Techbooks International Pvt. Ltd., Noida V. DCIT, Noida

ITA 788/DEL/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1420 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: I
• Next Hearing Date: 02-10-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Wholly owned subsidiary; Bad and doubtful debts
• Section: 92B; 10B; 250; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘I’ BENCH, NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA No. 788/DEL/2016 [A.Y 2011-12) Techbooks International Pvt. Ltd., Block A-Plot No. 37, Sector 60, Gautam Budh Nagar, Noida. PAN: AABCT 3774A Vs. The Dy. C.I.T, Circle-3, Noida. ITA No. 992/DEL/2016 [A.Y 2011-12) The Dy. C.I.T, Circle-3, Noida Vs. Techbooks International Pvt. Ltd Block A-Plot No. 37, Sector 60, Gautam Budh Nagar, Noida. PAN: AABCT 3774A (Applicant) (Respondent) Assessee By : Shri Nageshwar Rao Shri Shaitanik Chakroborty Shri Akshay Uppal, Advs Department By : Shri Anand Kumar Kedia, CIT- DR Date of Hearing : 03.10.2022 Date of Pronouncement : 10.10.2022 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- These two cross appeals by the assessee and Revenue are preferred against the order dated 30.12.2015 framed u/s 144C r.ws. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] pertaining to Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal: 1. The transfer pricing order passed by the Learned Assistant Commissioner of Income Tax, Transfer Pricing Officer 3(2)(1), New Delhi, draft assessment order and the final assessment order passed by the Learned Deputy Commissioner of Income Tax, Circle - 3, Noida (‘the AO’), pursuant to the original directions read with rectified directions of the Hon’ble Dispute Resolution Panel (‘the DRP’) and the order passed by the Deputy Commissioner of Income Tax, Transfer Pricing Officer 3(2)(1) (“the TPO”), New Delhi post DRP directions, are bad in law and void ab-initio. 2. The AO has erred in law and on the facts and circumstances of the case in determining the total income of the Appellant at INR 4,38,56,650/- as against returned income of INR 18,05,090/- and thereby made an upward adjustment of INR 4,20,51,556/-. 3 Part I - Transfer Pricing Grounds 3. That on facts of the case and in law, the DRP/TPO/AO ignored the principle of natural justice by not dealing with the contentions of the Appellant with respect to the rectification application filed by the Appellant with the TPO/AO. 4. That on facts and in law, the DRP/TPO/AO have grossly erred by charging interest on credit period granted by the company under normal trade practices by: 4.1.1. Identifying outstanding receivables as a separate international transaction; 4.1.2. re-characterizing the nature of outstanding receivables as loan advanced to associated enterprises (“AEs”); 4.1.3 determining the Comparable Uncontrolled Price (“CUP”) method as the most appropriate method to determine the arm’s length price of the international transaction; 4.1.4applying 6 months LIBOR plus 250 basis points as an interest rate on the outstanding receivables. 5. That on facts of the case and in law, the DRP/TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for international transaction pertaining to IT enabled data conversion services. 4 6. That on facts of the case and in law, the DRP/ TPO/AO have erred in using single year data for financial year ("FY") 2010-11 of alleged comparable companies without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price. 7. That on facts of the case and in law, the DRP/TPO/AO have erred in conducting a fresh economic analysis by using arbitrary filters for identifying companies comparable to the Appellant. The arbitrary filters applied by the TPO and confirmed by the DRP/AO inter-alia include the following: • To reject companies having turnover less than INR 1 Crores; • To reject companies having different accounting year than that of the Appellant; and • To reject companies having peculiar economic circumstances which are not in line with the industry trend and companies which showed diminishing revenue trend. 8. That on facts of the case and in law, the DRP/TPO/AO have erred in selecting companies in the final set of alleged comparable companies which are functionally different as compared to the Appellant. 5 9. That on facts of the case and in law, the DRP/TPO/Assessing Officer have erred in rejecting certain companies and adding certain companies to the final set of alleged comparable companies on an ad-hoc basis, thereby resorting to cherry picking of comparable companies for benchmarking of the international transaction pertaining to IT enabled data conversion services. 10. That on facts of the case and in law, the DRP/ TPO/AO have erred in law and in facts by selecting certain companies which are earning super normal profits as comparable to the Appellant. 11. That on facts of the case and in law, the DRP/TPO/AO has grossly erred by failing to include foreign exchange gains/losses and provision for doubtful debts while computing the operating margins of the Assessee and the comparable companies without appreciating the fact that the Hon’ble ITAT has upheld the treatment of foreign exchange gain/ loss as operating in nature in Appellant’s own case. 12. That on facts of the case and in law, the DRP and TPO/AO have erred by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the second proviso to section 92C(2) of the Act. 6 ' 13. That on the facts and in the circumstances of the case, the Ld. DRP/TPO/AO have erred by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies 3. In addition to the above, the assessee has also raised additional/ supplementary grounds of appeal which read as under: “4..1.5 “Without prejudice not providing credit period of 150 days for receivables basis the inter-company agreement” The Appellant also wishes to introduce the following ground after ground 13 as under: 13.1 “The learned DRP/TPO/AO has erred in not considering Working capital adjustment while benchmarking international transaction of provision of IT enabled data services.” The Appellant submits that the above additional ground raise issues which are fundamental' to the appeal and non-admission and non-adjudication of the same would result in an incomplete appreciation and adjudication of the matter. The Appellant submits that failure to raise these grounds at an earlier stage is neither willful nor wanton. 7 No prejudice would be caused to the Respondent by reason of the above additional grounds being admitted and adjudicated and accordingly balance of convenience is in favour of such an order being passed by this Hon’ble Tribunal. Appellant states and submits that issues raised in additional grounds raised above arise out of the order of the lower authorities. Reliance is based on the decisions of Hon’ble Supreme Court in the case of Jute Corporation of India vs. C.I.T. (187 ITR 688) and National Thermal Power Corporation vs. C.I.T. (229 ITR 383) as well as the full Bench of the Bombay High Court in the case of Ahmadabad Electricity Co. Ltd. (199 ITR 351). In the above circumstances Appellant prays that this Hon’ble Tribunal may kindly be pleased to; (i) admit and adjudicate the above additional grounds; and (ii) pass any other order that may be required in the circumstances of the case and render justice.” 4. The Revenue has raised the following grounds of appeal: “1. The Hon'ble DRP has erred in law and on facts in rejecting the export earning filter of 75% 2. The Hon'ble DRP has erred in law and on facts by including Cosmic Ltd on the basis of export earning filter without considering the fact that the aforesaid company cannot be 8 considered as comparable as the ratio of export earning to sales of this company is 52.88% i.e. less than the threshold limit of 75%. 3. The Hon'ble DRP has erred in law and on fact by inclusion of M/s Caliber Business Point Solution and ions and Informed Technologies Ltd as the companies without considering the fact that M/s Caliber Business Point Solutions has different financial year and M/s Informed Technologies Ltd. fails the service filter of 75%. i.e. income from services is less than 75% of total income. 4. The Hon'ble DRP has erred in law and on facts by exclusion of M/s Accentia Technologies Ltd. as comparable without considering the fact that there is no abnormal fluctuation in the profit earning capacity of the comparable. 5. The Hon'ble DRP has erred in law and on facts by exclusion of M/s TCS E-serve International Ltd. as comparable without considering the fact that it is a ITES/BPO Service providing company and the services regarding software testing, verification and validation of software which are termed as software development are basically covered under BPO services. 6. The Hon'ble DRP has erred in law to direct to exclude M/s Infosys BPO Ltd company on account relying on the judgement of Hon’ble ITAT for providing non- Comparable services and on account of its large scale of operations without considering the fact that many comparables being selected by this office and 9 assessee has argued against the Infosys BPO Ltd. only because of its high margin. 7. The Hon’ble DRP has erred in law and on facts by directing to apply LIBOR instead of PLR and calculate the interest on the receivable which stayed outstanding for more than 60 days without considering the fact the interest rate cannot be depended upon the currency of receivable amount but it should be calculated by considering the cost of funds. 8. That the appellant craves to leave, add, alter and amend any of the grounds of appeal on or before hearing. 9. That the order of the DRP being erroneous in law and on facts deserves to be set aside/cancelled and the order of the Transfer Pricing Officer be restored.” 5. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. 10 6. Briefly stated, the facts of the case are that the assessee has been incorporated as a wholly owned subsidiary of APTARA, USA. The assessee offers its customers typeset pages for print coupled with XML files for electronic delivery. It converts data hard copy or files into XML/SGML/HTML, creating electronic style files and modifying the user interface for CD-ROM delivery. In the process, raw data is received from the customers in hard copy/electronically which is then converted into electronic form. Thereafter, the data is arranged and formatted. It can be said that the company is primarily engaged in the provision of IT enabled data conversion services to its Associated Enterprise (AE). 7. The assessee reported the following international transactions with its AE : Name of the Associated Enterprise Name of transaction Amount paid [US $] Method Aptara Inc, USA Provision of IT enabled data conversion services 144,11,87,715 TNMM Aptara Inc, USA Reimbursements of expenses by Aptara, US 2,04,58871 No benchmarking required 11 8. The first major issue raised in this appeal by the assessee is against the addition made by the Assessing Officer on account of transfer pricing adjustment to the tune of Rs. 21,38,93,273/- in the international transaction of provision of IT enabled data conversion services. 9. The assessee adopted TNMM as the most appropriate method for demonstrating that this international transaction was at arm’s length price. On a reference made by the Assessing Officer to the TPO for determining ALP of assessee’s international transaction, the TPO accepted TNNM as the most appropriate method. However, the TPO excluded certain comparables which were included by the assessee and also included certain comparables and, accordingly, the TPO worked out a transfer pricing adjustment of Rs. 21,38,93,273/-. 10. The assessee raised objections before the DRP and was successful in getting certain comparables excluded against which the revenue is in appeal. However, the assessee was unsuccessful before the DRP in respect of the exclusion of certain comparables against which it is in appeal. 12 11. At the very outset, the ld. counsel for the assessee, referring to Ground No. 11 strongly pleaded that foreign exchange fluctuation gain should have been considered as operating revenue of the assessee as well as that of the comparables. 12. We are of the considered view that in light of the business profile of the assessee, this contention raised on behalf of the assessee about inclusion of foreign exchange gains in operating revenue finds merit. Apparently, it seems that foreign exchange gain earned by the assessee is in relation to the revenue earned from its AE in connection with provision of ITES. We find that foreign exchange gain directly results from consideration received from rendering ITES to AE and therefore, we fail to understand how such foreign exchange fluctuation gain should be considered as non-operating. 13. Since the TPO has computed PLI of the assessee as well as comparables by ignoring the amount of forex gains, we set aside the impugned order and remit the matter back to the file of the AO/TPO to recompute assessee’s margin as well as that of comparables by considering forex gain as an item of operating revenue. 13 14. However, it would be pertinent to make it clear that our direction is restricted to consider forex gain from transactions of revenue nature only as part of operating revenue. If some part of forex gains is found to be relatable to transactions on capital account, then that part should be excluded from the operating revenue. We find that similar view was taken by the coordinate bench in assessee’s own case for Assessment Year 2010-11 in ITA No 240/DEL/2015. 15. Another issue strongly agitated by the ld. counsel for the assessee is the denial of suitable adjustments to account for differences in risk profile of the assessee vis a vis the comparable companies. 16. We find that similar arguments were taken before this Tribunal in Assessment Year 2010–11, which were considered by the coordinate bench in ITA No 240/DEL/2015 but were not accepted for the following reasons: “7.2. We have heard the rival submissions and perused the relevant material on record. The TPO has referred to several tribunal decisions in which risk adjustment has been denied to the assessee. At the same time, the ld. AR has also drawn our attention towards some of the tribunal decisions, in which such an 14 adjustment has been allowed. In fact, there cannot be a general rule of allowing or not allowing risk adjustment. Risk is nothing but a possible adverse perception in the given circumstances, which may or may not finally fructify. Generally, risks and rewards go side by side. Higher the risk, more the profit; and vice versa. Level of risk depends on the facts and circumstances of each case. Where the assessee succeeds in ably demonstrating that the comparables finally selected bore relatively more risks than it, then there should be no denial of the risk adjustment. If, however, the assessee fails in specifically pointing out the extra risks undertaken by the comparables, then, of course, there cannot be any question of granting risk adjustment. Under the transfer pricing regime, initial onus is always on the assessee to show the reasons for claiming any specific adjustment by pointing out differences between it and the comparables. Risk adjustment can be allowed provided the assessee places on record some appropriate material to demonstrate that the risks undertaken by the comparable companies were relatively more than it, warranting downward adjustment in their profit rates. Further, the variation in such risks, if any, should be capable of quantification on some reasonable and logical basis. 7.3. The ld. AR stated before us that the assessee was not having any risk at all inasmuch as its services were to be compensated by the AE with an appropriate mark-up in comparison with the full-fledged risk bearing comparable companies. We are not inclined to accept such a generalized and bald statement. The 15 mere fact that the assessee is a captive unit rendering ITES to its AE alone, does not per se make it a no-risk entity. There are several risks attached to such entities dealing with a single customer. If such lone customer, on whom the enterprise’s entire survival depends, closes down its business either voluntarily or due to reasons beyond his control, the possibility of realization of debts for the services already rendered, becomes a potential risk. Further, the fear of termination of agreement between such an enterprise and the solitary customer also poses a grave threat to the existence of such an enterprise. In that sense of the matter, an enterprise serving a single customer, also assumes marked risks. As the assessee is wholly dependent on its AE for securing business, its entire existence also depends on the same AE. If such AE runs out of business or its business is reduced, the assessee is bound to bear severe jolts. The contention of the ld. AR that the assessee did not have any risk is prima facie not acceptable in view of Schedule 13 of its Profit & Loss Account containing details of operating and other expenses. It transpires from such Schedule that the assessee has claimed deduction for ‘Provision for doubtful advances’ amounting to Rs.17,11,167/-. On a pointed query, the ld. AR submitted that this provision was created in respect of expenses incurred by the assessee in rendering the services to the AE and not on the realization of sale proceeds. We fail to appreciate the rationale of this contention that the assessee assumes no risk of realization of invoices from its AE, but there may be a risk of advances given for expenses incurred during the course of rendering services. Ultimately risk is risk, whether it is of realization of invoices or of advances given for conducting 16 operations. Since the aspects of incurring expenses and earning revenue are two sides of the same coin, we find that the existence of risk to the assessee cannot be denied. Be that as it may, it is further found that though there is no Provision for doubtful debts (arising from realization of invoices) during the year, but, the assessee did create provision for doubtful debts in the preceding year amounting to Rs.10,79,665/-. This provision for bad debts is from the revenue side. To contend that the assessee was not running any risk in providing the services is, therefore, patently incapable of acceptance. Since the ld. AR has failed to objectively demonstrate the relatively higher risks undertaken by the comparables on an overall basis vis-à-vis the assessee, we are disinclined to grant any risk adjustment.” 17. Now coming to the selection of comparable, the assessee is aggrieved against the inclusion of: a. Eclerx Services Limited b. ICRA Techno Analytics Limited c. Acropetal Technologies Limited. 18. The assessee also seeks inclusion of : a. CG Vak Software and Exports Ltd, and b. Calibre solutions point Limited. 17 19. We will first deal with the companies which have been included by the TPO in the final set of comparables and the assessee claims them to be incomparable. 20. The common objection in respect of three comparables objected by the assessee is that all are functionally different and are functionally not comparable. It is further stated that all the three companies namely, Eclerx Services Limited, ICRA Techno Analytics Limited, Acropetal Technologies Limited are engaged in diversified services including software services, consultancy, engineering services etc. It is also pointed out that Eclerx is a KPO entity, which offers financial services also. 21. We have given thoughtful consideration to the orders of the authorities below and have duly considered the objections of the assessee. A close look at the business profile of the three comparable companies mentioned elsewhere shows that the services offered by these companies are in the nature of ITES only. In fact, we are unable to understand how single customer business (like that of the assessee) affects the functional similarity of the company. The assessee is having 18 single customer business and so also TCS E-Serve Limited, Eclerx Services, which offers ITE services to city group. 22. Similar is the case of ICRA Techno Analytics Limited and Acropetal Technologies Limited. In so far as inclusion of CG Vak Software and Exports Limited and Calibre Business Point Business Solutions Ltd. is concerned, we find that in Assessment Year 2010–11, the coordinate bench had the occasion to consider this issue. Relevant findings of the coordinate bench in the case of CG VAK Software and Exports Limited read as under: “12.2.1. The assessee included the segmental figures of this company in the list of comparables. The TPO eliminated this company on the ground that it was providing software services and ITES and its turnover from ITES was only 0.83 crore, which was less than the requisite turnover. 12.2.2. Having heard both the sides on this issue, we find that the TPO has accepted the functional comparability of this company on segmental level. The ld. DR was also fair enough to candidly accept the functional similarity of the relevant segment of this company. In such circumstances, the question arises as to whether the relevant segment of this company can be excluded from the list of comparables merely on the ground that the revenue from this segment is only Rs.83 lacs? In our considered 19 opinion, the quantum of turnover can be no reason for the exclusion of a company which is otherwise comparable. We have noticed above the judgment of the Hon’ble jurisdictional High Court in the case of ChrysCapital Investment Advisors (India) P. Ltd (supra) in which it has been held that high turnover or high profit can be no reason to eliminate an otherwise comparable company. The same applies with full force in the converse manner as well to a low turnover/low profit company. We, therefore, hold that a company cannot be excluded from the list of comparables on the ground of its low turnover. In principle, we direct the inclusion of the relevant segment of this company in the list of comparables. The TPO is directed to include the operating profit/operating costs of the ITES segment of this company in the list of comparables, after due verification of the necessary figures for determination of the operating profit margin etc.” 23. In so far as inclusion of Calibre Business Point Business Solutions is concerned, we find that the Coordinate Bench had an occasion to consider three comparables together, namely, R System International Ltd, Jindal Intelicom Private Limited and Calibre Business Point Business Solutions. The relevant findings of the coordinate bench read as under: 20 “12.1.2. After considering the rival submissions and perusing the relevant material, it is noticed that the assessee company is having financial year ending covering the period 1.4.2009 to 31.3.2010. In that view of the matter, a valid comparison can be made only if the comparable companies too have the same financial year. In this regard, we consider it appropriate to note the relevant part of sub-rule (4) of Rule 10B which provides that: “the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction had been entered into.” It is obvious from the language of sub-rule (4) that the comparability of an uncontrolled transaction can be analyzed only with the “data relating to the financial year” in which the international transaction has been entered into. In other words, if the tested party has March year ending, then, the comparables must also have the data relating to the financial year ending 31 st March itself. If such a data is not available, then, a company albeit comparable, also disqualifies. Espousing the facts of the extant case, we find that insofar as the functional comparability of these three companies is concerned, the TPO has not disputed the same. The only reason given for their exclusion is the non-availability of data for the relevant financial year. The ld. AR contended that though the year ending of the above referred three companies was either different or financial year included results for 15 months, yet, the assessee was in a position to put forward the data of these three companies for the financial year 1.4.2009 to 31.3.2010 from their Annual reports only. It was so stated on the basis of the availability of the quarterly data from 21 the Annual reports of these companies, which could be adjusted for the financial year ending 31.3.2010. If the contention of the assessee is correct, that the relevant data for the concerned financial year can be deduced from the information available from their annual reports, then, there can be no objection to the inclusion of these companies in the list of comparables with the adjusted data for the relevant financial year itself. Under such circumstances, we set aside the impugned order and remit the matter to the file of TPO/AO for examining this aspect of the matter. It is clarified that only if the assessee succeeds in providing the relevant data of these companies for the concerned financial year on the basis of the information available from their Annual reports only, the TPO should include these companies in the list of comparables by considering their OP/OC on the basis of the financial year ending 31.3.2010. If however, even though their quarterly data is available and can be compiled for the relevant financial year, but the amounts of operating profit or operating cost etc. for the relevant financial year are not directly available without any apportionment or truncation, then these companies should not be considered as comparable. 24. Respectfully following the findings of the co-ordinate bench [supra], we direct accordingly. 22 25. At this stage, it would be proper to address to the comparables sought by the revenue in its appeal which are related to Infosys BPO Limited, Acentia Technologies Limited, TCS E-Serve Limited. 26. The coordinate bench has dealt with these comparables in Assessment Year 2010–11 as under: “Infosys BPO Limited 10.5.1. The TPO included this company in the list of comparables. The assessee’s objections against its inclusion were overturned. 10.5.2. After considering the rival submissions and perusing the relevant material on record, we find from the Annual report of this company, which is available on page 449 onwards of the paper book, that there was acquisition by this company of McCamish Systems LLC. Such information is available on page 456 of the paper book. Acquisition of McCamish Systems LLC during the year, being an extraordinary financial event, renders it incomparable. Following the reasons taken note of above, we order for the elimination of this company from the final set of comparables. i) TCS e-Serve Ltd . 10.3.1. The TPO proposed to treat this company as comparable. The assessee objected to its inclusion by contending that it was 23 providing financial information processing and customer contact services with high operating revenue and peculiar economic circumstances leading to abnormal profits. The TPO repelled the assessee’s objections and included it in the final set of comparables. 10.3.2. We have heard the rival submissions and perused the relevant material on record. A copy of the Annual report of this company is available on page 466 of the paper book. The company’s overview has been discussed on page 467 of the paper book, which divulges that this company : “is in the business of providing business process management services in the banking and financial services (BFSI), vertical ( i.e. industry vertical) to help its customers achieve their business objectives by providing innovative best-in-class services.” We find that this company is also providing ITES. Unlike TCS e-Serve International Ltd., this company is not providing any technical services involving software testing, verification and validation of software etc. Since the functional profile of this company on a broader basis is no different from that of the assessee, both being involved in rendering ITES, we are not inclined to treat this company as incomparable. The ld. AR argued that the nature of the ITES provided by this company is different from that of the assessee and hence the same be excluded. We are disinclined to sustain this objection. Matching of the exact functional similarity is dispensed with under the TNMM, which is not so under the Comparable uncontrolled price method. The TNMM approves comparability on the basis of broader overall similarity. When we consider the nature of services provided by 24 this company, being the ITES, which is similar to that of those rendered by the assessee, again the ITES, we cannot order its exclusion simply for the reason that the verticals of ITES are somewhat different. If one goes to make a comparison in the way suggested by the ld. AR under the TNMM, then it will be very difficult, if not impossible, to find out a ditto comparable. A company which satisfies the broader parameters of comparability in the overall same segment, cannot be excluded due to somewhat different nature of such overall activity. An examination of the comparables chosen by the assessee, which have been accepted by the TPO, also satisfy only the test of overall similarity and not the peculiar similarity, as has been now contrastly contended for the exclusion of this company. This argument, therefore, fails. 10.3.3. In so far as the objection of the ld. AR about the high profit/high turnover of this company is concerned, we find that the Hon’ble Delhi High Court in ChrysCapital Investment Advisors (India) P. Ltd. Vs. DCIT has held , vide its judgment dated 27.4.2015, that high profit or high turnover is not a criteria to exclude an otherwise comparable company. It is further noticed that the Hon’ble Delhi High Court in CIT Vs. Agnity India Technologies (P.) Ltd. (2013 ) 219 Taxman 26 (Del) examined the comparability of Infosys Technologies from the angle of its inclusion or otherwise in the list of comparable of Agnity India Technologies, a captive unit providing ITES to its AE alone. In that case, the TPO treated three companies as comparable, namely, Satyam Computer Service Ltd., L&T Infotech Ltd. and Infosys Technologies. The DRP excluded Satyam Computer only. The 25 Tribunal excluded only Infosys Technologies Ltd., by impliedly retaining L&T Infotech Ltd. as a good comparable. On appeal by the Revenue, the Honourable High Court upheld the Tribunal order excluding Infosys on the strength of certain relevant distinguishing features including its giantness in terms of sales, nature of work and other factors. Thus it follows that L&T Infotech Ltd., which is otherwise a vast company with much higher turnover, finally found the status of a comparable with a captive company providing ITES to its AE alone. 10.3.4. Coming back to the facts of our case, we find that since TCS e-Serve Ltd. is functionally comparable with the assessee company on an overall basis and no special reasons for its higher profit/turnover have been brought to our notice. Consequently, we hold that the authorities below were justified in including this company in the list of comparables. ii) Accentia Technologies Ltd. 10.1.1. The assessee objected to the inclusion of this company in the list of comparables on several reasons including peculiar economic circumstances owing to acquisition of Asscent Infoserve Pvt. Ltd. during the financial year relevant to the assessment year under consideration. The TPO discussed the functional comparability of this company and, in the ultimate analysis, came to hold that it was functionally comparable with the assessee company and hence includible. 26 10.1.2. We have heard the rival submissions and perused the relevant material on record. We have also gone through the Annual report of this company, a copy of which has been placed on page 435 onwards of the paper book. Notes to Accounts of this company, which have been placed on page 443 of the paper book, indicate about the amalgamation of Asscent Infoserve Pvt. Ltd. with it as approved by the shareholders in the court convened meeting held on 25.4.2009 and, subsequently, sanctioned by the Hon’ble High Court on 21.8.2009. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been bolstered by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. In view of the fact that there was merger of Asscent Infoserve Pvt. Ltd. with Accentia Technologies Ltd. by way of amalgamation during the year itself, we hold that this company cannot be considered as comparable due to this extra-ordinary financial event. Accordingly, the same is directed to be excluded from the final list of comparables.” 27. Respectfully following the findings of the coordinate bench [supra] in respect of this comparable, we direct accordingly. 27 28. The revenue has also sought exclusion of Cosmic Global Limited and Informed Technologies India Ltd. 29. In so far as Cosmic Global Limited is concerned, we find that this Tribunal in earlier years i.e. Assessment Years 2009–10 and 2010–11 has held that export earnings filter need not be applied which has been followed by the DRP and, therefore we do not find any merit in exclusion of these comparables and it will remain in the final set of comparables 30. In so far as Informed Technologies India Limited is concerned, it is contended that the turnover of this company is more than Rs. 1 crore and, therefore, passes turnover filter applied by the Assessing Officer whereas the TPO has rejected because this company does not pass turnover filter. It appears that this company was rejected by the TPO on the basis of turnover filter in show cause notice itself. Therefore, the DRP has directed to verify the turnover and decide the inclusion/exclusion of this company after affording reasonable opportunity of being heard to the assessee. We do not find any error or infirmity in such direction of the DRP and, we accordingly direct the TPO/Assessing Officer. 28 31. In view of the foregoing discussion, we set aside the impugned order and remit the matter for determination of ALP of the international transaction of provision of ITE data conversion services to the file of the AO/TPO for fresh decision in accordance with our above observations/directions after affording adequate opportunity of being heard to the assessee. 32. Coming to the other major issue, argued by the ld. counsel for the assessee on behalf of the assessee is which relates to the interest on a delayed/Non-realization of export proceeds. 33. During the course of scrutiny assessment proceedings, it was noticed by the Assessing Officer on perusal of Master Service Agreement, that the AE has been given a much longer period for payment than that is generally allowed in general commercial parlance. Subsequently, referring to Clause 8.4 of the Agreement, the TPO observed that all the amounts under this Agreement should be paid within 150 days from the date of invoice and all the amounts to be paid under this Agreement shall be paid in US dollars. 29 34. The assessee was accordingly asked to submit the details of payments received from its AE after 60 days or the amount outstanding as receivable from the date of invoice alongwith inclusion of interest at the rate of 15% for a period of delay below 60 days. 35. The assessee furnished the necessary details, which is part of the assessment order, and are at pages 63 to 75 of the order. The TPO after analyzing the details concluded as under: Interest on outstanding amount of F.Y. 2009-10 and not received till 31.03.2011 Amount which has been received in F.Y. 2010-11 but pertaining to F.Y. 2009-10 Amount outstanding for F.Y. 2009-10 as per balance sheet Amount remained outstanding till 31.03.2011 Interest on the outstanding amount of F.Y. 2009-10 and not received till 31.03.2011 @ 3.0335% 4,93,58,202 1,02,73,60,940 97,80,02,738 2,96,67,713 36. Before us, the ld. counsel for the assessee strongly stated that the agreement between the assessee and its AE does not provide for any charging of interest and hence there cannot be any question of notional/hypothetical income as determined by the AO/TPO. 30 37. This contention of the assessee does not find any favour from us. In our considered opinion, Chapter X of the Act has been enshrined to determine the income from an international transaction at ALP, being in the same manner as is determined between two independent parties, which means that if income is not charged or under charged by an Indian entity from its foreign AE, which ought to have been properly charged if the transaction had been between two independent parties, then such under charged or uncharged income needs to be brought to tax by determining ALP of the international transaction giving rise to such income. 38. Our view is fortified by the fact that Finance Act 2012 has inserted Explanation to Section 92B with retrospective effect from 1.4.2002. This retrospective amendment covers the assessment year under consideration. Therefore, apart from any long-term/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 been expressly recognized as an international transaction. 31 39. Therefore, payment of interest or receipt of interest on the loans accepted or allowed in the circumstances as mentioned in this clause of Explanation to section 92B of the Act also become international transactions, requiring the determination of its ALP. Therefore in our considered view non-charging or under charging of interest on the excess period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. 40. This leads to the computation of ALP of the said international transaction of debt arising during the course of business. In our considered view it stands on two legs, namely, 1. Amount on which interest should be charged; and 2. ALP rate at which interest should be charged. 41. In so far as the first leg is concerned, we find that the TPO has taken normal credit period of 60 days and accordingly made addition on account of transfer pricing adjustment for the period in excess of 60 days. In our considered opinion, since the assessee has entered into an agreement with its AE for realization of invoices within the period of 32 150 days, therefore the interest amount of non-realization of invoices upto 150 days appears to have been factored in the price charged for the services rendered. 42. Therefore, interest should be charged in excess of 150 days. This is also additional/ supplementary grounds taken by the assessee at 4.1.5. We, accordingly direct the Assessing Officer/TPO to charge interest for delay of more than 150 days, which means that any delay above 150 days should be considered as a separate international transaction in terms of Clause C of Explanation to section 92B of the Act. 43. In so far as rate of interest is concerned, we find that this issue is covered by the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Cotton Natural [I] Pvt Ltd in its order dated 27.3.2015 in which the Hon'ble High Court has held that it is the currency in which loan is to be repaid which determine the rate of interest and hence prime lending rate should not be considered for determining interest-rate. 33 44. We, therefore, set aside the impugned issue and remit the matter back to the file of the TPO/AO for fresh determination of addition on account of TP adjustment towards interest not realized from its AE on the debts arising during the course of business in line with our above observations. 45. In the result, the appeal of the assessee in ITA No. 788/DEL/2016 and appeal of the Revenue in ITA No. 992/DEL/2016 are allowed in part for statistical purposes. The order is pronounced in the open court on 10.10.2022. Sd/- Sd/- [C.M. GARG] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 10 th October, 2022. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 34 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order