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

ITA 2575/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97040 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 12-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR; AMRENDRA KUMAR
• Assessee Lawyers: ANANYA KAPOOR S
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Question of law; Wholly owned subsidiary
• Section: 143(3); 92B; 10B; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.2010/DEL/2014 ASSESSMENT YEAR : 2009-10 AMERIPRISE INDIA PVT. LTD., PLOT NO.14, SECTOR-18, UDYOG VIHAR, GURGAON. PAN: AAFCA3489B VS. ACIT, CIRCLE 1(1), NEW DELHI. ITA NO.2575/DEL/2014 ASSESSMENT YEAR : 2009-10 ACIT, CIRCLE 1(1), NEW DELHI. VS. AMERIPRISE INDIA PVT. LTD., PLOT NO.14, SECTOR-18, UDYOG VIHAR, GURGAON. PAN: AAFCA3489B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, SHRI HARPREET AJMANI & MS ANANYA KAPOOR, ADVOCATES DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR & MS Y. KAKKAR, SR.DR ITA NOS.2010 & 2575/DEL/2014 2 DATE OF HEARING : 12.08.2015 DATE OF PRONOUNCEMENT : .08.2015 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE FINAL ORDER DATED 28.2.2 014 PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2009-10. 2. ONLY TWO ISSUES WERE PRESSED BEFORE US. FIRST IS A CHALLENGE TO THE INCLUSION/EXCLUSION OF CERTAIN COMPANIES IN/FROM TH E LIST OF COMPARABLES, AND SECOND IS TREATMENT OF FOREIGN EXCHANGE GAIN/LO SS AS AN ITEM OF NON- OPERATING NATURE. NO OTHER ISSUE PROJECTED THROUGH VARIOUS GROUNDS, WAS PRESSED. AS SUCH, THE GROUNDS DEALING WITH SUCH OTH ER ISSUES STAND DISMISSED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF AMERIPRISE, US, WHICH PARENT CO MPANY IS ENGAGED IN THE BUSINESS OF INSURANCE, ANNUITIES, ASSET MANA GEMENT AND BROKERAGE. ITA NOS.2010 & 2575/DEL/2014 3 THE PRIMARY OBJECT OF AMERIPRISE US IS TO PROVIDE S ERVICES TOWARDS FINANCIAL PLANNING AND OTHER AREAS LIKE INSTITUTION AL ASSET MANAGEMENT AND ADVISORY, PENSION FUND MANAGEMENT, THE MANAGEME NT AND ADMINISTRATION OF CERTAIN PLANS. THE ASSESSEE WAS INCORPORATED IN AUGUST, 2005 AND STARTED OPERATIONS IN OCTOBER, 200 5. IT IS ENGAGED IN PROVIDING INFORMATION TECHNOLOGY (IT) ENABLED SERVI CES TO AMERIPRISE US. THE ASSESSEE REPORTED TWO INTERNATIONAL TRANSA CTIONS, INCLUDING REMUNERATION FROM THE `PROVISION OF IT-ENABLED BACK OFFICE SERVICES WITH TRANSACTED VALUE OF RS.41,78,36,037/-. THE AS SESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTI ON OF PROVISION OF IT ENABLED BACK OFFICE SUPPORT SERVICES. PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT/TOTAL COST (OP/TC) WAS COMPUTED BY THE ASSESSEE AT 14.66%. SIX COMPANIES WERE CONSIDERED AS COMPARAB LE WHICH HAVE BEEN LISTED ON PAGE 10 OF THE TRANSFER PRICING OFFI CERS (TPO) ORDER. IT WAS SHOWN THAT THEIR ARITHMETIC MEAN OF OPERATING P ROFITS COMPARED FAVOURABLY WITH ASSESSEES PROFIT RATE AND, HENCE, THE INTERNATIONAL TRANSACTION OF `PROVISION OF IT ENABLED BACK OFFICE SERVICES WAS AT ITA NOS.2010 & 2575/DEL/2014 4 ARMS LENGTH PRICE (ALP). ON A REFERENCE MADE BY TH E AO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO NS, THE TPO TREATED ONLY THREE COMPANIES AS COMPARABLE FROM THE ASSESSE ES LIST. HE ADDED FOUR NEW COMPANIES, THEREBY MAKING A TOTAL OF SEVEN COMPANIES, CONSIDERED COMPARABLE, AS UNDER :- S.NO. NAME OP/TC (%) 1. VISHAL INFORMATION TECHNOLOGY LIMITED 36.93 2. COSMIC GLOBAL LTD. 50.7 3. INFORMED TECHNOLOGIES INDIA LTD. 23.16 4. ACCENTIA 52 5. CROSSDOMAIN SOLUTION P. LTD. 29.4 6. GENESYS INTERNATIONAL CORPN. LTD. 84.12 7. ECLERX 50.3 AVERAGE 46.66 4. THE ASSESSEES POINT OF VIEW IN USING MULTIPLE-Y EAR DATA OF COMPARABLES, WAS REJECTED. ON THE BASIS OF THE ABO VE AVERAGE OPERATING PROFIT MARGIN OF THE COMPARABLE COMPANIES AT 46.66% , COMPUTED ON THE BASIS OF ONLY THE CURRENT YEARS DATA, THE TPO PROP OSED TRANSFER PRICING ADJUSTMENT, WHICH HAS BEEN ASSAILED IN THE INSTANT APPEAL. 5. THE FIRST ISSUE PRESSED BEFORE US IS AGAINST THE INCLUSION/EXCLUSION OF CERTAIN COMPANIES IN/FROM THE LIST OF COMPARABLE S. IN THIS REGARD, THE ITA NOS.2010 & 2575/DEL/2014 5 ASSESSEE IS AGGRIEVED AGAINST THE INCLUSION OF THE FOLLOWING THREE COMPANIES, VIZ., I. COSMIC GLOBAL LTD.; II. ACCENTIA TECHNOLOGIES LTD; AND III. ECLERX SERVICES LTD. 6. THE ASSESSEE IS ALSO AGGRIEVED AGAINST THE NON-I NCLUSION OF (I) CG VAK SOFTWARE & EXPORTS LTD., AND (II) R. SYSTEMS IN TERNATIONAL LTD. 7. IN ORDER TO DECIDE AS TO WHETHER THE ABOVE FIVE COMPANIES ARE COMPARABLES OR NOT, IT IS SINE QUA NON TO CONSIDER THE FUNCTIONAL PROFILE OF THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRA NSACTION OF `PROVISION OF IT-ENABLED BACK OFFICE SERVICES. PAGE 2 ONWARD S OF THE TPOS ORDER ENLISTS THE FUNCTIONS PERFORMED BY THE ASSESSEE, WH ICH HAVE BEEN CLASSIFIED BROADLY INTO CERTAIN CATEGORIES. THE FIR ST CATEGORY IS `FINANCIAL SERVICES WHICH INCLUDES ACCOUNTING SUPPORT, MUTUAL FUND ACCOUNTING, SALES AND USE TECH SUPPORT. UNDER THIS CATEGORY, T HE ASSESSEE PROVIDES SERVICES TO AMERIPRISE US IN THE NATURE OF CREDIT P URCHASING CARDS, BANK RECONCILIATION, INTER-COMPANY RECONCILIATIONS, MAIN TENANCE OF FIXED ITA NOS.2010 & 2575/DEL/2014 6 ASSET REGISTERS AND PAYROLL, ETC. THE SECOND CATEG ORY IS `FINANCIAL PLANNING SERVICES, WHICH REFERS TO THE ASSESSEE PR OVIDING SUPPORT IN CLIENT DATA ENTRY FOR ASSISTANCE IN PREPARATION OF DRAFT REPORTS FOR CUSTOMERS. THE THIRD BROAD CATEGORY IS `GENERAL CO UNSEL OFFICE SERVICES, WHICH INCLUDES E-DISCOVERY, COMPLIANCE, PROFIT AND LOSS RELATIONS, INTELLECTUAL PROPERTY CLAIMS AND CONTRAC TS DRAFTING. THIS CATEGORY REFERS TO THE ASSISTANCE PROVIDED BY THE A SSESSEE IN SORTING LEGAL CASES AND CLASSIFYING THEM ON THE BASIS OF REASONS ENTAILED THEREIN AND ALSO ASSISTANCE IN DRAFTING CONTRACTS FOR INTELLECT UAL PROPERTY CLAIMS. THE NEXT BROAD CATEGORY IS `DATA ANALYTICS SERVICES, W HICH INVOLVES SCRAMBLING AND ASSEMBLING OF DATA INTO A MORE MEANI NGFUL FORM TO ENABLE AMERIPRISE, US TO REVIEW THE PERFORMANCE OF VARIOUS PRODUCTS OFFERED TO ITS CUSTOMERS AND OTHER RELATED ACTIVITI ES. THE NEXT BROAD CATEGORY IS `VENDOR MANAGEMENT SERVICES WHICH MEAN S PERFORMING DATA PROCESSING SERVICES IN RESPECT OF CALL CENTRES AND BACK OFFICE OPERATIONS OF CERTAIN COMPANIES, OUTSOURCED BY AME RIPRISE US. THE ASSESSEE IS REQUIRED TO CONVERT THE DATA INTO PRESE NTABLE FORM TO ENABLE AMERIPRISE, US TO EVALUATE THE PERFORMANCE OF ITS O UTSOURCED CALL ITA NOS.2010 & 2575/DEL/2014 7 CENTRES AND BACK OFFICE OPERATIONS. NEXT CATEGORY IS `PROCUREMENT SERVICES. UNDER THIS CATEGORY, THE ASSESSEE CONDUC TS BASIC ANALYTICS FOR BETTER UNDERSTANDING OF THE `SPEND AND DETERMINES HOW TO OPTIMIZE SUCH SPEND ACROSS COMMODITIES. THE NEXT BROADER CATEGOR Y IS `HUMAN RESOURCES SHARED SERVICES UNDER WHICH THE ASSESSEE HELPS MANAGE SOME HUMAN RESOURCES PROCESSES FOR THE US EMPLOYEES INCL UDING PROCESSING PAYROLL, CALCULATING BENEFITS, MANAGING LEAVE OF AB SENCE, ETC. 8. A NARRATION OF THE ABOVE NATURE OF SERVICES DE PICTS THAT THE CONCEPTUALIZATION OF THE SERVICES IS PRIMARILY DONE BY AMERIPRISE US WHICH COLLECTS DATA AND SENDS THE SAME IN RAW FORM TO THE ASSESSEE OR THE OTHER RELEVANT DATA IS PROCURED BY THE ASSESSEE DIR ECTLY FROM THE SOURCES REFERRED BY THE AMERIPRISE US. THE ASSESSEE COMPIL ES SUCH RAW DATA IN DESIRED FORMAT/SEQUENCE AND UNDERTAKES PROCESSES, S UCH AS, MERGING OF DATA, SEQUENCING, ETC. THIS IS AN IN-HOUSE FUNCTION PERFORMED BY THE ASSESSEE FOR FURTHER ACTIONS TO BE TAKEN BY AMERIPR ISE US. 9. AT THIS JUNCTURE, WE DEEM IT EXPEDIENT TO TAK E NOTE OF THE CONTENTS OF AGREEMENT BETWEEN THE ASSESSEE AND AMERIPRISE US, A COPY OF WHICH IS ITA NOS.2010 & 2575/DEL/2014 8 AVAILABLE ON PAGE 244 OF THE PAPER BOOK, UNDER WHIC H THE ASSESSEE UNDERTOOK TO PROVIDE SERVICES TO ITS AE. CLAUSE 3 OF THE AGREEMENT DISCUSSES THE NATURE OF SERVICES TO BE PROVIDED BY THE ASSESSEE TO AMERIPRISE US, AS UNDER :- 3. PRODUCTS AND SERVICES TO BE SUPPLIED BY AIPL AIPL SHALL, AT THE REQUEST OF AMERIPRISE, USA, SUPP LY TO AMERIPRISE, USA OR ITS DESIGNATED OFFICES, THE SPEC IFIED PRODUCTS AND SERVICES AS FOLLOWS: A. AIPL SHALL PROCESS THE RAW DATA RECEIVED/SOURCED FR OM OR ON DIRECTIONS OF AMERIPRISE USA AND, AS APPLICAB LE, ITS DESIGNATED OFFICES. B. AIPL SHALL PRESENT THE CUSTOMIZED/PROCESSED DATA IN THE FORM F REPORTS/GRAPHS/DIAGRAMS AS THE FINAL OUTPUT. C. AIPL SHALL USE THE IT INFRASTRUCTURE IN THE FORM OF COMPUTERS, LEASED LINES, ETC., TO PROCESS/CUSTOMIZE THE DATA AND SUPPLY IT TO AMERIPRISE USA AND, AS APPLICABLE, ITS DESIGNATED OFFICES. D. AIPL SHALL ALSO RENDER/UNDERTAKE OTHER INFORMATION TECHNOLOGY ENABLED ACTIVITIES OF BACK OFFICE OPERAT IONS INCLUDING DATA MANAGEMENT, INFORMATION PROCESSING, REVENUE ITA NOS.2010 & 2575/DEL/2014 9 ACCOUNTING, SUPPORT CENTRE, DESIGN OR IMPLEMENTATIO N OF MANAGEMENT INFORMATION SYSTEMS AND DECISION SUPPORT SYSTEM, FINANCIAL CONTROL ACCOUNTING SYSTEMS, BACK OFFICE/REMOTE DATA ENTRY AND ANY OTHER SIMILAR ACTI VITIES. E. AIPL SHALL ALSO ANALYSE THE PERFORMANCE DATA OF THI RD PARTY VENDORS APPOINTED BY AMERIPRISE USA IN INDIA FOR RENDERING OF OUTSOURCED CALL CENTRE AND BACK OFFICE SERVICES. THIS WOULD INCLUDE: I. COLLECTION OF DATA ON PERFORMANCE OF BACK OFFICE OPERATIONS IN INDIA; II. ANALYSE, EVALUATE AND PROCESS SUCH DATA INTO SPECIFIED FORMATS BY APPLYING INFORMATION TECHNOLOG Y TOOLS AND PROVIDE SUITABLE OBSERVATIONS THEREOF. F. TO THE EXTENT NECESSARY OR DESIRABLE, THE PARTIES S HALL BE FREE TO ADD ONE OR MORE SCHEDULES TO THIS AGREEMENT TO DESCRIBE IN GREATER DETAIL THE SPECIFIED PRODUCTS AND SERVIC ES. 10. A PERUSAL OF THE CLAUSE 3 OF THE AGREEMENT BETW EEN THE ASSESSEE AND AMERIPRISE, US REVEALS THAT THE ASSESSEE IS TO COLLECT AND THEN PROCESS THE DATA RECEIVED/SOURCED FROM AMERIPRISE U S AND THEREAFTER SEND THE REPORTS TO AMERIPRISE US IN THE DESIRED FO RM. THE OTHER SERVICES REFERRED TO IN THIS AGREEMENT ALSO ARE ESS ENTIALLY IN THE NATURE OF ITA NOS.2010 & 2575/DEL/2014 10 COLLECTION OF DATA IN ONE FORM OR THE OTHER AND THE N, SENDING REPORTS TO AMERIPRISE US. IN OTHER WORDS, THE ASSESSEE IS INV OLVED IN PROVIDING BACK OFFICE SUPPORT SERVICES TO AMERIPRISE US WITHO UT ANY DIRECT INVOLVEMENT IN THE CONDUCT OF BUSINESS OF AMERIPRIS E US. WITH THE ABOVE BACKGROUND OF THE ASSESSEES NATURE OF WORK D ONE FOR ITS AE, WHICH IS PRIMARILY IN THE NATURE OF RENDERING IT EN ABLED SERVICES, WHICH POSITION HAS ALSO BEEN ADMITTED BY THE TPO AS WELL, WE PROCEED TO DETERMINE THE COMPARABILITY OR OTHERWISE OF THE COM PANIES CHALLENGED BEFORE US. I) COSMIC GLOBAL LIMITED (SEG.) 11.1. THIS COMPANY WAS INITIALLY INCLUDED BY THE A SSESSEE IN ITS LIST OF COMPARABLES. HOWEVER, DURING THE COURSE OF PROCE EDINGS BEFORE THE TPO, IT WAS URGED THAT THE SAME WAS NOT COMPARABLE AS IT WAS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES AND SOLUTIONS IN THE NATURE OF TRANSLATION, LOCALIZATION, VOICEOVERS; ACCOUNTS PRO CESSING; AND TRANSCRIPTION. THE TPO REFUSED TO ACCEPT THE ASSES SEES CONTENTION AND ITA NOS.2010 & 2575/DEL/2014 11 TREATED THE SAME AS COMPARABLE. NO RELIEF WAS ALLO WED BY THE DISPUTE RESOLUTION PANEL (DRP). 11.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT TH E TPO HAS TAKEN ONLY ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LTD., AS COMP ARABLE. THE ARGUMENT OF THE LD. AR FOR THE EXCLUSION OF THIS CO MPANY IS THAT THE ACCOUNTS BPO SEGMENT OF THIS COMPANY, THOUGH COMPAR ABLE WITH THE ASSESSEES NATURE OF ACTIVITY, HAS A SMALL TURNOVER OF LESS THAN RS.1 CRORE AS AGAINST THE ASSESSEES WHOPPING TURNOVER OF SEVE RAL CRORE. IT IS OBSERVED THAT THE TRIBUNAL IN THE CASE OF MERCER CONSULTING (INDIA) PVT. LTD. VS. DCIT (ITA NO.966/DEL/2014) VIDE ITS ORDER DATED 6.6.2014 , HAS HELD THE ACCOUNTS BPO SEGMENT OF COSMIC GLOBAL LIMI TED AS INCOMPARABLE ON ACCOUNT OF A VERY LOW TURNOVER. HO WEVER, WE FIND THAT IT IS NOT THE END OF THE MATTER. MUCH WATER HAS FLO WN SINCE THEN. THE HONBLE JURISDICTIONAL HIGH COURT IN CHRYSCAPITAL INVESTMENT ADVISORS (I) PVT. LTD. VS. DCIT, VIDE ITS RECENT JUDGMENT DATED 27.4.2015 HAS HELD THAT HIGH PROFIT OR HIGH TURNOVER CANNOT BE A CRITE RIA TO EXCLUDE AN ITA NOS.2010 & 2575/DEL/2014 12 OTHERWISE COMPARABLE COMPANY. IN VIEW OF THIS LATE R DEVELOPMENT, BEING THE ADVENT OF THE JUDGMENT OF THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE CURRENT YEAR ITSELF, THE VIEW TAKEN IN THE CASE OF MERCER CONSULTING (SUPRA) , BEING THE EXCLUSION OF COSMIC GLOBAL DUE TO LOW TURNOVER, DOES NOT STAND ANY MORE. HERE, IT IS PERT INENT TO MENTION THAT THERE WAS A CONTROVERSY ABOUT THE EXCLUSION OR INCL USION OF THE OTHERWISE COMPARABLE COMPANIES ON THE BASIS OF HIGH OR LOW TU RNOVER. EVEN A SPECIAL BENCH WAS ALSO PROPOSED TO CONSIDER THIS IS SUE. BY VIRTUE OF THE JUDGMENT IN THE CASE OF CHRYSCAPITAL (SUPRA) , THIS ISSUE HAS NOW SHED THE CHARACTER OF CONTROVERSY INSOFAR AS THE JURISDI CTION OF THE AUTHORITIES UNDER THE HONBLE DELHI HIGH COURT IS CONCERNED. N OW, AN OTHERWISE COMPARABLE COMPANY CANNOT BE EXCLUDED ON THE STRENG TH OF HIGH OR LOW TURNOVER. IT IS SIGNIFICANT TO NOTE THAT THE TRIBUN AL IN ITS LATER ORDER DATED 6.7.2015 IN TECHBOOKS INTERNATIONAL PVT. LTD. VS. DCIT (ITA NO.240/DEL/2015) HAS SIMULTANEOUSLY CONSIDERED THE IMPACT OF THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT IN CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. (2013) 219 TAXMAN 26 (DEL) AND LATER CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (I) PVT. LTD. (SUP RA) . AFTER MAKING A ITA NOS.2010 & 2575/DEL/2014 13 COMPARATIVE STUDY, THE BENCH HAS HELD THAT A COMPAN Y WITH A HIGH TURNOVER CANNOT BE EXCLUDED ON THIS CRITERIA, IF IT IS FUNCTIONALLY SIMILAR. IN THE LIGHT OF THE JUDGMENT OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (I) PVT. LTD. , IT BECOMES CLEAR THAT THE VIEW TAKEN IN THE CASE OF MERCER (SUPRA), ON THE EXCLUSION OF COSMIC GLOBAL ON THE CONSIDERATION OF LOW TURNOV ER, CAN NO MORE BE TREATED AS A PRECEDENT. LAW IS NOT A STATIC PHENOME NON. IT KEEPS ON EVOLVING OVER A PERIOD WITH THE ARRIVAL OF THE JUDG MENTS OF THE HIGHER JUDICIAL FORUMS, TILL THE MATTER IS SET TO REST BY THE HONBLE SUPREME COURT. A PARTICULAR VIEW TAKEN BY THE TRIBUNAL, BE COMING CONTRARY TO THE LATER VIEW OF THE JURISDICTIONAL HIGH COURT ON THE SAME ISSUE, CANNOT BE IMPRESSED FOR ADOPTION. COMING BACK TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE FUNCTIONAL COMPARABILITY OF THE AC COUNTS BPO SEGMENT OF COSMIC GLOBAL HAS BEEN ACCEPTED BY THE LD. AR. I N THAT VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE JUDGMENT OF T HE HONBLE HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (I) PVT. LTD. (SUPRA) , WE HOLD THAT COSMIC GLOBAL LTD. (SEG.) CANNOT BE EXCLUDED FROM THE LIST OF COMPARABLES. ITA NOS.2010 & 2575/DEL/2014 14 II) CG-VAK SOFTWARE AND EXPORTS LTD. (SEG.) 12.1. THE ASSESSEE INCLUDED THE SEGMENTAL FIGURES OF THIS COMPANY IN THE LIST OF COMPARABLES. THE TPO ELIMINATED IT ON THE GROUND THAT IT WAS PROVIDING SOFTWARE SERVICES AND ITES AND ITS TU RNOVER FROM ITES WAS ONLY 0.86 CRORE, WHICH WAS LESS THAN THE REQUIS ITE FILTER OF TURNOVER. 12.2. HAVING HEARD BOTH THE SIDES ON THIS ISSUE, W E FIND THAT THE TPO HAS ACCEPTED THE FUNCTIONAL COMPARABILITY OF THIS C OMPANY ON SEGMENTAL LEVEL. THE LD. DR WAS ALSO FAIR ENOUGH TO CANDIDLY ACCEPT THE FUNCTIONAL SIMILARITY OF THE RELEVANT SEGMENT OF THIS COMPANY. IN SUCH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER TH IS COMPANY ON SEGMENTAL LEVEL, CAN BE EXCLUDED FROM THE LIST OF C OMPARABLES MERELY ON THE GROUND THAT THE REVENUE FROM THIS SEGMENT WAS O NLY RS.86 LACS? IN OUR CONSIDERED OPINION, THE QUANTUM OF TURNOVER CAN BE NO REASON FOR THE EXCLUSION OF A COMPANY WHICH IS OTHERWISE COMPARABL E. WE HAVE NOTICED ABOVE THE JUDGMENT OF THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) P. LTD (SU PRA) IN WHICH IT HAS BEEN HELD THAT HIGH TURNOVER OR HIGH PROFIT CAN BE NO REASON ITA NOS.2010 & 2575/DEL/2014 15 TO ELIMINATE AN OTHERWISE COMPARABLE COMPANY. THE SAME APPLIES WITH FULL FORCE IN THE CONVERSE MANNER AS WELL TO A LOW TURNOVER/LOW PROFIT COMPANY. IN PRINCIPLE, WE DIRECT THE INCLUSION OF THE RELEVANT SEGMENT OF THIS COMPANY IN THE LIST OF COMPARABLES. THE TP O IS DIRECTED TO INCLUDE THE OPERATING PROFIT/OPERATING COSTS OF THE ITES SEGMENT OF THIS COMPANY IN THE LIST OF COMPARABLES, AFTER DUE VERIF ICATION OF THE NECESSARY FIGURES FOR THE PURPOSES OF DETERMINATION OF THE OPERATING PROFIT MARGIN ETC. III) ACCENTIA TECHNOLOGIES LTD . 13.1. THE TPO CONSIDERED THIS COMPANY AS COMPARAB LE. THE ASSESSEES OBJECTIONS ABOUT THE FUNCTIONAL DISSIMILARITY WERE BRUSHED ASIDE. NOW, THE ASSESSEE CHALLENGES THE INCLUSION OF THIS COMPA NY IN THE FINAL SET OF COMPARABLES. 13.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS A ND PERUSING THE ANNUAL ACCOUNTS OF THIS COMPANY FOR THE YEAR IN QUESTION, IT IS OBSERVED THAT APART FROM RENDERING IT ENABLED SERVICES, THIS COMP ANY IS ALSO HAVING SOFTWARE PRODUCTS AND THE REVENUE FROM BOTH THESE S TREAMS HAS BEEN ITA NOS.2010 & 2575/DEL/2014 16 MERGED. AS THE SEGMENTAL FIGURES IN RELATION TO TH E BUSINESS OF RENDERING ITES ARE NOT AVAILABLE AND THE TPO HAS TA KEN ITS ENTITY LEVEL FIGURES, IT CEASES TO BE COMPARABLE. THE OBVIOUS RE ASON FOR THE EXCLUSION OF THIS COMPANY IS THE POOLING OF INCOME FROM SOFTW ARE PRODUCTS IN ITS OVERALL PROFITABILITY, WHICH CANNOT BE SEPARATED WI TH PRECISION, THEREBY RENDERING IT INCOMPARABLE. WE, THEREFORE, DIRECT T O REMOVE THIS COMPANY FROM THE LIST OF COMPARABLES. IV) E- CLERX SERVICES LTD . 14.1. THE TPO TREATED THIS COMPANY AS COMPARABLE AND THE ASSESSEES OBJECTIONS ABOUT THE FUNCTIONAL DISSIMILARITY WERE IGNORED. 14.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT IT IS A KNOWLEDGE PROCESS OUTSOURCING (KPO) COMPANY PROVIDING DATA ANALYTICS AND DATA PRO CESS SOLUTIONS TO GLOBAL CLIENTS. THIS COMPANY PROVIDES END TO END S UPPORT THROUGH TRADE LIFE CYCLE INCLUDING TRADE CONFIRMATIONS AND SETTLE MENTS ETC. IT ALSO PROVIDES SALES AND MARKETING SUPPORT SERVICES TO LE ADING GLOBAL MANUFACTURING, RETAIL, TRAVEL AND LEISURE COMPANIES THROUGH ITS PRICING ITA NOS.2010 & 2575/DEL/2014 17 AND PROFITABILITY SERVICES. FROM THE ABOVE NARRATI ON OF THE NATURE OF BUSINESS CARRIED ON BY E-CLERX SERVICES LTD., IT IS MANIFEST THAT THE SAME BEING A KPO COMPANY, IS QUITE DIFFERENT FROM THE AS SESSEE, PROVIDING ONLY IT ENABLED SERVICES TO ITS AE. APART FROM THAT , IT IS FURTHER OBSERVED THAT THIS COMPANY HAS SIGNIFICANT INTANGIBLES WHICH IT USES IN RENDERING KPO SERVICES, AGAINST WHICH THE ASSESSEE DOES NOT H AVE ANY INTANGIBLES. AS SUCH, E-CLERX SERVICES LTD. CANNOT BE CONSIDERED AS COMPARABLE. THE SAME IS DIRECTED TO BE ELIMINATED. V) R. SYSTEMS INTERNATIONAL LTD. (SEG.); 15.1. THE ASSESSEE INCLUDED THIS COMPANY IN ITS LIST OF COMPARABLES. HOWEVER, THE TPO ELIMINATED THE SAME ON THE GROUND THAT IT WAS FOLLOWING DIFFERENT YEAR ENDING, NAMELY, 31 ST DECEMBER AND, HENCE, WAS NOT COMPARABLE. THE LD. AR FAIRLY ACCEPTED THAT TH E ABOVE COMPANY WAS FOLLOWING CALENDAR YEAR FOR MAINTAINING ITS ACCOUNT S IN CONTRAST TO THE ASSESSEE FOLLOWING FINANCIAL YEAR ENDING 31 ST MARCH. IT WAS, HOWEVER, SUBMITTED THAT THIS COMPANY SHOULD NOT HAVE BEEN EX CLUDED FOR THIS REASON ALONE WHEN IT WAS OTHERWISE FUNCTIONALLY SIM ILAR, A FACT WHICH ITA NOS.2010 & 2575/DEL/2014 18 HAS NOT BEEN DISPUTED BY THE TPO. THE LD. DR OPPOS ED THIS CONTENTION BY SUBMITTING THAT THE DATA FOR THE YEAR ENDING OF THIS COMPANY WAS NOT SIMILAR TO THAT OF ASSESSEE COMPANY AND HENCE IT WA S RIGHTLY EXCLUDED. 15.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D PERUSING THE RELEVANT MATERIAL, IT IS NOTICED THAT THE ASSESSEE COMPANY I S HAVING FINANCIAL YEAR COVERING THE PERIOD 1.4.2008 TO 31.3.2009. IN THAT VIEW OF THE MATTER, A VALID COMPARISON CAN BE MADE ONLY IF THE POTENTIAL COMPARABLE COMPANY HAS ALSO THE SAME FINANCIAL YEAR. IN THIS REGARD, WE CONSIDER IT APPROPRIATE TO NOTE THE RELEVANT PART OF SUB-RULE ( 4) OF RULE 10B WHICH PROVIDES THAT: THE DATA TO BE USED IN ANALYZING TH E COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE IN TERNATIONAL TRANSACTION HAD BEEN ENTERED INTO. IT IS OBVIOUS FROM THE LANG UAGE OF SUB-RULE (4) THAT THE COMPARABILITY OF AN UNCONTROLLED TRANSACTI ON CAN BE ANALYZED ONLY WITH THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. I N OTHER WORDS, IF THE TESTED PARTY HAS MARCH YEAR ENDING, THEN, THE COMPA RABLES MUST ALSO ITA NOS.2010 & 2575/DEL/2014 19 HAVE THE DATA RELATING TO THE FINANCIAL YEAR ENDING 31 ST MARCH ITSELF. IF SUCH A DATA IS NOT AVAILABLE, THEN, A COMPANY ALBEI T FUNCTIONALLY COMPARABLE, DISQUALIFIES. ESPOUSING THE FACTS OF T HE EXTANT CASE, WE FIND THAT INSOFAR AS THE FUNCTIONAL COMPARABILITY OF THI S COMPANY IS CONCERNED, THE TPO HAS NOT DISPUTED THE SAME. THE O NLY REASON GIVEN FOR ITS EXCLUSION IS THE NON-AVAILABILITY OF DATA F OR THE RELEVANT FINANCIAL YEAR. THE LD. AR CONTENDED THAT THOUGH THE YEAR END ING OF THE ABOVE COMPANY WAS DIFFERENT, YET, THE ASSESSEE WAS IN A POSITION TO PUT FORWARD THE DATA OF THIS COMPANY FOR THE FINANCIAL YEAR 1.4.2008 TO 31.3.2009 FROM THEIR ANNUAL REPORTS ONLY. IT WAS S O STATED ON THE BASIS OF THE AVAILABILITY OF THE QUARTERLY DATA FROM THE ANNUAL REPORTS OF THIS COMPANY, WHICH COULD BE ADJUSTED FOR THE FINANCIAL YEAR ENDING 31.3.2009. IF THE CONTENTION OF THE ASSESSEE IS CO RRECT, THAT THE RELEVANT DATA FOR THE CONCERNED FINANCIAL YEAR CAN BE DEDUCE D FROM THE INFORMATION AVAILABLE FROM ITS ANNUAL REPORT, THEN, THERE CAN BE NO OBJECTION TO ITS INCLUSION IN THE LIST OF COMPARABL ES WITH THE ADJUSTED DATA FOR THE RELEVANT FINANCIAL YEAR ITSELF. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO TH E FILE OF TPO/AO FOR ITA NOS.2010 & 2575/DEL/2014 20 EXAMINING THIS ASPECT OF THE MATTER. IT IS CLARIFI ED THAT ONLY IF THE ASSESSEE SUCCEEDS IN PROVIDING THE RELEVANT DATA OF THIS COMPANY FOR THE CONCERNED FINANCIAL YEAR ON THE BASIS OF THE INFORM ATION AVAILABLE FROM THE ANNUAL REPORTS ONLY, THE TPO SHOULD INCLUDE T HIS COMPANY IN THE LIST OF COMPARABLES BY CONSIDERING ITS OP/TC ON THE BASIS OF THE FINANCIAL YEAR ENDING 31.3.2009. IF HOWEVER, EVEN THOUGH ITS QUARTERLY DATA IS AVAILABLE AND CAN BE COMPILED FOR THE RELEV ANT FINANCIAL YEAR, BUT THE AMOUNTS OF OPERATING PROFIT OR OPERATING COST E TC. FOR THE RELEVANT FINANCIAL YEAR ARE NOT DIRECTLY AVAILABLE WITHOUT A NY APPORTIONMENT OR TRUNCATION, THEN THIS COMPANY SHOULD NOT BE CONSID ERED AS COMPARABLE. 16.1. THE SECOND ISSUE TAKEN UP BEFORE US IS AGA INST TREATING FOREIGN EXCHANGE DIFFERENCE AS NON-OPERATING AS AGAINST THE ASSESSEES TREATMENT OF OPERATING COST. ON A PERTINENT QUERY, IT WAS STA TED BY THE LD. AR THAT THE FOREIGN EXCHANGE LOSS RELATES TO ITS TRANSACTIO NS FROM OPERATIONS BY WHICH THE REVENUE HAS BEEN EARNED AND OFFERED FOR T AXATION. 16.2. WE FIND MERIT IN THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE ABOUT THE INCLUSION OF FOREIGN EXCHANGE GAIN/LOSS I N THE OPERATING ITA NOS.2010 & 2575/DEL/2014 21 REVENUE/COSTS OF THE ASSESSEE AS WELL AS THAT OF TH E COMPARABLES. WHEN WE ADVERT TO THE NATURE OF SUCH FOREIGN EXCHANGE GA IN EARNED BY THE ASSESSEE, IT HAS ALSO BEEN ADMITTED BY THE LD. DR THAT THE SAME IS IN RELATION TO THE TRADING ITEMS EMANATING FROM THE IN TERNATIONAL TRANSACTIONS. WHEN THE FOREIGN EXCHANGE LOSS DIRECT LY RESULTS FROM THE TRADING ITEMS, WE FAIL TO APPRECIATE AS TO HOW SUC H FOREIGN EXCHANGE FLUCTUATION LOSS CAN BE CONSIDERED AS NON-OPERATING . 16.3. THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT VS PRAKASH I. SHAH (2008) 115 ITD 167 (MUM)(SB) HAS HELD THAT THE GAIN DUE TO FLUCTUATIONS IN THE FOREIGN EXCHANGE RATE EMANATING FROM EXPORT IS ITS INTEGRAL PART AND CANNOT BE DIFFERENTIATED FROM THE EXPORT PROCEE DS SIMPLY ON THE GROUND THAT THE FOREIGN CURRENCY RATE HAS INCREASED SUBSEQUENT TO SALE BUT PRIOR TO REALIZATION. IT WENT ON TO ADD THAT WH EN GOODS ARE EXPORTED AND INVOICE IS RAISED IN CURRENCY OF THE COUNTRY WH ERE SUCH GOODS ARE SOLD AND SUBSEQUENTLY WHEN THE AMOUNT IS REALIZED I N THAT FOREIGN CURRENCY AND THEN CONVERTED INTO INDIAN RUPEES, THE ENTIRE AMOUNT IS RELATABLE TO THE EXPORTS. IN FACT, IT IS ONLY THE T RANSLATION OF INVOICE VALUE ITA NOS.2010 & 2575/DEL/2014 22 FROM THE FOREIGN CURRENCY TO THE INDIAN RUPEES. THE SPECIAL BENCH HELD THAT THE EXCHANGE RATE GAIN OR LOSS CANNOT HAVE A D IFFERENT CHARACTER FROM THE TRANSACTION TO WHICH IT PERTAINS. THE BENCH FOU ND FALLACY IN THE SUBMISSION MADE ON BEHALF OF THE REVENUE THAT THE E XCHANGE RATE DIFFERENCE SHOULD BE DETACHED FROM THE EXPORTS AND BE CONSIDERED AS AN INDEPENDENT TRANSACTION. EVENTUALLY, THE SPECIAL BE NCH HELD THAT SUCH EXCHANGE RATE FLUCTUATION GAIN/LOSS ARISING FROM EX PORTS CANNOT BE VIEWED DIFFERENTLY FROM SALE PROCEEDS. 16.4. IN THE CONTEXT OF TRANSFER PRICING, THE BA NGALORE BENCH OF THE TRIBUNAL IN SAP LABS INDIA PVT. LTD. VS ACIT (2011) 44 SOT 156 (BANGALORE) HAS HELD THAT FOREIGN EXCHANGE FLUCTUATION GAIN IS PART OF OPERATING PROFIT OF THE COMPANY AND SHOULD BE INCLU DED IN THE OPERATING REVENUE. SIMILAR VIEW HAS BEEN TAKEN IN TRILOGY E BUSINESS SOFTWARE INDIA (P) LTD. VS DCIT (2011) 47 SOT 45 (URO) (BANG ALORE) . THE MUMBAI BENCH OF THE TRIBUNAL IN S. NARENDRA VS ADDTL. CIT (2013) 32 TAXMAN.COM 196 HAS ALSO LAID DOWN TO THIS EXTENT. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPIN ION THAT THE AMOUNT ITA NOS.2010 & 2575/DEL/2014 23 OF FOREIGN EXCHANGE GAIN/LOSS ARISING OUT OF REVENU E TRANSACTIONS IS REQUIRED TO BE CONSIDERED AS AN ITEM OF OPERATING R EVENUE/COST, BOTH OF THE ASSESSEE AS WELL AS COMPARABLES. WE, THEREFORE , HOLD THAT THE AO WAS NOT JUSTIFIED IN CONSIDERING FOREX LOSS AS NON- OPERATING COST AS AGAINST THE ASSESSEES CLAIM OF OPERATING COST. 17. WITH THE ABOVE REMARKS, WE SET ASIDE THE IM PUGNED ORDER AND SEND THE MATTER BACK TO THE FILE OF TPO/AO FOR DETE RMINING THE ALP OF THE INTERNATIONAL TRANSACTION AFRESH IN CONFORMITY WITH OUR ABOVE OBSERVATIONS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 18. THE ONLY GROUND RAISED BY THE REVENUE IN IT S APPEAL READS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. DRP IS NOT JUSTIFIED IN DIRECTING THAT NO S EPARATE ADJUSTMENT WAS CALLED FOR UNDER THE HEAD INTEREST A S INTEREST ON RECEIVABLES WAS SUBSUMED IN THE WORKING CAPITAL ADJUSTMENT ALLOWED. ITA NOS.2010 & 2575/DEL/2014 24 19. SUCCINCTLY, THE FACTUAL MATRIX CONCERNING T HIS GROUND IS THAT THE ASSESSEE HAD SHOWN CERTAIN RECEIVABLES FROM ITS AE. ON EXAMINATION OF THE ASSESSEES BALANCE SHEET, IT WAS NOTICED BY THE TPO THAT PAYMENTS AGAINST THE INVOICES RAISED BY THE ASSESSEE WERE N OT RECEIVED WITHIN THE STIPULATED TIME AS PROVIDED IN THE AGREEMENT. ON B EING CALLED UPON TO FURNISH THE TIME PERIOD FOR PAYMENT AS PER SERVICE AGREEMENT AND WHY THE DELAYED PAYMENTS BE NOT TREATED AS UNSECURED LO ANS ADVANCED TO THE AES, THE ASSESSEE SUBMITTED VIDE ITS REPLY DATED 24 .12.2012 THAT: RECEIVABLES WAS NOT AN INTERNATIONAL TRANSACTION W HICH WARRANTED BENCHMARKING. THE TPO REJECTED THIS CONTENTION AND HELD THAT INTEREST AT THE RATE OF 15.77% WAS CHARGEABLE AT ARMS LENGT H LEVEL IN RESPECT OF DELAYED RECEIPT OF INVOICE VALUES. HE TABULATED ON PAGE 83 OF HIS ORDER THE DATE OF INVOICES, THE DATE OF RECEIPT OF PAYMEN TS AND DAYS FOR WHICH THE INVOICES REMAINED OUTSTANDING. CONSIDERING THE PERIOD OF DELAY BEYOND 30 DAYS AS CHARGEABLE TO INTEREST, HE PROPOS ED TP ADJUSTMENT OF RS.5,98,083/-. THE DRP HAS DISCUSSED THIS ASPECT O N PAGE 26 OF ITS DIRECTION. IT WAS HELD THAT SINCE DIRECTION FOR AL LOWING OF WORKING CAPITAL ADJUSTMENT WAS GIVEN BY IT, THE ISSUE OF AN Y INTEREST ELEMENT ITA NOS.2010 & 2575/DEL/2014 25 PERTAINING TO THE RECEIVABLES WOULD BE SUBSUMED IN THE SAME. IT WAS ACCORDINGLY HELD THAT NO SEPARATE TRANSFER PRICING ADJUSTMENT WAS CALLED FOR. THE REVENUE IS AGGRIEVED AGAINST THIS DIRECTI ON GIVEN BY THE DRP. 20. THE LD. AR SUPPORTED THE IMPUGNED ORDER BY RELYING ON A TRIBUNAL ORDER DATED 31.3.2015 PASSED IN KUSUM HEALTHCARE PVT. LTD. VS. ACIT (ITA NO.6814/DEL/2014) IN WHICH IT HAS BEEN HELD TH AT NO ADDITIONAL IMPUTATION OF INTEREST ON THE OUTSTANDING RECEIVABL ES IS WARRANTED IF THE PRICING/PROFITABILITY IS MORE THAN THE WORKING CAPI TAL ADJUSTED MARGIN OF THE COMPARABLES. IN THE OPPOSITION, THE LD. DR REL IED ON A LATER ORDER DATED 6.7.2015 PASSED BY THE TRIBUNAL IN THE CASE O F TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA), IN WHICH THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE DELAYED REALIZATION OF INVOICES F ROM AES HAS BEEN UPHELD. THE LD. DR CONTENDED THAT THE ORDER IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SUPRA), HAS BEEN PASSED WITHOUT CONSIDERING THE AMENDMENT TO SECTION 92B CARRIED OUT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002, WHICH HAS BEEN DULY TAKEN INTO ITA NOS.2010 & 2575/DEL/2014 26 ACCOUNT BY THE TRIBUNAL IN ITS LATER ORDER IN TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED AS HIGHLIGHTED AB OVE, THAT THE ASSESSEE ARGUED BEFORE THE TPO THAT INTEREST ON RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION. AT THIS STAGE, IT WOULD BE APPOSITE TO NOTE THAT THE FINANCE ACT, 2012 HAS INSERTED EXPLANATION TO SECTION 92B W ITH RETROSPECTIVE EFFECT FROM 1.4.2002. CLAUSE (I) OF THIS EXPLANATI ON, WHICH IS OTHERWISE ALSO FOR REMOVAL OF DOUBTS, GIVES MEANING TO THE EX PRESSION INTERNATIONAL TRANSACTION IN AN INCLUSIVE MANNER. SUB-CLAUSE (C) OF CLAUSE (I) OF THIS EXPLANATION, WHICH IS RELEVANT F OR OUR PURPOSE, PROVIDES AS UNDER:- ` EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED T HAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SH ALL INCLUDE (A) (B) .. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE ITA NOS.2010 & 2575/DEL/2014 27 SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINES S; . 22. ON GOING THROUGH THE RELEVANT PART OF THE EX PLANATION INSERTED WITH RETROSPECTIVE EFFECT FROM 1.4.2002, THEREBY ALSO CO VERING THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE REMAINS NO DOUBT TH AT APART FROM ANY LONG-TERM OR SHORT-TERM LENDING OR BORROWING, ETC., OR ANY TYPE OF ADVANCE PAYMENTS OR DEFERRED PAYMENTS, ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS HAS ALSO BEEN EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANSACTION. THAT BEING SO, THE PAYM ENT/NON-PAYMENT OF INTEREST OR RECEIPT/NON-RECEIPT OF INTEREST ON THE LOANS ACCEPTED OR ALLOWED IN THE CIRCUMSTANCES AS MENTIONED IN THIS C LAUSE OF THE EXPLANATION , ALSO BECOME INTERNATIONAL TRANSACTIONS, REQUIRING THE DETERMINATION OF THEIR ALP. IF THE PAYMENT OF INTER EST IS EXCESSIVE OR THERE IS NO OR LOW RECEIPT OF INTEREST, THEN SUCH I NTEREST EXPENSE/INCOME NEED TO BE BROUGHT TO ITS ALP. THE EXPRESSION DEBT ARISING DURING THE COURSE OF BUSINESS IN COMMON PARLANCE ENCOMPASSES, INTER ALIA, ANY TRADING DEBT ARISING FROM THE SALE OF GOODS OR SERVICES RENDERED IN THE COURSE OF CARRYING ON THE BUSINESS. ONCE ANY DEBT A RISING DURING THE ITA NOS.2010 & 2575/DEL/2014 28 COURSE OF BUSINESS HAS BEEN ORDAINED BY THE LEGISLA TURE AS AN INTERNATIONAL TRANSACTION, IT IS, BUT, NATURAL THAT IF THERE IS ANY DELAY IN THE REALIZATION OF SUCH DEBT ARISING DURING THE COURSE OF BUSINESS, IT IS LIABLE TO BE VISITED WITH THE TP ADJUSTMENT ON ACCOUNT OF INTEREST INCOME SHORT CHARGED OR UNCHARGED. UNDER SUCH CIRCUMSTANCES, TH E CONTENTION TAKEN BY THE ASSESSEE BEFORE THE TPO THAT IT IS NOT AN IN TERNATIONAL TRANSACTION, TURNS OUT TO BE BEREFT OF ANY FORCE. 23. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PATNI COMPUTER SYSTEMS LTD., (2013) 215 TAXMANN 108 (BOM. ) 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 TRA NSACTION WHEREAS SECTION 92B(1) OF THE INCOME-TAX ACT, 1961 REFERS TO ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFI TS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES? ITA NOS.2010 & 2575/DEL/2014 29 24. WHILE ANSWERING THE ABOVE QUESTION, THE HON BLE HIGH COURT NOTICED THAT AN AMENDMENT TO SECTION 92B HAS BEEN C ARRIED OUT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1. 4.2002. SETTING ASIDE THE VIEW TAKEN BY THE TRIBUNAL, THE HONBLE HIGH CO URT RESTORED THIS ISSUE TO THE FILE OF THE TRIBUNAL FOR FRESH DECISIO N IN THE LIGHT OF THE LEGISLATIVE AMENDMENT. 25. 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 INTERNATI ONAL TRANSACTION AND THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IS REQ UIRED TO BE DETERMINED. 26. NOW, WE COME TO THE COMPUTATION OF THE ALP O F THE INTERNATIONAL TRANSACTION OF DEBT ARISING DURING THE COURSE OF BU SINESS. THE TPO HAS CALCULATED TP ADJUSTMENT ON ACCOUNT OF INTEREST ON OUTSTANDING DEBTS BEYOND A PERIOD OF 30 DAYS BY NOTING THE NUMBER OF DAYS AFTER WHICH THE RELEVANT INVOICE WAS REALIZED. FROM THIS TABLE GIV EN ON PAGE 83 OF THE TPOS ORDER, IT CAN BE SEEN THAT THE DAYS OF REALIZ ATION RANGE FROM THE ITA NOS.2010 & 2575/DEL/2014 30 LOWEST OF TWO DAYS TO THE HIGHEST OF 59 DAYS FROM T HE DATE OF THE RESPECTIVE INVOICE. THE TPO HAS CONSIDERED INTERES T OF A PERIOD OF 30 DAYS AS A PART OF INVOICE VALUE AND COMPUTED THIS T P ADJUSTMENT ONLY WHERE THE REALIZATION HAS BEEN MADE BEYOND 30 DAYS. A READING OF THE AGREEMENT DATED 1.10.2005 BETWEEN THE ASSESSEE AND AMERIPRISE US MANIFESTS THAT CLAUSE 6 DEALS WITH PRICE AND PAYME NT. PARA 6.5 OF THE AGREEMENT PROVIDES AS UNDER:- 6.5 ALL PAYMENTS SHALL BE MADE ON THE BASIS OF THE INVOICES RAISED BY AIPL AND SHALL BE CLEARED WITHIN THIRTY DAYS FROM THE DATE OF THE INVOICE. UNDER NO CIRCUMSTANCES SHALL THE PAYMENT BE DELAYED FOR MORE THAN SIXTY DAYS FROM THE DATE OF THE INVOICE. ANY REVISION TO THE CREDIT PERIOD MAY BE AGREED BY PARTIES BY EXCHANGING E-MAILS OR OTHER FORMS OF CORRESPONDENCE WITHOUT REQUIRING ANY CHANGE OR MODI FICATION TO THIS AGREEMENT. 27. ABOVE PARA OF THE AGREEMENT DIVULGES THAT AL L THE PAYMENTS ARE REQUIRED TO BE MADE BY THE AE WITHIN 30 DAYS FROM T HE DATE OF INVOICE AND LATEST BY 60 DAYS FROM THE DATE OF INVOICE. IT TRANSPIRES THAT THE MAXIMUM PERIOD ALLOWED BY THE ASSESSEE TO ITS AE FO R PAYMENT OF ITA NOS.2010 & 2575/DEL/2014 31 INVOICE IS 60 DAYS. THIS INDICATES THAT INTEREST F OR THE PERIOD UP TO 60 DAYS FROM THE DATE OF INVOICE IS FACTORED IN THE PR ICE CHARGED FOR THE RENDERING OF THE SERVICES, WHICH MEANS THAT NO INTE REST CAN BE SEPARATELY CHARGED IN CASE OF REALIZATION OF INVOICES UP TO A PERIOD OF 60 DAYS FROM THE DATE OF INVOICE. AS WE HAVE NOTICED ABOVE THAT ALL THE INVOICES STOOD REALIZED WITHIN A PERIOD OF 60 DAYS, THERE CAN BE N O QUESTION OF CHARGING ANY INTEREST AS A SEPARATE TRANSFER PRICING ADJUSTM ENT. 28. WE DO NOT APPROVE THE REASONING GIVEN BY THE DRP ABOUT THE SUBSUMING OF SUCH INTEREST IN THE WORKING CAPITAL A DJUSTMENT. IT IS AXIOMATIC THAT THE WORKING CAPITAL ADJUSTMENT IS IN RESPECT OF INTERNATIONAL TRANSACTION OF RENDERING SERVICES TO THE AE. INTEREST FOR THE CREDIT PERIOD ALLOWED AS PER THE AGREEMENT IS FACTO RED IN THE PRICE CHARGED FOR THE RENDERING OF SERVICES. AU CONTRAIRE, THE NON-REALIZATION OF INVOICE VALUE BEYOND THE STIPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANSACTION, WHOSE ALP IS REQUIRED TO BE DETERMINED . GRANTING OF WORKING CAPITAL ADJUSTMENT IS CONFINED TO THE INTER NATIONAL TRANSACTION OF RENDERING OF SERVICES, WHOSE ALP IS SEPARATELY DETE RMINABLE. ON THE ITA NOS.2010 & 2575/DEL/2014 32 OTHER HAND, THE INTERNATIONAL TRANSACTION OF INTERE ST RECEIVABLE FROM ITS AES FOR LATE REALIZATION OF INVOICES BEYOND SUCH ST IPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANSACTION. ALLOWING WORKI NG CAPITAL ADJUSTMENT IN THE INTERNATIONAL TRANSACTION OF RENDERING SERVI CES CAN HAVE NO IMPACT ON THE DETERMINATION OF ALP OF THE INTERNATIONAL TR ANSACTION OF INTEREST ON RECEIVABLES FROM AES BEYOND THE STIPULATED PERIO D ALLOWED AS PER THE AGREEMENT. THE AMENDMENT MADE BY THE FINANCE ACT, 2012 IN TERMS OF INSERTION OF EXPLANATION TO SECTION 92B WITH RETROS PECTIVE EFFECT FROM 1.4.2002 BY CONSIDERING `ANY OTHER DEBT ARISING DUR ING THE COURSE OF BUSINESS AS A SEPARATE INTERNATIONAL TRANSACTION, IMPLIEDLY DISAPPROVES THE VIEW CANVASSED BY THE DRP IN OBLITERATING THE D ETERMINATION OF THE ALP OF THE SEPARATE INTERNATIONAL TRANSACTION OF IN TEREST ON ALLOWING THE WORKING CAPITAL ADJUSTMENT IN THE INTERNATIONAL TRA NSACTION OF RENDERING OF SERVICES. IN OUR CONSIDERED OPINION, BOTH THE TR ANSACTIONS ARE SEPARATE AND DISTINCT FROM EACH OTHER. WHEREAS THE INTERNAT IONAL TRANSACTION OF RENDERING SERVICES CONTEMPLATES COMPARISON OF THE P RICE CHARGED FOR RENDERING SERVICES BY IMPLIEDLY INCLUDING THE INTER EST FOR THE PERIOD ALLOWED FOR REALIZATION OF INVOICES AS PER THE TERM S OF THE AGREEMENT, THE ITA NOS.2010 & 2575/DEL/2014 33 INTERNATIONAL TRANSACTION OF CHARGING INTEREST ON L ATE RECOVERY OF TRADE RECEIVABLE COVERS THE PERIOD WHICH STARTS WITH THE TERMINATION OF THE PERIOD OF CREDIT ALLOWED UNDER THE AGREEMENT, WHICH IS SUBJECT MATTER OF THE INTERNATIONAL TRANSACTION OF RENDERING OF SERVI CES. THERE IS ONE MORE FALLACY IN THE REASONING GIVEN BY THE DRP ABOUT THE SUBSUMING OF INTEREST INCOME IN THE WORKING CAPITAL ADJUSTMENT. IT IS SIMPLE THAT WORKING CAPITAL ADJUSTMENT IS ORDINARILY COMPUTED B Y CONSIDERING THE AVERAGE OF THE OPENING AND CLOSING VALUES OF INVENT ORIES, RECEIVABLES AND PAYABLES. THE TP ADJUSTMENT ON ACCOUNT OF INTEREST ON DELAYED REALIZATION OF INVOICE VALUE HAS NOTHING TO DO WITH THE CLOSING OR OPENING VALUES. IT DEPENDS ON THE PERIOD OF REALIZA TION ON TRANSACTION TO TRANSACTION BASIS. TO PUT IT DIFFERENTLY, SUPPOSE AN INVOICE IS RAISED ON 1 ST MAY; PERIOD ALLOWED FOR REALIZATION IS TWO MONTH S; AND THE INVOICE IS ACTUALLY REALIZED ON 31 ST DECEMBER. NOTWITHSTANDING THE FACT THAT INTEREST ON SUCH LATE REALIZATION WOULD BECOME CHAR GEABLE FOR A PERIOD OF 6 MONTHS (FROM 1 ST JULY TO 31 ST DECEMBER), BUT THE AMOUNT OF INVOICE WILL NOT BE RECEIVABLE AS AT THE END OF THE FINANCI AL YEAR ON 31 ST MARCH. AS SUCH, THIS RECEIVABLE WOULD NOT HAVE AN IMPACT O N THE WORKING ITA NOS.2010 & 2575/DEL/2014 34 CAPITAL ADJUSTMENT IN ANY MANNER, BUT WOULD CALL FO R ADDITION ON ACCOUNT OF THE LATE REALIZATION OF INVOICE VALUE FOR A PERI OD OF SIX MONTHS. WE, THEREFORE, REJECT THE REASONING GIVEN BY THE DRP IN DELETING THE ADDITION. HOWEVER, IN VIEW OF THE FACT THAT ALL THE INVOICES WERE REALIZED WITHIN THE MAXIMUM PERIOD OF 60 DAYS ALLOWED AS PER THE AG REEMENT, WE HOLD THAT THE CHARGING OF INTEREST ON RECEIVABLES IS NOT SUSTAINABLE ON THE EXTANT FACTS. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS DIS MISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 14.08.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 14 TH AUGUST, 2015. DK ITA NOS.2010 & 2575/DEL/2014 35 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.