Fujitsu Consulting India P.Ltd, New Delhi V. ACIT, Circle-9(2), New Delhi

ITA 5956/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1226 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-10-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 08-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence; TDS; FORM 26AS
• Section: 143(3); 234B; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘I’ BENCH, NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA No. 5956/DEL/2019 [A.Y 2015-16) M/s Fujitsu Consulting India Pvt. Ltd., Vs. The A.C.I.T N – 63, Lajpat Nagar –IV Circle 9(2) New Delhi New Delhi PAN: AAACH 8894 G [Applicant] [Respondent] Assessee By : Shri Nageshwar Rao, Adv Shri Shatanik Chakraborty, Adv Shri Akshay Uppal, Adv Department By : Shri Bhaskar Goswami, CIT- DR Date of Hearing : 04.10.2022 Date of Pronouncement : 11.10.2022 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order dated 28.05.2019 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] pertaining to Assessment Year 2015-16. 2 2. The grievances raised by the assessee read as under: “On the facts and circumstances of the case and in law, the Hon’ble DRP vide its directions dated 28 March 2019 grossly erred in upholding addition pertaining to interest on outstanding receivables made by the Learned AO to returned income of the Appellant vide draft assessment order dated 21 December 2018 passed under section 143(3) of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other and without prejudice to each other. That on the facts and circumstances of the case and in law, 1. The Learned AO/ TPO/ DRP have erred in making an addition of INR 21,231,519 to the total income of the Appellant due to adjustment in the arm's length price (“ALP”) of the international transaction pertaining to interest on receivables (“impugned transaction”). 2. The Learned AO/ TPO/ DRP have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for the impugned transaction. 3. By imputing interest on delayed receipts of receivables from the Associated Enterprises (“AEs”), the Learned AO/ TPO/ DRP have grossly erred in: 3 i. Identifying outstanding receivables as a separate international transaction by ignoring the fact that account receivables arising from an international transaction are closely linked to the main transaction and should be benchmarked, using a combined transaction approach and carrying out working capital adjustment; ii. By re-characterizing the nature of outstanding receivables as unsecured loan advanced to AEs; iii. Without prejudice to the Ground No. 3i and 3ii above, the Learned TPO/ AO/ DRP have failed to appreciate that: (a) the Appellant does not charge any interest from unrelated parties; and (b) the AEs do not charge any interest from the Appellant on outstanding payables towards the AEs iv. Without prejudice to Ground No. 3(i) and 3(ii) above, the Learned AO/ TPO/ DRP have failed to appreciate that even if interest needs to be charged on the receivables, the average receivable days of comparable companies selected by the Learned DRP/ TPO, should be considered to establish arm’s length interest. While computing the tax demand, a TDS credit of INR 24,114,498/- has been given to the applicant instead of INR 24,258,487 as claimed in the return of income and appearing in 4 Form 26AS for the year under consideration. 5. The Learned AO has grossly erred both in facts and in law in proposing to charge interest under section 234A, 234B and 234C of the Act. 6. The Learned AO has erred in initiating penalty under section 271(1)(c) of the Act. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.” 3. The representatives of both the sides were heard at length, the case records carefully perused. 4. Briefly stated, the facts of the case are that the assessee is engaged in the business of providing software consulting, systems design, enterprise application and computer programming services to its customers in India and outside India. The assessee has four 5 development facilities located at Pune, Noida, Hyderabad and Abu Dhabi. 5. Since the assessee has made international transaction with AE, a reference in this regard was made to the TPO. The TPO, vide order dated 29.10.2018, proposed an upward adjustment on account of interest receivables as under: Sl No. Interest on receivables classification Amount 1 Fujitsu Technology FZE (as per para. 8.1) 1,850,418 2 Abu Dhabi Computer Centre (as per para 8.2) 8,982,913 3 On transaction where the date of payment received by the assessee was not provided by the assesseefas per para 9) 2,408,893 4 Interest on receivables nn the transactions with AEs not covered in S.No 1, 2,3 above (as per Annexure 1 in the CD enclosed with this 50,339,843 Total 63,582,067 6. Objections were raised before the DRP which were mainly in respect of delinking of inter-company receivables arising from the main international transactions and re-characterizing outstanding receivables as unsecured loan advances to AEs and determining the 6 ALP without giving due consideration to the price charged under uncontrolled scenario. 7. It was further objected for application of SBI base rate plus 300 basis points for computing interest on receivables instead of using LIBOR as the bench-mark interest rate. 8. Objections of the assessee were dismissed by the DRP. 9. Before us, the ld. counsel for the assessee, at the very outset, requested for admission of additional evidences. It is the say of the ld. counsel for the assessee that the assessee is engaged in the business of providing software consulting, systems design, enterprise application and computer programming services to its customers in India and outside India. 10. It is the say of the ld. counsel for the assessee that the assessee had submitted working capital adjusted margins of the comparable companies to account for impact of outstanding receivables and duly benchmarked the receivables arising from international transaction 7 undertaken by the assessee during the relevant year by treating it as closely linked to the main service transactions. 11. The ld. counsel for the assessee further stated that both the Assessing Officer and the TPO did not agree with the economic analysis undertaken by the assessee and imputed interest @ 13 % on the inter- company receivables outstanding beyond the stipulated period by treating it as advancing of unsecured loan to the AEs. 12. The ld. counsel for the assessee vehemently stated that if the outstanding receivables were to be treated as an international transaction, then due consideration should be given to the price charged under uncontrolled scenario as the assessee has provided similar services to unrelated parties and no interest was charged with respect to outstanding receivables from unrelated parties. 13. Per contra, the ld. DR did not raise any objection for admission of additional ground but stated that transactions relating to outstanding receivables from AEs should be considered and compared with similar transactions with non-AEs for which the assessee should furnish necessary details for verification. 8 14. We have given thoughtful consideration to the orders of the authorities below qua the issue. We find force in the contention of the ld. counsel for the assessee. Since the assessee has provided similar services to unrelated parties and claims that no interest was charged with respect to outstanding receivables from unrelated parties, in all fairness, this contention cannot be brushed aside lightly, though needs due verification by lower authorities. 15. We, therefore, restore this issue to the file of the TPO/Assessing Officer. The assessee is directed to furnish necessary documentary evidences to demonstrate that on outstanding receivables from unrelated parties, no interest was charged on similar transactions as that with AEs and the Assessing Officer/TPO is directed to examine the same and decide the issue afresh as per provisions of law. 16. Similar view was taken by the co-ordinate bench in the case of M/s LT Foods Ltd ITA Nos. 6221 and 6222/DEL/2012 for Assessment Years 2008-09 and 2009-10 order dated 11.04.2022. The relevant findings read as under: 9 “47. We have carefully considered the rival submissions. The Hon’ble Jurisdictional High Court of Delhi in the case of Kusum Healthcare Pvt Ltd [Supra] has held as under: “10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression “receivables'' does not mean that de hors the context every item of “receivables'' appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Appellant will have to be studied. In other words, 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-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 10 days constitutes an international transaction by itself.” 48. In light of the aforementioned findings of the Hon’ble High Court, the contention of the assessee that no interest has been charged from non-AEs on similar delay cannot be brushed aside lightly. In fact, in the case of Aura OI SAS, delay was of 81 days and in the case of Sabi Foods, delay was of 52 days and no interest was charged by the assessee. 49. We have elsewhere mentioned the operating profit margin of the assessee vis a vis comparable companies from where it can be seen that the operating profit margin of the assessee is much higher than that of the comparable companies. 50. Considering the facts in totality in light of the ratio laid down by the Hon’ble Jurisdictional High Court [supra[ and keeping in mind that no interest was charged from receivables from non- AES, we are of the considered view that this adjustment is unwarranted and, accordingly, direct the Assessing Officer to delete the addition of Rs. 21,05,962/–. Ground No. 8.4 is, accordingly, allowed.” 17. In light of the above, if the Assessing Officer/TPO, after verification, finds that no interest was charged from receivables from non-AEs on similar transactions, then no adjustment is warranted. 11 18. With these directions, the appeal of the assessee is allowed for statistical purposes. 19. In the result, the appeal of the assessee in ITA No. 5956/DEL/2019 is allowed for statistical purposes. The order is pronounced in the open court on 11.10.2022. Sd/- Sd/- [C.M. GARG] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 11 th October, 2022. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi 12 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order