IQor India Services Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6387/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8746 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Notional interest
• Section: 250; 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: I(I), NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 6387/DEL./2016 ASSESSMENT YEAR: 2011-12 M/S. IQOR INDIA SERVICES PVT. LTD., B-92, 9 TH FLOOR, HIMALAYA HOUSE, 23, K.G. MARG, NEW DELHI VS. DCIT, CIRCLE-12(2), NEW DELHI PAN :AABCI2835F (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 24/08/2016 PASSED BY THE LEARNED CIT(APPEALS)-44, N EW DELHI [IN SHORT THE LEARNED CIT(A)] FOR ASSESSMENT YEAR 2011-12, RAISING FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ID. COMMISSIONER OF INCOME TAX (APPEALS) {CIT(A)}, WHIL E DISPOSING THE APPEAL U/S 250 OF THE INCOME-TAX ACT 1961 (THE ACT ), HAS ERRED IN: 1) CONSIDERING OUTSTANDING RECEIVABLES AS AN INTERN ATIONAL TRANSACTION AND UPHOLDING THE ADJUSTMENT DONE BY TH E ASSESSING OFFICER BY CONSIDERING NOTIONAL INTEREST @ LIBOR + 300 BASE POINTS. APPELLANT BY SHRI RAVI SHARMA, ADV. SHRI RISHABH MALHOTRA, ADV. RESPONDENT BY SHRI M. BARANWAL, SR.DR DATE OF HEARING 20.07.2020 DATE OF PRONOUNCEMENT 23.07.2020 2 ITA NO.6387/DEL./2016 2) CONSIDERING OUTSTANDING RECEIVABLES AS A SEPARAT E INTERNATIONAL TRANSACTION AND NOT APPRECIATING THE FACT THAT THE SAME EMANATES FROM PRINCIPLE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES TO ITS ASSOCIATED ENTERPRISE. 3) NOT APPRECIATING THE FACT THAT WORKING CAPITAL A DJUSTMENT CARRIED OUT IS AN ECONOMIC ADJUSTMENT MADE UNDER RULE 10B(E)(II I) OF THE INCOME TAX RULES,1962 WHICH TAKES CARE OF THE DIFTERENCES IN R ECEIVABLES OUTSTANDING PERIOD OF THE APPELLANT VIS-A-VIS THE C OMPANIES SELECTED AS COMPARABLES. 4) RE-CHARACTERIZING OUTSTANDING RECEIVABLES AS AN UNSECURED LOAN ADVANCED BY THE APPELLANT TO ITS AH, WHICH IS NOT P ERMISSIBLE UNDER THE ACT 5) NOT CONSIDERING THE FACT THAT PERIOD OF COLLECTI ON OF RECEIVABLES IS REASONABLE AND IN LINE WITH THE CIRCULAR ISSUED UND ER FOREIGN EXCHANGE MANAGEMENT ACT (FEMA) ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CARVES LEAVE TO ADD TO AND / OR TO AL TER, AMEND, RESCIND, MODIFY, THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY WAS ENGAGED IN PROVIDING INFORMATION TECHNO LOGY ENABLED SERVICES TO ITS ASSOCIATED ENTERPRISES FROM HUNDRED PERCENT EXPORT-ORIENTED UNITS IN SOFTWARE TECHNOLOG Y PARK UNDER THE SCHEME OF MINISTRY OF INFORMATION TECHNOLOGY, G OVERNMENT OF INDIA. FOR THE YEAR UNDER CONSIDERATION, SCRUTINY A SSESSMENT WAS COMPLETED AFTER TAKING INTO ACCOUNT, THE BENCHMARKI NG OF THE INTERNATIONAL TRANSACTION BY THE LEARNED TRANSFER P RICING OFFICER. THE ASSESSEE ENTERED INTO AN INTERNATIONAL TRANSACT ION OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICE S AMOUNTING TO 58,60,16,727/-. THE ASSESSEE USED TRANSACTIONAL NE T MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD AND TAKEN OPERATING PROFIT/OPERATING COST (OP/OC) AS PROFIT LEVEL INDIC ATOR (PLI). THE PLI OF THE ASSESSEE HAS BEEN WORKED OUT AT 23.17% A S AGAINST AVERAGE PLI OF SEVEN COMPARABLES AT 11.65%. IN VIEW OF THE PLI OF THE ASSESSEE BEING HIGHER THAN COMPARABLES, THE ASS ESSEE 3 ITA NO.6387/DEL./2016 CONCLUDED THAT ITS INTERNATIONAL TRANSACTION IS AT ARMS LENGTH. THE LEARNED TPO ACCEPTED ANALYSIS OF THE ASSESSEE R EGARDING THE TRANSACTION OF INFORMATION TECHNOLOGY ENABLED SERVI CES, HOWEVER HE PROPOSED ADJUSTMENT ON ACCOUNT RECEIVABLES FROM ITS ASSOCIATED ENTERPRISES, WHICH WERE NOT PAID FOR SUB STANTIAL PERIOD. THE TPO TREATED THE RECEIVABLES AS UNSECURE D LOAN AND APPLIED ARMS-LENGTH INTEREST RATE OF 10.84% FOR RE CEIVABLE BEYOND 30 DAYS UNDER COMPARABLE UNCONTROLLED PRICE (CUP) M ETHOD TAKING AVERAGE SBI PRIME LENDING RATE (WHICH WAS 7. 84%) AND ADDED 300 BPS. IN THIS MANNER, HE PROPOSED ADJUSTME NT OF 2,38,38,278/-. ON FURTHER APPEAL, THE LEARNED CIT(A ) DIRECTED TO APPLY LIBOR RATE + 300 BPS ON THE OUTSTANDING LOAN. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISI NG THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE REPRESENTATIVE OF THE PARTIES APPEA RED THROUGH VIDEOCONFERENCING. THE LEARNED COUNSEL OF T HE ASSESSEE FILED A PAPER-BOOK CONTAINING PAGES 1-446 ALONG WIT H OTHER DOCUMENTS FILED ELECTRONICALLY. 4. THE LEARNED COUNSEL DID NOT PRESS GROUND NO. 1 AND 2 OF THE APPEAL, ACCORDING GROUND NO. 1 & 2 ARE DISMISSED AS WITHDRAWN. 5. AS REGARD TO GROUND NOS. 3 TO 5 OF THE APPEAL, THE LEARNED COUNSEL SUBMITTED THAT DURING THE TRANSFER PRICING PROCEEDING THE ASSESSEE SUBMITTED PLI OF THE COMPARABLES AFTER CAR RYING OUT WORKING CAPITAL ADJUSTMENT, WHICH IS MUCH LESS THAN THE PLI THE ASSESSEE. HE SUBMITTED THAT WORKING CAPITAL ADJUSTM ENT IS AN ECONOMIC ADJUSTMENT MADE UNDER RULE 10BE(III) OF TH E INCOME-TAX RULES, 1962 AND WHICH TAKES CARE OF THE DIFFERENCE IN THE RECEIVABLES OUTSTANDING OF THE ASSESSEE VIS--VIS T HE COMPANIES 4 ITA NO.6387/DEL./2016 SELECTED AS COMPARABLE. ACCORDING TO HIM, THE WORKI NG CAPITAL ADJUSTMENT SUBSUMES ANY EFFECT OF OUTSTANDING RECEI VABLES AND THEREFORE NO SEPARATE ADJUSTMENT ON ACCOUNT OF THE OUTSTANDING RECEIVABLES IS REQUIRED IN THE CASE OF THE ASSESSEE . HE REFERRED TO WORKING CAPITAL ADJUSTED MARGIN OF THE ASSESSEE AND COMPARABLE AVAILABLE ON PAGE 43 TO 54 OF THE PAPER BOOK, WHICH ACCORDING TO HIM, WERE SUBMITTED BEFORE THE TPO. IN SUPPORT OF H IS CONTENTION, RELIED ON THE DECISION OF THE DELHI HIGH COURT IN T HE CASE OF KUSUM HEATHCARE PRIVATE LIMITED IN ITA 765/2016. TH E LD. COUNSEL ALSO SUBMITTED THAT THIS ISSUE WAS RAISED B EFORE THE LD. CIT(A) BY WAY OF A SPECIFIC GROUND NO. 1.3 OF THE A PPEAL BEFORE HIM. 6. ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT THE FACTS IN THE CASE OF THE ASSESSEE ARE DISTINGUISHABLE AND TH E CASE OF THE ASSESSEE IS SQUARELY COVERED BY A RECENT DECISION O F HON'BLE ITAT, DELHI IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. L TD., ITA NO.6102/DEL/2016, ORDER DT.06.07.2020, WHEREIN THE CASE OF KUSUM HEALTHCARE WAS ALSO CONSIDERED IN ADDITION TO SOME OTHER CASE-LAWS. 7. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ADVA NCED THROUGH VIDEOCONFERENCING FACILITY. WE FIND THAT TH OUGH THE ASSESSEE SUBMITTED WORKING CAPITAL ADJUSTED PLI OF THE COMPARABLES BEFORE THE LEARNED TRANSFER PRICING OFF ICER BUT SAME WAS NOT CONSIDERED BECAUSE UNADJUSTED PLI OF THE AS SESSEE WAS HIGHER THAN THE AVERAGE MARGINAL COMPARABLES AND RE SULTANTLY, NO ADJUSTMENT WAS PROPOSED TO THE INTERNATIONAL TRA NSACTION OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICE S REPORTED BY THE ASSESSEE. AS THE EFFECT OF THE WORKING CAPITAL ADJUSTMENT HAS 5 ITA NO.6387/DEL./2016 NOT BEEN CONSIDERED OR EXAMINED BY THE LOWER AUTHOR ITIES, WE FEEL IT APPROPRIATE TO RESTORE THIS LIMITED ISSUE WHETHE R THE ADJUSTMENT FOR DELAYED RECEIVABLES FROM ASSOCIATED ENTERPRISE S GET SUBSUMED IN WORKING CAPITAL ADJUSTMENT, TO THE FILE OF THE L EARNED ASSESSING OFFICER/TRANSFER PRICING OFFICER FOR ADJUDICATING I N ACCORDANCE WITH LAW. IT IS NEEDLESS TO MENTION THAT ASSESSEE S HALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD. THE GROUND NO. 3 OF THE APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPO SES. THE GROUND NOS. 4 AND 5 ARE RENDERED MERELY ACADEMIC, AS BOTH THE PARTIES AGREED FOR RESTORING THE MATTER BACK TO THE LEARNED AO/TPO ON GROUND NO. 3. THUS, THE GROUND NOS. 4 AND 5 ARE DIS MISSED AS INFRUCTUOUS. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2020. SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 RD JULY, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI