BRAVURA SOLUTIONS INDIA LLP,NEW DELHI V. DEPUTY COMMISSIONER OF INCOME TAX, NEW DELHI

ITA 3944/DEL/2024

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Bravura Solutions India LLP appealed against the orders passed by the Assessing Officer (AO), Dispute Resolution Panel (DRP), and TPO concerning the assessment year 2020-21. The primary contention was regarding the Transfer Pricing adjustment made on account of interest on outstanding receivables from AEs. The TPO initially proposed a transfer pricing adjustment of Rs. 1,98,34,007, which was later reduced to Rs. 60,57,439 by the DRP. The Tribunal found that the TPO did not follow the DRP's directions to grant a working capital adjustment, leading to the quashing of the TPO's order. The Tribunal also addressed issues related to the final assessment order, which included enhancements not present in the draft assessment order, and the chargeability of interest under various sections of the Income Tax Act, 1961.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126559 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2020-2021
• Other Referred Cases: Kusum Healthcare in ITA No. 765/2016 dated 25.04.2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHARM VEER SINGH
• Assessee Lawyers: AJAY JAIN
• Keywords: Set aside; Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 143(3); 139(1); 234B; 92B

Judgement Text

"INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I”: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 3944/Del/2024 (Assessment Year: 2020-21) Bravura Solutions India LLP, P-24, Green Park Extension, New Delhi-110016 Vs. Assessment Unit, Income Tax Department, (Appellant) (Respondent) PAN: AAQFB3843C Assessee by : Shri Ajay Jain, AR Shri Garvit Gosain, AR Revenue by: Shri Dharm Veer Singh, CIT DR Date of Hearing 22/01/2025 Date of pronouncement 22/04/2025 O R D E R PER M. BALAGANESH, AM 1. The assessee in ITA No. 3944/Del/2024 by filing the present appeal sought to set aside the impugned order dated 29.04.2024 passed by the Assessing Officer (AO) inconsonance with the order passed by the Dispute Resolution Panel (DRP) dated 12.06.2024 and order passed by Transfer Pricing Officer (TPO) under section 92CA(3) dated 25.07.2023 under section 143(3) read with section 144C(3) read with section 144B of the Income Tax Act, 1961 (for short ‘the Act’) qua the assessment year 2020-21. 2. The Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication. ITA No. 3944/Del/2024 Bravura Solutions India LLP Page 2 of 7 3. Ground Nos. 2 and 3 raised by the assessee is challenging the Transfer Pricing adjustment made on account of interest on outstanding receivables from Associated Enterprises (AEs) by imputing interest thereon. 4. We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the provision of routine support services in relation to WM and FA solutions and services provided by its contracting entities such as Bravura Australia and Bravura UK. These services are in the nature of software coding, documentation, maintenance and testing activities along with other support services. During the year, the assessee has undertaken following international transactions as per Form 3CEB as under:- S. No. Nature of international transaction Amount in (INR) 1. Provision of software development services 127,28,77,470 2. Payment for operations management services 6,96,82,147 3. Allocation of expenses 1,80,15,977 4. Recovery of expenses from AEs. 43,52,408 5. The ld TPO observed that assessee has been realizing its dues from its AEs on its exports beyond the stipulated credit period of 30 days. Pursuant to the amendment in Explanation (1)(c) of Section 92B of the Act, the expression ‘Capital Financing’ has been brought in the statute. Accordingly, the ld TPO show caused the assessee as to why the delayed outstanding receivables be not construed as capital financing done by the assessee to its AEs on which why interest should not be imputed by adopting SBI Prime Lending Rate (PLR) plus 300 basis points @16.55%. The assessee furnished the invoice wise break up together with the date of realization and details of delay in realization beyond the ITA No. 3944/Del/2024 Bravura Solutions India LLP Page 3 of 7 stipulated credit period of 30 days. The ld TPO accordingly proposed a transfer pricing adjustment of Rs. 1,98,34,007/- on the same. This adjustment was absorbed in the draft assessment order framed by the ld AO. The assessee preferred objections before the ld DRP. Pursuant to the directions of the ld DRP, the order giving effect was passed by the ld TPO wherein, the interest on outstanding receivables transfer pricing adjustment was reduced to Rs. 60,57,439/-. Aggrieved, the assessee is in appeal before us. 6. The final assessment order was framed by the ld AO u/s 143(3) read with Section 144C(13) read with Section 144B of the Act on 29.07.2024 determining total income of the assessee at Rs. 10,44,10,319/- after making only one addition on account of TPO adjustment for interest on outstanding receivables of Rs. 60,57,439/- to the returned income of Rs. 9,83,52,880/-. The ld DRP gave credit for 60 days and directed the ld TPO to examine whether the amounts were export profits received by the assessee in foreign currency and, if so, apply LIBOR plus 400 basis points while imputing interest instead of SBI PLR. The ld TPO in the order giving effect observed that the assessee had failed to substantiate the fact that it had received the payment from its AEs in foreign currency and accordingly held that LIBOR rate cannot be applied and justified the adoption of SBI PLR plus 300 basis points @16.55 % and re-computed the interest on outstanding receivables of Rs. 60,57,439/- after giving credit period of Rs. 60 days as directed by the ld DRP. 7. On perusal of the audited financial statements of the assessee company, we find that the entire invoices are raised by the assessee on its AEs in foreign currency and realization were made in foreign currency and receivables are also reflected in foreign currency which got ultimately restated in Indian currency as ITA No. 3944/Del/2024 Bravura Solutions India LLP Page 4 of 7 per the Accounting Standard-11 issued by ICAI. Hence, LIBOR plus 400 points should be applied in the instant case. 8. The ld AR before us prayed for grant of working capital adjustment to be applied on the comparable margin, which in either case, if granted, there would no need to separately impute interest on outstanding receivables as the same would get subsumed. Reliance in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of Kusum Healthcare in ITA No. 765/2016 dated 25.04.2017. We find that the ld DRP had also directed the ld TPO / AO to grant working capital adjustment to the assessee which has not been followed by the ld TPO. Hence, the order passed by the TPO had to be considered as not passed in consonance with the binding directions u/s 144C(10) of the Act of ld DRP. On this limited count itself, the order of ld TPO deserves to be quashed and is hereby quashed. Accordingly, original Ground Nos. 2 and 3 raised by the assessee are hereby allowed. 9. Ground No. 4 raised by the assessee is challenging the action of the ld AO in enhancing the income and the tax liability in the final assessment order which was not even proposed by him in the draft assessment order. 10. We have heard the rival submissions and perused the materials available on record. The draft assessment order gets merged with the order of the ld DRP and the final assessment order is merely giving effect to the directions of the ld DRP. As per section 144C(10) of the Act, directions given by the ld DRP are binding on the ld AO. Hence, the ld AO could not carry out even arithmetical exercise in the final assessment order proceedings which is passed pursuant to the directions of the ld DRP. Accordingly, any issue that was not subject matter of consideration in the draft assessment proceedings or before the ld DRP, ITA No. 3944/Del/2024 Bravura Solutions India LLP Page 5 of 7 cannot take its birth strangely for the first time in the final assessment order. The alternative recourse is provided in the statute for the same. Hence, the Ground No. 4 raised by the assessee is allowed. 11. The assessee has also raised additional grounds vide letter dated 13.01.2024. These additional grounds go to the root of the matter and are hereby admitted. In view of the decision rendered by us in Ground No. 4, the additional grounds raised by the assessee are also hereby allowed for the same reason. 12. With regard to chargeability of interest u/s 234A of the Act, the ld AO is directed to verify the extended due date of filing of return u/s 139(1) of the Act for AY 2020-21. Accordingly, the ld AO is directed to decide the chargeability of interest u/s 234A of the Act. The chargeability of interest u/s 234B of the Act is consequential in nature. With regard to interest u/s 234C of the Act, the law is settled that the same has to be charged only on the returned income and not on the assessed income. Accordingly, Ground No. 5 is disposed of in the above mentioned terms. 13. Ground No. 6 raised by the assessee is challenging the initiation of penalty proceedings u/s 270A of the Act. In view of the decision given by us on the above grounds, initiation of penalty would have no legs to stand. Hence, Ground No. 6 raised by the assessee is allowed. ITA No. 3944/Del/2024 Bravura Solutions India LLP Page 6 of 7 14. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 22/04/2025. -Sd/- -Sd/- (MAHAVIR SINGH) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 22/04/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "