M/s Globerian India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1170/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2805 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR YADAV SENIOR
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Notional interest
• Section: 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1170/DEL./2016 (ASSESSMENT YEAR : 2009-10) M/S. GLOBERIAN INDIA PVT. LTD., VS. DCIT, CIRCLE 1 8 (1), 7/6, SARVAPRIYA VIHAR, NEW DELHI. NEW DELHI 110 016. (PAN : AACCG2049N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHAN KHARE, ADVOCATE REVENUE BY : SHRI SANJAY KUMAR YADAV, SENIOR DR DATE OF HEARING : 01.02.2018 DATE OF ORDER : 20.03.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. GLOBERIAN INDIA PVT. LTD. (HERE INAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 06.10.2015, PASS ED BY LD. CIT(APPEALS)-44, NEW DELHI QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUND THAT :- THE LEARNED CIT (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ADDITION OF RS.1,77,15,880/- ON ACCO UNT OF NOTIONAL INTEREST UNDER TRANSFER PRICING ISSUE W HICH IS NOT ONLY INCORRECT BUT ALSO AGAINST THE FACTS AN D CIRCUMSTANCES OF THE CASE. ITA NO.1170/DEL/2016 2 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. GLOBERIAN INDIA PVT. LTD (GIPL), THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF GLOBAL INC ., USA AND PROVIDES INFORMATION TECHNOLOGY ENABLED SERVICES (I TES) TO GLOBERIAN INC. (GI). GI OUTSOURCES ALL THE ITES CA LL CENTRE SERVICES, SUCH AS, MEDICAL BILLING, MEDICAL CODING AND ACCOUNT RECEIVABLE MANAGEMENT SERVICES TO THE TAXPAYER WHIC H ARE OFFERED BY GI IN USA. DURING THE YEAR UNDER ASSESSMENT, TH E TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES (AE) AS UNDER :- S.NO. TYPES OF INTERNATIONAL TRANSACTION METHOD SELECTED TOTAL VALUE OF TRANSACTION 1 PROVISION OF IT - E NABLED SERVICES TNMM 282,586,075 3. THE TAXPAYER IN ITS TP ANALYSIS USED TRANSACTION AL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MAM) WITH OPERATING PROFIT / OPERATING COST (OP/OC) AS P ROFIT LEVEL INDICATOR (PLI) AND COMPUTED ITS PLI AT 22.97% AND TREATED ITS EXPORT TRANSACTIONS QUA ITES AT ARMS LENGTH. 4. HOWEVER, TPO NOTICED FORM THE AUDITED FINANCIALS OF THE TAXPAYER I.E. SUBSTANTIAL AMOUNT OF SALES TO AE OUT STANDING AT THE END OF THE YEAR WITH A DEBT OUTSTANDING LESS THAN S IX MONTHS TO THE ITA NO.1170/DEL/2016 3 TUNE OF RS.13,21,46,636/- AND PROCEEDED TO DETERMIN E FAIR AND REASONABLE RATE OF INTEREST ON THE SAME. AFTER CON SIDERING THE REPLY FILED BY THE TAXPAYER, THE TPO PROPOSED AN ADJUSTME NT OF RS.1,77,15,883/- TO THE INCOME OF THE TAXPAYER BEIN G THE ARMS LENGTH INTEREST TO BE CHARGED BY THE TAXPAYER FROM ITS AE ON EXTENDING CREDIT FACILITY/DELAY IN REALIZATION OF D EBIT BALANCES OUTSTANDING IN THE ACCOUNTS OF THE AE. PURSUANT TO THE ALP PROPOSED BY THE TPO, AO ASSESSED THE INCOME OF THE TAXPAYER AT RS.1,77,15,880/-. 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. C IT (A) WHO HAS CONFIRMED THE ADDITION MADE ON ACCOUNT OF ARMS LENGTH INTEREST ON RECEIVABLES BY DISMISSING THE APPEAL. F EELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY, AO INVOKED EXPLANATION (1)(C) TO S ECTION 92B OF THE ACT INSERTED BY FINANCE ACT, 2012 W.E.F. 01. 04.2002 IN ORDER TO DETERMINE THE ARMS LENGTH INTEREST TO BE CHARGE D BY THE TAXPAYER FROM ITS AE ON EXTENDING CREDIT FACILITY/DELAY IN R EALIZATION OF DEBIT ITA NO.1170/DEL/2016 4 BALANCES OUTSTANDING IN THE ACCOUNTS OF AE VIDE WHI CH THE TERM INTERNATIONAL TRANSACTION INCLUDES, CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG TERM OR SHORT TERM BORROWING, LEND ING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIE S OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS. 8. ISSUE AS TO WHETHER EXPLANATION (1)(C) TO SECTIO N 92B INSERTED BY FINANCE ACT, 2012 THOUGH MADE EFFECTIVE FROM 01.04.2002 IS RETROSPECTIVE IN NATURE HAS BEEN DECI DED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF M/S. KGK ENTERPRISES VS. ACIT IN ITA NO.567/JP/2016 ORDER DATED 28.11.20 17 IN FAVOUR OF THE ASSESSEE IN THE LIGHT OF THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN CASE OF DIT VS. NEW SKIES SATELLITE BV (2016) 382 ITR 114 AND HONBLE BOMBAY HIGH COURT IN CASE OF PATNI COMPUTER SYSTEMS LIMITED VS. DCIT (2011) 14 1 TTJ (PUNE) 190. 9. SO, IN THESE CIRCUMSTANCES, ASSUMING THIS TRANSA CTION IS AN INTERNATIONAL TRANSACTION, IT HAS TO BE TREATED FOR AY 2013-14 WHEREAS TAXPAYER IS BEFORE THE TRIBUNAL IN AY 2009- 10. 10. ON MERIT, THE LD. AR FOR THE TAXPAYER CONTENDED THAT IN ANY CASE, INTEREST IS TO BE CHARGED ON RECEIVABLES IT H AS TO BE CHARGED BEYOND A PERIOD OF 180 DAYS AND DREW OUR ATTENTION TOWARDS PARA 3 ITA NO.1170/DEL/2016 5 OF ADDENDUM TO AGREEMENT DATED 04.01.2005 WHICH IS REPRODUCED AS UNDER FOR READY PERUSAL :- 3. INVOICE PERFORMER WILL INVOICE COMPANY ON MONTHLY BASIS, DETAILING THE COSTS INCURRED AND THE MARK UP, AS SPECIFIED UNDER CLAUSE 3 OF THE BUSINESS AGREEMENT. UPON APPROVAL BY OCMPANY, COMPANY WILL PAY THE INVOICES WITHIN ONE HUNDRED & EIGHTY (180) DAYS. 11. AS PER ADDENDUM TO AGREEMENT GRACE PERIOD OF 18 0 DAYS HAS BEEN GIVEN TO MAKE THE PAYMENT OF COST INCURRED AND THE MARK UP. WHEN THE BUSINESS AGREEMENT IS CATEGORIC ENOUG H TO GRANT THE GRACE PERIOD OF 180 DAYS TO MAKE THE PAYMENT AND AL L THE PAYMENTS HAVE BEEN MADE WITHIN SIX MONTHS, NO ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLES CAN BE MADE. MOREOVER, WHE N UNDISPUTEDLY PROFIT MARGIN OF THE TAXPAYER HAS HELD TO BE AT ARM S LENGTH, THERE IS NO NEED TO MAKE SEPARATE ADDITION AS HAS BEEN HELD BY HONBLE HIGH COURT OF DELHI IN CIT VS. KUSUM HEALTH CARE PVT. LTD. ITA 765/2016 ORDER DATED 25.04.2017 . OPERATIVE PART OF THE CIT VS. KUSUM HEALTH CARE PVT. LTD. (SUPRA) IS AS UNDER :- 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN TH AT WOULD JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSES SEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIV ABLES ON THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS--VIS THAT OF ITS COMPARA BLES, ITA NO.1170/DEL/2016 6 ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PI CTURE AND RE-CHARACTERIZED THE TRANSACTION. THIS WAS CLEA RLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DELHI). 12. WHEN UNDISPUTEDLY THERE IS A GRACE PERIOD OF 18 0 DAYS TO MAKE THE PAYMENT OF THE COST PLUS MARK UP BY THE AE TO THE TAXPAYER FOR RENDERING SERVICES, THERE IS NO QUESTI ON OF CHARGING ANY INTEREST ON RECEIVABLES BY RECHARACTERIZING THE TRANSACTION AS LOAN FROM ITS AE AND AS SUCH, NO ADJUSTMENT ON ACCO UNT OF ARMS LENGTH INTEREST ON RECEIVABLES IS SUSTAINABLE. SO, WE ARE OF THE CONSIDERED VIEW THAT CIT (A) HAS ERRED IN CONFIRMIN G THE ADDITION OF RS.1,77,15,880/- ON ACCOUNT OF NOTIONAL TRANSFER BY MAKING ADJUSTMENT ON ACCOUNT OF ARMS LENGTH INTEREST TO B E CHARGED BY THE TAXPAYER FORM ITS AE ON DELAYED PAYMENT OF DEBT BAL ANCES OUTSTANDING IN THE ACCOUNTS OF THE AE AND AS SUCH, ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) IS ORDER ED TO BE DELETED. CONSEQUENTLY, APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 20 TH DAY OF MARCH, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 20 TH DAY OF MARCH, 2018 TS ITA NO.1170/DEL/2016 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-44, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.