Nuance Transcription Services India Private Limited, Bangalore V. DCIT, Bangalore

ITA 307/BANG/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2639 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 01-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G GURUSWAMY CIT DRP
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 307 /BANG/201 6 ASSESSMENT YEAR : 20 1 1 - 1 2 M/S. NAUNCE TRANSCRIPTION SERVICES INDIA PVT. LTD., FIRST FLOOR, BLOCK B, SALALPURIA AURA, KHATA NO. 434/170, MARATHAHALLI SARJAPUR OUTER RING ROAD, KAVERAPPA LAYOUT, KADUBEESANAHALLI, BANGALORE 560 103. PAN: AAACF3465F VS. THE DCIT, CIRCLE 5 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI VISHAL KALRA, ADVOCATE RESPONDENT BY : SHRI G. GURUSWAMY, CIT - DRP DATE OF HEARING : 05. 11 .2018 DATE OF PRONOUNCEMENT : 07 . 11 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS IS THE APPEAL OF THE ASSESSEE WHICH WAS EARLIE R HEARD AND DECIDED BY THE TRIBUNAL AS PER ITS ORDER DATED 28.11.2017. SUBSEQ UENTLY, THE ASSESSEE FILED A MISCELLANEOUS PETITION AND AS PER THE ORDER DATED 2 0.04.2018 IN M.P. NO. 73/BANG/2018, THE TRIBUNAL HAS RECALLED THIS EARLIE R TRIBUNAL ORDER DATED 28.11.2017 FOR THE LIMITED PURPOSE FOR DECIDING GRO UND NOS. 5 AND 6 OF THE ASSESSEES APPEAL BECAUSE THESE TWO GROUNDS WERE RE JECTED AS PER THE EARLIER TRIBUNAL ORDER ON THIS BASIS THAT THIS ISSUE WAS NO T RAISED BEFORE THE LOWER AUTHORITIES BUT IN THE ORDER IN M.P. NO. 73/BANG/20 18 DATED 20.04.2018, IT IS HELD BY THE TRIBUNAL THAT THE FINDING OF THE TRIBUN AL VIDE PARA 12 OF THE EARLIER TRIBUNAL ORDER ARE CONTRARY TO MATERIAL ON RECORD A ND THEREFORE, THE TRIBUNAL ORDER WAS RECALLED FOR THE LIMITED PURPOSE OF ADJUD ICATING GROUND NOS. 5 AND 6 OF THE ASSESSEES APPEAL. HENCE NOW WE HAVE TO DEC IDE GROUND NOS. 5 AND 6 OF ASSESSEES APPEAL. THESE GROUNDS ARE AS UNDER. 5. THAT THE AO / DRP / TRANSFER PRICING OFFICER ('T PO') ERRED ON FACTS AND CIRCUMSTANCES OFTHE CASE AND IN LAW IN TR EATING TRADE RECEIVABLES AMOUNTING TO INR 16,73,14,145, OUTSTAND ING FROM THE IT(TP)A NO. 307/BANG/2016 PAGE 2 OF 5 ASSOCIATED ENTERPRISES ('AE'), AS AN INTERNATIONAL TRANSACTION AND RE- CHARACTERIZING THE SAME AS LOAN. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN ARBITRARILY ADOPTING 13.46% AS T HE RATE OF INTEREST, WHICH IS EXCESSIVE AND UNREASONABLE. 2. AT THE VERY OUTSET, THE LD. AR OF ASSESSEE PLACE D RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF BECHTEL INDIA PVT. LTD. VS. DCIT IN ITA NO. 1478/DEL/2015 DATED 21.12.2015 AND HE SUBMITTED A C OPY OF THIS TRIBUNAL ORDER AND OUR ATTENTION WAS DRAWN TO PARA 14.7 TO 16 OF T HIS TRIBUNAL ORDER AND IT WAS SUBMITTED THAT IT WAS HELD BY THE TRIBUNAL IN THIS CASE BY FOLLOWING ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF KUSUM HEALTH CARE PVT. LTD. AS REPORTED IN TS-129-ITAT-2015(DEL)-TP THAT NO SEPARATE ADJUST MENT FOR INTEREST ON RECEIVABLES ARE WARRANTED IN THE HANDS OF THE ASSES SEE. AT THIS JUNCTURE, THE BENCH WANTED TO KNOW ABOUT THE CREDIT PERIOD ALLOWE D TO THE AE FOR PAYMENT AGAINST RECEIVABLES AND WHETHER ACTUAL CREDIT ALLOW ED IS MORE THAN THIS OR NOT. IN REPLY, THE LD. AR OF ASSESSEE SUBMITTED A CHART IN RESPECT OF VARIOUS INVOICES RAISED DURING 31.07.2010 TO 30.09.2010 AND POINTED OUT THAT THE AGREED CREDIT PERIOD WAS 180 DAYS AND IN RESPECT OF SOME OF THE I NVOICES, THE ACTUAL CREDIT PERIOD ALLOWED WAS 243 DAYS AND IN SOME CASES 212 D AYS AND IN SOME OTHER CASES, 182 DAYS AND HE SUBMITTED THAT IF FOR THE EX TRA CREDIT PERIOD ALLOWED, INTEREST IS WORKED OUT ON THE BASIS OF 3 MONTHS LIB OR FOR MARCH 2011 + 200 (ANNUAL) BASIS POINTS, THE CHARGEABLE INTEREST RATE COMES TO 0.81% FOR EXCESS PERIOD AND THE AMOUNT OF SUCH INTEREST IS ONLY RS. 3,38,702/-. REGARDING THE CREDIT PERIOD AS PER AGREEMENT, HE SUBMITTED THAT T HE RELEVANT AGREEMENT IS AVAILABLE ON PAGES 187 TO 217 AND AS PER PAGE NO. 1 87 OF PAPER BOOK, THE CREDIT PERIOD ALLOWED IS 180 DAYS. REGARDING CHARG ING OF INTEREST AT LIBOR + 200 BASIS POINTS (ANNUAL) AS PER THE CHART OF THE A SSESSEE, IT WAS SUBMITTED THAT IN ASSESSMENT YEAR 2014-15, THE AO HIMSELF HAS ACCEPTED CHARGING OF INTEREST AT LIBOR + 400 BASIS POINTS. HE SUBMITTED COPY OF THE ORDER OF TPO FOR ASSESSMENT YEAR 2014-15 BEING DATED 30.10.2017 AND DRAWN OUR ATTENTION TO PARA 18 OF THIS ORDER OF TPO AND POINTED OUT THA T TPO IN THAT YEAR HAS WORKED OUT THE RATE OF INTEREST AT 4.3836% ON THE B ASIS OF LIBOR-6 MONTHS + 400 BASIS POINTS. HE SUBMITTED THAT ALTHOUGH THE A SSESSEE HAS NOT ACCEPTED THIS RATE OF INTEREST CHARGED BY THE TPO IN THAT YE AR AND ASSESSEE IS IN APPEAL IT(TP)A NO. 307/BANG/2016 PAGE 3 OF 5 AGAINST THE SAME BUT IN ANY CASE, THE CHARGEABILITY OF INTEREST IN THE PRESENT YEAR SHOULD NOT BE MORE THAN THIS. AS AGAINST THIS , THE LD. DR OF REVENUE SUBMITTED THAT NOT ONLY THE INVOICES RAISED DURING JULY 2010 TO SEPTEMBER 2010 ARE CONSIDERED IN THE CHART SUBMITTED BY THE LEARNE D AR OF THE ASSESSEE BUT THE INVOICES RAISED IN WHOLE OF THE PRESENT YEAR AL ONG WITH THE OPENING BALANCE AS ON 01.04.2010 SHOULD BE CONSIDERED FOR THIS PURP OSE. HE ALSO PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE O F LOGIX MICRO SYSTEMS LTD VS. ACIT (42 SOT 525). 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE EXAMINE THE APPLICABILITY OF TRIBUNAL ORDER RENDERED IN THE CAS E OF BECHTEL INDIA PVT. LTD. VS. DCIT (SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY L D. AR OF ASSESSEE. IN THIS CASE, THE TRIBUNAL ORDER IS ON THIS BASIS THAT IT I S NOT JUSTIFIABLE TO PRESUME THAT BORROWED FUNDS HAVE BEEN UTILIZED TO PASS ON THE FA CILITY TO ITS AE FOR MAKING DELAYED PAYMENT BEYOND THE AGREED PERIOD BECAUSE TH E ASSESSEE HAS NOT BEEN FOUND PAYING INTEREST TO ITS CREDITORS AND IN SUCH CIRCUMSTANCES, IT IS NOT JUSTIFIABLE TO PRESUME SO. BUT THIS TRIBUNAL ORDER IS NOT ON THIS ASPECT THAT WHEN A FIXED CREDIT PERIOD IS ALLOWED TO ANY CUSTOMER, T HE PRICES CHARGED ARE ON THE BASIS OF SUCH CREDIT PERIOD ALLOWED TO THE ASSESSEE AND IF THE ACTUAL CREDIT PERIOD ALLOWED IS MORE THAN THE AGREED CREDIT PERIO D THEN THE PRICES TO BE CHARGED HAS TO BE MORE AND CHARGEABILITY OF SUCH EX TRA PRICE IS NOT DEPENDENT ON THIS ASPECT THAT ASSESSEE IS HAVING INTEREST BEA RING BORROWED FUNDS OR NOT BECAUSE EVEN IN A CASE WHERE THE ASSESSEE IS NOT US ING ANY INTEREST BEARING BORROWED FUNDS THEN ALSO THE PRICES TO BE CHARGED T O THE CUSTOMERS WHETHER AE OR NOT WILL BE DEPENDING ON AN AGREED CREDIT PER IOD TO BE ALLOWED TO THE CUSTOMER AND IF THE ACTUAL CREDIT PERIOD ALLOWED IS MORE THAN THE AGREED CREDIT PERIOD THEN IT HAS TO BE ACCEPTED THAT EARLIER PRIC E CHARGED AS PER THE AGREEMENT IS LESS THAN THE ACTUAL PRICES WHICH IS T O BE CHARGED AND IN SUCH SITUATION, TP ADJUSTMENT IS CALLED FOR. HENCE IN T HE PRESENT CASE, THIS TRIBUNAL ORDER IS NOT APPLICABLE BECAUSE IN THE PRESENT CASE , WE ARE DECIDING THE ISSUE ON THIS BASIS AS TO WHETHER THE PRICES CHARGED BY T HE ASSESSEE TO ITS AE IS PROPER IN THE LIGHT OF THIS FACT THAT EXTRA CREDIT IS ALLOWED BY ASSESSEE TO ITS AE WHICH IS MORE THAN THE AGREED CREDIT PERIOD. IT(TP)A NO. 307/BANG/2016 PAGE 4 OF 5 4. NOW WE EXAMINE THE APPLICABILITY OF THE TRIBUNAL ORDER CITED BY LD. DR OF REVENUE WHICH IS RENDERED IN THE CASE OF LOGIX MICRO SYSTEMS LTD VS. ACIT (SUPRA). IN THAT CASE ALSO, IN PARA NO. 15 OF THAT TRIBUNAL ORDER, IT IS NOTED BY TRIBUNAL THAT HUGE AMOUNT OF RECEIVABLES WERE OUTST ANDING AT THE END OF THE RELEVANT PREVIOUS YEAR AND THE RECEIVABLES WERE DUE FROM THE AE IN USA WITH WHICH THE ASSESSEE HAS CONCLUDED INTERNATIONAL TRANSACTIONS AND THE TOTAL OF SUCH OUTSTANDING BALANCE AS ON 31.03.2004 WAS RS.7,73,23,609/- OUT OF WHICH AN AMOUNT OF RS.5,52,24,261/- WERE OUT STANDING FOR MORE THAN SIX MONTHS. UNDER THESE FACTS, THE TP ADJUSTMENT I N THAT CASE ON ACCOUNT OF HIGH RECEIVABLES WAS UPHELD BY THE TRIBUNAL AND THE REFORE, IN THE PRESENT CASE, THIS TRIBUNAL ORDER SUPPORTS THE CASE OF THE REVENUE. 5. AS PER THE DISCUSSION ABOVE, WE FEEL THAT IN THE PRESENT CASE ALSO, THIS HAS TO BE WORKED OUT AS TO HOW MUCH AMOUNT WAS RECEIVED BE YOND THE AGREED CREDIT PERIOD BY THE ASSESSEE FROM ITS AE AND THE SAME SHO ULD BE CONSIDERED AS A SEPARATE INTERNATIONAL TRANSACTIONS AND APPROPRIATE INTEREST ON THAT ACCOUNT SHOULD BE BROUGHT TO TAX IN THE PRESENT CASE AS TP ADJUSTMENT. THE WORKING GIVEN BY THE LD. AR OF ASSESSEE IN THIS REGARD IS P LACED ON RECORD BUT THIS WORKING IS ONLY IN RESPECT OF DEBTORS AS ON 31.03.2 011 BUT IF THE DEBTS ARE ALREADY LIQUIDATED DURING THE YEAR BUT THE RECEIPT WAS AFTER EXPIRY OF AGREED CREDIT PERIOD THEN THE AMOUNT OF SUCH REALIZATION D URING THE PRESENT YEAR BEYOND THE AGREED CREDIT PERIOD SHOULD ALSO BE CONS IDERED FOR THIS PURPOSE. HENCE ON THIS ISSUE, WE RESTORE THE MATTER BACK TO THE FILE OF AO/TPO FOR FRESH DECISION BY EXAMINING THE AGREEMENT BETWEEN THE ASS ESSEE AND ITS AE IN RESPECT OF AGREED CREDIT PERIOD BECAUSE AS PER THE AGREEMENT DATED 01.10.2010 COPY OF WHICH IS AVAILABLE ON PAGES 187 TO 217 OF PAPER BOOK, ONLY THOSE RECEIVABLES ARE COVERED WHICH ARE ARISING AFT ER THIS DATE BUT IN RESPECT OF THOSE RECEIVABLES WHICH HAS ARISEN BEFORE 01.10.201 0 IF ANY, THERE MUST BE SOME OTHER AGREEMENT WHICH MAY CONTAIN DIFFERENT CR EDIT PERIOD TERMS AND THEREFORE, SUCH AGREEMENT SHOULD ALSO BE EXAMINED A ND THOSE RECEIVABLES ARE ALSO BE EXAMINED WHICH ARE ALREADY LIQUIDATED IN TH E PRESENT YEAR BECAUSE EVEN IF PAYMENTS WERE ALREADY RECEIVED FROM THE AE IN THE PRESENT YEAR ITSELF, IT HAS TO BE SEEN AS TO WHETHER SUCH PAYMENT RECEIVED FROM THE AE IN THE PRESENT YEAR ARE RECEIVED WITHIN AGREED CREDIT PERI OD OR BEYOND IT AND THE TOTAL IT(TP)A NO. 307/BANG/2016 PAGE 5 OF 5 DELAYED PAYMENT RECEIVED OR NOT RECEIVED UP TO 31.0 3.2011 SHOULD BE WORKED OUT FOR THE PURPOSE OF THIS TP ADJUSTMENT. 6. NOW REGARDING RATE OF INTEREST TO BE ADOPTED FOR WORKING OUT INTEREST ON SUCH DELAYED PAYMENT FROM AE, WE FIND THAT IN ASSESSMENT YEAR 2014-15, AS PER ITS ORDER DATED 30.10.2017, THE TPO HIMSELF HAS ADOPTED THE INTEREST RATE USING LIBOR- 6 MONTHS + 400 BASIS POINTS AND THE SAME WAS WORKED OUT AT 4.3836% FOR FINANCIAL YEAR 2013-14. IN OUR CONSIDERED OPIN ION, THE SAME BASIS OF LIBOR 6 MONTHS + 400 BASIS POINTS AS APPLICABLE F OR FINANCIAL YEAR 2010-11 SHOULD BE CONSIDERED IN THE PRESENT CASE ALSO. WE HOLD ACCORDINGLY. THE AO/TPO IS DIRECTED TO WORK OUT THE TP ADJUSTMENT ON THIS ACCOUNT AT THE RATE OF 6 MONTHS LIBOR + 400 BASIS POINTS FOR THE RELEVANT FINANCIAL YEAR I.E. FINANCIAL YEAR 2010-11 ON THE TOTAL AMOUNT RECEIVED OR RECEIVABLE BY THE ASSESSEE FROM ITS AE BEYOND THE AGREED CREDIT PERIO D CONSIDERING THE ACTUAL DELAY IN NUMBER OF DAYS. THESE TWO GROUNDS ARE DEC IDED ACCORDINGLY. 7. THESE TWO GROUNDS ARE PARTLY ALLOWED FOR STATIST ICAL PURPOSES. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 07 TH NOVEMBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.