INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Adjustment on account of notional interest on receivables from AE beyond specified period -

TPO suggested ALP adjustment on account of notional interest on receivables from AE beyond specified period. Asessee's case was that working capital adjustment granted to assessee, would take care of outstanding debtors, therefore, separate adjustment with respect to outstanding debtors of AE beyond specified period could not be considered as a separate international transaction and ALP could not be determined.Held: Outstanding receivables from AE was more than shareholders' funds available with assessee. Thus, it implied that total profit earned by assessee was enjoyed by AE out of India fully. Further, opening outstanding receivable from AE was Rs. 102 crores, assessee billed Rs. 168 crores during the year and at the end of the year Rs. 138 crores were outstanding from AE. On looking at profit and loss account, assessee had incurred expenditure of Rs. 148 crores. Therefore, it was apparent that AE was only paying assessee the amount which was enough for defraying expenditure to keep it afloat and keeping all other sums in the form of outstanding trade receivable. In view of these peculiar facts, where total shareholders funds were available with AE as an interest free trade receivable, outstanding receivable from AE was not at all the transaction of sale of goods/services to assessee and order of TPO could not be found fault with in considering overdue outstanding receivable from AE as a separate international transaction. Further, assessee could not show that assessee itself had claimed any working capital adjustment while preparing its comparability analysis. Accordingly, adjustment made by TPO was sustainable.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2012-13

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