNMM
was done the working capital adjustments were also duly considered thus there
is no separate addition required to be made thereafter by the TPO. On
appeal by the assessee to the ITAT -
Held
in favour of the assessee that once benchmarking under TNMM method has
considered working capital adjustments thereafter again making
"outside" adjustments are uncalled for.
Applied:
Pr. CIT v. Kusum Healthcare P.Ltd. (2018)
99 taxmann.com 431 (Delhi) : 2017 TaxPub(DT) 4367 (Del-HC)
M/s. Bharti Airtel Services Ltd. v. DCIT in ITA No. 3183
& 6272/Del-2018 dated 31-3-2022
Rockwell Automation India Pvt. Ltd. v. ACIT in ITA No.
6806/Del/2018 dated 05-05-2022
Dissented:
Ameriprise India P. Ltd. v. ACIT (2015) 62 taxmann.com 237
(Del-Trib) : 2019 TaxPub(DT) 4701 (Del-Trib)
Ed. Note:
The method of TNMM application is also illustrated in the below screenshot with
+/- 5% range application. The issue of making separate addition on receivables
of AE is a vexed issue. Initially whether this was a TP transaction was
the issue. Then the amended law brought this also into TP ambit. Next came the
issue of what is the appropriate interest rate whether domestic or
international country specific rates will need to be applied? This was
confirmed as country specific international country rates will need to be used
for benchmarking. Then came the issue of netting AR/AP which was also half way
agreed. Then came the issue of TNMM whether on gross basis or to be seen after
working capital adjustment basis. This has gone in the assessee's favour as of
now.
Case: Effective Teleservices (P) Ltd. v. DCIT 2023 TaxPub(DT) 2469
(Ahd-Trib)