Appeal Details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 7029 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
9 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-10-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I1
Next Hearing Date
16-05-2016
Assessment Year
2011-2012
Appeal Filed On
28-12-2015
Judgement Text
ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 1 OF 21 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6814/DEL/2015 ( ASSESSMENT YEAR: 2011-12) CPA GLOBAL SERVICES P. LTD. 1/3, 2 ND FLOOR, SIR GANGA RAM HOSPITAL, OLD RAJINDER NAGAR, NEW DELHI. AADCC3789Q VS ITO WARD 6(4) NEW DELHI. ASSESSEE BY SH. MANONEET DALAL, ADV. MS. DHWANI KAPADIA, A.R REVENUE BY SH. AMRENDRA KUMAR, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THE PRESENT APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE AO PASSED SUBSEQUENT TO TH E DIRECTIONS OF THE DISPUTES RESOLUTION PANEL /S 144C OF THE INCOME TAX ACT AND PERTAINS TO AY 2011-12. DATE OF HEARING 30.09.2016 DATE OF PRONOUNCEMENT 04/10/2016 ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 2 OF 21 2. THE ASSESSEE, CPA GLOBAL SERVICES P. LTD. (CPA GSP), IS WHOLLY OWNED SUBSIDIARY OF CPA MAURITIUS L IMITED (CPA MAURITIUS) WHICH IN TURN IS SUBSIDIARY OF CPA JERSEY. CPA GSP I.E. IS THE ASSESSEE HAS UNIT REGISTERED UN DER THE SPECIAL ECONOMIC ZONE (SEZ) ACT, 2005 AND OFFERS A COMPREHENSIVE RANGE OF LEGAL SUPPORT SERVICES WHICH VARY FROM LEGAL RESEARCH, DEPOSITION SUMMARIES, DOCUMENT REVIEW, ETC. CPA GSP PROVIDES SERVICES TO BOTH ITS AES AS WELL AS TO INDEPENDENT THIRD PARTY CUSTOMERS. DURIN G THE YEAR UNDER REVIEW, ASSESSEE EARNED MARGIN OF 36.08% ON COST. 2.1 DURING THE YEAR THE ASSESSEE HAD UNDERTAKEN T HE FOLLOWING INTERNATIONAL TRANSACTIONS: 1. PROVISION OF IT ENABLED SERVICES TNMM WAS APPLIED AND THE VALUE OF TRANSACTION WAS RS. 120,569,328/-; 2. REIMBURSEMENT OF EXPENSES TO AES TNMM WAS USED AND THE VALUE OF THE TRANSACTION WAS RS. 2,239,503/ -; 3. REIMBURSEMENT OF EXPENSES FROM AES CUP METHOD WAS APPLIED AND THE VALUE OF TRANSACTION WAS RS. ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 3 OF 21 138,837,163/-. 2.2 DURING THE YEAR, THE ASSESSEE HAD RECEIVED RS. 136,795,724/- FROM ITS AES AS COST RECHARGE FOR SP ARE CAPACITY. IT WAS THE ASSESSEES CONTENTION THAT T HIS AMOUNT SHOULD NOT BE ROUTED THROUGH THE PROFIT/LOSS ACCOUN T AS IT WAS ONLY A REIMBURSEMENT. HOWEVER, THE DEPARTMENTS STAND HAS BEEN THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDEN CE AND SUPPORT OF ITS CLAIM THAT THIS EXPENDITURE WAS TOWA RDS MAINTENANCE OF SPARE CAPACITY AT THE INSTANCE OF TH E AES. THE HONBLE DRP HELD THAT ALP OF THE RECEIPTS FROM THE AES MUST INCLUDE ALL COSTS AND THE ASSESSEE HAD FAILED TO GIVE COGENT REASONS FOR EXCLUDING CERTAIN COSTS FOR THE PURPOSE OF COMPUTING ALP. IT WAS ASSESSEES FURTHER CONTENTION THAT IF AT ALL THE RECEIPT OF RS. 136,795,724/- HAD TO BE R OUTED THROUGH THE PROFIT AND LOSS ACCOUNT, THEN THE RECEI PT AS WELL AS THE EXPENDITURE SHOULD BOTH BE REFLECTED IN THE PROFIT AND LOSS A/C. IT WAS ASSESSEES SUBMISSION BEFORE THE LD. DRP THAT IN APPLICATION FOR RECTIFICATION U/S 154 OF TH E I.T. ACT WAS FILED BEFORE THE AO POINTING OUT THIS ERROR BUT THE SAME ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 4 OF 21 WAS YET TO BE DECIDED. IN VIEW OF THIS CONTENTION OF THE ASSESSEE, THE HONBLE DRP DIRECTED THE AO/TPO TO EX AMINE THE COMPUTATION OF ASSESSEES MARGIN. THE HONBLE DRP DIRECTED THAT THE MATCHING COSTS AS WELL AS THE REIMBURSEMENT CLAIMED BY THE ASSESSEE SHOULD BOTH B E INCLUDED IN THE PROFIT AND LOSS ACCOUNT IN THE MARG IN WORKED OUT ACCORDINGLY. OUR ATTENTION WAS DRAWN TO PAGES 3 27 TO 329 OF THE PAPER BOOK WHICH CONTAIN A COPY OF THE RECTIFICATION APPLICATION U/S 154 DATED 3 RD MARCH, 2016 AND IT WAS SUBMITTED THAT THE AO IS YET TO DISPOSE THE ISSUE. WE DIRECT THE AO TO DISPOSE THE ASSESSEES APPLICATION FOR RECTIFICATION AS PER THE LAW WITHOUT ANY FURTHER DE LAY. 2.3 THE ASSESSEE HAS RAISED AS MANY AS TEN GROUN DS OF APPEAL BEFORE US. HOWEVER, AT THE OUTSET THE LD . AR SUBMITTED THAT GROUND NO. 5 REGARDING REIMBURSEMENT OF EXPENSES AND GROUND NO. 7 REGARDING NOTIONAL INTERE STS ARE THE GROUNDS WHICH ARE BEING PRESSED AT THIS STAGE. 3. GROUND NO. 5 READS AS UNDER: ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 5 OF 21 THE LD. DRP/ LD. AO/ LD. TPO ERRED IN FACTS AND IN LAW BY INCORRECTLY COMPUTING THE OPERATING MARGIN O F THE COMPANY BY CONSIDERING NON-OPERATING COST AS OPERATING SUCH AS REIMBURSEMENT OF EXPENSES. 3.1 THE LD. AR SUBMITTED THAT THE INFRASTRUCTURE SE T UP COSTS WERE REIMBURSEMENTS AND SHOULD NOT HAVE BEEN INCLUDED IN THE COST BASE OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE COMMENCED OPERATIONS IN MAY 2008 WITH AN INFRASTRUCTURE SET-UP FOR 500 (APPROX.) EMPLOYEE S ON THE INSTRUCTIONS OF THE AES. HOWEVER, OVER THE YEARS, T HE BUSINESS OF THE ASSESSEE DID NOT SEE EXPECTED SUCCE SS AND EVENTUALLY HAD TO BE SHUT DOWN IN AUGUST 2014. TH E LD. AR ALSO FURNISHED A CHART DEMONSTRATING THE CAPACITY D EPLOYED BY THE ASSESSEE VIZ-A-VIZ THE CAPACITY UTILIZED FOR RENDERING OF SERVICES TO SUBSTANTIATE THE ASSESSEES CLAIM RE GARDING THE REDUCTION OF BUSINESS AND ITS EVENTUAL SHUT DOWN. THE CHART IS BEING REPRODUCED AS UNDER: ASSESSMENT YEAR INFRASTRUCTURE SET-UP NUMBER OF PERSONS EMPLOYED REMARKS LITIGATION STATUS AY 2009-10 500 8 COMPANY ESTABLISHED IN MAY 2008 NOT REFERRED TO TPO ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 6 OF 21 3.2 IT WAS SUBMITTED THAT AS PER THE ARRANGEMENT SET OUT IN THE INTERCOMPANY AGREEMENT, THE ASSESSEE WAS REMUNERATED ON: FOR THE SERVICES RENDERED - COST-PLUS MARK-UP; AND FOR IDLE INFRASTRUCTURE - COST-TO-COST BASIS. 3.3 IT WAS SUBMITTED THAT DURING AY 2011-12, IN AN INFRASTRUCTURE SET-UP FOR 500 EMPLOYEES, THE ASSESS EE WAS ONLY ABLE TO EMPLOY 98 EMPLOYEES (ON AN AVERAGE) FO R ITS OPERATIONS. THE BUSINESS OF THE ASSESSEE DECREASED SUBSTANTIALLY OVER THE YEARS AND EVENTUALLY WAS SHU T DOWN IN AUGUST 2014. FURTHER, THE GLOBAL BUSINESS OPERAT IONS RELATED TO THE RELEVANT SERVICE LINE WERE UNDER LOS SES AND THEY TOO WERE SHUT DOWN. IT WAS FURTHER SUBMITTED THAT FOR THE OPERATIONS, THE ASSESSEE WAS FULLY COMPENSATED ON COST- AY 2010 - 11 500 58 NOT REFERRED TO TPO AY 2011 - 12 500 98 BEFORE THE TRIBUNAL AY 2012-13 458 103 ONE FLOOR SURRENDERED IN FEB 2012 TPO ACCEPTED THE ARMS LENGTH PRICE COMPUTED BY THE ASSESSEE AY 2013 - 14 250 70 ASSESSMENT PROCEEDINGS INITIATED AY 2014 - 15 250 50 ASSESSMENT HAVENT BEGUN AY 2015-16 250 COMPANY CLOSED ASSESSMENT NOT YET INITIATED ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 7 OF 21 PLUS MARK-UP FOR THE PROVISION OF ITES SERVICES REN DERED DURING AY 2011-12. ALL OTHER COSTS WERE REIMBURSED TO THE AES ON COST- TO-COST BASIS AS SET OUT IN THE AGREEM ENT. THE LD. AR DREW OUR ATTENTION TO PARA 1.2 ON PAGE 305 O F THE PAPER BOOK & PAGE 323 OF THE PAPER BOOK BEING THE R ELEVANT PORTION IN THE AGREEMENT. IT WAS FURTHER SUBMITTED THAT THE TPO IN THE SUBSEQUENT YEAR (I.E. AY 2012-13), HAS APPRECIATED THE BUSINESS MODEL OF THE ASSESSEE AND HAS ACCEPTED THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AT ARMS LENGTH. OUR ATTENTION WAS DRAWN TO PAGE 325 OF THE PAPER BOOK WHICH IS THE COPY OF THE TPO S ORDER FOR AY 2012-13. 3.4 THE AR ALSO RELIED ON THE FOLLOWING CASE LAWS TO SUPPORT THE ASSESSEES CONTENTION THAT REIMBURSEMEN T OF EXPENSES IS TO BE EXCLUDED FROM THE COST BASE OF TH E ASSESSEE: I. HSBC ELECTRONIC DATA PROCESSING INDIA LTD. (ITA NO.1624/HYD/2010); AND II. M F GLOBAL INDIA PVT. LTD. (ITA NO. 4918/MUM/2010) ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 8 OF 21 3.5 THE LD. AR ALSO PLACED RELIANCE ON THE FOLLOW ING CASE LAWS FOR THE PREPOSITION THAT THE RULE OF CONS ISTENCY SHOULD BE FOLLOWED IN THE PRESENT CASE AS THE TPO H AS ACCEPTED THE ALP OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE: I. BRINTONS CARPETS ASIA P LTD. VS. DCIT (ITA NO.1296/PN/10 (ASSTT. YEAR 2006-07) II. NGC NETWORK (INDIA) P LTD. ITA NO 5307/M/2008 3.6 THE LD. AR SUBMITTED THAT IF GROUND NO. 5 OF T HE ASSESSEE IS ALLOWED AND THE TPO IS DIRECTED TO RE-C OMPUTE THE MARGINS AFRESH, THE OTHER GROUNDS OF APPEAL EXCEPT GROUND NO. 7 WOULD BECOME ACADEMIC AND WILL NOT REQUIRE ADJUDI CATION AT THIS STAGE. 4. THE LD. DR PLACED RELIANCE ON THE ORDERS OF THE HONBLE DRP AS WELL AS THE TPO ON THIS PARTICULAR ISSUE. 5. GROUND NO. 7 READS AS UNDER: THE LD. AO/LD. TPO ERRED IN FACTS AND IN LAW BY FAILING TO GIVE EFFECTS TO DIRECTIONS PASSED BY DRP ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 9 OF 21 WITH REFERENCE TO THE MARGIN COMPUTATION OF THE ASSESSEE AND COMPARABLE COMPANIES AND THE INTEREST COMPUTATION. 5.1 ON GROUND NO. 7, THE LD. AR SUBMITTED THAT THE LD. TPO HAS WORKED OUT AN ADJUSTMENT OF RS. 3,874,770/- TOWARDS NOTIONAL INTEREST BY APPLYING INTEREST RATE OF 11.69% FOR DEEMED LOAN ADVANCED FOR THE PERIOD OF RECEIVAB LES OUTSTANDING BEYOND THE PERIOD STIPULATED IN THE SER VICE AGREEMENT/INVOICE. THIS ADJUSTMENT WAS SUBSEQUENTL Y REVISED TO RS. 1,624,155/- CONSEQUENT TO THE DIRECT IONS OF THE HONBLE DRP TO ADOPT THE INTEREST RATE OF 4.9%. THE LD. AR SUBMITTED THAT RECEIVABLES COULD NOT BECOME LOAN TR ANSACTIONS AND IT WAS ALSO A FACT THAT THE ASSESSEE DID NOT IN CUR ANY INTEREST ON ITS RECEIVABLES. IT WAS FURTHER SUBMIT TED THAT UNDER THE GUISE OF BENCH MARKING THE NATURE OF TRAN SACTION CANNOT BE CHANGED. IT WAS FURTHER SUBMITTED THAT I T WAS NOT A SEPARATE TRANSACTION IN ITSELF BUT A PART OF THE IT ES SERVICES. IT WAS FURTHER SUBMITTED THAT IF WORKING CAPITAL ADJUS TMENT IS ALLOWED TO THE ASSESSEE THEN THIS GROUND WILL BE TA KEN CARE OF. THE LD. AR RELIED ON THE DECISION OF THE COORDINATE I BENCH OF ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 10 OF 21 ITAT, DELHI IN KUSUM HEALTHCARE PVT. LTD. VS. ACIT IN ITA NO. 6814/DEL/2014 FOR THE PROPOSITION THAT THE WORKING CAPITAL ADJUSTMENT TAKES INTO ACCOUNT THE IMPACT OF OUTSTAN DING RECEIVABLES ON THE PROFITABILITY. 6. THE LD. DR SUBMITTED THAT IF THE AMOUNTS ARE RE CEIVED WITHIN THE PERIOD OF AGREEMENT INTEREST IS NOT TO B E CHARGED. HOWEVER, CHARGING OF INTEREST BECOMES MANDATORY IF THE PAYMENT IS RECEIVED BEYOND THE STIPULATED PERIOD AN D HENCE, CHARGING/NON CHARGING OF INTEREST ON THE LOANS ACCEPTED/RECEIVABLES FROM AN AE ARE TO BE TREATED A S AN INTERNATIONAL TRANSACTION REQUIRING DETERMINATION O F THE ALP. THE LD. DR PLACED RELIANCE ON THE DECISION OF THE C OORDINATE I BENCH OF THE ITAT DELHI IN AMERIPRISE INDIA PVT. LT D. VS. ACIT IN ITA NO. 2010/DEL/2014 FOR AY 09-10 AND SUBMITTED THAT THE INTEREST DOES NOT GET SUBSUMED IN THE WORKING C APITAL ADJUSTMENT. THE LD. DR ALSO SUBMITTED THAT THE DEC ISION OF AMERIPRISE (SUPRA) WAS RENDERED SUBSEQUENT TO THE D ECISION OF KUSUM HEALTHCARE P. LTD. (SUPRA) ON WHICH THE ASSES SEE HAS RELIED. ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 11 OF 21 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT RECORDS. AS FAR AS THE ISSUE OF REIMBURSEM ENT IS CONSIDERED, IT IS THE SUBMISSION OF THE ASSESSEE TH AT THESE AMOUNTS WERE ADJUSTED WITHOUT ANY MARK UP. HAVING PERUSED THE RELEVANT CLAUSES OF THE AGREEMENT, WE DO FIND T HAT THIS CONTENTION OF THE ASSESSEE IS CORRECT AND THERE IS NO MARK-UP IN THE REIMBURSEMENTS. EVEN THOUGH THESE TRANSACTIO NS ARE CONSIDERED AS INTERNATIONAL TRANSACTIONS FOR THE PU RPOSES OF TRANSFER PRICING, SINCE THERE IS NO MARK UP ON THES E REIMBURSEMENTS, IT WAS THE ASSESSEES SUBMISSION TH AT THESE TRANSACTIONS ARE TO BE EXCLUDED FOR WORKING OUT THE OPERATIVE MARGINS. THE ASSESSEE RELIED ON THE DECISION OF TH E COORDINATE HYDERABAD B BENCH OF THE ITAT IN HSBC ELECTRONIC DATA PROCESSING INDIA LTD. VS. ACIT IN ITA NO. 1624/HYD. /2010 FOR THIS PROPOSITION. AFTER CONSIDERING THE RIVAL SUBM ISSIONS AND FOLLOWING THE PRINCIPLES LAID DOWN BY THE ITAT DELH I BENCH IN DCIT VS. CHEIL COMMUNICATIONS INDIA P. LTD. (2010 T II-60- ITAT-DEL-TP) BY THE HYDERABAD BENCH IN FOUR SOFT LI MITED VS. DCIT IN ITA NO. 1495/HYD./2010 WE ARE OF THE OPINIO N THAT ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 12 OF 21 REIMBURSEMENT COSTS SHOULD BE EXCLUDED AS THEY DO N OT INVOLVE ANY FUNCTIONS TO BE PERFORMED SO AS TO CONS IDER IT FOR PROFITABILITY PURPOSES. IN THE CASE OF FOUR SOFT L IMITED (SUPRA) THE COORDINATE HYDERABAD BENCH OF THE TRIBUNAL HELD AS UNDER: 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FIRST, WE WILL TAK E UP THE ISSUE RELATING TO THE ADJUSTMENTS MADE BY THE A O IN RESPECT OF THE INTERNATIONAL TRANSACTIONS WITH I TS ASSOCIATED ENTERPRISES IN THE SOFTWARE DEVELOPMENT SERVICES. IT IS THE CONTENTION OF THE ASSESSEE THA T BAD DEBTS INCURRED BY THE ASSESSEE COMPANY ARE IN RESPECT OF TRANSACTIONS, WHICH ARE NOT RELATED TO ASSOCIATED ENTERPRISES. THIS CONTENTION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY THE REVENUE BY BRINGING ANY MATERIAL ON RECORD BEFORE US. IT I S THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SUCH BAD DEBTS CANNOT BE TAKEN INTO ACCOUNT FOR COMPUTING THE MARGIN OF THE ASSESSEE FROM THE TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO FILED BEFORE US A COMPARATIVE CHART EXPLAINING THE COMPUTATION OF NET MARGIN, EXCLUDING THE BAD DEBTS AND CLEARLY ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 13 OF 21 DEMONSTRATED BEFORE US THAT IF THE BAD DEBTS/REIMBURSEMENTS ARE EXCLUDED FOR THE PURPOSE OF COMPUTING THE MARGINS ON THE TRANSACTIONS RELATI NG TO THE ASSOCIATED ENTERPRISES, THE NET MARGIN COMES TO 19.07%, WHICH IS WELL COMPARABLE WITH THE ARMS LENGTH MARGIN OF 19% DETERMINED BY THE TRANSFER PRICING OFFICER. IN OUR CONSIDERED VIEW, FOR COMPU TING THE NET MARGIN OF THE ASSESSEE FOR THE PURPOSES OF TRANSFER PRICING, ONLY THE COST RELATED TO THE TRANSACTION WITH THE ASSOCIATED ENTERPRISES HAS TO BE CONSIDERED AND ACCORDINGLY, WE APPROVE THAT SEGMENTAL FINANCIALS IS TO BE CONSIDERED FOR THE PURPOSE OF ARRIVING AT THE NET MARGIN ON THE INTERNATIONAL TRANSACTION WITH THE ASSESSEES ENTERPRISE IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES. IN THAT PROCESS, BAD DEBTS/REIMBURSEMENT S HAS TO BE EXCLUDED AND SEGMENTAL PROFITABILITY HAS TO BE ADOPTED. WE FIND SUPPORT IN THIS BEHALF FROM VARIOUS DECISIONS OF THE TRIBUNAL RELIED UPON BY TH E LD. COUNSEL FOR THE ASSESSEE DULY FILING COPIES THE REOF IN THE PAPER BOOK, WHICH HAVE BEEN NOTED HEREINABOVE. THAT BEING SO, THE TPO SHOULD HAVE DETERMINED THE ARMS LENGTH PRICE FOR THE INTERNATI ONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES CONSIDERIN G ONLY THE OPERATING COST ALLOCABLE TO THE ASSOCIATED ENTERPRISES SEGMENT. SINCE THE AO HAD NO OCCASION TO ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 14 OF 21 VERIFY THE VERACITY OF THE SEGMENTAL FINANCIALS PREPARED BY THE OFFICER TO VERIFY THE SEGMENTAL FINANCIALS PREPARED BY THE ASSESSEE COMPANY AND ADOPT THE SAME FOR ARRIVING AT THE NET MARGIN ON TH E INTERNATIONAL TRANSACTION WITH AES IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES. WE DIRECT ACCORDINGLY. 7.1 RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THE REIMBURSEMENT COSTS WHILE WORKING OUT THE OPERATING COSTS. THIS GROUND IS ALLOWED. 7.2 AS FAR AS THE ISSUE OF CHARGING OF NOTIONAL I NTEREST IS CONSIDERED, IT IS SEEN THAT THE ISSUE HAS BEEN DISC USSED IN DETAIL BY THE DECISION OF THE COORDINATE I BENCH OF ITAT DELHI IN THE CASE OF AMERIPRISE INDIA P. LTD. (SUPRA), WH EREIN THE RELEVANT DISCUSSION IS AT PARAS 20 TO 25 WHICH ARE BEING REPRODUCED FOR A READY REFERENCE AS UNDER: 20. THE LD. AR SUPPORTED THE IMPUGNED ORDER BY RELYING ON A TRIBUNAL ORDER DATED 31.03.2015 PASSED IN KUSUM HEALTHCARE P. LTD. VS. ACIT (ITA NO. 6814/DEL/2014) = 2015-TII-107-ITAT-DEL-TP IN WHICH IT HAS BEEN HELD THAT NO ADDITIONAL IMPUTATIO N OF INTEREST ON THE OUTSTANDING RECEIVABLES IS ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 15 OF 21 WARRANTED IF THE PRICING/PROFITABILITY IS MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN OF THE COMPARABLES. IN THE OPPOSITION, THE LD. DR RELIED ON A LATER ORD ER DATED 6.7.2015 PASSED BY THE TRIBUNAL IN THE CASE O F TECHBOOKS INTERNATIONAL P. LTD. (SUPRA), IN WHICH T HE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF THE DELAY ED REALIZATION OF INVOICES FROM AES HAS BEEN UPHELD. THE LD. DR CONTENDED THAT THE ORDER IN THE CASE OF KUSUM HEALTHCARE P. LTD. (SUPRA), HAS BEEN PASSED WITHOUT CONSIDERING THE AMENDMENT TO SECTION 92B CARRIED OUT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002, WHICH HAS BEEN DULY TAKEN INTO ACCOUNT BY THE TRIBUNAL IN ITS LATE R ORDER IN TECHBOOKS INTERNATIONAL P. LTD. (SUPRA). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOT ICED AS HIGHLIGHTED ABOVE, THAT THE ASSESSEE ARGUED BEFORE THE TPO THAT INTEREST ON RECEIVABLES ACT, 20 12 HAS INSERTED EXPLANATION TO SEC. 92B WITH RETROSPECTIVE EFFECT FROM 1.4.2002. CLAUSE (I) OF THIS EXPLANATION WHICH IS OTHERWISE ALSO FOR REMOVAL OF DOUBTS, GIVES MEANING TO THE EXPRESSION INTERNATIONAL TRANSACTION IN AN INCLUSIVE MANNER. SUB-CLAUSE (C) OF CLAUSE (I) OF THIS EXPLANATION, W HICH IS RELEVANT FOR OUR PURPOSE, PROVIDES AS UNDER: EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 16 OF 21 HEREBY CLARIFIED THAT (I) THE EXPRESSION INTERNATIONAL TRANSACTION SHALL INCLUDE (A) . (B) . (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG TERM OR SHORT TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS;. 22. ON GOING THROUGH THE RELEVANT PART OF THE EXPLANATION INSERTED WITH RETROSPECTIVE EFFECT FROM 1.4.2002, THEREBY ALSO COVERING THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE REMAINS NO DOUBT THAT APART FROM ANY LONG TERM OR SHORT TERM LENDING OR BORROWING ETC., OR ANY TYPE OF ADVANCE PAYMENTS OR DEFERRED PAYMENTS, ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS HAS ALSO BEEN EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANSACTION. THAT BEING SO, THE PAYMENT/NON-PAYMENT OF INTEREST OR RECEIPT/NON RECEIPT OF INTEREST ON THE LOANS ACCEPT ED OR ALLOWED IN THE CIRCUMSTANCES AS MENTIONED IN THI S CLAUSE OF THE EXPLANATION, ALSO BECOME INTERNATIONA L TRANSACTIONS, REQUIRING THE DETERMINATION OF THEIR ALP. ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 17 OF 21 IF WTH PAYMENT OF INTEREST IS EXCESSIVE OR THERE IS NO OR LOW RECEIPT OF INTEREST, THEN SUCH INTEREST EXPENSE/INCOME NEED TO BE BROUGHT TO ITS ALP. THE EXPRESSION DEBT ARISING DURING THE COURSE OF BUSINESS IN COMMON PARLANCE ENCOMPASSES, INTER ALIA, ANY TRADING DEBT ARISING FROM THE SALE OF GOO DS OR SERVICES RENDERED IN THE COURSE OF CARRYING ON T HE BUSINESS. ONCE ANY DEBT ARISING DURING THE COURSE OF BUSINESS HAS BEEN ORDAINED BY THE LEGISLATURE AS AN INTERNATIONAL TRANSACTION, IT IS, BUT, NATURAL THAT IF THERE IS ANY DELAY IN THE REALIZATION OF SUCH DEBT ARISING DURING THE COURSE OF BUSINESS, IT IS LIABLE TO BE VISITED WITH THE TP ADJUSTMENT ON ACCOUNT OF INTERE ST INCOME SHORT CHARGED OR UNCHARGED. UNDER SUCH CIRCUMSTANCES, THE CONTENTION TAKEN BY THE ASSESSEE BEFORE THE TPO THAT IT IS NOT AN INTERNATIONAL TRANSACTION, TURNS OUT TO BE BEREFT OF ANY FORCE. 23. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PATNI COMPUTER SYSTEMS LTD., (2013) 215 TAXMANN 108(BOM.) = 2013-TII-05-HC-MUM-TP DEALT, INTER ALIA, WITH THE FOLLOWING 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 EXCESS PERIOD OF CREDIT TO THE ASSOCIATED ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 18 OF 21 ENTERPRISES WITHOUT CHARGING AN INTEREST DURING SUCH CREDIT PERIOD WOULD NOT AMOUNT TO INTERNATIONAL TRANSACTION WHEREAS SEC. 92B(1) OF THE INCOME TAX AC T, 1961 REFERS TO ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES? 24. WHILE ANSWERING THE ABOVE QUESTION, THE HONBLE HIGH COURT NOTICED THAT AN AMENDEMENT TO SEC. 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 ISSUE TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN THE LIGHT OF THE LEGISLATIVE AMENDMENT. 25. THE FOREGOING DISCUSSION DISCLOSES THAT NON CHARGING OR UNDERCHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE FOR THE REALIZAT ION OF INVOICES AMOUNTS TO AN INTERNATIONAL TRANSACTION AND THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IS REQUIRED TO BE DETERMINED. 7.3 NOW, COMING TO THE COMPUTATION OF THE ALP OF T HE INTERNATIONAL TRANSACTION OF DELAYED PAYMENTS ARISI NG DURING THE COURSE OF BUSINESS, IT IS SEEN THAT THE TPO HAS CALCULATED ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 19 OF 21 THE TP ADJUSTMENT ON ACCOUNT OF INTEREST ON OUTSTAN DING DEBTS BEYOND A PERIOD OF 45 DAYS. FROM THE TABLE GIVEN O N PAGES 107 TO 109 OF THE TPOS ORDER IT IS SEEN THAT THE D ELAY IN REALIZATION RANGES FROM A LOWEST OF FIVE DAYS TO TH E HIGHEST OF 119 DAYS. WE DO AGREE WITH THE CONTENTION OF THE D EPARTMENT THAT THE NON REALIZATION OF THE INVOICE VALUE BEYON D THE STIPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANS ACTION WHOSE ALP IS REQUIRED TO BE DETERMINED. THE NON CHARGING OR UNDER CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE FOR THE REALIZATION OF INVOICES AMOUNTS TO A N INTERNATIONAL TRANSACTION AND THE ACTION OF THE TPO IN THIS REGARD CANNOT BE FAULTED WITH. HOWEVER, WHILE REJE CTING THE ASSESSEES CONTENTION THAT THE INTEREST ON RECEIVAB LES SHOULD NOT BE BENCH-MARKED, WE RESTORE THE ISSUE TO THE FI LE OF THE TPO FOR THE LIMITED PURPOSE OF VERIFYING THE CALCULATION/WORKING OF INTEREST AFTER ALLOWING A RE ASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. CONSEQ UENTIALLY, GROUND NO. 7 OF THE ASSESSEES APPEAL IS ALLOWED FO R STATISTICAL PURPOSES. ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 20 OF 21 7.4 THE OTHER LEGAL ISSUES RAISED IN THE GROUNDS I N THIS APPEAL WERE NOT AGITATED BEFORE US AS IT WAS THE CO NTENTION OF THE ASSESSEE THAT BY EXCLUSION OF REIMBURSEMENTS, T HE PLI DETERMINED MAY FALL WITHIN THE PERMISSIBLE RANGE. SOME OF THE ISSUES ALSO BECOME ACADEMIC IN NATURE IF THE ULTIMA TE ALP DETERMINED IS WITHIN THE PERMISSIBLE RANGE OF THE A SSESSEES PLI. THIS ASPECT CANNOT BE EXAMINED BY US AT THE P RESENT MOMENT AS THE TPO HAS BEEN DIRECTED TO RE-COMPUTE T HE MARGINS AS STATED ABOVE. HENCE, IT IS PREMATURE TO CONSIDER THE OTHER GROUNDS RAISED IN THIS INSTANT APPEAL. 7.5 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 04/10/2016 SD/- SD/- (S.V. MEHROTRA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 04/10/2016 *KAVITA ARORA ITA NO. 6814/D/2015 CPA GLOBAL SERVICES PVT. LTD. PAGE 21 OF 21 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
Mehul