Axis Risk Consulting Services Pvt. Ltd., Delhi V. DCIT, New Delhi

ITA 3693/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3476 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 21-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Assessee Lawyers: REEMA MALIK
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.3693/DEL/2014 ASSESSMENT YEAR: 2009-10 AXIS RISK CONSULTING SERVICES PRIVATE LIMITED. DELHI INFORMATION TECHNOLOGY PARK, SHASTRI PARK, DELHI. V. DCIT, CIRCLE-2(1), NEW DELHI. TAN/PAN: AAECA 9833G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VISHAL KALRA & MS. REEMA MALIK ADV. RESPONDENT BY: SHRI H.K. CHAUDHARY, CIT-D.R. DATE OF HEARING: 15 02 2018 DATE OF PRONOUNCEMENT: 22 02 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSE E AGAINST IMPUGNED ORDER DATED 06.01.2014, PASSED BY LD. ASSESSING OFFICER U/S 143(3)/144C(13) IN PURSUANCE OF THE DIRECTIONS GIVEN BY THE DRP U/S.144C(5) DATED 27.11 .2013. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN VARIOU S GROUNDS OF APPEAL RELATES TO TRANSFER PRICING ADJUSTMENT OF RS.79,89,255/- ON ACCOUNT OF RE-CHARACTERIZING OF T HE OUTSTANDING RECEIVABLES FROM OVERSEAS AES AS LOAN F ACILITY AND THEREBY IMPUTING INTEREST AT THE RATE EQUAL TO ANNU AL AVERAGE YIELD OF 5 YEAR BB RATED BOND BY CONSIDERING ALL THE RECEIVABLES TO BE OUTSTANDING FOR OVER 365 DAYS. I.T.A. NO.3693/DEL/2014 2 3. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF G ENPACT INDIA HOLDINGS, MAURITIUS, WHICH IN TURN IS HELD B Y GENPACT LTD. BERMUDA. THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF PROVIDING RISK CONSULTING, ADVISORY AND RISK ASSURA NCE SOLUTIONS. THE COMPANYS SERVICES ARE IN THE NATURE OF RISK ASSURANCE, BUSINESS IMPROVEMENT, BUSINESS RISK ASSE SSMENT, CORPORATE GOVERNANCE, BUSINESS SYSTEM CONTROLS, ENT ERPRISE RISK MANAGEMENT, COST MANAGEMENT SOLUTIONS ETC. IT SERVE S ITES, BOP TELECOM, TRAVEL, HOSPITALITY, MANUFACTURING, BI OSCIENCES, RETAIL AND CONSUMER PRODUCTS, AND FINANCIAL SERVICE S INDUSTRIES. IN A NUTSHELL IT CAN BE SAID THAT THE COMPANY OPERA TES AS AN INFORMATION TECHNOLOGY ENABLED CONSULTANCY SOLUTION S PROVIDER RENDERING INTEGRATED RISK AND TECHNOLOGY SOLUTIONS IN INDIA AND INTERNATIONALLY. 4. THE ONLY DISPUTED TRANSACTION BEFORE US IS ON ACCOUNT OF RECEIVABLES DUE TO THE ASSESSEE FROM ITS ASSESSEE F OR THE SERVICES RENDERED. THE TPO ON THE PERUSAL OF THE BALANCE-SHE ET NOTED THAT THERE WERE RECEIVABLES FROM WHICH HE POINTED O UT THAT THE PAYMENT FOR THE INVOICES RAISED BY THE ASSESSEE HAV E NOT BEEN RECEIVED WITHIN THE STIPULATED TIME. THE TPO OPINED THAT IN SUCH CIRCUMSTANCES THE DELAYED PAYMENT HAS TO BE TREATED AS UNSECURED LOANS ADVANCED TO THE AES ON WHICH HE PRO POSED TO CHARGE A NORMAL RATE OF INTEREST FOR THE PERIOD OF DELAY IN RECEIPT OF THE PAYMENT BEYOND THE TIME STIPULATED IN THE SE RVICES AGREEMENT. THE ASSESSEE IN RESPONSE TO THE SHOW CAU SE NOTICE SUBMITTED THAT THE BENCH MARKING OF RECEIVABLES CAN NOT BE DONE AS IT IS NOT AN INTERNATIONAL TRANSACTION WHICH WAR RANTED ANY KIND OF BENCH MARKING. HOWEVER, THE TPO AFTER DETAI LED I.T.A. NO.3693/DEL/2014 3 DISCUSSION AND RELYING UPON BY PROVISION OF SECTION 92B(1) READ WITH SECTION 92F(V), HELD THAT IT IS AN INTERNATION AL TRANSACTION AND AFTER DETAILED DISCUSSION, HELD THAT INTEREST R ATE OF 17.22% BASED ON YIELD RATE OF BB RATED BOND FOR FIVE YEA R SHOULD BE APPLIED; AND ACCORDINGLY, MADE THE ADJUSTMENT AFTER DETAILED CALCULATION WHICH WORKED OUT TO RS.79,89,255/-. THE DRP HAS CONFIRMED THE SAID ACTION OF THE TPO. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ASSESSEE HAS RENDERED SIMILAR SE RVICES TO NON AES/ UNRELATED PARTIES AND FROM UNRELATED PARTI ES IT HAS ALSO NOT CHARGED ANY INTEREST FROM THE RECEIVABLES AND THUS, THERE IS AN INTERNAL CUP FOR BENCHMARKING THE TRANS ACTIONS, I.E., BOTH FOR THE CONTROLLED AND UNCONTROLLED TRANSACTIO NS ASSESSEE HAS NOT BEEN CHARGING INTEREST, AND THEREFORE, NO A DJUSTMENT SHOULD BE MADE. IN SUPPORT, HE HAS GIVEN THE FOLLOW ING TABULATION SHOWING THAT NO INTEREST HAS BEEN CHARGE D FROM AES AND NON AES. TABULATION SHOWING NO INTEREST CHARGED FROM AE/NON AE PARTICULARS AES (NR)(IN INR) AES (DOMESTIC IN INR) NON-AES (IN INR) TOTAL (IN INR) REVENUE FROM CONSULTANCY SERVICES 10,41,30,757 70,23,200 12,73,70,180 23,85,24,137 INTEREST RECEIVED NIL NIL NIL NIL RECEIVABLES/SUNDRY DEBTORS 4,63,95,206 1,45,42,531 2,68,64,973 8,78,02,710 6. FROM THE ABOVE, HE POINTED OUT THAT THE TRA NSACTIONS WITH THE NON AES WERE FAR MORE THAN THE AES AND ON SIMIL AR DELAYED PAYMENTS OF THE RECEIVABLES; NO INTEREST HAS BEEN C HARGED FROM NON AES ALSO. IN VIEW OF OUR DIRECTION TO THE LD. C OUNSEL TO GIVE I.T.A. NO.3693/DEL/2014 4 INVOICE WISE DETAILS OF RECEIVABLES FROM THE THIRD PARTY CUSTOMERS, HE HAD FILED THE SAME BEFORE US; AND FRO M THERE HE POINTED OUT THAT IN THE CASE OF NON AES ALSO THERE HAVE BEEN HUGE DELAY IN THE OUTSTANDING RECEIVABLES AND THUS, UNDER SIMILAR CIRCUMSTANCES ON SIMILAR NATURE OF TRANSACT ION WITH THE AE NO INTEREST CAN BE IMPUTED. ALTERNATIVELY, HE SU BMITTED THAT IF THAT INTEREST HAS TO BE IMPUTED THEN LIBOR RATE SHOULD BE APPLIED INSTEAD OF BB BOND YIELDING RATE OF FIVE YE ARS. 7. ON THE OTHER HAND, LEARNED SR. DR SUBMITTED TH AT THE AVERAGE WORKING OF THE DELAY IN RECEIVABLES IN THE CASE OF AES AND NON AES HAS TO BE SEEN AND IF THERE IS AN OVERA LL DELAY IN THE AVERAGE DELAY OF PAYMENT, THEN INTEREST NEEDS T O BE CHARGED ON THE RECEIVABLES FROM THE AES AND FOR THE RATE OF INTEREST, HE ADMITTED THAT LIBOR RATE CAN BE APPLIED IN VIEW OF THE SETTLED PROPOSITION LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN COTTON NATURALS AND IN MANY OTHER CASES. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDINGS AND MATERIAL PLACED ON REC ORD, THE ONLY DISPUTE BEFORE US IS WITH REGARD TO THE ADJUSTMENT BY WAY OF IMPUTING INTEREST @ 17.22% BY THE TPO ON ACCOUNT OF RECEIVABLES FROM THE AE. HERE IN THIS CASE, IT IS A N UNDISPUTED FACT THAT THE ASSESSEE HAS ALSO RENDERED SIMILAR SE RVICES TO NON AES/UNRELATED PARTIES AND ON RECEIVABLES FROM THE N ON AES ALSO, THERE HAVE BEEN DELAYS ON RECEIVABLES ON WHIC H NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE. BEFORE US, INVOIC E WISE DETAILS HAVE BEEN FURNISHED HIGHLIGHTING THE DETAIL S OF AMOUNT OF THE INVOICE DATE; DATE OF RECEIPT AND THE NUMBER OF OUTSTANDING DAYS FOR THE PAYMENT HAS BEEN GIVEN. FROM SUCH DETA ILS, IT IS I.T.A. NO.3693/DEL/2014 5 SEEN THAT IN THE CASE OF UNRELATED PARTY TRANSACTIO N, THERE ARE HUGE DELAYS AND IN SOME CASES IT HAS GONE UP MORE T HAN 1700 DAYS. THE PERIOD OF OUTSTANDING RECEIVABLES IS RANG ING BETWEEN 38 DAYS TO 1718 DAYS AND IN MOST OF THE INVOICES, A VERAGE DELAY IS MORE THAT 300 DAYS. IF THERE ARE SIMILAR NATURE OF TRANSACTION WITH COMPARABLE UNCONTROLLED TRANSACTIONS AND ALSO WITH RELATED PARTIES, THEN THERE IS AN INTERNAL CUP TO BENCH MAR K THE CONTROLLED TRANSACTION WITH COMPARABLE UNCONTROLLED TRANSACTION. UNDER CUP PRICE CHARGED OR PAID FOR TH E SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION I S TAKEN INTO CONSIDERATION AND IT IS THE ADJUSTED PRICE PAID FOR AVAILING SERVICES WHICH CONSTITUTES THE BENCHMARK FOR COMPAR ISON WITH THE PRICE PAID FOR AVAILING OF ANY SERVICES IN AN I NTERNATIONAL TRANSACTION. IF THERE ARE SIMILAR TRANSACTIONS OF S ERVICES WITH RELATED PARTIES AS WELL AS UNRELATED PARTIES AND TH E PRICE CHARGED OR PAID ARE COMPARABLE, THEN IT IS TAKEN TO BE AT ARMS LENGTH PRICE. THUS, IF UNDER BOTH THE SCENARIOS, NO INTEREST HAS BEEN CHARGED ON SIMILAR NATURE OF RECEIVABLES, THEN IT HAS TO BE RECKONED THAT THE TRANSACTION WITH THE RELATED PART Y MEETS THE ARMS LENGTH REQUIREMENT VIS--VIS , THE TRANSACTIONS WITH THE UNRELATED THIRD PARTIES. ACCORDINGLY, WE HOLD THAT NO INTEREST CAN BE IMPUTED ON RECEIVABLES WITH THE AE AND ACCOR DINGLY, THE ADDITION MADE BY THE TPO IS DIRECTED TO BE DELETED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2018. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 ND FEBRUARY, 2018 PKK: