Orange Business Services India Solutions Pvt. Ltd., Gurgaon V. DCIT, Circle-3, Gurgaon

ITA 7364/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3905 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Assessment Year: 2015-2016
• Appeal Filed On: 06-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Keywords: Transfer pricing; International transaction
• Section: 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.7364/DEL/2019 ASSESSMENT YEAR 2015-16 ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD., TOWER-B, 8 TH FLOOR, DLF INFINITY TOWER, PHASE-II, SECTOR-25, GURGAON, HARYANA. V. DCIT, CIRCLE-3, GURGAON. TAN/PAN: AABCE 4540P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAVI SHARMA, ADV., MS. SHRUTI KHIMTA, AR RESPONDENT BY: MS. NIDHI SHARMA, SR.D.R. DATE OF HEARING: 25 11 2019 DATE OF PRONOUNCEMENT: 17 02 2020 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 22.07.2019 , PASSED U/S.143(3) R.W.S. 144C FOR THE ASSESSMENT YEAR 2015 -16 IN PURSUANCE OF DRPS DIRECTION DATED 03.06.2019. IN V ARIOUS GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT AT RS.1,90,18,524/- BY TREATING THE RECEIVABLES OUTSTANDING BEYOND 60 DAYS FROM ASSOCIA TED ENTERPRISES (AES) AS DEEMED LOAN AND CHARGING NOTIO NAL INTEREST ON THE BASIS OF LIBOR PLUS 300 BASIS POINT S. I.T.A. NO.7364/DEL/2019 2 2. BEFORE US, IT HAS BEEN SUBMITTED BY THE LD. COUN SEL THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2014 -15, THE TRIBUNAL VIDE ORDER DATED 31.12.2018 IN ITA NO.6751/DEL/2008 HAS HELD THAT NO TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLES CA N BE MADE, BECAUSE IN THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT, SUCH INTEREST RECEIVABLES GETS SUBSUMED FOLLOWING THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. KUSUM HEALTHCARE PVT. LTD. IN ITA NO.765/DEL/2016 AND HAVE DELETED THE ADDITION. 3. LD. DR ON THE OTHER HAND HAS RELIED UPON THE ORD ER OF THE DRP. 4. THE BRIEF FACTS QUA THE ISSUE INVOLVED ARE TH AT THE TPO OBSERVED THAT THERE WERE INTERESTS ON RECEIVABLES O N THE PAYMENT FOR THE INVOICES RAISED BY THE ASSESSEE WHI CH HAVE NOT BEEN RECEIVED WITHIN THE STIPULATED TIME AS PRO VIDED IN THE SERVICE AGREEMENT WITH THE AE. IN RESPONSE TO T HE SHOW CAUSE NOTICE, THE ASSESSEE HAS GIVEN INVOICE WISE D ETAILS OF THE RECEIVABLES ALONG WITH DURATION / PERIOD. LD. T PO AFTER DETAILED DISCUSSION HELD THAT CREDIT PERIOD OF 60 D AYS IS REASONABLE IN VIEW OF DRPS DIRECTION IN ASSESSEES OWN CASE AND ACCORDINGLY, HE APPLIED INTEREST RATE OF SBI PL R AND WORKED OUT THE INTEREST @ 13% AND AFTER THE CALCULA TING THE INTEREST BEYOND 60 DAYS MADE AN ADJUSTMENT OF RS.7,79,48,469/-. 5. THE DRP, FIRST OF ALL, HAS GIVEN DIRECTION TO THE TPO TO I.T.A. NO.7364/DEL/2019 3 GIVE WORKING CAPITAL ADJUSTMENT BY TAKING AVERAGE O PENING AND CLOSING BALANCE OF THE INVENTORIES AND RECEIVAB LE/ PAYABLES CREDIT, DEBTORS AND CREDITORS FOR THE RELE VANT YEAR AND THE ISSUE OF ADJUSTMENT ON ACCOUNT OF OUTSTANDIN G RECEIVABLES. THE DRP ON THE BASIS OF DIRECTION IN A .Y. 2014- 15, HELD THAT THE TPO HAS RIGHTLY ALLOWED 60 DAYS C REDIT PERIOD AND BUT HAS WRONGLY APPLIED SBI PLR RATE PLU S 300 BASIS POINT. THE TPO SHOULD APPLY LIBOR PLUS BASIS POINTS FOR MAKING THE ADJUSTMENT ON ACCOUNT OF INTEREST. 6. SINCE IN ASSESSEES OWN CASE, THE TRIBUNAL HAS HELD THAT ONCE WORKING CAPITAL ADJUSTMENT HAS BEEN MADE, THEN NO SEPARATE ADJUSTMENT IS CALLED FOR ON INTEREST OF RE CEIVABLES. THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HONBLE D ELHI HIGH COURT IN THE CASE OF PCIT VS. KUSUM HEALTHCARE PVT. LTD. (SUPRA) . THE RELEVANT OBSERVATION AND THE FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE READ AS UNDER: 4. BRIEFLY STATED, THE APPELLANT COMPANY IS A SUBS IDIARY OF EGN BV, NETHERLANDS. THE APPELLANT COMPANY IS PRIMA RILY ENGAGED IN PROVIDING INFORMATION TECHNOLOGY ENABLED NETWORK MANAGEMENT / TECHNICAL SUPPORT AND OTHER BACK-OFFIC E SUPPORT SERVICES TO ITS GROUP COMPANY. IT ALSO UNDERTAKES S OFTWARE DEVELOPMENT SERVICES FOR DEVELOPING SOFTWARE APPLIC ATIONS WHICH ARE USED WITHIN THE ORANGE GROUP. 5. THE INTERNATIONAL TRANSACTIONS REPORTED BY THE A SSESSEE DURING THE YEAR IN FORM 3CEB REPORT IS AS UNDER: SL. NO. DESCRIPTION OF THE TRANSACTION AMOUNT [INR 1. PROVISIONS OF INFORMATION AND TECHNOLOGY SERVICES 2,48,87,11,426/ - I.T.A. NO.7364/DEL/2019 4 2. COST RECHARGES 2,22,89,684/ - 3. RECE IVABLES [AS ON 31.03.2014] 86,07,95,107/ - 4. RECEIVABLES [AS ON 31.03.2014] 4,11,07,016/ - 6. DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE TPO WAS OF THE FIRM BELIEF THAT SINCE THE PAYME NT FOR INVOICES RAISED BY THE ASSESSEE HAVE NOT BEEN RECEIVED WITHI N THE STIPULATED TIME. DELAYED PAYMENTS WERE TREATED AS UNSECURED LOAN ADVANCE TO THE AES. THE TPO PROPOSED TO CHARG E A NORMAL RATE AS PER THE ANNUAL AVERAGE YIELD OF CORPORATE B ONDS PERTAINING TO CREDIT RATING OF THE AES FOR THE PERI OD OF DELAY IN RECEIPT OF PAYMENT BEYOND THE TIME STIPULATED IN TH E SERVICES AGREEMENT. 7. IN ITS REPLY DATED 09.10.2017, THE ASSESSEE FURN ISHED INVOICE DETAILS OF RECEIVABLES ALONGWITH THEIR DURATION/PER IOD. THE TPO WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AN D PROCEEDED BY TREATING THE RECEIVABLES AS LOAN TO THE AES AND BENCH MARKED THE INTEREST RATE BASED ON BASE RATE OF SBI TAKING THE SAME AT 9.83% TO WHICH 400 BASIS POINTS WERE ADDED AND, ACC ORDINGLY, INTEREST RATE WAS ARRIVED AT 13.83%. THE TPO PROPO SED AN UPWARD ADJUSTMENT OF RS. 2,48,13,810/- 8. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP AN D THE DRP ISSUED DIRECTIONS DATED 23.03.2018 UPHOLDING THE AC TION OF THE TPO FOR TAKING SBI PLR AS CUP BUT DIRECTED TO ADD 3 00 BASIS POINTS TO THE SAME. THE DRP FURTHER DIRECTED TO TA KE 60 DAYS TO BE REASONABLE PERIOD BEYOND WHICH INTEREST MUST BE CHARGED ON OUTSTANDING RECEIVABLES. FOLLOWING THE DIRECTIONS OF THE DRP FINAL ADDITION WAS MADE AT RS. 1,45,27,731/-. 9. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US . 10. IT IS THE SAY OF THE LD. AR THAT INTEREST ON RE CEIVABLES IS I.T.A. NO.7364/DEL/2019 5 NOT AN INTERNATIONAL TRANSACTION AS THE INTEREST PR OPOSED TO BE CHARGED, IF ANY, IS ALREADY BUILT IN THE SALE PRICE AND THUS NO INTEREST NEEDS TO BE COMPUTED ON THE OUTSTANDING RE CEIVABLES FROM THE AES. THE LD. AR FURTHER POINTED OUT THAT THE OPERATING PROFIT MARGIN HAS NOT BEEN DISTURBED BY THE ASSESSI NG OFFICER/TPO. THEREFORE, NO SEPARATE ADJUSTMENT IS TO BE MADE IN SO FAR AS OUTSTANDING RECEIVABLES ARE CONCERNED. 11. PER CONTRA, THE LD. DR SUPPORTED THE FINDINGS O F THE DRP. IT IS THE SAY OF THE LD. DR THAT THE OBJECTIONS RAI SED BY THE ASSESSEE HAVE BEEN DULY CONSIDERED BY THE DRP AND, THEREFORE, THE LD. DR DIRECTED THE TPO TO TAKE 300 BASIS POINT S OVER AND ABOVE SBI PLR AND TO CONSIDER 60 DAYS AS REASONABLE PERIOD BEYOND WHICH INTEREST MUST BE CHARGED. 12. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF T HE CONSIDERED OPINION THAT SINCE NO DISTURBANCE HAS BE EN MADE IN SO FAR AS OP MARGIN OF THE ASSESSEE IS CONCERNED TH E OPN HAS BEEN ARRIVED AFTER MAKING WORKING CAPITAL ADJUSTMEN T. OPERATING MARK UP OF THE APPELLANT COMPANY IS 16.19 % WHEREAS THE COMPARABLES WORKING CAPITAL ADJUSTMENT MARK UP COMES TO 15.72%. THIS SHOWS THAT THE PROFIT MARGIN OF THE A PPELLANT COMPANY IS HIGHER THAN THAT OF THE COMPARABLES. TH E RATIO LAID DOWN BY THE TRIBUNAL IN THE CASE OF KUSUM HEALTHCAR E PVT LTD 6814/DEL/2014 SQUARELY APPLIES. THE RELEVANT FINDI NGS OF THE COORDINATE BENCH READ AS UNDER: FROM THE ABOVE ANALYSIS, IT IS CLEAR THAT ASSESSEE HAD EARNED SIGNIFICANTLY HIGHER MARGIN THAN THE COMPARABLE COM PANIES (WHICH HAVE BEEN ACCEPTED BY THE TPO) WHICH MORE TH AN COMPENSATES FOR THE CREDIT PERIOD EXTENDED TO THE A ES. THUS, THE APPROACH BY THE ASSESSEE OF AGGREGATING THE INTERNA TIONAL I.T.A. NO.7364/DEL/2019 6 TRANSACTIONS PERTAINING TO SALE OF GOODS TO AE AND RECEIVABLES ARISING FROM SUCH TRANSACTIONS WHICH IS UNDOUBTEDLY INEXTRICABLE CONNECTED IS IN ACCORDANCE WITH ESTABLISHED TP PRIN CIPLES AS WELL AS RATIO LAID DOWN BY THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION I NDIA (P.) LTD. (SUPRA). FOR THE AFORESAID REASONS, WE ALLOW T HE APPEAL OF THE ASSESSEE. IT ORDERED ACCORDINGLY. 13. THIS DECISION OF THE COORDINATE BENCH HAS BEEN AFFIRMED BY THE HON'BLE HIGH COURT OF DELHI IN ITA NO. 765/2 016 VIDE ORDER DATED 24.04.2017. THE RELEVANT FINDINGS OF T HE HON'BLE HIGH COURT READ AS UNDER: 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDI NG THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES A N INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSES SEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES O N THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VI S-A-VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BAS IS 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 THE COURT IN CIT V. EKL APPLIAN CES LTD. (2012) 345 ITR 241 (DEL). 14. THE LD. DR POINTED OUT THAT THE REVENUE HAS PRE FERRED SLP BEFORE THE HON'BLE SUPREME COURT AGAINST THE JU DGMENT OF THE HON'BLE HIGH COURT OF DELHI. IN OUR UNDERSTAND ING, SINCE THE OPERATION OF THE JUDGMENT OF THE HON'BLE HIGH COURT IS NOT STAYED BY THE HON'BLE SUPREME COURT, THE SAME IS BINDING O N US AND, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE I.T.A. NO.7364/DEL/2019 7 BENCH, AFFIRMED BY THE HON'BLE HIGH COURT [SUPRA] W E DIRECT THE ASSESSING OFFICER/TPO TO DELETE THE ADDITION OF RS. 1,45,27,731/-. 4. SINCE SIMILAR FACTS ARE PERMEATING IN THIS YEAR ALSO AND ALREADY DIRECTION FOR WORKING CAPITAL ADJUSTMENT HA S BEEN GIVEN BY DRP, THEREFORE, WE HOLD THAT NO TRANSFER P RICING ADJUSTMENT ON ACCOUNT OF INTEREST ON PAYMENT OF REC EIVABLES CAN BE MADE SEPARATELY. THUS, THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLE IS DELETED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY, 2020. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17 TH FEBRUARY, 2020 PKK: