United online Software Development (India) Private Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-17(2), Hyderabad

ITA 2120/Hyd/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8759 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 11-03-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 13-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: S RAVI BHARADWAJ
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings; TDS
• Section: 271(1)(c); 92B; 143(1); 13

Judgement Text

IN THE INCOME TAX A PPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 2120/HYD /201 7 ASSESSMENT YEAR: 20 13 - 14 UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD. PAN AAACJ 9549 G VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 17(2), HYDERABAD . APPELLANT RESPONDENT ASSESSEE BY: SHRI S. RAVI BHARADWAJ REVENUE BY: SHRI Y.V.S.T. SAI DATE OF HEARING: 11 /0 3 /2020 DATE OF PRONOUNCEMENT: 24 /0 7 /2020 O R D E R PER SHRI A. MOHAN ALANKAMONY, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD . DCIT, CIRCLE - 17(2), HYDERABAD IN ITNS NO.65 DATED 27/10/2017 AND AGAINST THE ORDER OF THE LD. MEMBERS OF THE DRP IN F.NO. 386/DRP - 1/2017 - 18, DATED 31/8/2017 FOR THE AY 2013 - 14. 2. THE ASSESSEE HAS RAISED AN ELABORATE GROUND WITH RESPECT TO TRANSFER PRICI NG MATTERS AND ANOTHER TWO GROUNDS WITH RESPECT 2 ITA N O. 2120/HYD/2017 UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD. TO CORPORATE MATTERS AND THEY ARE BRIEFLY STATED HEREIN BELOW FOR ADJUDICATION: - (I) THE LD. MEMBERS OF THE DRP AND THE LD.AO HAVE ERRED IN COMPUTING THE INTEREST WITH RESPECT TO OUTSTANDING RECEIVABLES RE LATING TO SALE OF SERVICES TO ASSOCIATE ENTERPRISES AS ON 31/3/2013 BY APPLYING THE DOMESTIC BANK INTEREST RATES APPLICABLE TO BANK DEPOSITS, FOR ARRIVING AT THE ALP, AS AGAINST USD LIBOR PLUS RATE OF INTEREST. (II) LD . MEMBERS OF THE DRP AND THE LD.AO HAVE ERRED IN NOT ALLOWING THE ELIGIBLE TDS CREDIT OF RS. 14,21,553/ - . (III) LD . MEMBERS OF THE DRP AND THE LD.AO HAVE ERRED INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND ALLIED SERVICES, FILED ITS RETURN OF INCOME FOR THE AY 2013 - 14 ON 23/11/2013 ADMITTING TOTAL INCOME OF RS. 8,16,95,207/ - . INI TIALLY THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS. SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS THE CASE WAS REFERRED TO THE LD. TPO FOR DETERMINING THE ALP. THE LD. TP O IN THE PROCEEDINGS BEFORE HIM OBSERVED THAT THOUGH THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS AE COMPANY ABROAD SANCTIONS ONLY 30 DAYS OF CREDIT PERIOD FOR THE PAYMENTS OUTSTANDING TO THE ASSESSEE COMPANY, THERE WERE CONSIDERABLE DELAY IN PAYMENT S ON MANY OCCASIONS. THE LD. TPO TAKING INTO CONSIDERATION OF THE INSERTION IN EXPLANATION TO SECTION 92B OF THE ACT OPINED THAT THE ALP SHOULD BE DETERMINED WITH RESPECT TO THESE INTERNATIONAL TRANSACTIONS IN THE CASE OF THE 3 ITA N O. 2120/HYD/2017 UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD. ASSESSEE. ACCORDINGLY, GRANTIN G A GRACE PERIOD OF 30 DAYS AS ALLOWED BY THE INTER COMPANY AGREEMENTS THE LD. TPO WORKED OUT THE INTEREST ON THE DELAYED PAYMENTS AT THE RATE OF 14.45% BEING THE INTEREST RATE CHARGEABLE BY DOMESTIC BANKS FOR ADVANCING LOANS WHICH WORKED OUT TO RS. 68,91, 726/ - . THE LD.TPO WHILE DOING SO RELIED ON VARIOUS DECISIONS OF THE TRIBUNAL WHICH ARE CITED IN HIS ORDER. WHEN THE MATTER REACHED THE LD.MEMBERS OF THE DRP, THEY OPINED THAT THE INTEREST ON SUCH DELAYED PAYMENTS FROM THE AES HAS TO BE WORKED OUT AS PER T HE DOMESTIC BANK RATE APPLICABLE TO BANK DEPOSITS AND ACCORDINGLY THE LD. AO WORKED OUT THE ALP AT RS.41,52,811/ - . 4. AT THE OUTSET, THE LD. AR SUBMITTED BEFORE US THAT THE INTEREST RATE MAY BE WORKED OUT AT USD LIBOR PLUS RATE AS HELD IN THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN ITA NO. 2071/HYD/2017, IN THE CASE OPEX TEXT TECHNOLOGIES VS. DCIT VIDE ORDER DATED 3/5/2019. WE FIND MERIT IN THE SUBMISSION OF THE LD. AR. EXPLANATION ( I )(C) OF SECTION 92B OF THE ACT PROVIDES THAT RECEIVABLES OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS SHALL FALL WITHIN THE AMBIT OF INTERNATIONAL TRANSACTION AS PER THE PROVISIONS OF THE ACT. FURTHER, RULE10AB OF THE IT RULES STATES AS FOLLOWS: - FOR THE PURPOSES OF CLAUSE (F) OF SUB - SECTION (1) OF SECTION 92C, THE OTHER METHOD FOR DETERMINATION OF THE ARMS' LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [OR A SPECIFIED DOMESTIC TRANSACTION] SHALL BE ANY METHOD WHICH TAKES INTO ACCOUNT THE PRICE WHICH HAS BEEN CHARGED OR PAID, OR WOULD HAVE BEEN CHARGED OR PAID, FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTION, WITH OR BETWEEN NON - ASSOCIATED ENTERPRISES, UNDER SIMILAR CIRCUMSTANCES, CONSIDERING ALL THE RELEVANT FACTS . 4 ITA N O. 2120/HYD/2017 UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD. 4.1 FROM THE ABOVE IT IS CRYSTAL CLEAR THAT THE INTEREST RATE WHICH HAS BEEN CHARGED OR PAID OR WOULD HAVE BEEN CHARGED OR PAID FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTIONS SHOULD BE ADOPTED FOR THE PURPOSE OF DETERMINING THE ALP. THEREFORE, WHEN IT COMES TO CROSS BORDER DEBTS, THE INTERNATIONAL RATE OF INTEREST WOULD BE REASONABLE FOR COMPUTING THE APPLICABLE INTEREST TOWARDS SUCH DEBTS, FOR THE PURPOSE OF DETERMINING THE ALP. WE HAVE OPINED SO BECAUSE, ANY ENTITY SITUATED IN ANY ALIEN COUNTRY SHALL NOT G RAND ANY BENEFIT TO AN ENTITY SITUATED IN INDIA EXCEEDING THE USD LIBOR PLUS RATE OF INTEREST, TOWARDS ANY LOAN OR CREDIT EXTENDED BY THE INDIAN ENTITY TO SUCH ALIEN ENTITY. FOR THE ABOVE STATED REASONS, W E HEREBY DIRECT THE LD. AO TO ADOPT THE USD LIBOR PLUS RATE FOR THE ADJUSTMENT MADE U/S.92CA (3) OF THE ACT IN THE CASE OF THE ASSESSEE. ACCORDINGLY, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 5. AS REGARDS THE SECOND GROUND RAISED BY THE ASSESSE E TOWARDS THE CLAIM OF TDS CREDIT OF RS. 14,25,553/ - , WE HEREBY REMIT THE MATTER BACK TO THE FILE OF THE LD. AO TO VERIFY THE ELIGIBLE TDS CREDIT ALLOWABLE TO THE ASSESSEE AFRESH AND THEREAFTER DECIDE THE MATTER IN ACCORDANCE WITH MERIT AND LAW. 6. AS R EGARDS THE THIRD GROUND RAISED BY THE ASSESSEE TOWARDS THE INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT AGAINST TP ADJUSTMENT, THE ISSUE IS PREMATURE, ACCORDINGLY THE GROUND IS DISMISSED. 7. BEFORE PARTING, IT IS WORTHWHILE TO MENTION THAT THIS ORDER IS PRONOUNCED AFTER 90 DAYS OF HEARING THE APPEAL, WHICH IS THOUGH 5 ITA N O. 2120/HYD/2017 UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD. AGAINST THE USUAL NORMS, WE FIND IT APPROPRIATE, TAKING INTO CONSIDERATION OF THE EXTRA - ORDINARY SITUATION IN THE LIGHT OF THE LOCK - DOWN DUE TO COVID - 19 PANDEMIC. WHILE DOING SO, WE HAVE RELIED IN THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JSW LTD. IN ITA NO.6264/M/2018 AND 6103/M/2018 FOR AY 2013 - 14 ORDER DATED 14TH MAY 2020. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE 24 TH JULY , 2020 . SD/ - (P. MADHAVI DEVI) JUDICIAL MEMBER SD/ - (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER HYDERABAD, DATED 24 TH JULY , 2020. OKK COPY FORWARDED TO: 1. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., 6 - 3 - 1099/1100, 1 ST FLOOR, BABUKHANS MILLENNIUM CENTRE, SOMAJIGUDA, HYDERABAD 500 082 2. DCIT, CIRCLE 17(2), 9 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3. DRP 1, BENGALURU . 4. 5. PR. CIT - 5, HYDERABAD. THE DR, ITAT, HYDERABAD 6. GUARD FILE