CRM Services India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 432/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8461 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 28-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction; Additional evidence; Notional interest; Set aside
• Section: 143(3); 92B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-1 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.432/DEL/2016 ASSESSMENT YEAR: 2011-12 CRM SERVICES INDIA PVT. LTD., 220, VINOBHA PURI, LAJPAT NAGAR-II, NEW DELHI. PAN: AABCC6211B VS ACIT, CIRCLE-6(2), CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NEERAJ JAIN, ADVOCATE & SHRI ABHISHEK AGARWAL, CA REVENUE BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 16.05.2019 DATE OF PRONOUNCEMENT : 15.07.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 13.11.2015 PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WIT H SECTION 144C OF THE IT ACT, RELATING TO ASSESSMENT YEAR 2011-12. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE M/S CRM SERVICES INDIA PVT. LTD., IS A 99.9% SUBSIDIARY OF TPUSA INC., A DELAWA RE CORPORATION, RUNNING A VOICE BASED CALL CENTRE FACILITY IN GURGAON. IT FILED IT S RETURN OF INCOME ON 29.11.2011, ITA NO.432/DEL/2016 2 DECLARING AN INCOME OF RS.10,89,04,919/-. THE ASSE SSING OFFICER REFERRED THE MATTER TO THE TPO FOR DETERMINING THE ARMS LENGTH PRICE O F THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE TPO, DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAS REPORTE D THE FOLLOWING INTERNATIONAL TRANSACTIONS:- INTERNATIONAL TRANSACTIONS NAME OF THE AE VALUE (IN RS.) METHOD PAYMENT OF ROYALTY TPUSA INC. 25,300,568 TNMM INFORMATION TECHNOLOGY ENABLED AND RELATED IT SERVICES TPUSA INC. 674,155,488 TNMM INFORMATION TECHNOLOGY ENABLED AND RELATED IT SERVICES TELEPERFORMANC, UK. 1,161,236 TNMM REIMBURSEMENT FOR EXPENSES INCURRED TPUSA INC. 30,471,276 CUP REIMBURSEMENT FOR EXPENSES INCURRED (TRAINING EXPENSE] MERKAFON DE MEXICO, SA DE C.V. 25,42,550 CUP REIMBURSEMENT FOR EXPENSES INCURRED (SOFTWARE EXPENSE) TELEPERFORMANCE GROUP INC., USA 32,66,046 CUP REIMBURSEMENT FOR EXPENSES (RECEIVED] TELEPERFORMANCE GROUP INC., USA 2,92,178 CUP TOTAL 73,68,97,164 3. AFTER CONSIDERING VARIOUS OBJECTIONS FILED BY TH E ASSESSEE FROM TIME TO TIME, THE TPO PROPOSED THE FOLLOWING ADJUSTMENTS TO THE INTER NATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES:- S. NO. NATURE OF INTERNATIONAL TRANSACTION ALP DETERMINED BY ASSESSEE (INR) ALP DETERMINED BY THIS OFFICE (INR) ADJUSTMENT U/S 92CA (INR) 1. PAYMENT OF ROYALTY 2,53,00,568 NIL 2,53,00,568 2. RECEIVABLES NIL 52,80,570 52,80,570 TOTAL 3,05,81,138 4. THE ASSESSING OFFICER ACCORDINGLY MADE THIS ADDI TION IN THE DRAFT ASSESSMENT ORDER PASSED BY HIM. THE ASSESSEE APPROACHED THE D RP WHO GAVE PART RELIEF ON BOTH THE ISSUES ON WHICH ADDITION WAS PROPOSED BY THE TP O/A.O. SO FAR AS PAYMENT OF ITA NO.432/DEL/2016 3 ROYALTY IS CONCERNED, THE DRP RESTRICTED THE SAME T O RS.1,25,61,795/- AS AGAINST RS.2,53,00,568/- MADE BY THE ASSESSING OFFICER. SO FAR AS THE RECEIVABLES ARE CONCERNED, THE DRP RESTRICTED THE SAME TO RS.10,28, 714/- AS AGAINST RS.52,80,570/-. 5. AGGRIEVED WITH SUCH ORDER OF THE A.O./TPO/DRP, T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND S:- 1. THAT THE ASSESSING OFFICER / DISPUTE RESOLUTION PANEL (DRP) ERRED ON FACTS AND IN LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 144C/143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) AT AN INCOME OF RS . 12,24,95,430 AS AGAINST INCOME OF RS. 10,89,04,919 RETURNED BY THE APPELLAN T. 2. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS A ND IN LAW IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS. 1,25,61,795 ALLE GEDLY ON ACCOUNT OF DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRAN SACTION OF PAYMENT OF ROYALTY OF RS. 2,53,00,568 HOLDING THAT THE APPELLANT WAS NOT REQUIRED TO PAY ROYALTY IN RESPECT OF SERVICES PROVIDED TO THE ASSOCIATED ENTE RPRISE. 2.1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT IN TERMS OF INTANGIBLE AND PROPRIETARY PROPERTY AN D LICENSING AGREEMENT (THE AGREEMENT) DATED 02-01-2002, ROYALTY WAS REQUIRED TO BE PAID ONLY ON THE PROPORTIONATE SALES MADE TO UNRELATED THIRD PARTIES . 2.2 THAT THE ASSESSING OFFICER/ DRP ERRED ON FAC TS AND IN LAW IN NOT APPRECIATING THAT THE ENTIRE REVENUES OF THE APPELL ANT ARE FROM SALE OF SERVICES TO THIRD PARTIES - WHETHER SUCH THIRD PARTIES ARE DIRE CT CUSTOMERS OF THE ASSESSEE OR CUSTOMERS OF THE ASSOCIATED ENTERPRISE, AND ACCORDI NGLY ROYALTY WAS PAYABLE ON THE TOTAL REVENUE. 2.3 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS A ND IN LAW IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS. 1,25,61,795 UNDE RTAKING COST BENEFIT ANALYSIS TO DETERMINE THE ARMS LENGTH PRICE OF PAYMENT OF R OYALTY WITHOUT APPRECIATING THAT COST-BENEFIT ANALYSIS IS NOT A PRESCRIBED METH OD UNDER RULE 10B OF INCOME TAX RULES, 1963. 2.4 THAT THE ASSESSING OFFICER/ TPO ERRED ON FACTS AND IN LAW IN APPLYING CUP METHOD FOR BENCHMARKING THE TRANSACTION OF PAYM ENT OF ROYALTY WITHOUT PLACING ON RECORD ANY COMPARABLE DATA FOR COMPARISO N. 2.5 THAT THE ASSESSING OFFICER/ TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE TRANSACTION OF PAYMENT OF ROY ALTY HAS ALREADY BEEN ITA NO.432/DEL/2016 4 BENCHMARKED APPLYING TNM METHOD AS THE MOST APPROPR IATE METHOD AND ACCORDINGLY, NO ADJUSTMENT IS REQUIRED TO BE MADE O N THIS ACCOUNT. 2.6 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF ROYALTY WAS MADE IN RESPECT OF SALE OF SERVICES TO THE CUSTOMERS OF THE ASSOCIATED ENTERPR ISE IN TERMS OF THE AGREEMENT AND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE S OF BUSINESS. 3. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS A ND IN LAW IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS.10,28,714 IN RESPECT OF TH E RECEIPT OF RECEIVABLE FROM THE ASSOCIATED ENTERPRISE CONSIDERING THE SAME TO B E AN INTERNATIONAL TRANSACTION OF LOAN, ON THE BASIS OF THE ORDER PASSED UNDER SEC TION 92CA(3) OF THE ACT BY THE TRANSFER PRICING OFFICER (TPO). 3.1 THAT THE DISPUTE RESOLUTION PANEL (DRP) ERRE D ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE TPO, WHEREIN, IT WAS HEL D THAT THE ALLEGED DELAY IN REALIZATION OF RECEIVABLES IS AS AN INTERNATIONAL T RANSACTION IN TERMS OF SECTION 92B OF THE ACT. 3.2 WITHOUT PREJUDICE, THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN NOT ACCEPTING THAT IN ANY CASE THE TRANSACTION OF DELAY IN RESPECT OF RECEIVABLES WAS CLOSELY LINKED TO THE INTERNATIONAL TRANSACTION O F EXPORTS AND SINCE THE PROFIT EARNED BY THE APPELLANT AS A PERCENTAGE OF COST IS HIGHER THAN THE PROFIT EARNED BY COMPARABLE COMPANIES, NO TRANSFER PRICING ADJUSTMEN T WAS EVEN OTHERWISE REQUIRED TO BE MADE IN THIS REGARD. 3.3 WITHOUT PREJUDICE, THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT EVEN AFTER CONSIDERING ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL IN THE MARGIN OF THE APPELLANT AND THE COMPARABLE C OMPANIES SINCE THE ADJUSTED MARGIN OF THE APPELLANT IS HIGHER THAN THAT OF COMP ARABLE COMPANIES NO INTEREST OUGHT TO BE IMPUTED ON THE ALLEGED DELAY IN RECEIPT OF RECEIVABLES. 3.4 WITHOUT PREJUDICE, THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN REJECTING THE DELAY IN RECEIPT OF RECEIVABLES ON TR ANSACTION UNDERTAKEN WITH UNRELATED THIRD PARTIES AS COMPARABLE UNCONTROLLED PRICE FOR THE PURPOSE OF BENCHMARKING THE DELAY IN RECEIPT OF RECEIVABLES ON TRANSACTION UNDERTAKEN WITH ASSOCIATED ENTERPRISES, APPLYING CUP METHOD. 3.5 WITHOUT PREJUDICE, THAT THE DRP ERRED ON ADDIN G A MARKUP OF 400 BASIS POINTS TO THE USD LIBOR, ON ACCOUNT OF ADJUSTMENT F OR SECURITY AND TRANSACTION COST, WITHOUT PROVIDING COGENT REASONS AND ON THE B ASIS OF HIS SURMISES AND CONJECTURE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE AFORESAID GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. ITA NO.432/DEL/2016 5 6. GROUND OF APPEAL NO.1 BY THE ASSESSEE BEING GENE RAL IN NATURE IS DISMISSED. 7. SO FAR AS GROUND OF APPEAL NO.2 IS CONCERNED, TH E LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ROYALTY HAS BEEN PAID TO THE AE AS W ELL AS TO THE THIRD PARTY. THE DRP HAS GIVEN DIRECTION TO DELETE THE ROYALTY THAT HAS BEEN PAID TO THE THIRD PARTY. HOWEVER, THEY HAVE REJECTED THE CONTENTION OF THE A SSESSEE FOR THE ROYALTY PAID TO THE AE. REFERRING TO THE COPY OF THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, 2009-10 AND 2010-11, HE SU BMITTED THAT UNDER IDENTICAL CIRCUMSTANCES, THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE A.O./TPO FOR DETERMINING THE ISSUE AFRESH ON THE BASIS OF THE AD DITIONAL EVIDENCES FILED UNDER RULE 29 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES, 19 63. HE SUBMITTED THAT FOR THIS YEAR ALSO THE ASSESSEE IS FILING AN APPLICATION UNDER RU LE 29 OF THE INCOME-TAX (APPELLATE TRIBUNAL) RULES WHICH SHOULD BE ADMITTED AND HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE A.O./TPO. HE SUBMITTED THAT SINCE THE LICENCE AGREEMENT WAS MISCONCEIVED BY THE LOWER AUTHORITY, THEREFORE, THE ASSESSEE IS FILING THESE ADDITIONAL EVIDENCES. HE ACCORDINGLY SUBMITTED THA T THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER. 8. THE LD. DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE A.O./TPO/DRP, FAIRLY CONCEDED THAT HE HAS NO OBJECT ION IF THE MATTER IS RESTORED TO THE FILE OF THE A.O./TPO. ITA NO.432/DEL/2016 6 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND PERUSED THE ORDERS OF THE A.O./TPO/DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E., 2010-11, VIDE ITA NO.1161/DEL/2015, ORDER DATED 27 TH JULY, 2018, THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE A.O./TPO FOR FRESH ADJUDICATION BY OBSERVING AS UNDER:- 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF THE ASSESSEES APPEAL FOR THE EARLIER ASSESSMENT YEARS 2008-09 AND 2009-10 IN THOSE YEARS ALSO ASSES SEE FURNISHED THE ADDITIONAL EVIDENCES AS HAS BEEN DONE IN THE YEAR UNDER CONSID ERATION. THIS BENCH OF THE ITAT IN ASSESSEES OWN CASE FOR THE AFORESAID ASSES SMENT YEARS 2008-09 AND 2009-10 WHILE DECIDING THE IDENTICAL ISSUE IN ITA N OS. 5930/DEL/2012 AND 1630/DEL/2014 HAS RESTORED THE ISSUE BACK TO THE FI LE OF THE AO / TPO. THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 7.1 TO 9 WHICH READ AS UNDER:- 7.1 AS FAR AS THE ASSESSEES PLEA REGARDING ADJUST MENT IN RESPECT OF ROYALTY IS CONCERNED, WE HAVE DULY CONSIDERED THE A SSESSEES APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE WH ICH HAS BEEN FILED UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL ) RULES, 1963 AND LOOKING TO THE FACTS AND CIRCUMSTANCES, IT IS OUR C ONSIDERED OPINION THAT THIS ADDENDUM TO THE AGREEMENT GOES TO THE VER Y ROOT OF THE MATTER AND IT WILL SUITABLY ASSIST THE LOWER AUTHOR ITIES DID NOT HAVE THE BENEFIT OF EXAMINING THIS DOCUMENT, THE MATTER HAS TO BE NECESSARILY RESTORED TO THE FILE OF THE ASSESSING OFFICER / TPO FOR DECIDING THE ISSUE OF ROYALTY AFRESH AFTER DULY CONSIDERING THIS AGREEMENT AND AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE TO PRESENT I TS CASE. ACCORDINGLY, GROUND NO. 17 IN ASSESSEES APPEAL FOR ASSESSMENT Y EAR 2008-09 ALSO STANDS ALLOWED FOR STATISTICAL PURPOSES. 7.2 SINCE THE LD. AR HAS STATED THAT IF GROUND NOS. 3 AND 17 ARE DECIDED IN FAVOUR OF THE ASSESSEE, THE OTHER GROUND S WILL BECOME ACADEMIC IN NATURE, WE ARE NOT PROCEEDING TO HEAR T HE ARGUMENTS OF EITHER OF THE PARTIES ON THE REMAINING GROUNDS AT T HE PRESENT MOMENT. WE, HOWEVER, NOTE THAT THE ASSESSEE WILL BE AT LIBE RTY TO RAISE THESE GROUNDS AGAIN BEFORE THE TRIBUNAL AT A FUTURE DATE, IF IT IS SO REQUIRED. 8. IN THE RESULT, THE ASSESSEES APPEAL ITA NO. 593 0/DEL/2013 STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR DIRECTIONS AS CONTAINED IN THE PRECEDING PARAGRAPHS. ITA NO.432/DEL/2016 7 9. COMING TO THE ASSESSEES APPEAL IN ITA NO. 1630/ DEL/2014, SINCE WE HAVE ALREADY ADMITTED ADDITIONAL EVIDENCE IN RES PECT OF THE ISSUE PERTAINING TO ALP OF ROYALTY IN ASSESSMENT YEAR 200 8-09, ON IDENTICAL REASONING, WE ADMIT ADDITIONAL EVIDENCE IN THIS YEA R AS WELL. SINCE THE LOWER AUTHORITIES DID NOT HAVE THE BENEFIT OF EXAMI NING THIS DOCUMENT, THE MATTER HAS TO BE NECESSARILY RESTORED TO THE FI LE OF THE ASSESSING OFFICER / TPO FOR DECIDING THE ISSUE OF ROYALTY AFR ESH AFTER DULY CONSIDERING THIS AGREEMENT AND AFTER GIVING DUE OPP ORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 7. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 14.5.2018 FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10 IN ASSESSE ES OWN CASE. THE ISSUE UNDER CONSIDERATION IN THE PRESENT CASE RELATING TO PAYMENT OF ROYALTY IS ALSO SET ASIDE TO THE FILE OF THE AO / TPO TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW BY KEEPING IN VIEW THE DIRECTIONS GIVEN IN THE AFOR ESAID REFERRED TO ORDER DATED 14.5.2018. 10. SINCE THE FACTS OF THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE PRECEDING ASSESSMENT YEAR, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT Y EARS, WE RESTORE THE ISSUE TO THE FILE OF THE A.O./TPO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH THE LAW IN THE LIGHT OF THE DIRECTIONS OF THE TRIBU NAL. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTI CAL PURPOSES. 11. SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED, T HE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PARA 11 OF THE O RDER OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF PCIT VS. KUSUM HEALTHCARE PVT. LTD., VIDE ITA NO.76 5/2016, ORDER DATED 25 TH APRIL, 2017 WHICH READS AS UNDER:- 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE A O WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HA RDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVA BLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES O N THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS--VIS THAT OF ITS COMPARABLES, ANY FURTHER ITA NO.432/DEL/2016 8 ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING REC EIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERISED THE TRANSACTION. T HIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DELHI). 12. HE SUBMITTED THAT THE ASSESSEE, IN THE INSTANT CASE, HAS EARNED A PROFIT MARGIN OF 39.86% FROM ITS AE WHEREAS IT HAS EARNED PROFIT MAR GIN OF 4.67% FROM UNRELATED PARTIES. THEREFORE, THE PROFIT EARNED FROM THE AE BEING MUCH HIGHER THAN THE PROFIT EARNED FROM THIRD PARTY/UNRELATED PARTIES, THEREFOR E, NO ADJUSTMENT ON ACCOUNT OF RECEIVABLES IS CALLED FOR. HE ALSO RELIED ON THE F OLLOWING DECISIONS:- I) PCIT VS. KUSUM HEALTHCARE PVT. LTD., ITA NO.1161/DE L/2015 (DELHI HIGH COURT) II) GLOBAL LOGIC INDIA LTD. VS. DCIT [ITA NO.1630/DEL/2 014, A.Y. 2010-11 & ITA NO.1115/DEL/2017, A.Y. 2012-13] 13. REFERRING TO THE DECISION OF THE COORDINATE BEN CH OF THE TRIBUNAL IN THE CASE OF M/S GLOBAL LOGIC INDIA LTD. IN ITA NO.1104/DEL/2015 AND 1115/DEL/2017, ORDER DATED, 12.12.2017, FOR ASSESSMENT YEAR 2010-11 AND 2012-13, RESPECTIVELY, HE SUBMITTED THAT HERE ALSO THE TRIBUNAL, FOLLOWING TH E DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTHCARE PVT. LTD., HA S HELD THAT NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF NOTIONAL INTEREST ON RECEIVABLES BY RELYING UPON EXPLANATION (I), (A) AND (C) TO SECTION 92B BY TREATING THE CONTINUE D DEBT BALANCE AS AN INTERNATIONAL TRANSACTION. HE ACCORDINGLY SUBMITTED THAT NO ADJUS TMENT ON ACCOUNT OF RECEIVABLES IS CALLED FOR. ITA NO.432/DEL/2016 9 14. THE LD. DR, ON THE OTHER HAND, REFERRED TO PAGE 35 AND 36 OF THE ORDER OF THE TPO AND SUBMITTED THAT THE TPO HAS GIVEN VALID REAS ONS FOR HOLDING THAT THE DELAY IN REALIZATION OF RECEIVABLES IS AN INTERNATIONAL TRAN SACTION IN TERMS OF SECTION 92B OF THE IT ACT AND, THEREBY, MAKING ADJUSTMENT ON ACCOUNT D ELAY IN REALIZATION OF RECEIVABLES. HE ACCORDINGLY SUBMITTED THAT THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 15. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE A.O/TPO/DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. THE ONLY ISSUE TO BE DECIDED IN THE IMPUGNED GROUND IS REGARDING THE TRA NSFER PRICING ADJUSTMENT OF RS.10,28,714/- IN RESPECT OF THE REALIZATION OF REC EIVABLES FROM THE AES CONSIDERING THE SAME TO BE AN INTERNATIONAL TRANSACTION OF LOAN . FROM THE VARIOUS DETAILS FILED BY THE ASSESSEE AS WELL AS THE SUBMISSION MADE BY THE LD. COUNSEL, WE FIND THE ASSESSEE HAS EARNED A PROFIT MARGIN OF 31.86% FROM ITS AES W HEREAS THE PROFIT MARGIN FROM THE THIRD PARTIES/UNRELATED PARTIES IS ONLY 4.67%. WE FIND THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GLOBAL LOGIC INDIA (SUPRA) WHILE DECIDING AN IDENTICAL ISSUE HAS HELD THAT NO ADJUSTMENT CAN BE ON ACCOUNT OF NOTION AL INTEREST ON RECEIVABLES, BY RELYING UPON EXPLANATION (I), (A) AND (C) OF SECTIO N 92B BY TREATING THE CONTINUED DEBIT BALANCE AS AN INTERNATIONAL TRANSACTION. WHILE DOI NG SO, THE TRIBUNAL HAS RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E PCIT VS. KUSUM HEALTHCARE PVT. LTD. (SUPRA). THE RELEVANT OBSERVATION OF THE TRIB UNAL FROM PARA 13 ONWARDS READS AS UNDER:- ITA NO.432/DEL/2016 10 13. THE LD. TPO WHILE TREATING THE OUTSTANDING REC EIVABLES AS INTERNATIONAL TRANSACTION RELIED UPON EXPLANATION (I), (A) & (C) OF SECTION 92B WHICH IS REPRODUCED AS UNDER FOR READY REFERENCE :- 'EXPLANATION (I), (A) AND (C) OF SECTION 92B RECOGNIZES SALES AND RECEIVABLES ARISING DURING THE COURSE OF BUSINESS A S SEPARATE TRANSACTION. THE EXPLANATIONS READ AS UNDER :- (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE-- (A) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF T ANGIBLE PROPERTY INCLUDING BUILDING, TRANSPORTATION VEHICLE, MACHINERY, EQUIPM ENT, TOOLS, PLANT, FURNITURE, COMMODITY OR ANY OTHER ARTICLE, PRODUCT OR THING; (B) ..... (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS' 14. PROVISIONS CONTAINED UNDER EXPLANATION (I), (A) & (C) OF SECTION 92B HAVE BEEN ANALYZED BY HON'BLE DELHI HIGH COURT IN CASE C ITED AS PR. CIT-V VS. KUSUM HEALTH CARE PVT. LTD . IN ITA 765/2016 ORDER DATED 25.04.2017, WHEREIN I T IS HELD THAT THE EXPRESSION ADDED IN EXPLANATION TO SECTION 92B DOES NOT MEAN THAT DE HORS THE CONTEXT, EVERY ITEM OF RECEIVABLES APPEARI NG IN THE ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALING WITH FOREIGN AE, WOULD AUTOM ATICALLY BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AND DECIDED THE ISS UE IN FAVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDINGS :- '10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SU BMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION 'RECEIVABLES' DOES NOT MEAN THAT DE HORS THE CONTEX T EVERY ITEM OF 'RECEIVABLES' APPEARING IN THE ACCOUNTS OF AN ENTIT Y, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CH ARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DU E TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CAS E TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORK ING CAPITAL OF THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, T HERE 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--V IS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECT S AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT A Y CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT TH E FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSA CTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES ON ITA NO.432/DEL/2016 11 THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROF ITABILITY VIS--VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PI CTURE AND RE- CHARACTERISED THE TRANSACTION. THIS WAS CLEARLY IMP ERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LT D . (2012) 345 ITR 241 (DELHI). 12. CONSEQUENTLY, THE COURT IS UNABLE TO FIND ANY E RROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBSTANTIAL QU ESTION OF LAW FOR DETERMINATION. THE APPEAL IS, ACCORDINGLY, DISMISSE D.' 15. SO, IN VIEW OF THE LAW LAID DOWN BY HON'BLE HIG H COURT IN PR. CIT-V VS. KUSUM HEALTH CARE PVT. LTD . (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF NOTIONAL INTER EST ON RECEIVABLES BY RELYING UPON EXPLANATION (I), (A) & (C) OF SECTION 92B BY TREATING THE CONTINUED DEBT BALANCE AS AN INTERNATIONAL TRANSACTION. MOREOVER W HEN THE TAXPAYER IS DEBT FREE COMPANY, THERE IS NO QUESTION OF CHARGING ANY INTER EST OR RECEIVABLES. THIS ISSUE HAS ALSO BEEN DECIDED BY HON'BLE DELHI HIGH COURT I N CASE OF PR. CIT-1 VS. M/S. BECHTEL INDIA PVT. LTD . IN ITA 379/2016 ORDER DATED 21.07.2016. 16. FURTHERMORE WHEN WE EXAMINE THE ENTITY LEVEL MA RGIN OF THE TAXPAYER VIS-- VIS COMPARABLE COMPANIES, THE TAXPAYER HAS EARNED H IGHER MARGIN I.E. TAXPAYER EARNED 38.39% OP/OC MARGIN VIS--VIS MARGIN OF COMP ARABLE COMPANIES AT 11.43%. IN SUCH CIRCUMSTANCES, NO SEPARATE ADJUSTME NT ON ACCOUNT OF INTEREST CAN BE MADE. BECAUSE THE CREDIT PERIOD EXTENDED TO AE C ANNOT BE CONSIDERED AS A STANDALONE TRANSACTION WITHOUT CONSIDERING THE MAIN TRANSACTION OF THE SALE. 17. FURTHERMORE WHEN THE TAXPAYER IS UNDISPUTEDLY A DEBT FREE COMPANY, AS IT IS NOT THE CASE OF THE LD. TPO THAT BORROWED FUNDS HAV E BEEN APPROPRIATED ENABLING THE AE TO MAKE THE DELAYED PAYMENT ON RECEIVABLES. SO WHEN OUTSTANDING RECEIVABLES IS NOT A SEPARATE INTERNATIONAL TRANSAC TION, THE DELAY IN REALIZATION OF THE SALE PROCEEDS IS INCIDENTAL TO THE TRANSACTION OF SALE AND AS SUCH NO NOTIONAL INTEREST CAN BE LEVIED BY TREATING THE SAME AS UNSE CURED LOAN. 18. FURTHERMORE IT IS THE CASE OF THE TAXPAYER THAT WHEN THE TAXPAYER IS NOT CHARGING INTEREST FROM UNRELATED THIRD PARTY / NON- AE, IN CASE OF SUCH DELAY, NO ADJUSTMENT ON INTEREST IN CASE OF AE CAN BE MADE AN D DREW OUR ATTENTION TOWARDS THE DETAILS OF INVOICES RAISED QUA UNRELATED PARTIE S AVAILABLE AT PAGE 183A OF THE PAPER BOOK WHEREIN DELAY IN REALIZATION OF THE RECE IVABLES IS ALSO UP TO 218 DAYS FOR AY 2010-11 AND UP TO 417 DAYS QUA AY 2012-13 AS PER DETAIL OF INVOICES RAISED ON UNRELATED PARTIES QUA AY 2012-13, AVAILAB LE AT PAGE 236 OF THE PAPER BOOK. 19. THIS ISSUE HAS BEEN DEALT WITH BY HON'BLE BOMBA Y HIGH COURT IN CASE CITED AS CIT-9 VS. M/S. INDO AMERICAN JEWELLERY LTD . IN ITA (L) NO.1053 OF 2012 ORDER DATED 08.01.2013 WHEREIN FOLLOWING QUESTION W AS FRAMED :- ITA NO.432/DEL/2016 12 'B. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE ITAT WAS JUSTIFIED IN DELETING THE ADDITION OF RS.87,66,641/- BEING INTERNET RECEIVABLE ON OUTSTANDING AMOUNT DUE TO THE ASSESSEE COMPANY FROM THE ASSOCIATED ENTERPRISES? 20. AFORESAID QUESTION WAS DECIDED IN FAVOUR OF THE TAXPAYER BY UPHOLDING THE ORDER RENDERED BY THE TRIBUNAL BY MAKING FOLLOWING OBSERVATIONS :- '5. ON APPEAL FILED BY THE REVENUE, THE ITAT UPHELD THE ORDER OF CIT (A). WHILE, UPHOLDING THE ORDER OF CIT (A), THE ITA T HELD THAT INTEREST INCOME IS ASSOCIATED ONLY WITH THE LENDING OR BORROWING OF MONEY AND NOT IN CASE OF SALE. WE EXPRESS NO OPINIO N ON THE ABOVE REASONING OF THE ITAT AND KEEP THAT REASONING OPEN FOR DEBATE IN AN APPROPRIATE CASE. HOWEVER, IN THE FACTS OF THE PRES ENT CASE, THE SPECIFIC FINDING OF THE ITAT IS THAT THERE IS COMPLETE UNIFO RMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGING INTEREST FROM BOTH THE ASSOCIATED ENTERPRISES AND NON ASSOCIATED ENTERPRISES- DEBTORS AND THE DELAY IN REALIZATION OF THE EXPORT PROCEEDS IN BOTH THE CASE S IS SAME. IN THESE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL IN DELE TING THE NOTIONAL INTEREST ON OUTSTANDING AMOUNT OF EXPORT PROCEEDS R EALIZED BELATEDLY CANNOT BE FAULTED.' 21. SO, WHEN THE TAXPAYER HAS NOT BEEN MAKING ANY D ISTINCTION BETWEEN AE AND NON-AE IN CHARGING ANY INTEREST ON OUTSTANDING RECE IVABLES, THE ADJUSTMENT MADE BY THE TPO/DRP/AO ON ACCOUNT OF ARM'S LENGTH INTERE ST IS NOT SUSTAINABLE. MOREOVER THE INTEREST CAN BE CHARGED ONLY ON LOANIN G OR BORROWING OF MONEY AND NOT IN CASE OF SALE. PARTICULARLY WHEN THERE IS NO PENAL CLAUSE IN THE AGREEMENT ENTERED INTO BETWEEN THE TAXPAYER AND ITS AE/NON-AE TO CHARGE THE INTEREST ON DELAYED RECEIVABLES. EVEN OTHERWISE, A TRANSACTION CANNOT BE RECHARACTERIZED MERELY ON GROUND OF DELAY IN PAYMENT OF RECEIVABLES . 22. IDENTICAL ISSUE HAS ALSO BEEN EXAMINED BY COORD INATE BENCH OF THE TRIBUNAL IN KADIMI TOOL MANUFACTURING CO. PVT. LTD. VS. DCIT IN ITA NO.7068/DEL/2014 ORDER DATED 25.09.2017 AND HAS BEEN DECIDED IN FAVO UR OF THE TAXPAYER BY RELYING UPON KUSUM HEALTHCARE PVT. LTD. VS. ACIT - 170 TTJ 411 AND BECHTEL INDIA PVT. LTD. (SUPRA) WHEREIN SLP FILED IN THE HON'BLE SUPRE ME COURT HAS BEEN DISMISSED. 23. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, TPO/D RP/AO HAVE ERRED IN MAKING ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH INTERE ST WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW, HENCE NO ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLES CAN BE MADE. SO, GROUNDS NO.2 TO 2.9 ARE DETERMINED IN FAV OUR OF THE TAXPAYER. ITA NO.432/DEL/2016 13 16. RESPECTFULLY FOLLOWING THE DECISIONS CITED (SUP RA), WE HOLD THAT NO ADJUSTMENT IS REQUIRED ON ACCOUNT OF INTEREST ON RECEIVABLES. WE ACCORDINGLY SET ASIDE THE ORDER OF THE A.O./TPO/DRP AND DIRECT THE A.O. TO DELETE THE DISALLOWANCES SO MADE. THE GROUNDS OF APPEAL ON THIS ISSUE ARE ACCORDINGLY ALL OWED. 17. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 5.07.2019. SD/- SD/- (SUDHANSHU SRIVASTAVA) (R.K. PANDA) JUDICIAL MEMBER ACCOUN TANT MEMFBER DATED: 15 TH JULY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI