Corteva Agriscience Services India Private Limited, Hyderabad V. DCIT, Circle 1(1), Hyderabad

ITA 78/Hyd/2022

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 6343 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Next Hearing Date: 03-10-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 16-03-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Notional interest
• Section: 154; 2; 11; 143(3); 10AA

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA-TP No. 78/Hyd/2022 (निर्धारण वर्ा / Assessment Year: 2017-18) Corteva Agriscience Services India Pvt. Ltd., Hyderabad [PAN No. AACCE0509M] Vs. Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad अपीलधर्थी / Appellant प्रत्‍यर्थी / Respondent निर्धाररती द्वधरध/Assessee by: Shri Sandeep Bansal and Shri Rohit Mittal, ARs रधजस्‍व द्वधरध/Revenue by: Ms. TH Vijaya Lakshmi, CIT-DR सुिवधई की तधरीख/Date of hearing: 04/10/2023 घोर्णध की तधरीख/Pronouncement on: 19/10/2023 आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the final assessment order dated 18/01/2022 passed consequent to the directions of Hon'ble Dispute Resolution Panel, Bengaluru (“DRP”), in the case of M/s. Corteva Agriscience Services India Private Limited (Formerly known as E I Dupont Services Centre India Private Limited) (“the assessee”) for the assessment year 2017-18, under ITA-TP No. 78/Hyd/2022 Page 2 of 11 section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (for short “the Act”), assessee filed this appeal. 2. Briefly stated relevant facts are that the assessee is a company. It is a captive shared services centre. It is engaged in providing administrative support services to group affiliates world-wide and in such pursuit, entered into international transactions with its Associated Enterprises (AEs) as well as domestic related parties for providing essentially accounts payable services, sourcing and procurement services, inter-company accounting services, concur/travel expense reporting services and finance closing services. 3. Assessee filed the return of income for the assessment year 2017- 18 on 23/03/2018, declaring total income of Rs. 1,77,52,150/-. Determination of the Arm’s Length Price (ALP) of the transactions referred to in form No. 3CEB was referred to learned Transfer Pricing Officer (learned TPO). By order dated 30/01/2021, learned TPO suggested an upward adjustment of Rs. 18,46,834/- on account of interest on delayed receivables. Learned Assessing Officer passed the draft assessment order dated 25/03/2021 by incorporating the same, and assessed the income at Rs. 1,95,98,984/-. 4. Assessee filed objections before the learned DRP. Assessee pleaded before the learned DRP that the deferred receivables do not constitute a separate international transaction requiring benchmarking and such a treatment is bad under law. Assessee further pleaded that working capital adjustment would take into account the impact of outstanding receivables and no need to impute any interest on receivables. In the alternative, ITA-TP No. 78/Hyd/2022 Page 3 of 11 assessee pleaded that it did not charge interest from AEs and, therefore, no interest could be imputed on the AE transactions on delayed receivables. 5. By way of impugned order, learned DRP, placing reliance on the decisions of the Hon’ble Delhi High Court in the cases of McKinsey knowledge Centre India (P) Ltd (2018) 96 Taxmann.com 237 (Delhi) and other decisions, rejected the contention of the assessee as to the nature of transaction and held that the deferred receivables constitute a separate international transaction and has to be benchmarked on account of delay, beyond the reasonable credit period as per Transfer Pricing regulations. Learned DRP rejected the other contention of the assessee that outstanding amount gets adjusted in working capital adjustment and that a separate adjustment is not required, while referring to the view taken by the Delhi Bench of the Tribunal in the case of BechtelIndia (P.) Ltd. vs. ACIT [2017] 85 taxmann.com 121 (Delhi - Trib.). On the plea of the assessee as to not charging interest from AEs, learned DRP directed the assessee to submit complete information relating to payables to AEs and non-AEs such as date of invoice, credit period, date of payment, period of delay with supporting invoices before the learned TPO within a week from the date of receipt of the order and simultaneously, the learned TPO was directed to complete the interest liability on payables on similar basis and adjust the same against the interest on receivables. Learned DRP put a specific rider that if the assessee fails to submit the complete information as directed, no inference would be called for on the adjustment proposed by the learned TPO by way of determination of ALP of deferred receivables. ITA-TP No. 78/Hyd/2022 Page 4 of 11 6. Assessee is, therefore, before us in this appeal aggrieved by the findings of the learned DRP that the interest on outstanding receivables constitute an international transaction are that when working capital adjustment is granted, no interest on outstanding receivables could be imputed. Assessee is also aggrieved by the findings of the learned Assessing Officer that only certain instance of not charging interest by the assessee were picked up and the assessee failed to provide the evidence of its contention that it did not charge interest on any of their AEs, or that note-32 shows interest to suppliers and, therefore, assessee does not pay interest to vendors or AEs is not correct. Assessee further submitted that though all the information was submitted and the learned TPO verified the sample evidences, they failed to carry out the directions of the learned DRP. Argument of the learned AR is, therefore, that the learned TPO should not have made any adjustment on account of the notional interest on delay in collection of dues from the associated enterprise, and if for any reason such an adjustment has to be made it has to be made only in respect of the debt outstanding for more than a reasonable period, that too at the rate of LIBOR +1.5%. 7. Learned DR submitted that this issue is no longer res integra. She placed reliance on the decisions of the Hon’ble Delhi High Court in the cases of McKinsey knowledge Centre India (P) Ltd (2018) 96 Taxmann.com 237 (Delhi), decision of the Hon’ble Karnataka High Court in the case of PCIT vs. M/s AMD India Pvt. Ltdin ITA No. 274/2018 dated 31/08/2018, view of the coordinate Bench of this Tribunal in the case Zeta Infrastructure in ITA No. 1812/Hyd/2017 dated 07/06/2022, such ventures in ITA No. 362/Hyd/2021 dated 28/06/2022 and Apache Footwear India ITA-TP No. 78/Hyd/2022 Page 5 of 11 Pvt. Ltd vs. ACIT in ITA-TP No. 568/Hyd/2022 dated 16/01/2023 and submitted that such an issue has thoroughly been examined in the above matters and in all these cases the consistent view is that outstanding receivables is an international transaction requiring separate benchmarking, extra credit in excess of 30 days would amount to profit shifting and, therefore, 6% of interest would be proper rate of interest to be levied in respect of such interest on outstanding receivables. In reply, the learned AR submitted that the matter may be reconsidered. 8. On a careful consideration of the matter in the light of the decisions relied upon by the Revenue, we find that in the case of McKinsey knowledge Centre India Pvt. Ltd (supra) the Hon’ble High Court held that the outstanding receivables is an international transaction and requires benchmarking separately. In the case of M/s. AMD India private limited (supra) the Hon’ble Karnataka High Court found that allowing extra credit in excess of agreed period of 30 days, amounts to profit shifting and requires determination of ALP. In this case the Hon’ble Karnataka High Court found that application of 6% interest on such outstanding receivables would be just and proper. The Co-ordinate Benches of the Tribunal followed the above view, and in the cases of Zeta Interactive Systems (India) (P) Ltd., (supra), Satyam ventures (supra) and Apache Footwear India Pvt. Ltd (Supra) held that outstanding receivables is an international transaction, any extra credit in excess of 30 days requires a separate benchmarking and notional interest at 6% is a fair and reasonable one. In these decisions the request of the assessee to apply the interest at LIBOR + points were considered and rejected. ITA-TP No. 78/Hyd/2022 Page 6 of 11 9. It could be seen from the directions of the learned DRP to the learned TPO to recompute the interest liability on payables after adjusting the same against the interest on receivables basing on the information like date of invoice, credit period, date of payment, period of delay with supporting invoices by the assessee before the learned TPO within a week from the date of receipt of the order, learned DRP directed the assessee to submit complete information relating to the payables to AEs and non- AEs. On this aspect, grievance of the assessee is that the learned Assessing Officer failed to comply with the same though the sample evidence is produced, the learned Assessing Officer insisted for the production of the entire thing. 10. We deem it relevant to refer to the observations of the learned TPO while giving effect to the directions of the learned DRP, which read as follows: “... Hon'ble panel directed that the TPO may verify the complete information relating to payables to A Es and non-A Es such as date of invoice, credit period, date of payment, period of delay with supporting invoices and adopt the interest rate as directed in computing the delay on receivables beyond credit period of 30 days from date of invoice. In this respect some submissions were made on behalf of the taxpayer and the same were examined. It was noted that with respect to the interest on trade payables, a calculation was provided as per which an interest of Rs. 20,21,537/- was payable to third parties as interest on delayed payables. Further, another amount of Rs. 1,84,4031/- was claimed as payable to AEs on account of interest on delayed payables. It was argued on behalf of the taxpayer that the interest payable to both AEs and non-AEs is to be adjusted against the interest receivable from the AEs. It was further submitted that the taxpayer had huge cases of delayed payments to AEs and non AEs and out of that only certain samples were provided. On perusal of the calculations provided by the taxpayer it was noted that the amounts payable to non-AEs were from the following three companies- ITA-TP No. 78/Hyd/2022 Page 7 of 11 1. AT & T Global Network Services India 2. Dell International Services India 3. First Advantage Private Limited On perusal of the invoices, that were raised by these parties on the taxpayer and as submitted on behalf of the taxpayer, it was noted that while M/s AT & T Global Network Services India provided a credit period of only 30 days(or 45 days in some cases), Dell International invoices mentioned a credit period of 60 days but levied an interest of 24% per annum on delayed payments, the invoices mentioned by First advantage provide a credit period period of 30 days only. Further, it has been submitted by taxpayer that the overall payables are huge and only a few have been provided as samples. In this respect it is being pointed out that hon'ble DRP has directed the taxpayer to submit the complete information and the taxpayer can not cherry-pick the ones supporting its own stand thus there is no acceptable explanation for non-submission of the complete information. Even with respect to the ones that have been cherry- picked and submitted for verification of TPO the details like ledgers of these parties, confirmation that no- interest has been charged, any agreements in that respect or any other evidence to prove that what have been mentioned as terms of payments on invoices have not been followed, have not been submitted. The few cases in which the invoices have been provided, the invoices clearly mention the limited credit period and the interest payable beyond the credit period. Thus the taxpayer has failed to substantiate its claim that no interest has been paid to trade creditors on delayed payables. Further, even with respect to the invoices raised by A Es the taxpayer does not have the indefinite credit period and the invoices on general mention a credit period of 30 days only. Since an interest is usually chargeable on the amounts remaining payable beyond the credit period allowed the taxpayer has failed to substantiate the claim that such a term of the transaction, as provided in the invoices raised has not been followed. Further as per the note 32 to the financial statements of the taxpayer, interest to suppliers has actually been paid or recognized as payable, thus the claim that no interest has been paid on delayed payables does not appear genuine. Thus as per the directions of hon'ble DRP, the claim made on behalf of the taxpayer that no interest has been paid on the delayed payables, was examined and on being found not acceptable for non-submission of complete information and the findings as noted above, is to be rejected. The Assessing Officer may pass a final order accordingly ITA-TP No. 78/Hyd/2022 Page 8 of 11 Further on the issue of calculation of adjustment on account of interest on delayed receivables to be calculated using S81 Short Term deposit rate as the CUP after allowing a credit period of 30 days, it was found that the TPO had already taken S81 short term deposit rate for calculation of interest and a credit period of 30 days, has already been allowed. In this respect it was further noted that a fresh argument was made on behalf of the taxpayer that when the delay beyond the credit period of 30 days is less than 7 days the interest rate is to be taken at 0% as is the S81 short term deposit rate. In essence what has been argued by taxpayer is that for a period of up to 6 days S81 provides no interest on short term deposits. In this respect it is being pointed out that the short term deposits are accepted for a minimum period of 7 days and that does not mean that no interest is provided for the initial 6 days. Further, a credit free period of 30 days has already been provided as interest free period thus in effect the interest is being calculated on funds that have been pending with AEs for a minimum period of 31 days. Thus, the calculation submitted on behalf of the taxpayer is rejected. Hence no change is needed in the draft order in pursuance to the order of the Hon’ble DRP and accordingly a final order may be passed by the Assessing Officer.” 11. From the directions given by the learned DRP and the findings of the learned TPO, it is argued on behalf of the assessee that since the direction is to adjust the interest payable against the interest receivable, the assessee understood that if the material is provided covering the adjustment to the tune of Rs. 18,46,834/- imputed by the learned TPO towards upward adjustment, any addition on that account would become zero. Here the question is whether such sample evidence provided by the assessee is sufficient to be acted upon by the learned TPO. Learned TPO in unequivocal terms noted that even in respect of such sample evidence, no ledgers of the parties, confirmation that no interest was charged, any agreement in that respect, or any other evidence to prove that what was mentioned as terms of payment on invoices was not followed – was not submitted. Furnishing of mere invoices and calculations is not sufficient ITA-TP No. 78/Hyd/2022 Page 9 of 11 compliance with the directions of the learned DRP. If the assessee substantiates the invoices, the supporting evidence like ledgers confirmations etc., at least to the tune of Rs. 18.46 lakhs, such sample evidence would have been sufficient. But it is not so in this case. We, therefore, do not find any merits in the contention of the assessee. Suffice it to say that the interest shall be charged only at 6% p.a. in respect of the receivables outstanding for more than 30 days. Issues No. 3 to 8 area allowed in the above terms. 12. Next issue that arises for consideration is in respect of deduction under section 10AA of the Act to the tune of Rs. 6,79,99,896/-. Undisputed facts are that in the intimation under section 143(1)(a) of the Act, dated 30/03/2019, the CPC did not allow the claim under section 10AA of the Act amounting to Rs. 6,79,99,896/-. Assessee filed rectification application and the CPC vide order dated 19/12/2019, allowed the deduction under section 10AA of the Act. Subsequently, in the draft assessment order dated 25/03/2021, the learned Assessing Officer did not make any disallowance on this account and, therefore, there is no occasion for the assessee to carry this to the learned DRP. Learned Assessing Officer, however, missed this aspect while passing the final assessment order dated 18/01/2022 and added the sum of Rs. 6,79,99,896/- by way of disallowance of deduction under section 10AA of the Act. These are all undisputed facts. It is not the case of the Revenue that for any reason, the order dated 19/12/2019 passed under section 154 of the Act cannot be acted upon. In these circumstances, we see no reason not to accept the action of the learned Assessing Officer while passing the draft assessment order and the order under section 154 of the Act allowing the deduction ITA-TP No. 78/Hyd/2022 Page 10 of 11 under section 10AA of the Act. We, therefore, direct the learned Assessing Officer to delete the addition made on this account. Issues No. 9 and 10 are allowed accordingly. 13. Grounds No. 11 and 12 preferred by the assessee relate to the education cess and secondary and higher education cess. Since the learned AR did not press this ground at the time of arguments, the same is dismissed as not pressed. 14. All other grounds are consequential in nature, require no adjudication. 15. In the result, appeal of the assessee is treated as partly allowed. Order pronounced in the open court on this the 19 th day of October, 2023. Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER Hyderabad, Dated: 19/10/2023 TNMM ITA-TP No. 78/Hyd/2022 Page 11 of 11 Copy forwarded to: 1. Corteva Agriscience Services India Pvt. Ltd., 8 th – 9 th Floor, Tower 2.1, Waverock Building. Sy.No. 115(P), Nanakramguda Village, Serilingampally, Hyderabad. 2. Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad. 3. The Dispute Resolution Panel (DRP), Bengaluru. 4. The Director of Income Tax (IT & TP), Hyderabad. 5. The Addl. Commissioner of Income Tax (Transfer Pricing), Hyderabad. 6. DR, ITAT, Hyderabad. 7. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD