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| The Tax Publishers2020 TaxPub(DT) 4118 (Del-Trib) INCOME TAX ACT, 1961
Section 92C
Service costs shall constitute full consideration for company for providing of services to recipient, further, working capital adjustment was denied to the assessee in absence of any reliable data provided by assessee, therefore, outstanding debtors beyond an agreed period is a separate international transaction of providing funds to its AE for which assessee must have been compensated in the form of interest at LIBOR + 300 BPS as held by CIT(A).
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Transfer pricing - Computation of arm's length price - International transactions on account of notional interest on outstanding balance of receivables from AE -
Assessee was engaged in business of selling of hardware for Internet and satellite business and had reported three international transactions. Transaction of manpower recruitment related services and manpower related services provided to its AE was benchmarked adopting cost plus method and stated that transactions are at arm's length. With respect to employee -related transactions no specified method was adopted. TPO examined the balance sheet which revealed that receivables have not been received within the stipulated time as provided in the service agreement with the associated enterprise. AO proceeded to compute the interest on outstanding holding that outstanding beyond a specified period of 15 days in agreement results into a separate international transaction which requires to be benchmarked and he adopted interest rate at the rate of 11.69% adopting SBI Rate + 300 BPS. TPO did not accept the argument of assessee stating that even otherwise working capital adjustment submitted by the taxpayer are not acceptable in absence of any reliable data.Held: Services charge and payments as well as the method of providing invoices in making payment. It provides that company shall raise invoices on the recipient on the first day of every subsequent month for the services fee, and the recipient shall pay for the services within 15 days of receipt of the invoice by the company. Service costs shall constitute full consideration for the company for the providing of services to the recipient. Working capital adjustment was denied to the assessee in absence of any reliable data provided by assessee. It was apparent that working capital adjustment was not factored into by determining ALP of the international transaction of provision of the services. Therefore, outstanding debtors beyond an agreed period is a separate international transaction of providing funds to its AE for which assessee must have been compensated in the form of interest at LIBOR + 300 BPS as held by CIT(A).
REFERRED : Pr. CIT v. Kusum Health Care Pvt. Ltd. [2017 TII 28 HC Del] : 2017 TaxPub(DT) 4367 (Del-HC), Black Rock Services India Private Ltd. v. ITO (2019) 107 Taxmann.com 93 (Del) : 2019 TaxPub(DT) 3186 (Del-Trib), Motherson Sumi Infotech & Designs Ltd. v. Dy. CIT (2018) 91 Taxmann.com 443 (Del) : 2018 TaxPub(DT) 1378 (Del-Trib), AVL India Private Limited v. Dy.CIT 2017 TaxPub(DT) 4847 (Del-Trib) and Bechtel India Pvt. Ltd. v. Asstt. CIT TS 591 SC 2017 TP : 2017 TaxPub(DT) 1627 (Del-Trib).
FAVOUR : Against the assessee.
A.Y. : 2011-12
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