Lotus Labs private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-4(1)(1), Bangalore

ITA 2207/BANG/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1678 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-03-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 17-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: CHAVLI NARAYAN
• Keywords: Capital asset converted into stock in trade; Depreciation; Transfer pricing; International transaction; Retrospective amendment; Question of law; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 143(3); 92B; 115JB; 195; 144C; 143(2); 13; 37; 90; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.2207/BANG/2017 ASSESSMENT YEAR : 2013 14 LOTUS LABS PRIVATE LIMITED., O7, JASMA BHAVAN ROAD, MILLERS TANK BED AREA, OPP. GURUNANAK BHAVAN, VASANTHNAGAR, BENGALORE-560 052. PAN AAACL5328D VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 4(1)(1), BENGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI. CHAVLI NARAYAN, CA RESPONDENT BY : SHRI M UZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 10 - 03 - 2020 DATE OF PRONOUNCEMENT : 13 - 05 - 2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAI NST FINAL ASSESSMENT ORDER UNDER SECTION 143 (3),R.W.S. 144C (1) OF THE ACT PASSED BY LD. DCIT CIRCLE-4 (1) (1), BANGALORE IS F OR ASSESSMENT YEAR 2013-14 ON FOLLOWING GROUNDS OF APPEAL: PAGE 2 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, LOTUS LABS PRIVATE LIMITED (HEREINAFTER REFERRED TO AS 'APPELL ANT'), RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ASSESSMENT OR DER PASSED BY THE LEARNED ASSESSING OFFICER [HEREINAFTER REFERRED TO AS THE 'LEARNED AO'] IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTI ON PANEL ('DRP') UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME -TAX ACT, 1961 ('THE ACT') ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, 1. THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER ( 'TPO')/ AO AND DIRECTIONS OF THE HON'BLE DRP ARE BASED ON INCORREC T INTERPRETATION OF LAW AND THEREFORE ARE BAD IN LAW. GROUNDS OF OBJECTION RELATING TO TRANSFER PRICING MATTERS 2 THE LEARNED TPO AND THE LEARNED AO GROSSLY ERRED IN DETERMINING A TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE INTER EST ON OUTSTANDING RECEIVABLES AMOUNTING TO RS. 3,25,37,057. 3. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, I N LAW AND IN FACTS, BY CONSIDERING THE OUTSTANDING DUES FROM THE AES TO BE IN THE NATURE OF LOAN AND NOT CONSIDERING THE BUSINESS/ COMMERCIAL EXPEDI ENCIES OF THE ARRANGEMENT. 4. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, I N LAW AND IN FACTS, BY TREATING THE OUTSTANDING RECEIVABLES FROM ASSOCIATE D ENTERPRISES (AES') AS A SEPARATE INTERNATIONAL TRANSACTION AND NOT CONSID ERING THE SAME TO BE CLOSELY LINKED WITH THE MAIN TRANSACTION OF PROVISI ON OF SERVICE TO AE. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, IN NOT PROVIDING T HE BENEFIT OF WORKING CAPITAL ADJUSTMENT BY ADJUSTING THE NET MARGINS OF THE NON-AE SEGMENT. FURTHER, NO ADJUSTMENT ON ACCOUNT OF INTEREST FOR D ELAY IN RECEIVABLES FROM AE IS WARRANTED AS IT IS ALREADY FACTORED IN THE MA RGINS EARNED FROM AES. 6. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE WIS HES TO SUBMIT THAT THE HON'BLE BENCH IN APPELLANT'S OWN CASE HAS ADJUDICAT ED THE ABOVE MATTER FOR AY 2010-11, AY 2011-12 & AY 2012-13, AND CONSID ERED THE OUTSTANDING DUES FROM AES AS CLOSELY LINKED TO THE MAIN TRANSACTION AND RESTORED THE ISSUE TO THE FILE OF AO/ TPO FOR RE-DE TERMINATION OF ALP BY CLUBBING AND AGGREGATING BOTH THE TRANSACTIONS. 7. THE HON'BLE DRP ERRED, IN LAW AND ON FACTS IN UP HOLDING TRANSFER PRICING ADJUSTMENT MADE BY LEARNED TPO/ AO, BY DISREGARDING THE COMMERCIAL AGREEMENTS PRODUCED DURING THE COURSE OF PROCEEDING S AND BY DISREGARDING THE JUDICIAL PRECEDENTS SET OUT IN APP ELLANT'S OWN CASE. 8. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, I N LAW AND IN FACTS, IN DETERMINING A TRANSFER PRICING ADJUSTMENT WITHOUT A PPRECIATING THE FACT THAT THE APPELLANT HAS NOT CHARGED INTEREST ON OUTS TANDING DUES IN BOTH AE AND NON-AE CASE. 9. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED TPO AND THE LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, IN NOT OBJECTIVELY SELECTING THE INTEREST RATE PAGE 3 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 TO DETERMINE THE ARM'S LENGTH RATE OF INTEREST APPL ICABLE FOR OUTSTANDING DUES FROM THE AES. GROUNDS OF OBJECTION RELATING TO CORPORATE TAX MATT ERS 10. THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY NOT GRANTING THE APPELLANT DEDUCTION UNDER SECTION 80-IB(8A) OF THE ACT, IN RESPECT OF ADDITIONS TO THE INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS', ARISING FROM THE FOLLOWING DISALLOWANCES: A. STAMP DUTY OF RS. 5,13,360 PAID BY THE APPELLANT ON REGISTRATION OF LEASE DEED, ON THE BASIS THAT THE S AME IS CAPITAL IN NATURE; B. PROVISION FOR EXPENSES AMOUNTING TO RS.10,11,320 , ON THE BASIS THAT SUCH EXPENSES ARE CONTINGENT IN NATURE. 11. THE HON'BLE DRP HAS ERRED IN LAW AND ON FACTS, IN NOT ADJUDICATING ON THE ADDITIONAL GROUND FILED BY THE APPELLANT FOR GR ANTING THE CORRESPONDING DEDUCTION UNDER SECTION 80-LB(8A) OF THE ACT, IN RE SPECT OF ADDITIONS TO THE INCOME UNDER THE HEAD 'PROFITS AND GAINS FROM BUSIN ESS' WITH RESPECT TO STAMP DUTY AND PROVISION FOR EXPENSES. 12. DISALLOWANCE OF STAMP DUTY PAID BY THE APPELLAN T ON REGISTRATION OF LEASE DEED: A. THE LEARNED AO HAS ERRED, IN LAW AND ON FACTS, I N DISALLOWING STAMP DUTY OF RS.5,13,360 PAID BY THE APPELLANT ON REGIST RATION OF LEASE DEED WITH STAMP AUTHORITIES, ON THE BASIS THAT THE SAME IS CAPITAL IN NATURE, WITHOUT APPRECIATING THE FACT THAT SUCH STAMP DUTY IS A REVENUE EXPENDITURE ELIGIBLE FOR DEDUCTION U/S 37 OF THE AC T. B. THE LEARNED AO/ HON'BLE DRP HAS ERRED, IN LAW AN D ON FACTS, IN RELYING ON THE JUDGEMENT OF KARNATAKA HIGH COURT IN CASE OF HOTEL RAJMAHAL VS CIT (KAR) 152 ITR 218, WITHOUT APPRECIA TING THE FACT THAT THE STAMP DUTY WAS INCURRED FOR THE RENEWAL OF LEAS E DEED FOR AN EXISTING PREMISE, THEREFORE WOULD BE A REVENUE EXPE NDITURE. PROVISION FOR EXPENSES FOR NORMAL TAX COMPUTATIO N 13. THE LEARNED AO/ HONBLE DRP HAS ERRED, IN LAW AN D ON FACTS, IN DISALLOWING PROVISION FOR EXPENSES OF RS. 10,11,320 CREATED BY THE APPELLANT FOR THE SUBJECT AY, UNDER SECTION 37 OF T HE ACT, ON THE BASIS THAT INVOICE FOR SUCH EXPENSE HAS NOT BEEN RAISED DURING THE SUBJECT AY AND HENCE SUCH EXPENSE IS CONTINGENT IN NATURE, WITHOUT APPRECIATING THAT: A. THE APPELLANT HAS ACTUALLY INCURRED SUCH EXPENDI TURE DURING THE AY 2013-14; B. THE APPELLANT HAS RECORDED SUCH EXPENDITURE IN T HE BOOKS OF ACCOUNTS MAINTAINED UNDER MERCANTILE SYSTEM OF ACCO UNTING; C. THE APPELLANT WAS MANDATORILY REQUIRED TO CREATE PROVISIONS ON ESTIMATE BASIS FOR ALL KNOWN LIABILITIES AS PER ACC OUNTING STANDARD PRESCRIBED UNDER THE SECTION 145(2) OF THE ACT AS W ELL AS COMPANIES ACT, 1956. PAGE 4 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 PROVISION FOR EXPENSES FOR COMPUTATION OF MAT UNDER SECTION 115JB OF THE ACT 14. THE LEARNED AO/ HON'BLE DRP HAS ERRED, IN LAW A ND ON FACTS, IN ADDING BACK THE PROVISION FOR EXPENSES OF RS.10,11, 320 CREATED BY THE APPELLANT TO THE BOOK PROFITS AS PER SECTION 115JB OF THE ACT ON THE BASIS THAT SUCH PROVISION IS FOR UNASCERTAINED LIABILITY AND CONTINGENT IN NATURE, WITHOUT APPRECIATING THE FACT THAT: A. THE APPELLANT HAS ACTUALLY INCURRED SUCH EXPENDI TURE DURING THE AY 2013-14; B.THE APPELLANT HAS RECORDED SUCH EXPENDITURE IN TH E BOOKS OF ACCOUNTS MAINTAINED UNDER MERCANTILE SYSTE M OF ACCOUNTING; C. THE FINANCIAL STATEMENT FOR SUBJECT AY HAS BEEN PREPARED BY THE APPELLANT IN ACCORDANCE WITH THE COMPANIES ACT, 195 6 AND SUCH PROVISION HAS BEEN VERIFIED AND ACCEPTED BY THE STA TUTORY AUDITOR. 15.THE LEARNED AO/ HON'BLE DRP HAS ERRED, IN LAW AN D ON FACTS, IN ADDING BACK THE PROVISION FOR EXPENSES OF RS.10,11,320 CRE ATED BY THE APPELLANT TO THE BOOK PROFITS AS PER SECTION 115JB OF THE ACT WITHOUT CONSIDERING THE SUBMISSIONS MADE AND JUDICIAL PRECEDENTS RELIED ON BY THE APPELLANT. 16. THE LEARNED AO HAS ERRED, IN LAW AND ON FACTS, IN NOT GRANTING CREDIT OF TAX DEDUCTED AT SOURCE ('TDS') AMOUNTING TO RS.2,61 ,461 FOR THE SUBJECT AY. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY IN CONTRACT RESEARCH ORGANIS ATION AND CONDUCT CLINICAL RESEARCH AND ANALYSIS FOR BY BIOEQ UIVALENCE AND BIOAVAILABILITY STUDIES OF DRUGS, DRUG- DRUG INTERA CTION AND EARLY AND LATE PHASE CLINICAL TRIALS. IT HAS BEEN SUBMITT ED THAT IT FILED ITS RETURN OF INCOME ON 29/11/2013 DECLARING TOTAL INCO ME OF RS.3,67,53,960/-. SUBSEQUENTLY, CASE WAS SELECTED F OR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT, ALONG WITH NOTICE UNDER SECTION 142 (1) OF THE ACT AND QUESTIONNAIRE WAS IS SUED TO ASSESSEE. PAGE 5 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVES O F ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS F ROM TIME TO TIME. 3. LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRAN SACTION EXCEEDING RS.15 CRORES AND THEREFORE CASE WAS REFER RED TO TRANSFER PRICING OFFICER FOR DETERMINING ARMS LENGTH PRICE I N RESPECT OF INTERNATIONAL TRANSACTION. 4. UPON RECEIPT OF THE REFERENCE, LD.TPO CALLED FOR E CONOMIC DETAILS OF INTERNATIONAL TRANSACTION BETWEEN ASSESSEE AND A SSOCIATED ENTERPRISES IN FORM 3 CEB. LD.TPO OBSERVED THAT FOL LOWING WAS INTERNATIONAL TRANSACTION REPORTED IN THE DOCUMENTS FILED BY ASSESSEE: PARTICULARS AMOUNT (IN RS.) PROVISION OF BY BIO - EQUIVALENT S STUDY SERVICES 51,60,61,586/ - 5. LD.AO OBSERVED THAT ASSESSEE USED OP/OC AS PLI AND TNMM AS METHOD FOR DETERMINING MARGIN OF ASSESSEE AT 29.92% . LD.TPO ALSO OBSERVED THAT NON-AE SEGMENT MARGIN WAS DETERMINED BY ASSESSEE AT 7.41% AND THEREFORE IS NO ADVERSE INFERENCE WAS DRAWN IN RESPECT OF THE INTERNATIONAL TRANSACTION. 6. HOWEVER, LD.TPO FROM THE TRANS-APPRISING STUDY OBSE RVED THAT ASSESSEE HAD A REALISED AMOUNTS OF RS.61,14,96,507/ - OUT OF WHICH RS.22,94,57,383/- WAS OUTSTANDING FOR MORE THAN 6 M ONTHS. LD. TPO THUS HELD IT TO BE AN INTERNATIONAL TRANSACTION IN TERMS OF SECTION 90 2B (2) (C) (I) OF THE ACT. LD.TPO CHARAC TERISED IT AS A LOAN TRANSACTION AS OUTSTANDING RECEIVABLES WAS EXCEEDIN G MORE THAN 6 MONTHS. AFTER CALLING FOR VARIOUS DETAILS FROM ASSE SSEE, LD.TPO PAGE 6 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 COMPUTED ARMS LENGTH PRICE OF THIS TRANSACTION AT 14.18% PER AN AMOUNT OUTSTANDING RECEIVABLES EXCEEDING 6 MONTHS. HE THUS PROPOSED AN ADJUSTMENT OF RS.3,25,37,057/-. 7. LD.AO SUBSEQUENTLY WHILE PASSING THE DRAFT ASSESSM ENT ORDER, OBSERVED THAT ASSESSEE HAS CLAIMED EXPENSES TOWARDS PROVISION OF LEGAL AND PROFESSIONAL CHARGES AMOUNTING TO RS.10,1 1,320/-. IT WAS OBSERVED THAT ASSESSEE BOOKED THE PROVISION TOWARDS EXPENSES MENTIONED DURING THE YEAR ALTHOUGH INVOICES FOR THE SAME WERE NOT RECEIVED. LD.AO REJECTED SUBMISSIONS OF ASSESSEE AN D DISALLOWED PROVISION OF RS.10,11,320/-. 8. IT WAS ALSO OBSERVED BY LD.AO THAT, ASSESSEE CLAIM ED EXPENDITURE OF RS.5,13,960/- TOWARDS STAMP DUTY ON LEASE DEED. ASSESSEE WAS CALLED UPON TO SUBSTANTIATE THE CLAIM. ASSESSEE VID E LETTER DATED 07/12/2016 SUBMITTED THAT ASSESSEE HAS ENTERED INT O LEASE AGREEMENT FOR OFFICE PREMISES FOR A PERIOD OF 5 YEA RS TO CARRY OUT ITS BUSINESS OF SCIENTIFIC RESEARCH AND DEVELOPMENT IN BY OPENING BALANCE AND BIO AVAILABILITY STUDIES. IN REGARDS TO THE SAME STANDARD DUTY EXPENSES WAS INCURRED BY ASSESSEE TO REGISTER THE LEASE DEED WITH STAMP AUTHORITIES. EXPLANATION OFFE RED BY ASSESSEE WAS REJECTED BY LD.AO AND DISALLOWANCE UNDER SECTIO N 37 AMOUNTING TO RS.5,13,360/- WAS MADE. AGGRIEVED BY PROPOSED ADDITIONS IN DRAFT ASSESSMENT ORDER, ASSESSEE PREFERRED OBJECTIONS BEFORE DRP WHO UPHELD DRAFT ORDER PASSED BY LD. TPO/AO. PAGE 7 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 9. UPON RECEIPT OF DRP DIRECTIONS, LD.AO PASSED FINAL ASSESSMENT ORDER COMPUTING INCOME IN THE HANDS OF ASSESSEE AT RS.7,08,15,697/-. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE IS IN APPEAL BEFORE US NOW. 10. GROUND NO. 1 IS GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. 11. GROUND NO.2-9 ARE IN RESPECT OF INTEREST ON RECEIVABLES COMPUTED BY LD.AO/TPO. WE HAVE HEARD BOTH SIDES OF THE SUBMISSIONS MADE BE FORE US ON THIS ISSUE. 11.1. AT THE OUTSET LD.AR OBJECTED TO CHARACTERIZE THE TR ANSACTION TO BE INTERNATIONAL TRANSACTION. HOWEVER BY VIRTUE OF SPECIAL BENCH DECISION DELIVERED BY KOLKATA TRIBUNAL IN CASE OF INSTRUMENTATION CORPN. LTD. V. ASSTT. DIT IN ITA NO. 1548 AND 1549 (KOL.) OF 2009, DATED 15-7-2016, , THIS ARGUMENT STANDS REJECTED. 11.2. ADMITTEDLY, THIS ISSUE HAS BEEN CONSISTENTLY SENT B ACK BY THIS TRIBUNAL TO LD.TPO TO VERIFY WHETHER THESE OUTSTANDING RECE IVABLES HAVE BEEN SUBSUMED IN COMPUTING WORKING CAPITAL ADJ USTMENT IN THE HANDS OF ASSESSEE WHERE TNMM HAS BEEN USED AS M OST APPROPRIATE METHOD. ADMITTEDLY IN THE PRESENT CASE ASSESSEE HAS USED TNMM TO COMPUTE ALP OF THE TRANSACTION. 11.3. WE NOTE THAT ALL THESE SUBMISSIONS HAVE BEEN ADDRES SED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF INSTRUMENTATION CORPN. LTD. V. ASSTT. DIT(SUPRA), WHICH IS REPRODUCED HEREUNDER: LD.AR PLACED RELIANCE ON DECISION OF DELHI TRIBUNAL IN KUSUM HEALTHCARE PVT.LTD VS. ACIT REPORTED IN (2015) 62 TAXMANN.COM 79, DELE TED ADDITION BY CONSIDERING PAGE 8 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 THE ABOVE PRINCIPLE, AND SUBSEQUENTLY HONBLE DELHI HIGH COURT IN PR. CIT VS. KUSUM HEALTH CARE PVT. LTD. (2017) 398 ITR 66 (DEL) , HELD THAT NO INTEREST COULD HAVE BEEN CHARGED AS IT CANNOT BE CONSIDERED AS INT ERNATIONAL TRANSACTION. HE ALSO PLACED RELIANCE UPON DECISION OF DELHI TRIBUNA L IN CASE OF BECHTEL INDIA VS DCIT REPORTED IN (2016) 66 TAXMAN.COM 6 WHICH SUBSE QUENTLY UPHELD BY HONABLE DELHI HIGH COURT VIDE ORDER DATED 21/07/16 IN ITA NO. 379/2016, ALSO UPHELD BY HONBLE SUPREME COURT VIDE ORDER DATED 21 /07/17, IN CC NO. 4956/2017. 3.5.3. IT HAS BEEN SUBMITTED BY LD.AR THAT OUTSTANDING REC EIVABLES ARE CLOSELY LINKED TO MAIN TRANSACTION AND SO THE SAME CANNOT B E CONSIDERED AS SEPARATE INTERNATIONAL TRANSACTION. HE ALSO SUBMITTED THAT I NTO COMPANY AGREEMENTS PROVIDES FOR EXTENDING CREDIT PERIOD WITH MUTUAL CO NSENT AND IT DOES NOT PROVIDE ANY INTEREST CLAUSE IN CASE OF DELAY. HE ALSO ARGUE D THAT THE WORKING CAPITAL ADJUSTMENT TAKES INTO ACCOUNT THE FACTORS RELATED T O DELAYED RECEIVABLES AND NO SEPARATE ADJUSTMENT IS REQUIRED IN SUCH CIRCUMSTANC ES. 3.5.4 . ON THE CONTRARY LD.CIT.DR SUBMITTED THAT INTEREST O N RECEIVABLES IS AN INTERNATIONAL TRANSACTION AND LD.TPO RIGHTLY DETERM INED ITS ALP. IN SUPPORT OF HER CONTENTIONS, SHE PLACED RELIANCE ON DECISION OF DELHI TRIBUNAL ORDER IN AMERIPRISE INDIA PVT. LTD. VS. ACIT (2015- TII-347- ITAT-DEL-TP) WHEREIN IT IS HELD THAT, INTEREST ON RECEIVABLES IS AN INTERNATIONAL T RANSACTION AND THE TRANSFER PRICING ADJUSTMENT IS WARRANTED. HE STATED THAT FIN ANCE ACT, 2012 INSERTED EXPLANATION TO SECTION 92B, WITH RETROSPECTIVE EFFE CT FROM 1.4.2002 AND SUB- CLAUSE (C) OF CLAUSE (I) OF THIS EXPLANATION PROVID ES THAT: (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL IN CLUDE (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG- TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT O R RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS;. . 3.5.5. LD.CIT DR SUBMITTED THAT EXPRESSION DEBT ARISING D URING THE COURSE OF BUSINESS REFERS TO TRADING DEBT ARISING FROM SALE OF GOODS OR SERVICES RENDERED PAGE 9 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 IN COURSE OF CARRYING ON BUSINESS. ONCE ANY DEBT AR ISING DURING COURSE OF BUSINESS IS AN INTERNATIONAL TRANSACTION, HE SUBMIT TED THAT ANY DELAY IN REALIZATION OF SAME NEEDS TO BE CONSIDERED WITHIN TRANSFER PRICING ADJUSTMENT, ON ACCOUNT OF INTEREST INCOME SHORT CHARGED OR UNCH ARGED. IT WAS ARGUED THAT INSERTION OF EXPLANATION WITH RETROSPECTIVE EFFECT COVERS ASSESSMENT YEAR UNDER CONSIDERATION AND HENCE UNDER/NON-PAYMENT OF INTERE ST BY AES ON DEBT ARISING DURING COURSE OF BUSINESS BECOMES INTERNATIONAL TRA NSACTIONS, CALLING FOR COMPUTING ITS ALP. HE REFERRED TO DECISION OF DELHI TRIBUNAL IN AMERIPRISE (SUPRA), IN WHICH THIS ISSUE HAS BEEN DISCUSSED AT LENGTH AND EVENTUALLY INTEREST ON TRADE RECEIVABLES HAS BEEN HELD TO BE AN INTERNA TIONAL TRANSACTION. REFERRING TO DISCUSSION IN SAID ORDER, IT WAS STATED THAT HON BLE DELHI BENCH IN THIS CASE NOTED A DECISION OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. PATNI COMPUTER SYSTEMS LTD., (2013) 215 TAXMANN 108 (BOM. ), WHICH DEALT WITH 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 ASSESS EE BY ALLOWING EXCESS PERIOD OF CREDIT TO THE ASSOCIATED ENTERPRISES WITHOUT CHARGING AN I NTEREST DURING SUCH CREDIT PERIOD WOULD NOT AMOUNT TO INTERNATIONAL TRANSACTION WHERE AS 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? 3.5.6 . SHE SUBMITTED THAT, WHILE ANSWERING ABOVE QUESTION, HONBLE BOMBAY HIGH COURT REFERRED TO AMENDMENT TO SECTION 92B BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002. SETTING ASIDE VIEW TAKEN BY TRIBUNAL, HONBLE BOMBAY HIGH COURT RESTORED THE ISSUE TO FIL E OF TRIBUNAL FOR FRESH DECISION IN LIGHT OF LEGISLATIVE AMENDMENT. IT WAS THUS ARGUED THAT NON/UNDER- CHARGING OF INTEREST ON EXCESS PERIOD OF CREDIT ALL OWED TO AES FOR REALIZATION OF INVOICES, AMOUNTS TO AN INTERNATIONAL TRANSACTION A ND ALP OF SUCH INTERNATIONAL TRANSACTION HAS TO BE DETERMINED BY LD.TPO. IN SO F AR AS CHARGING OF RATE OF INTEREST IS CONCERNED, HE RELIED ON DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS. COTTON NATURALS (I) PVT. LTD (2015) 276 CTR 445 (DEL) HOLDING THAT PAGE 10 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 CURRENCY IN WHICH SUCH AMOUNT IS TO BE RE-PAID, DET ERMINES RATE OF INTEREST. HE, THEREFORE, CONCLUDED BY SUMMING UP THAT INTEREST ON OUTSTANDING TRADE RECEIVABLES IS AN INTERNATIONAL TRANSACTION AND ITS ALP HAS BEEN CORRECTLY DETERMINED. 3.5.7 . WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH TH E SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. THIS BENCH REFERRED TO DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF SPECIAL BENCH OF ITAT IN CASE OF INSTRUMENTATION CO RPN. LTD. V. ASSTT. DIT IN ITA NO. 1548 AND 1549 (KOL.) OF 2009, DATED 15-7-2016, HELD THAT OUTSTANDING SUM OF INVOICES IS AKIN TO LOAN ADVANCED BY ASSESSEE TO FOREIGN AE., HENCE IT IS AN INTERNATIONAL TRANSACTION AS PER EXPLANATION TO SEC TION 92 B OF THE ACT. WE ALSO PERUSED DECISION RELIED UPON BY LD.AR. IN OUR CONSI DERED OPINION, THESE ARE FACTUALLY DISTINGUISHABLE AND THUS, WE REJECT ARGUM ENT ADVANCED BY LD.AR. 3.5.7. ALTERNATIVELY, IT HAS BEEN ARGUED THAT WORKING CAPI TAL ADJUSTMENT SUBSUMES SUNDRY CREDITORS. IN SUCH SITUATION COMPUT ING INTEREST ON OUTSTANDING RECEIVABLES AND LONES AND ADVANCES TO INTERNATIONAL TRANSACTION WOULD AMOUNT TO DOUBLE TAXATION. HONBLE DELHI TRIBUNAL IN CASE OF ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD. VS. DCIT IN ITA NO. 6570/ DEL/2016 VIDE ITS ORDER DATED 15.2.2018 HAS OBSERVED THAT: THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR S UPPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WOU LD HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL OF THE ASSESSEE WOULD HAVE TO BE STUDIED. IT WENT ON TO HO LD THAT, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TIME TO DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS--VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTED AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. SIMILAR MATTER ONCE AGAIN CAME UP FOR CONSIDE RATION BEFORE THE HONBLE DELHI HIGH COURT IN AVENUE ASIA ADVISORS PVT. LTD. VS. DCIT (2 017) 398 ITR 120 (DEL). FOLLOWING THE EARLIER DECISION IN KUSUM HEALTHCARE (SUPRA), IT WA S OBSERVED THAT THERE ARE SEVERAL FACTORS WHICH NEED TO BE CONSIDERED BEFORE HOLDING THAT EVERY RECEIVABLE IS AN INTERNATIONAL TRANSACTION AND IT REQUIRES AN ASSESS MENT ON THE WORKING CAPITAL OF THE PAGE 11 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 ASSESSEE. APPLYING THE DECISION IN KUSUM HEALTH C ARE (SUPRA), THE HONBLE HIGH COURT DIRECTED THE TPO TO STUDY THE IMPACT OF THE RECEIVA BLES APPEARING IN THE ACCOUNTS OF THE ASSESSEE; LOOKING INTO THE VARIOUS FACTORS AS TO TH E REASONS WHY THE SAME ARE SHOWN AS RECEIVABLES AND ALSO AS TO WHETHER THE SAID TRANSAC TIONS CAN BE CHARACTERIZED AS INTERNATIONAL TRANSACTIONS. 3.5.8. IN VIEW OF THE ABOVE, WE DEEM IT APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT THE MATTER TO THE FIL E OF THE ASSESSING OFFICER/TPO FOR DECIDING IT IN CONFORMITY WITH THE ABOVE REFERR ED JUDGMENT. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNI TY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. ACCORDINGLY THESE GROUND RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE SAME WE DIRECT LD.AO TO DECIDE THE ISSUE IN CONFIRMING THE WITH THE DECISIONS REFERRED TO HE REIN ABOVE.. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO. 10-11 IS IN RESPECT OF DISALLOWANCES MADE BY LD. AO TOWARDS PROVISION OF EXPENSES AND STAMP DUTY PAI D FOR REGISTRATION THE LEASE DEED. 12.1. LD.AR SUBMITTED THAT IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 . IT WAS SUBMITTED THAT LD.AO DISALLOWED THESE EXPENS ES HOWEVER DEDUCTION CLAIMED UNDER SECTION 80 IB (8A) OF THE A CT WAS NOT ENHANCED BUT LIMITED TO THE ACTUAL CLAIM IN THE RET URN. 12.2. LD.DR ALSO SUBMITTED THAT WHATEVER WAS DULY CLAIMED BY ASSESSEE WAS GRANTED BY LD.AO AND SUPPORTED THE ORD ERS OF AUTHORITIES BELOW. PAGE 12 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 12.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED THAT FOR ASSESSMENT YEAR 2009-10 CER TAIN DISALLOWANCES MADE BY LD.AO FOR WHICH IDENTICAL TRE ATMENT WAS GIVEN WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1567/B/2014 AS UNDER: 5. WE HAVE PERUSED THE ORDERS AND CONSIDERED THE R IVAL SUBMISSIONS. DISALLOWANCE OF RS.1,80,658/-, NO DOUBT, WAS DUE TO THE FAILURE OF ASSESSEE TO BRING EVIDENCE TO PROVE THAT IT WAS PAID AS INSU RANCE PREMIUM. HOWEVER, SUCH DISALLOWANCE ADMITTEDLY HAD GONE TO INCREASE P ROFITS AND GAINS OF THE ASSESSEE SINCE ASSESSEE HAD NOT RETURNED ANY INCOME UNDER OTHER HEADS. THERE IS NO CASE FOR REVENUE THAT ENHANCEMENT RESUL TED IN A SOURCE OF INCOME WHICH WAS SOMETHING OTHER THAN PROFITS AND GAINS FR OM BUSINESS. THIS BEING SO, IN OUR OPINION, ASSESSEE IN TERMS OF SUB-SEC.(8 A) OF SEC.80-IB OF THE ACT, WAS WELL ELIGIBLE FOR SUCH CLAIM ON THE ENHANCED AM OUNT AS WELL. THIS VIEW HAS BEEN TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA) WHERE THE DISALLOWANCE HAD RESULTED IN ENHANCING THE CLAIM FOR DEDUCTION U/S 10A OF THE AC T. WE ARE OF THE OPINION THAT NO GOOD REASON WHATSOEVER HAS BEEN SHOWN BY TH E LEARNED DEPARTMENTAL REPRESENTATIVE TO DISTURB THE FINDING OF LD.CIT(A) IN THIS REGARD. GROUND NO.2 OF THE REVENUE STANDS DISMISSED. 12.4. THE VIEW OF THIS TRIBUNAL IS FORTIFIED BY HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS GEM PLUS JEWELLERY REPORTED IN (2011) 330 ITR 175 . DRP WHILE CONSIDERING THE ISSUE HAS OBSERVED AS UND ER: PANEL: THE CONTENTIONS OF THE ASSESSEE ARE CONSIDER ED. THE LEASE IS FOR 5 YEARS AND THE EXPENDITURE TOWARDS REGISTRATION ARE INCURR ED FOR THAT PURPOSE. ON THE SAME ISSUE, I.E., REGISTRATION AND LEGAL CHARGES IN CURRED FOR LEAVING A BUILDING IS HELD TO BE CAPITAL EXPENDITURE BY KARNATAKA HIGH CO URT IN THE FOLLOWING CASE. HOTEL RAJMAHALL VS CIT (KAR) 152 ITR 218 DRP TOOK FOLLOWING VIEW: PAGE 13 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 WITH RESPECT TO THE CLAIM OF DEPRECIATION ON THIS AMOUNT IT IS SEEN THAT THE ASSESSEE IS NOT THE OWNER OF THE ASSET AND HENCE DE PRECIATION IS NOT ALLOWABLE. GROUND IS REJECTED. 12.5. THE DISALLOWANCE HAS RESULTED IN ENHANCING THE CLAI M OF DEDUCTION UNDER SECTION 80 IB (8A) OF THE ACT. THE DISALLOWANCE HAS BEEN MADE BECAUSE OF THE STATUTORY PROVISIONS UNDER SECTION 37 AND AS A CONSEQUENCE OF SUCH DISALLOWANCE THERE IS AN INCREASE IN THE INCOME IN THE HANDS OF ASSESSEE. WE ARE THEREFO RE UNABLE TO ACCEPT THE CONTENTIONS OF AUTHORITIES BELOW THAT IN COMPUTING DEDUCTION UNDER SECTION 80 IB (8A) OF THE ACT IN TH E HANDS OF ASSESSEE THE DISALLOWANCE SO MADE OUGHT TO BE IGNOR ED. WE DIRECT THE LD.AO TO COMPUTE THE DEDUCTION UNDER SECTION 80 IB (8A) OF THE ACT IN THE HANDS OF ASSESSEE IN ACCORDANCE WITH LAW HAVING REGARD TO RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS GEM PLUS JEWELLERY (SUPRA). ACCORDINGLY THIS GROUND STANDS ALLOWED. 13. GROUND 12-13 IS CONSEQUENTIAL TO GROUND 10-11. AS WE HAVE DIRECTED LD. AO TO RECOMPUTE DEDUCTION UNDER SECTIO N 80 IB (8A) OF THE ACT CONSIDERING THE DISALLOWANCES MADE THIS GRO UNDS BECOME INFRUCTUOUS. ACCORDINGLY THESE GROUNDS STANDS DISMISSED. 14. GROUND 14-15 LD.AR SUBMITTED THAT ASSESSEE HAD ACTUALLY INCURRED THE EXPENSES DURING ASSESSMENT YEAR 2013-14 AND HAS PLACED ON RE CORD THE DETAILS OF ACCOUNTS MAINTAINED UNDER MERCANTILE SYS TEM OF ACCOUNTING. IT HAS BEEN SUBMITTED THAT THE AUTHORIT IES BELOW HAS PAGE 14 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 NOT VERIFIED THESE EXPENSES AND HAS SOME REALLY REJ ECTED THE PROVISION FOR EXPENSES AMOUNTING TO RS. 10, 11, 320 /-CREATED BY ASSESSEE IN THE BOOKS OF ACCOUNT AS PER SECTION HUN DRED AND 15 JB OF THE ACT. 14.2. LD.CIT.DR SUBMITTED THAT THE ISSUE MAY BE SENT BACK TO LEARNT AO FOR DUE VERIFICATION OF THE DETAILS BASED UPON THE SUBMISSIONS MADE BY ASSESSEE. 14.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 14.3. IT IS OBSERVED THAT LD.AO HAS NOT VERIFIED THE CLAI M AND HAS DENIED IT TO ASSESSEE. WE DIRECT LD.AO TO VERIFY TH E CLAIM OF ASSESSEE AND IF FOUND ELIGIBLE THE SAME SHOULD BE GRANTED TO ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.16 IS IN RESPECT OF TDS CREDIT AMOUNTING TO RS.2,61,461/-BEING DENIED TO ASSESSEE. IT HAS BEEN SUBMITTED THAT DRP DECLINED FROM ADJUDI CATING THIS GROUND BY OBSERVING THAT UNDER SECTION 144C, DRP HA S JURISDICTION TO ADJUDICATE ONLY THE VARIATIONS PROPOSED TO THE R ETURNED INCOME IN DRAFT ASSESSMENT ORDER. LD.AR SUBMITTED THAT LD.AO WHILE PASSING FINAL ASSESSMENT ORDER ALSO DID NOT VERIFY TDS CRED IT. IT HAS BEEN SUBMITTED THAT ALL THE DETAILS RELEVANT FOR VERIFIC ATION OF THE CLAIM ARE AVAILABLE ON RECORD. 15.1. BOTH SIDES ADMITTED FOR THIS ISSUE BEING SET ASIDE TO LD.AO FOR DUE VERIFICATION. PAGE 15 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 15.2. WE ARE ACCORDINGLY, DIRECT LD.AO TO VERIFY AND CONS IDER THE CLAIM OF ASSESSEE BASED UPON THE DOCUMENTS FILED IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 13 TH MAY, 2020. /VMS/* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 16 OF 16 IT(TP)A NO.2207/BANG/2017 A. Y: 2013 14 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR 10 - 03 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 10 - 03 - 2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 10 - 03 - 2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20 - 03 - 2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 13 - 0 5 - 2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE 13 - 05 - 2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SEN T TO THE BENCH CLERK - 05 - 2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS