Orange Business Services India Solutions Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 6570/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3359 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 31-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Retrospective amendment; Question of law
• Section: 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.6570/DEL/2016 ASSESSMENT YEAR : 2012-13 ITA NO.6928/DEL/2017 ASSESSMENT YEAR : 2013-14 ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD., TOWER-B, 8 TH FLOOR, DLF INFINITY TOWER, PHASE II, SECTOR-25, GURGAON. PAN: AABCE4540P VS. DCIT, CIRCLE-3, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI SHARMA, CA DEPARTMENT BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 12.02.2018 DATE OF PRONOUNCEMENT : 15.02.2018 ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 2 ORDER PER R.S. SYAL, VP: THESE TWO APPEALS FILED BY THE ASSESSEE RELATE TO THE ASSESSMENT YEARS 2013-14 AND 2012-13. SINCE SOME OF THE ISSUE S RAISED IN THESE APPEALS ARE COMMON, WE ARE, THEREFORE, DISPOSING TH EM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2013-14 2. THE ASSESSEE IS IN APPEAL AGAINST THE FINAL ASSE SSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 31.10.2017 U/S 143 (3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFT ER ALSO CALLED THE ACT). 3. THE FIRST ISSUE IS AGAINST THE ADDITION ON ACCOU NT OF TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.16,91,05,424/- MADE IN T HE INTERNATIONAL TRANSACTION OF PROVISION OF ITES. 4. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT ORANG E S.A. IS A FRENCH MULTINATIONAL TELECOMMUNICATION CORPORATION. THE G ROUP HAS MORE THAN 225 MILLION CUSTOMERS IN NEARLY 35 COUNTRIES. ORAN GE S.A. IS A LEADING ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 3 EUROPEAN WIRELESS OPERATOR AND BROADBAND SERVICE PR OVIDER WITH NEARLY 175 MILLION MOBILE CUSTOMERS AND MORE THAN 15 MILLI ON BROADBAND SUBSCRIBERS. ORANGE S.A. IS A RECOGNIZED LEADER IN GLOBAL, INTEGRATED AND CUSTOMIZED COMMUNICATION INFRASTRUCTURE SOLUTIONS W HICH ENABLE KEY BUSINESS PROCESSES OF ITS CUSTOMERS. THE ORANGE S. A. NETWORK CONSISTS OF SWITCHES, ROUTERS, HOSTED SERVERS AND NODS, LEAS ED AND OWNED CAPACITY TO LINK SWITCHES AND NETWORK INTELLIGENCE AND CONTR OL TO PROVIDE FULL RESILIENCE OF EACH ROUTE. THE ASSESSEE IN QUESTION , AN INDIAN ENTITY AND A PART OF THE ORANGE GROUP, IS A SUBSIDIARY OF EGN BV , NETHERLANDS. IT IS ENGAGED IN PROVIDING INFORMATION TECHNOLOGY (IT) EN ABLED NETWORK MANAGEMENT/TECHNICAL SUPPORT AND OTHER BACK OFFICE SUPPORT SERVICES TO ITS GROUP COMPANIES. IT ALSO UNDERTAKES SOFTWARE D EVELOPMENT SERVICES FOR DEVELOPING SOFTWARE APPLICATIONS WHICH ARE USED WITHIN THE ORANGE GROUP. THE IT ENABLED NETWORK MANAGEMENT/TECHNICAL SUPPORT AND OTHER BACK OFFICE SUPPORT SERVICES PERFORMED BY THE ASSES SEE PRIMARILY INCLUDE REMOTE MONITORING AND MAINTENANCE OF ORANGES GLOBA L NETWORK PLATFORMS AND SERVICES, CO-ORDINATION, REMOTE CONFI GURATION AND IMPLEMENTATION OF QUALITY CUSTOMER NETWORKING SOLUT IONS. UNDER THE ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 4 CATEGORY OF SOFTWARE DEVELOPMENT SERVICES, THE ASSE SSEE IS ENGAGED IN PROVIDING ROUTINE CONTRACT SOFTWARE DEVELOPMENT SER VICES RELATING TO DEVELOPMENT AND MAINTENANCE OF APPLICATIONS USED WI THIN THE GROUP LIKE HUMAN RESOURCES AND ACCOUNTING ETC. THE ASSESSEE F ILED ITS RETURN DECLARING THREE INTERNATIONAL TRANSACTIONS IN FORM NO. 3CEB, INCLUDING, PROVISION OF IT ENABLED SERVICES AND CONTRACT SDS WITH A TRANSACTED VALUE OF RS.241,63,07,817/-. THE ASSESSING OFFICER REFERRED THE MATTER OF DETERMINATION OF THE ARMS LENGTH PRICE OF THE I NTERNATIONAL TRANSACTIONS TO THE TRANSFER PRICING OFFICER (TPO). THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS APPLIED WITH THE PROFI T LEVEL INDICATOR (PLI) OF OPERATING PROFIT/TOTAL COST (OP/ TC) TO DEMONSTRATE THAT THE INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES AND CONTRACT SDS WAS AT ARMS LENGTH PRICE (ALP). AS A GAINST THE SINGLE REPORTED INTERNATIONAL TRANSACTION OF PROVISION OF IT ENABLED SERVICES AND CONTRACT SDS, THE ASSESSEE DID ITS BENCHMARKIN G IN TWO SEGMENTS, VIZ., SOFTWARE DEVELOPMENT SERVICES (SDS) AND IT EN ABLED NETWORK MANAGEMENT AND TECHNICAL AND OTHER BACK OFFICE SUPP ORT SERVICES (ITES). THE TPO OBSERVED FROM THE SERVICE AGREEMEN T ENTERED INTO ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 5 BETWEEN THE ASSESSEE AND ITS AE THAT CONSIDERATION FOR BOTH THE SERVICES VIZ., SDS AND ITES WAS COMMON AND EVEN THE INVOICES WERE RAISED ACCORDINGLY WITH NARRATION SERVICE FEES FOR THE P ERIOD FROM . TO .. IT WAS STILL FURTHER OBSERVED THAT ANNUAL ACCOUNTS WERE ALSO MAINTAINED IN UNISON INASMUCH AS THERE WERE NO SEGMENTAL ACCOUNTS OF ITES OR SDS, AS WAS EVIDENT FROM ITS PROFIT & LOSS ACCOUNT WHICH DIVULGED THE FIGURE OF GROSS REVENUE AT RS.241,63,07,816/-, BEING A SIN GLE SOURCE OF REVENUE FROM OPERATIONS. EVEN THE EXPENSES WERE ALSO FOUND TO BE COMMON. ON BEING CALLED UPON TO EXPLAIN AS TO WHY BOTH THE SEG MENTS BE NOT COMBINED, THE ASSESSEE CLAIMED THAT IT HAD DETAILS OF REVENUE FROM BOTH THE SEGMENTS SEPARATELY, WHICH WERE BASED ON HEAD-C OUNTS. THE TPO OBSERVED THAT THOUGH THE ASSESSEE GAVE DIFFERENT NU MBER OF EMPLOYEES WORKING IN SDS AND ITES, BUT, NO EVIDENCE WAS GIVEN TO SUBSTANTIATE THE SAME. THE TPO NOTICED THAT THERE WAS NO VERIFI ABLE QUANTUM OF REVENUE IN RESPECT OF THESE SEGMENTS. IN THIS BACK DROP OF THE FACTS, THE TPO VIDE PARA 9 OF HIS ORDER, PROPOSED TO CONSIDER THE TOTAL AMOUNT OF REVENUE AS PERTAINING TO ITES SEGMENT AND BENCHMARK ED THE TRANSACTION CONSIDERING THE COMPARABLES OF SUCH BUSINESS SEGMEN T. THE TPO, IN THE ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 6 ULTIMATE ANALYSIS, SELECTED 12 COMPANIES AS COMPARA BLES WHICH HAVE BEEN LISTED ON PAGE 58 OF HIS ORDER. AVERAGE MARGI N OF THESE COMPANIES WAS COMPUTED AT 23.94% AS AGAINST THE ASSESSEES MA RGIN AT 17.30%. HE WORKED OUT THE AMOUNT OF TRANSFER PRICING ADJUST MENT AT RS.13,67,86,810/-. THE ASSESSEE APPROACHED THE DIS PUTE RESOLUTION PANEL (DRP). AFTER GIVING EFFECT TO THE DRPS ORDE R BY THE TPO, THE ASSESSING OFFICER, IN THE FINAL ASSESSMENT ORDER, M ADE AN ADDITION OF RS.16.91 CRORE FROM THE INTERNATIONAL TRANSACTION D ESIGNATED BY HIM AS PROVISION OF ITES SERVICES. THE ASSESSEE IS AGGRI EVED AGAINST THIS ADDITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE PRIMARY ISSUE RAISED BEFORE US IS AGAINST THE AGGREGATION OF BOTH THE SDS AND ITES AND, THEREAFTE R, TREATING THE ASSESSEE AS AN ITES PROVIDER FOR THE PURPOSES OF CH OOSING COMPARABLES AND BENCHMARKING. 6. AT THE OUTSET, THE LD. AR CONTENDED THAT TH E REVENUE IN THE PAST HAS BENCHMARKED SUCH INTERNATIONAL TRANSACTION IN A SEGREGATED MANNER ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 7 AND HENCE, NO DEVIATION SHOULD BE ALLOWED IN THIS Y EAR. TO SUPPORT THE PROPOSITION, HE RELIED ON THE PRINCIPLE OF CONSISTE NCY AS REITERATED IN RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC). 7. IN OUR CONSIDERED OPINION, THIS CONTENTION I S SANS MERIT. THE RULE OF CONSISTENCY CANNOT BE STRETCHED SO FAR AS TO JEOPAR DIZE THE ENTIRE BENCHMARKING PROCESS ENVISAGED UNDER THE ACT. WHEN THE FACTS ARE SO GLARING, WHICH DO NOT PERMIT ADOPTION OF THE EARLIE R YEARS VIEW, WE CANNOT DISAPPROVE THE CORRECT APPROACH ADOPTED BY T HE TPO IN THIS YEAR SIMPLY ON THE REASON THAT IN THE PRECEDING YEAR, HE APPROVED THE WRONG APPROACH OF THE ASSESSEE. THE HONBLE SUPREME COURT IN CIT VS. MODIPON LTD. (2018) 400 ITR 1 (SC) HAS HELD THAT THE ISSUE SHOULD BE INDEPENDENTLY EXAMINED NOTWITHSTANDING CONSISTENCY OR TAX NEUTRALITY WHEN SUBSTANTIAL QUESTION OF LAW IS INVOLVED OR THE ISSUE IMPACTS LARGER PUBLIC INTEREST OR HAS POTENTIAL OF RECURRENCE. TH IS JUDGMENT HAS BEEN RENDERED AFTER CONSIDERING ITS EARLIER DECISION IN RADHASOAMI SATSANG (SUPRA) . AS THE CASE AT HAND FALLS UNDER THE CATEGORY OF H AVING `POTENTIAL ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 8 OF RECURRENCE, WE HOLD THAT IT NEEDS TO BE INDEPEN DENTLY EXAMINED AND EVALUATED. 8. IN ORDER TO APPRECIATE THE RIVAL CONTENTION S ON MERITS IN THIS REGARD, IT WOULD BE APPOSITE TO CONSIDER THE AGREEMENT ENTE RED INTO BY THE ASSESSEE WITH ITS AE, WHOSE COPY IS AVAILABLE ON PA GE 193 OF THE PAPER BOOK. THIS AGREEMENT HAS APPENDIX-A, WHICH GIVES THE `SCOPE OF SERVICES, AS UNDER:- APPENDIX A: SCOPE OF SERVICES [REFER SUB-SECTION 1.1 OF ARTICLE 1 OF SERVICES AGR EEMENT] THE SERVICE PROVIDER SHALL CARRY OUT ANY OR ALL THE FOLLOWING ACTIVITIES: REMOTE IT ENABLES NETWORK MANAGEMENT AND OTHER RELA TED BACK OFFICE SUPPORT SERVICES INCLUDING: CUSTOMER NETWORK IMPLEMENTATION MANAGEMENT CUSTOMER NETWORK MANAGEMENT EQUIPMENT ORDER PROCESSING NETWORK MONITORING AND FAULT MANAGEMENT SERVICES CONTRACT SOFTWARE DEVELOPMENT INCLUDING DESIGN, COD ING AND UNIT TESTING, SYSTEM TESTING AND ON-GOING MAINTENAN CE OF APPLICATIONS. ANY OTHER RELATED SERVICES AS MAY BE MUTUALLY AGREE D BETWEEN THE PARTIES. 9. IT IS EVIDENT FROM THE ABOVE NATURE OF SERVICES SET OUT IN THE AGREEMENT THAT THE ASSESSEE AGREED TO PROVIDE IT EN ABLED SERVICES OF ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 9 NETWORK MANAGEMENT AND OTHER RELATED BACK OFFICE SU PPORT SERVICES AS WELL AS CONTRACT SOFTWARE DEVELOPMENT SERVICES CONS ISTING OF DESIGN, CODING AND UNIT TESTING, SYSTEM TESTING AND ONGOING MAINTENANCE OF APPLICATIONS. A COPY OF THE ASSESSEES TRANSFER PR ICING STUDY REPORT IS AVAILABLE ON PAGE 875 ONWARDS OF THE PAPER BOOK. PA GE 901 SHOWS THE FUNCTIONS PERFORMED BY THE ASSESSEE UNDER ITES SEGM ENT AND PAGE 904 OF THE PAPER BOOK SHOWS THE FUNCTIONS PERFORMED BY THE ASSESSEE UNDER THE SDS. WHEN WE CONSIDER THE AGREEMENT IN JUXTAPO SITION TO THE TRANSFER PRICING STUDY REPORT, WHOSE CORRECTNESS HA S NOT BEEN CONTROVERTED BY THE DEPARTMENT, IT BECOMES VIVID TH AT THE ASSESSEE RENDERED BOTH THE ITES AND SDS. 10. NOW, THE QUESTION ARISES ABOUT THE AGGREGATI ON OF THESE TWO SERVICES. WHEREAS THE ASSESSEE SUPPLIED SEPARATE F IGURES FOR SDS AND ITES, THE TPO DID NOT ACCEPT THE SAME FOR THE REASO NS DISCUSSED ABOVE AND HENCE PROCEEDED TO DETERMINE THE ALP BY AGGREGA TING THEM. UNDER SUCH CIRCUMSTANCES, IT BECOMES IMPERATIVE TO FIND O UT IF THE ASSESSEE HAD SEPARATE AUTHENTICATED DATA IN RESPECT OF ITES AND SDS. THE ONLY ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 10 EVIDENCE IN SUPPORT OF THE REVENUE FROM THE TWO SEG MENTS, WHICH HAS BEEN PLACED ON RECORD BY THE LD. AR IS, SOME HEAD-C OUNTS. THE LD. AR CLAIMED THAT WHEREAS HIGHLY QUALIFIED PERSONS WERE USED FOR SDS, LOWLY QUALIFIED PERSONS WERE USED FOR RENDERING ITES. FR OM SUCH A CHART OF HEAD-COUNTS PLACED BEFORE US, IT CAN BE SEEN THAT T WO WORKING LOCATIONS HAVE BEEN SHOWN, VIZ., GURGAON AND MUMBAI. THE LD . AR CANDIDLY ADMITTED THAT THE ASSESSEE WAS RENDERING BOTH THE S DS AND ITES FROM BOTH THESE LOCATIONS. ON A SPECIFIC QUERY, NO RECO RD COULD BE PRODUCED TO INDICATE THAT THE NUMBER OF EMPLOYEES STATED IN THE CHART AS RENDERING SDS AND ITES WERE, IN FACT, PROVIDING THE CLAIMED S ERVICES. FURTHER, THE ASSESSEES CONTENTION OF THE SEGREGATED REVENUE S IN RESPECT OF ITES AND SDS IS NOT SUBSTANTIATED WITH ANY EVIDENCE, SUC H AS, WORK-SHEETS OR REPORTS OF WORK DONE. IT IS STILL FURTHER RELEVANT TO NOTE THAT THE INVOICES ISSUED BY THE ASSESSEE ARE, AGAIN, COMMON INASMUCH AS THERE IS NO SEPARATE MENTION OF SERVICE FEE FOR ITES OR SDS. T HE TPO HAS REPRODUCED A COPY OF INVOICE ON PAGE 5 OF HIS ORDER . THE LD. AR FAIRLY ADMITTED THAT ALL THE INVOICES WERE RAISED IN THE S AME WAY, SHOWING NO SEPARATE FIGURES OF REVENUE FROM ITES OR SDS. STIL L, ANOTHER FACTOR ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 11 WHICH CARRIES WEIGHT IS THAT THE ASSESSEE RECEIVED TOTAL COMBINED REVENUE OF RS.241.63 CRORE FROM ITS AE THROUGH THES E INVOICES AND THE SAME HAS BEEN ALSO SHOWN AS ONE COMMON ITEM IN ITS ANNUAL ACCOUNTS. IN SUCH CIRCUMSTANCES, THE CLAIM OF THE ASSESSEE FO R BIFURCATION OF REVENUE FROM ITES AND SDS, WHICH IS TOTALLY UNSUBST ANTIATED, CANNOT BE COUNTENANCED. BE THAT AS IT MAY, OPERATING PROFIT, WHICH IS NUMERATOR IN THE FORMULA PRESCRIBED UNDER THE TNMM, CAN BE ASCER TAINED ONLY WHEN THE FIGURES OF REVENUE AS WELL AS COSTS ARE AVAILAB LE. DESPITE GIVING SUFFICIENT TIME TO THE LD. AR, NO BASIS FOR BIFURCA TION OF COSTS BETWEEN ITES AND SDS COULD BE PLACED ON RECORD. THE ABOVE DISCUSSION MAKES IT PALPABLE THAT THE ASSESSEE DID NOT HAVE ANY AUTH ENTICATED FIGURES OF REVENUE AND COSTS IN RESPECT OF ITES AND SDS SEPARA TELY. ONCE THE POSITION IS SUCH THAT NEITHER THE REVENUE FROM TWO SEGMENTS CAN BE ASCERTAINED NOR ITS COSTS, WE FAIL TO APPRECIATE AS TO HOW THE BENCHMARKING CAN BE DONE FOR TWO SEPARATE TRANSACTI ONS OF ITES AND SDS IN A SEPARATE MANNER. ERGO, WE APPROVE THE ACT ION OF THE AUTHORITIES BELOW IN AGGREGATING THE ITES AND SDS S EGMENTS FOR THE PURPOSE OF BENCHMARKING. ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 12 11. THE NEXT ISSUE IS SELECTION OF THE COMPARABLES. THE TPO, AFTER REJECTING THE ASSESSEES CONTENTION FOR AGGREGATION OF ITES AND SDS: PROPOSED TO CONSIDER THE TOTAL AMOUNT OF REVENUE P ERTAINING TO THE ITES SEGMENT AND BENCHMARKED THE TRANSACTIONS CONSIDERIN G THE COMPARABLES OF THAT BUSINESS SEGMENT. THIS MANIFESTS THAT THE PROCESS OF DETERMINATION OF THE ALP, AS HAS BEEN ACCEPTED BY B OTH THE SIDES AS WELL, HAS BEEN UNDERTAKEN BY THE TPO BY CONSIDERING THE COMPARABLES RENDERING ITES SERVICES ALONE. WE HAVE HELD ABOVE THAT THE ASSESSEE IS RENDERING BOTH ITES AND SDS AS ONE UNIT. IN SUCH C IRCUMSTANCES, SELECTING COMPANIES RENDERING ONLY ITES RENDERS THE COMPARISON INCOMPATIBLE DUE TO THE BASIC FUNCTIONAL DIFFERENCE , THEREBY VITIATING THE ENTIRE EXERCISE OF BENCHMARKING. WHAT IS REQUIRED TO BE DONE IS TO SELECT COMPANIES RENDERING BOTH ITES AND SDS. AS THIS EXE RCISE CAN BE PROPERLY DONE AT THE END OF THE TPO, WE SET ASIDE T HE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF TPO/ ASSESSING OFFICER FOR DETERMINING THE ALP OF THE ASSESSEES COMBINED INTE RNATIONAL TRANSACTION OF PROVISION OF ITES AND SDS AFRESH B Y CONSIDERING SUCH COMPANIES AS COMPARABLE WHICH ARE RENDERING BOTH IT ES AND SDS. ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 13 NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF BEING HEARD IN SUCH PROCEEDINGS. 12. THE ONLY OTHER ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN THE INTER NATIONAL TRANSACTION OF `INTEREST ON RECEIVABLES. THE FACTUAL MATRIX OF T HIS GROUND IS THAT THE ASSESSEE REPORTED AN INTERNATIONAL TRANSACTION OF ` INTEREST ON RECEIVABLES WITH TRANSACTED VALUE OF RS.49,18,007/-. THE TPO NO TICED THAT PAYMENT FOR THE INVOICES WAS NOT REALIZED FOR A LONG TIME A ND A LARGE AMOUNT WAS OUTSTANDING AS RECEIVABLE. SINCE NO TIME LIMIT WAS GIVEN IN THE AGREEMENT FOR REALIZATION OF INVOICES, THE TPO TOOK A PERIOD OF THIRTY DAYS AS REASONABLE FOR REALIZATION AND WORKED OUT T HE OUTSTANDING AMOUNT LIABLE FOR CHARGE OF INTEREST. CHARGEABLE I NTEREST RATE OF 12.87% PER ANNUM WAS DETERMINED WITH THE SBI PRIME LENDING RATE PLUS 300 BASIS POINTS. APPLYING SUCH INTEREST RATE ON THE AM OUNT OF INVOICES OUTSTANDING FOR MORE THAN 30 DAYS, HE COMPUTED THE AMOUNT OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIV ABLES AT RS.8.05 CRORE. THE DRP INCREASED THE REASONABLE NUMBER OF DAYS OF REALIZATION FROM 30 ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 14 TO 60 DAYS. WHILE GIVING EFFECT TO THE DIRECTION G IVEN BY THE DRP, THE TPO, AGAIN, ALLOWED CREDIT FOR 30 DAYS TIME FOR REA LIZATION. IT IS A MATTER OF RECORD THAT THE ASSESSEE FILED RECTIFICATION APP LICATION FOR GIVING EFFECT TO THE DIRECTION GIVEN BY THE DRP OF TAKING 60 DAYS PERIOD, WHICH IS STATED TO BE STILL PENDING. THAT IS HOW, ADDITION OF RS.8.05 CRORE AND ODD WAS MADE IN THE IMPUGNED ORDER. 13. RELYING ON THE JUDGMENT OF THE HONBLE DEL HI HIGH COURT IN PR. CIT VS. KUSUM HEALTH CARE PVT. LTD. (2017) 398 ITR 66 (DEL) , THE LD. AR CONTENDED THAT NO INTEREST COULD HAVE BEEN CHARG ED AS THERE WAS NO INTERNATIONAL TRANSACTION ON THIS SCORE. 14. SOUNDING A CONTRA NOTE, THE LD. DR SUBMITTE D THAT THE ASSESSEE HAD ITSELF REPORTED THE INTERNATIONAL TRANSACTION OF `I NTEREST ON RECEIVABLES TO THE TUNE OF RS.49.18 LAC, WHICH IS IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT. TO BUTTRESS THE CONTENTION OF RIGHTLY TREA TING THE INTEREST ON RECEIVABLES AS AN INTERNATIONAL TRANSACTION, HE SUB MITTED THAT THE FINANCE ACT, 2012 HAS INSERTED EXPLANATION TO SECTION 92B W ITH RETROSPECTIVE EFFECT FROM 1.4.2002. IT WAS SUBMITTED THAT SUB-CL AUSE (C) OF CLAUSE (I) ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 15 OF THIS EXPLANATION PROVIDES THAT (I) THE EXPRESSIO N 'INTERNATIONAL TRANSACTION' SHALL INCLUDE (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TY PE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS ;. . HE ACCENTUATED THAT THE EXPRESSION DEBT ARISING DURING THE COURSE OF BUSINESS REFERS TO TRADING DEBT ARISING FROM THE SALE OF GOODS OR SERVICES RENDERED IN THE COURSE OF CARRYING ON THE BUSINESS. ONCE ANY DEBT ARISING DUR ING THE COURSE OF BUSINESS IS AN INTERNATIONAL TRANSACTION, HE SUBMIT TED THAT ANY DELAY IN THE REALIZATION OF SUCH DEBT IS LIABLE TO BE VISITE D WITH THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST INCOME SHORT CHAR GED OR UNCHARGED. IT WAS ARGUED THAT INSERTION OF THE EXPLANATION WITH R ETROSPECTIVE EFFECT COVERS THE ASSESSMENT YEAR UNDER CONSIDERATION AND HENCE UNDER/NON- PAYMENT OF INTEREST ON THE DEBT ARISING DURING THE COURSE OF BUSINESS ALSO BECOMES INTERNATIONAL TRANSACTIONS, REQUIRING THE D ETERMINATION OF ITS ALP. HE REFERRED TO THE DECISION OF THE DELHI TRIBU NAL DATED AUGUST, 2015 IN AMERIPRISE INDIA PVT. LTD. VS. ACIT (ITA NO.2010/DE L/2014) IN ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 16 WHICH THIS ISSUE HAS BEEN THOROUGHLY DISCUSSED AND EVENTUALLY INTEREST ON TRADE RECEIVABLES HAS BEEN HELD TO BE AN INTERNA TIONAL TRANSACTION. REFERRING TO THE DISCUSSION IN THE SAID ORDER, HE S TATED THAT THE DELHI BENCH IN THIS CASE ALSO NOTED A DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PATNI COMPUTER SYSTEMS LTD., (2013) 215 TAXMANN 108 (BOM.), WHICH DEALT WITH QUESTION OF LAW : (C) `WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL DID NOT ERR IN HOLDING THAT THE LOSS SUFFERED BY THE ASSESSEE BY ALLOWING EXCES S PERIOD OF CREDIT TO THE ASSOCIATED ENTERPRISES WITH OUT CHARGING AN INTEREST DURING SUCH CREDIT PERIOD WOULD NOT AMOUNT TO INTER NATIONAL TRANSACTION WHEREAS SECTION 92B(1) OF THE INCOME-TA X ACT, 1961 REFERS TO ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFI TS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES? IT WAS POINTED OUT THA T WHILE ANSWERING THE ABOVE QUESTION, THE HONBLE HIGH COURT NOTICED THAT AN AMENDMENT TO SECTION 92B HAS BEEN CARRIED OUT BY THE FINANCE ACT , 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002. SETTING ASIDE THE VIEW TAKEN BY THE TRIBUNAL, THE HONBLE HIGH COURT RESTORED THIS ISSU E TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN THE LIGHT OF THE LEG ISLATIVE AMENDMENT. IT ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 17 WAS THUS ARGUED THAT THE NON/UNDER-CHARGING OF INTE REST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AES FOR THE REALIZA TION OF INVOICES AMOUNTS TO AN INTERNATIONAL TRANSACTION AND THE ALP OF SUCH AN INTERNATIONAL TRANSACTION HAS BEEN RIGHTLY DETERMIN ED BY THE TPO. HE, HOWEVER, FAIRLY AGREED THAT THE DIRECTION OF THE DR P FOR TREATING CREDIT PERIOD OF 60 DAYS AS REASONABLE HAS NOT BEEN IMPLEM ENTED BY THE TPO. IN SO FAR AS THE CHARGING OF THE RATE OF INTEREST I S CONCERNED, HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS. COTTON NATURALS (I) PVT. LTD (2015) 276 CTR 445 (DEL) HOLDING THAT THE CURRENCY IN WHICH THE LOAN IS TO BE RE-PAID DETERMI NES THE RATE OF INTEREST. HE, THEREFORE, CONCLUDED BY SUMMING UP T HAT INTEREST ON OUTSTANDING TRADE RECEIVABLES IS AN INTERNATIONAL T RANSACTION AND ITS ALP HAS BEEN RIGHTLY DETERMINED. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE R EPORTED AN INTERNATIONAL TRANSACTION OF `INTEREST ON RECEIVABLES AMOUNTING TO RS.49,18,007/-. IT IS FURTHER DISCERNIBLE FROM THE AGREEMENT THAT NO CRED IT PERIOD HAS BEEN ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 18 PRESCRIBED FOR REALIZATION OF INVOICES. ON A SPECIF IC QUERY, IT WAS ADMITTED THAT THERE WERE NO TRADE TRANSACTIONS WITH NON AES. IN SUCH A SCENARIO, IT IS DIFFICULT TO MAKE ANY COMPARATIVE A NALYSIS OF THE TIME ALLOWED FOR REALIZATION BY THE ASSESSEE TO AES VIS- -VIS NON-AES. 16. NO DIRECT DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. THE HON BLE DELHI HIGH COURT IN PR. CIT VS. KUSUM HEALTH CARE PVT. LTD. ( SUPRA ) FOUND THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE ASSESSMENT Y EAR AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT ASSESSMENT YEAR COU LD HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT TH E FIGURE OF RECEIVABLES BEYOND PARTICULAR NUMBER OF DAYS CONSTI TUTED AN INTERNATIONAL TRANSACTION BY ITSELF. IT OBSERVED THAT THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEY OND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WOULD HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD H AVE ON THE WORKING CAPITAL OF THE ASSESSEE WOULD HAVE TO BE STUDIED. I T WENT ON TO HOLD THAT, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANAL YSING THE STATISTICS ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 19 OVER A PERIOD OF TIME TO DISCERN A PATTERN WHICH WO ULD INDICATE THAT VIS- -VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN A E, THE ARRANGEMENT REFLECTED AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. SIMILAR MATTER ONCE AGAIN CAME UP FOR CONSIDE RATION BEFORE THE HONBLE DELHI HIGH COURT IN AVENUE ASIA ADVISORS PVT. LTD. VS. DCIT (2017) 398 ITR 120 (DEL) . FOLLOWING THE EARLIER DECISION IN KUSUM HEALTHCARE (SUPRA) , IT WAS OBSERVED THAT THERE ARE SEVERAL FACTORS WH ICH NEED TO BE CONSIDERED BEFORE HOLDING THAT EVERY REC EIVABLE IS AN INTERNATIONAL TRANSACTION AND IT REQUIRES AN ASSESS MENT ON THE WORKING CAPITAL OF THE ASSESSEE. APPLYING THE DECISION IN KUSUM HEALTH CARE (SUPRA) , THE HONBLE HIGH COURT DIRECTED THE TPO TO STUDY THE IMPACT OF THE RECEIVABLES APPEARING IN THE ACCOUNTS OF THE AS SESSEE; LOOKING INTO THE VARIOUS FACTORS AS TO THE REASONS WHY THE SAME ARE SHOWN AS RECEIVABLES AND ALSO AS TO WHETHER THE SAID TRANSAC TIONS CAN BE CHARACTERIZED AS INTERNATIONAL TRANSACTIONS. IN VI EW OF THE ABOVE DECISION IN AVENUE ASIA ADVISORS (SUPRA) , WE DEEM IT APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT TH E MATTER TO THE FILE OF THE ASSESSING OFFICER/TPO FOR DECIDING IT IN CONFOR MITY WITH THE ABOVE ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 20 REFERRED JUDGMENT. NEEDLESS TO SAY, THE ASSESSEE W ILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. ASSESSMENT YEAR 2012-13 17. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION OF RS.5,90,92,650/- ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT IN RESPECT OF INTEREST ON RECEIVABLES. 18. BOTH THE SIDES ARE IN CONSENSUS AD IDEM THAT THE FACTS AND CIRCUMSTANCES OF THE INSTANT TRANSFER PRICING ADDIT ION ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE IMMEDIATELY SUCCEEDING YEA R, FOR WHICH DETAILED ARGUMENTS WERE ADVANCED BY BOTH THE SIDES. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED O RDER AND SEND THE MATTER BACK TO THE TPO/AO FOR DECIDING THIS ISSUE I N CONFORMITY WITH THE DISCUSSION MADE BY US IN OUR ABOVE ORDER FOR TH E A.Y. 2013-14. IT IS MADE CLEAR THAT THE ASSESSEE WILL BE ALLOWED A REAS ONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. ITA NO.6570/DEL/2016 ITA NO.6928/DEL/2017 21 19. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 15.02.201 8. SD/- SD/- [K. NARASIMHA CHARY] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 15 TH FEBRUARY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.