Appeal details
Counselvise Citation
[2022] 103 COUNSELVISE.COM (IT) 7359 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
25-12-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB-A
Next Hearing Date
11-12-2022
Assessment Year
misc
Appeal Filed On
09-02-2024
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD ‘A’ BENCH, HYDERABAD. BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA No.6/Hyd/2022 (Assessment Year : 2013-14) Asst. Commissioner of Income Tax, Circle 5(1), Hyderabad. Vs. M/s. Quislex Legal Services Pvt. Ltd., Hyderabad. PAN : AAACQ1153H (Appellant / Revenue) (Respondent / Assessee) C.O. No.1/Hyd/2022 (In ITA No.6/Hyd/2022) M/s. Quislex Legal Services Pvt. Ltd., Hyderabad. PAN AAACQ1153H Asst. Commissioner of Income Tax, Circle 5(1), Hyderabad. (Assessee / Respondent) (Respondent / Appellant) Assessee By : Shri H. Srinivasulu, Adv. Revenue By : Shri Rajendra Kumar, CIT- D.R. Date of Hearing : 12.12.2022 Date of Pronouncement : 26.12.2022 O R D E R Per Shri Laliet Kumar, J.M. : This appeal filed by the Revenue and Cross Objection filed by the Assessee are directed against the order dt.08.10.2021 of the learned Commissioner of Income 2 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 Tax (Appeals)-10, Hyderabad u/s. 143(3) r.w.s. 92CA(3) & r.w.s. 144C(3) of the Income Tax Act, 1961 (in short ‘the Act’) relating to Assessment Year 2013-14. Since both appeal and C.O. are arising out of CIT (A)’s order, common order is being passed for the sake of convenience and brevity. 2. The Revenue has raised the following grounds of appeal : “ 1. The Ld.CIT(Appeals) erred in excluding the two companies namely (i) M/s.Infosys BPO Limited and M/s.Eclerx Services Limited, as comparables ignoring the provisions contained in Rule 108(2) of I.T.Rules, 1962. 2. The Ld.CIT(Appeals) was not justified in excluding M/s.lnfosys BPO Ltd, and M/s.Eclerx Services Limited as comparables on account of diversified activities. 3. The Ld.CIT(Appeals) was not correct in excluding M/s.lnfosys BPO Ltd, on account of huge turnover without appreciating the fact that turnover does not affect profit margins in Service/software industry. 4. The Ld.CIT(Appeals) was not correct in law in directing the TPO to exclude the comparable M/s. e-Clerx Services Ltd, without making a comparability analysis for the year under consideration which is in violation of Indian Transfer Pricing regulations which prescribe that the data to be used for the purpose of comparability analysis should relate to the year in which the international transaction has taken place. 3 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 5. Whether on the facts and circumstances of the case, the Ld.CIT(A) is justified in directing to include the companies M/s.Jindal lntellicom Private Limited, M/s. Informed Technologies Limited and M/s. Ace spa Services Private Limited without appreciating the fact that these companies are functionally dissimilar. 6. Any other ground that may be raised at the time of hearing.” 3. The brief facts of the case are that the assessee company is in the business of Legal Process Outsourcing filed its Return of Income for the Assessment Year 2013-14 on 26.11.2013 declaring total income of Rs.13,37,63,440 and Book Profit u/s. 115JB at Rs.11,98,32,751. The case was selected for scrutiny and notices u/s. 143(2) and 142(1) were issued to the assessee In response, the assessee filed the information and after going through the information furnished and after a detailed discussion in the assessment order, the Assessing Officer completed the assessment by making adjustment to ALP u/s. 92CA(3) at Rs.6,53,49,980/- and assessed the total income at Rs.19,91,13,420 and Book Profit u/s. 115JB at Rs.9,86,46,186. Aggrieved by the assessment order, the assessee filed an appeal before the CIT (Appeals). The CIT 4 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 (Appeals) partly allowed the appeal of the assessee. Aggrieved by the order of CIT (Appeals), the assessee is in appeal before us. M/s. Infosys BPO Ltd 4. Before us, Learned Departmental Representative submitted that the CIT (Appeals) was not correct in excluding M/s. Infosys BPO Ltd as comparable company. It was the contention of ld.DR that this company is functionally comparable with the assessee and the turnover of this company will not affect the profitability of the comparable. It was also the contention that the selling and marketing expenses are intrinsically connected with the core activities of the assessee. 4.1. On the other hand, the learned Authorised Representative submitted that M/s. Infosys BPO Ltd. is not comparable since the company has diversified functions, top global brand and huge turnover of Rs.1831.36 Crores. He had also submitted that Infosys BPO Ltd is functionally 5 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 not comparable, its has huge turnover Rs.18131.36 cr as against Rs.83.63 of assessee and that assessee was a captive and renders service to AE only. He further submitted that its sub-contractor expenses was Rs.84 Cr and that its uses it brand for business purposes and it is a top global brand and incurred brand building expenses at Rs.7.6 crores and that selling and marketing expenses were Rs.97.64 Crores which was more than the turnover of assessee. He relied upon the decisions of Infor India (P) Ltd (Pages 102 to 104 of PB-II), ADP(P) Ltd (Pages 175 to 179), Hyundai Engineering India (P) Ltd (Pages 203 to 204 of PB- II), Cadence Design Systems (I) (P) Ltd reported in 93 Taxmann.com, UL India (P) Ltd of ITAT Bangalore Bench (Pages 126 to 129) and also the decision in the case of BT e-Serv (India) Pvt. Ltd Vs. ITO (ITA No.6690/Del/2016 dt.19.06.2018). 4.2. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, Infosys BPO had been deleted by the Co-ordinate Benches 6 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 decision on which the ld.AR for the assessee had relied. We do not find any reason to take a contrary view and accordingly, we direct the Assessing Officer/TPO to exclude Infosys BPO Company from the list of comparable. Hence, this company is deleted from the set of comparables. M/s. Eclerx Services Ltd. 5. Learned Departmental Representative submitted that the CIT (Appeals) was not correct in excluding M/s. Eclerx Services Ltd as comparable company since it is a KPO and BPO company and employed skilled manpower/specialized services, therefore this company is comparable to the assessee company. It was submitted by the ld.DR that there was no linkage between the acquisition of the AGILYST INC with the profit earned by the said company. 5.1. On the other hand, the ld.AR had submitted that this company is functionally different as it is into KPO whereas the assessee is a BPO company. It was submitted that M/s. Eclerx Services Ltd has not been considered as comparable 7 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 by the Assessing Officer / TPO for the A.Y. 2012-13 and 2010-11 in the set aside proceedings. He also relied upon the decision of Hon’ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. [2015] 60 taxmann.com 355 (Delhi) “35. As pointed out by the Special Bench of the Tribunal in Maersk Global Centers (India) (P.) Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feasible. Clearly, no straitjacket formula can be applied. In cases where the categorization of services rendered cannot be defined with certainty, it would be apposite to employ the broad functionality test and then exclude uncontrolled entities, which are found to be materially dissimilar in aspects and features that have a bearing on the profitability of those entities. However, where the controlled transactions are clearly in the nature of lower-end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold. 36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP. 37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product 8 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers(India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in Capital IQ Information Systems (India) (P.) Ltd. (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits.” 5.2. The learned Authorised Representative submitted that M/s. Eclerx Services Ltd. is not comparable since it is functionally different and relied on various ITAT decisions. Since there are no segmental details, expenditure incurred on outsourcing, we are of the opinion that the CIT (Appeals) is justified in excluding this company as comparable. 5.3. In rebuttal, the ld.DR for Revenue had submitted that the decision in the case of Rampgreen Solutions (supra) was for A.Y. 2008-09 and further, the Hon’ble Supreme 9 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 Court had admitted the SLP against the decision of Hon’ble Delhi High Court. 5.4. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the functions of the assessee as well as e-Clerx have not change for the last two years i.e., from 2010-11 and 2012- 13. Further, the Assessing Officer in these two years had not considered e-Clerx as a comparable. In view of the above, we do not find any reason to grant any relief to the Revenue. Accordingly, we uphold the order passed by the ld.CIT(A) excluding the e-Clerx from the list of comparable. 6. Now we will deal with M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. M/s. Jindal Intellicom Pvt. Ltd: 6.1. The learned Departmental Representative submitted that the CIT (Appeals) has directed the TPO/A.O. 10 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 to include the companies M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. without appreciating the fact that these companies are functionally dissimilar. The ld.DR had drawn our attention to page 20 of the order of TPO wherein it was mentioned as under : “This company is rejected being functionally different. The same is evident from the following extract of the annual report. Review of operations: During the financial year ended 31 st March, 2013 there is a decline in revenue by 11%. However, due to operational efficiency your company has managed to increase Operating Profit (EBIDTA) by 12%. Your company provides IT and ITES Services in the international and domestic market. In the international market, due to depressed market conditions and changes in regulatory policies the company saw decline in revenue in debt collection business stream. On the other hand, your company has started focusing on niche business like customer support, software development, etc. In domestic market, your company is now better positioned and expecting impressive growth potential. Hence, this company is not considered as comparable.” M/s. Informed Technologies Limited: 6.2. The ld.DR had submitted that the TPO in his order mentioned that this company was rejected on account of insufficient financial information. However, the ld.CIT(A) had included this comparable after relying upon the 11 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 decision of the Tribunal in the case of Infor India Pvt Ltd in ITA No.161 and 2307/Hyd/2018. M/s. Ace BPO Services Pvt. Ltd : 6.3. The ld.DR had submitted that that the TPO had recorded that the financial information of this company is not available in the public domain. However, the ld.CIT(A) had included this comparable after perusing the annual report of the company and also relying upon the decision of the Tribunal in the case of Infor India Pvt Ltd in ITA No.161 and 2307/Hyd/2018. 6.4. The learned Authorised Representative submitted that these three companies namely M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. are functionally not different and comparable with the assessee in RPT, 100% Revenue from medical transcription and BPO services. With respect to ACE BPO Services (P) Ltd, ld.AR submitted that it fulfills all the filters adopted by the TPO and further submitted that no related party transactions. 12 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 6.5. We have heard the rival contentions of the parties and perused the material available on record. The ld.CIT(A) had directed to include these comparables in the list of comparable after relying upon the decision in the case of Infor India Pvt Ltd in ITA No.161 and 2307/Hyd/2018. We have the occasion to go through the decision of Infor India (supra) in Paras 30 to 32 of the said decision, it was held by the Tribunal as under : “30 As regards inclusion of Ace BPO Services Ltd is concerned, it is the case of the assessee that this company satisfies all the filters applied by the TPO and therefore, is functionally comparable to the assessee company. He pointed out that the TPO and the DRP have rejected this company on the ground that no information as to the RPT filter has been reported in its Annual Report and therefore, complete information is not available. The learned Counsel for the assessee has drawn our attention to page 507 and 508 of the paper book wherein details of the RPT transactions are given. 31. The learned DR was also heard who relied upon the orders of the authorities below. 32. Having regard to the fact that the details with regard to the RPT transaction of the company have been given, we are of the opinion that the findings of the DRP & TPO are factually incorrect. Therefore, we remand the comparability of this company also to the AO/TPO for reconsideration. Needless to mention that the assessee should be given a fair opportunity of hearing.” 13 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 6.6 Similarly, the Tribunal in the case of Infor India (P) Ltd in Paras 47 to 49 held as under : “47. The assessee is seeking inclusion of the following companies: i) Caliber Point Business Solutions Ltd ii) Ace BPO Services Ltd iii) Allsec Technologies Ltd iv) Jindal Intellicom Ltd v) Informed Technologies Ltd. 48. At the time of hearing, the learned Counsel for the assessee submitted that the assessee is not pressing for inclusion of Allsec Technologies Ltd and Jindal Intellecom Ltd. Therefore, grounds relating to these two companies are rejected as not pressed. 49. As regards the other companies which are sought to be included, we find that the comparability of these companies have been considered by us in the earlier A.Y 2013-14 in the above paragraphs and for the detailed reasons given therein, these companies are directed to be considered by the TPO afresh. Therefore, the grounds relating to these companies are treated as allowed for statistical purposes. 6.7. In our considered opinion, the ld.CIT(A) had misread the decision of the Tribunal in the case of Infor India Ltd (supra). In the said case, the Tribunal had remanded back the matter to the file of TPO / Assessing Officer for fresh consideration. In the light of the above, we also remit the 14 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 issue of comparability in respect of these three companies i.e. M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. to examine and decide as per law. 7. In the result, the appeal of Revenue is partly allowed for statistical purposes. C.O. No.1/Hyd/2022 8. Now we will deal with the C.O. of the assessee. 8.1. The grounds raised by the C.O. reads as under : “ 1. The Learned Commissioner of Income Tax- Appeal is erred in upholding the rejection of Transfer pricing study of the Appellant. 2. The ld CIT(A) failed to appreciate that the Functions, Assets, and Risk (FAR) analysis is essential and not filters which come into play after FAR analysis. 3. Ld CIT(A} erred in non-inclusion of comparables which are comparable to the appellant, namely, Caliber point business solutions Ltd (Segmental) and R. Systems International Ltd ( Segmental). 4. Ld CIT(A) did not appreciate the principle of consistency in upholding the 75% export turnover filter. In earlier years in other cases 25% export filter was accepted and by adopting 75% export turnover filter the number of good comparables complying with FAR analysis get excluded, hence All sec Technologies Ltd was wrongly excluded. 5. Ld CIT(A} erred in non-exclusions of the following comparables which are not comparables to the appellant. A. Acropetal Technologies Ltd (Segment). B. Capgemini Business Services (India ) Ltd. 15 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 C. Hartron Communications Ltd (Segment). D. Mindtree Ltd ( Segment). 6. Ld CIT(A} failed to include the Datamatic Financial Services Ltd, a company which is functionally comparable with the appellant. 7. Ld CIT(A) erred in not allowing the risk adjustment as the assessee is a captive service provider. 8. Ld CIT(A} failed to appreciate that the TPO did not bench mark the outstanding receivables properly. TPO ought to have bench marked with comparables engaged in ITES. 9. The learned CIT (Appeals) failed to appreciate that selection of CUP method for outstanding receivable by the TPO is not proper and State Bank of India short term interest rate cannot be applied. 10. The Ld C1T (A) erred is not following the jurisdictional Hon'ble ITAT orders in cases of Value Momentum (P) ltd and ADP (P) Ltd. l1. The CIT(A) failed to appreciate that Trade payables should be set off against the outstanding receivables. 12.Without prejudice, the Ld CIT(A) erred in directing the TPO to charge interest at L1BOR+ 200 basis points, and as the basis of this direction is not known and it should be restricted to LIBOR rate only. Further for the purpose of calculation of interest, the Ld CIT(A) ought to have allowed 120 days credit period instead of 60 days. 13. The assessee craves for alteration, modification or inclusion, of any ground with the. permission of the Hon'ble Bench.” 9. At the time of hearing, the ld.AR had only restricted the interest rate charged on the trade receivable by lower authorities. The ld.AR had submitted that the Tribunal had allowed the credit period of 120 days as held in OSI Systems Pvt Ltd, Hyderabad (ITA No: 2228/Hyd/2017.) and further, it was the submission that 16 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 the trade payables are required to be setoff against the trade receivables and the interest should be restricted to LIBOR plus 100. He had relied upon the following decisions in support of its case : 1. Netcracker ITA l 746/Hyd/2017. 2. Dhanush lnfotech (P) Ltd - ITA 2082/Hyd/2017. 10. Before us, ld. DR submitted relied upon the decision of the ld.CIT(A) wherein the ld.CIT(A) had elaborately dealt with the issue in the following manner : “16.3 I have considered both the contentions of the appellant and also the TPO. The TPO made an adjustment of Rs. 1,56,73,621/- towards interest on receivable so as to arrive at the ALP of the receivables. TPO and appellant have adopted TNMM as the method to arrive at the ALP of international transactions. Under TNMM the profit level is determined at the entity level and also at the net profit level. It appears that the AO/TPO had applied CUP for determination of ALP of outstanding receivables. I am of the view that bench marking has to be done with an ITES company and this international transaction cannot be bench marked with the interest rate charged either by banks or NBFC to arrive at the ALP. In this connection, I place reliance on the jurisdictional Hon'ble ITAT's recent decision in the following case: In OSI Systems Pvt. Ltd., Hyderabad in ITA No. 2228/Hyd/2017, it is held as under: "6.6 The next issue is rate of interest on receivables. In the instant case, the receivables represent the trade receipts and the same are required to be received in foreign exchange. The tribunal in the case of M/s. Value Labs Technologies Vs. /TO, ITA No. 1919/Hyd/2017 for AY 2013-14, vide order dated 05.04.2019 has held that in the case of export turnover, which required to be received in foreign exchange, the 17 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 international transaction shall be considered at LIBOR + 200 basis points rate after the expiry of credit period. Further, in the case of Cambridge Technology Enterprises Ltd., vs. DCIT, ITA No. 208/Hyd/2018 for AY 2013-14, vide order dated 19/11/2019, the Tribunal held that notional interest has to be charged at LIBOR + interest rates as the receivables are in foreign exchange. Therefore, respectfully following the view taken by the coordinate benches of ITAT in the said cases, we hold that interest rate should be charged on receivables at LIBOR + 200 points. Accordingly, we direct the A071-P0 to charge interest at LIBOR + 200 basis points. 6.7 Similarly, in respect of credit period, TPO has allowed 30 days and no agreement was placed by the assessee before us. However, in the case of M/s. Value Labs (Supra), on which reliance was placed by the assessee, this Tribunal held that interest to be charged in the case of delay between 90 to 120 days and in the case of Infor (India) Pvt. Ltd., 1TAT allowed 90 days. Considering the facts and merits of the case, we hold that 120 days is reasonable period in this case, hence, we direct the AO/TPO to allow 120 days credit period and charge interest over and above the outstanding period of 120 days." 17. Respectfully following he above. order, I direct the AO/TPO to charge interest at LIBOR+200 basis points allowing a credit period of 60 days.” 11. We have heard the rival submissions and perused the material on record. Admittedly, the law has been fairly settled with respect to whether the trade receivables would constitute an international transaction or not within the meaning of Chapter X of Income Tax Act. For the ready reference, we are reproducing below the decision rendered by the Co-ordinate Bench of the Tribunal in the case of Altisource Business Solutions (P.) Ltd. Vs. Income-tax 18 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 Officer reported in [2022] 141 taxmann.com 77 (Bangalore - Trib.), wherein it was held as under : “15. The amendment is to the effect that "international transaction" would specifically include within its ambit. 'deferred payment or receivable or any other debt arising during the course of business' and hence non-charging or under-charging of interest on the excess period of credit allowed to the AE for the realization of invoices would amount to an international transaction. It was so held by the ITAT Delhi Bench in the case of Bechtel India (P.) Ltd (supra). It is important to note that the Bench while arriving at the said conclusion distinguished its earlier order in the case of Kusum Healthcare (P.) Ltd v. Asstt. CIT [2015] 62 taxmann.com 79 (Delhi-Trib) and rejected the contention that interest gets subsumed in the working capital adjustment. The Hon`ble Bombay High court in the case of CIT v. Patni Computer Systems Ltd, [2013] 33 taxmann.com 3/215 Taxman 108 dealt, inter alia, with the following question of law :- "(c) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?" 16. While answering the above question, the Hon'ble High Court noticed that an amendment to section 92B has been carried out by the Finance Act, 2012 with retrospective effect from 1-4-2002. Setting aside the view taken by the Tribunal, the Hon'ble High Court restored this issue to the file of the Tribunal for fresh decision in the light of the legislative amendment. In the case of BT e Serv (India) (P.) Ltd. v. ITO [2017] 87 taxmann.com 251 the ITAT Delhi Bench held that undoubtedly the receivable or any other debt arising during the course of the business is included in the definition of 'capital financing' as an 'international transaction' as per explanation 2 to section 92B of the Act w.e.f. 1-4- 2002 inserted by the Finance Act 2012. Therefore, even the outstanding receivable partake the character of capital financing and consequently, overdue outstanding is an "international transaction". The natural 19 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 corollary would be of imputing interest on such "capital financing" if same is not charged at arm's length. The ITAT concluded that if outstanding receivables are within the terms of agreement, then it may be argued that interest on such outstanding is already covered in the sale price of the goods. However, if the agreement does not specify the term of the payment, even then assessee must be given benefit of credit period which is accepted business practice in the trade. The ITAT confirmed 30 days as the normal credit period adopted by the TPO. 17. The foregoing discussion discloses that non-charging or under- charging of interest on the excess period of credit allowed to the AE, for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. In view of the above observations. the reliance placed by the ld. counsel for the assessee on earlier decisions cannot be accepted. Similarly, Considering the above discussion, it is held that deferred trade receivable constitutes international transaction.” 12. In our considered opinion, the view taken by the ld.CIT(A) is resonant with the view taken by the Bangalore Tribunal. Further, we found that the ld.CIT(A) has restricted the charging of interest at LIBOR +200 basis points allowing the credit period of 60 days. This view of the ld.CIT(A) is in accordance with law. Though, the ld.AR cited the decision in the case of OSI System Pvt. Ltd. Vs. CIT in ITA No.221/Hyd/2015. In our view, the said decision is not applicable to the facts of the case as the Tribunal in the said case had held applicability of LIBOR +200 basis points 20 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 to be applied on the trade receivables (Para 6.6). Similarly, the Tribunal without assigning any reason has held that 120 days credit period is reasonable period. In our view, no documentary evidence has been brought on record before us so that we can infer that 120 days credit period is a reasonable period. In our view, the ld.CIT(A) after relying upon the decision of OSI Systems (supra) for the reasons best known to him, had arbitrarily reduced the credit period from 120 days to 60 days. In our view, the approach of ld.CIT(A) is without any basis. Hence, we direct the TPO / Assessing Officer to charge interest at LIBOR + 200 points. Further, we direct Assessing Officer / TPO to allow the credit period and charge interest over and above the outstanding period of 120 days. 13. In the result, the C.O. of the assessee is partly allowed on above terms. 21 ITA No.6/Hyde/2022 & C.O. No.1/Hyd/2022 14. To sum up, the appeal of Revenue is partly allowed for statistical purposes and the C.O., of the assessee is partly allowed. Order pronounced in the open court on 26 th Dec., 2022. Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) Accountant Member Judicial Member Hyderabad, Dt. 26.12.2022. * Reddy gp Copy to : 1. M/s. Quislex Legal Services P. Ltd., 2 nd Floor, Jayabheri Silicon Towers, Sy 14, 1-118/1/14/C, Madhapur, Kondapur, Ranga Reddy District-500 032 2. ACIT, Circle 5(1), Hyderabad. 3. CIT (IT & TP), Hyderabad. 4. CIT(Appeals)-10, Hyderabad. 5. DR, ITAT, Hyderabad. 6. Guard File. By Order Sr. Pvt. Secretary, ITAT, Hyderabad.
