Teradata India Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 87/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5113 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 13-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T M SHIV KUMAR
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 143(3); 92B

Judgement Text

1 ITA NO. 87/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 87/DEL/201 7(A.Y .2012-13) TERADATA INDIA PVT. LTD. 301-302, 3 RD FLOOR, TOWER-4A S- BLOCK, DLF CORPORATE PARK, DLF CITY, PHASE-III GURGAON AACCT6715A (APPELLANT) VS ACIT CIRCLE-4(1) GURGAON (RESPONDENT) APPELLANT BY SH. NAGESHWAR RAO, ADV RESPONDENT BY SH. T. M. SHIV KUMAR, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 29/11/2016 U/S 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 PASSED BY ASSESSING OFFICER . 2. THE LD. AR SUBMITS THAT THE ASSESSEE IS ONLY CON TESTING GROUND NO. 4 & 5 RELATED TO INTEREST ON RECEIVABLE INTEREST ON CRE DIT PERIOD GRANTED BY THE COMPANY UNDER NORMAL TRADE PRACTICES AND ONCE WORKI NG CAPITAL ADJUSTMENT IS GRANTED NO SEPARATE ADJUSTMENT ON ACCOUNT OF OUTSTA NDING RECEIVABLE IS DATE OF HEARING 13.07.2017 DATE OF PRONOUNCEMENT 08.08.2017 2 ITA NO. 87/DEL/2017 MAINTAINABLE. THE LD. AR FURTHER SUBMITS THAT THE ASSESSEE IS ALSO CHALLENGING GROUND NO. 14 & 15 RELATED TO DEPRECIATION. (CREDIT TAX). 3. AS PER THE SUBMISSIONS MADE BY THE LD. AR GROUND NO. 1 TO 3 AND GROUND NO. 6 TO 13 & 16, 17 ARE NOT CONTESTED BY TH E LD. AR. THEREFORE, THE SAME ARE DISMISSED. 4. THE CONTESTING GROUNDS IN THE ASSESSEES APPEAL ARE AS FOLLOWS:- 1. THAT ON FACTS AND IN LAW, THE DRP/TPO/A.O HAVE GROSSLY ERRED BY CHARGING INTEREST ON CREDIT PERIOD GRANTED BY THE C OMPANY UNDER NORMAL TRADE PRACTICES BY: I. IDENTIFYING OUTSTANDING RECEIVABLES AS A SEPARAT E INTERNATIONAL TRANSACTIONS; II. BY RE-CHARACTERIZING THE NATURE OF OUTSTANDING RECEIVABLES AS LOAN ADVANCED TO ASSOCIATED ENTITIES (AES); III. BY DETERMINING THE COMPARABLE UNCONTROLLED PRI CE (CUP) METHOD AS THE MOST APPROPRIATE METHOD WITHOUT PROVIDING AN Y COMPARABLES UNCONTROLLED TRANSACTION(S) THEREBY COMPROMISING TH E MOST FUNDAMENTAL RULES AND PROVISIONS LAID DOWN IN THE A CT AND THE RULES TO DETERMINE THE ARMS LENGTH PRICE OF THE IN TERNATIONAL TRANSACTION; IV. BY APPLYING AN INTEREST RATE ON OUTSTANDING REC EIVABLE AT A SBI BASE RATE PLUS 300 BASIS POINTS. V. BY IGNORING THE FACT THAT ACCOUNT RECEIVABLES AR ISING FROM AN INTERNATIONAL TRANSACTION ARE CLOSELY LINKED TO THE MAIN TRANSACTION AND SHOULD BE BENCHMARKED, USING A COMBINED TRANSAC TION APPROACH, BY MAKING WORKING CAPITAL ADJUSTMENT. VI. BY ERRONEOUSLY OBSERVING THAT TERADATA INDIA IS REMUNERATED IN INR FOR PROVISION OF SERVICES I.E. CONTRACT R & D SERVI CES AND GLOBAL CONSULTING CENTER SERVICES TO THE FOREIGN AES. 3 ITA NO. 87/DEL/2017 5. THAT WITHOUT PREJUDICE TO THE ABOVE, ONCE WORKIN G CAPITAL ADJUSTMENT IS GRANTED NO SEPARATE ADJUSTMENT ON ACC OUNT OF OUTSTANDING RECEIVABLES IS MAINTAINABLE. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. DRP/A.O ERRED IN DISALLOWING A SUM OF RS.23 ,20,827/- AS EXCESS DEPRECATION CLAIM ON FIXED ASSETS ACQUIRED B Y THE APPELLANT FROM NCR CORPORATION INDIA PVT. LTD. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER HAS ERRED IN COMPUTING THE DEMAN D OF RS.11,29,66,370/-. 5. THE BRIEF FACTS OF THE CASE ARE THAT TERADATA GR OUP PVT. ENTERPRISES PROVIDES DATA WAREHOUSING SOLUTIONS TO CUSTOMERS AR OUND THE WORLD. AS PER THE TP STUDY SUBMISSIONS FOLLOWING ADDITIONAL FUNCT IONS ARE CARRIED OUT BY THE ASSESSEE: 1. SERVING AS CONTRACT R & D FACILITY AT SIKANDARAB AD FOR TERADATA- US WHICH IS GLOBAL OWNER OF ALL TERADATA INTELLECTU AL PROPERTY. 2. POSTING GLOBAL CONSULTING CENTERS AT MUMBAI & PU NE, PROFESSIONAL SUPPORT SERVICES ARE PROVIDED AND OTHER NON INDIAN TERADATA AFFILIATES. 3. TERADATA-US AND TERADATA IRLAND ENGAGED TDI AS C ONTRACT MANUFACTURING TO BUILD THE HARDWARE AND CONFIGURE T O THE SPECIFICATIONS. TDI DROP SHIPS THE SYSTEMS TO CUSTOMER SIDES. WRIT TEN IN THIS CASE WAS FILED ON 30/11/2012 DECLARING THE TOTAL INCOME OF R S.29,28,47,853/-. REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTER INTO BY THE ASSESS EE. VIDE ORDER U/S 92CA(3) DATED 28/1/2016 THE TPO DETERMINE THE ARMS LENGTH P RICE OF THE TRANSACTIONS 4 ITA NO. 87/DEL/2017 AND PROPOSED AN ADJUSTMENT OF RS.20,53,64,035/- WHI CH WAS INCORPORATED BY THE ASSESSING OFFICER IN HIS DRAFT ASSESSMENT ORDE R DATED 1/3/2016 AND THE TOTAL INCOME WAS PROPOSED AT RS.50,46,72,990/-. TH E ASSESSEE FILED VARIOUS OBJECTIONS BEFORE THE DRP. THE DRP DECIDED THE SAI D OBJECTION WHILE ORDER DATED 18/10/2016 THE MAIN CONTESTING ISSUE WHICH IS AGITATED IN THE PRESENT APPEAL ARE THAT OF INTEREST ON RECEIVABLES AS WELL AS DEPRECIATION. 6. THE LD. AR SUBMITTED THAT INTEREST ON RECEIVABLE S ON THE WORKING CAPITAL CANNOT BE TAKEN INTO ACCOUNT IN LIGHT OF THE DECISI ON OF HONBLE DELHI HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCO ME-TAX VS. KUSUM HEALTH CARE PVT. LTD (ITA NO. 765/2016 ORDER DATED 25/4/20 17). 7. AS RELATES TO SECOND ISSUE RELATING TO DEPRECIAT ION, THE LD. AR SUBMITTED THAT THE SAID ISSUE IS ALSO COVERED IN LIGHT OF THE TRIBUNALS ORDER IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 WHE REIN THE MATTER IS REFERRED TO ASSESSING OFFICER TO VERIFY THE CLAIM O F THE ASSESSEE. THEREFORE, THE SAME NEEDS TO BE VERIFIED BEFORE THE ASSESSING OFFI CER. 8. THE LD. DR SUBMITTED THAT THE ASSESSEES RELIANC E ON THE CASE OF KUSUM HEALTH CARE PVT. LTD IS NOT JUST AND PROPER AND THE LD. DR RELIED UPON THE ORDER OF MCKINSEY KNOWLEDGE CENTRE (P) LTD. VS. DCI T CIRCLE-16(2), NEW DELHI 2017. IN PARA 63 IT IS HELD AS UNDER:- 60. ADJUSTMENT IS IN RESPECT OF INTERNATIONAL TRA NSACTION OF RENDERING SERVICES TO THE AE. INTEREST FOR THE CREDIT PERIOD ALLOWED AS PER THE AGREEMENT IS FACTORED IN THE PRICE CHARGED FOR THE RENDERING OF SERVICES. IN THE OPPUGNATION, THE NON-REALIZATION OF INVOICE VAL UE BEYOND THE STIPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANS ACTION, WHOSE ALP IS REQUIRED TO BE THE DELHI BENCH IN AMERIPRISE INDIA (P.) LTD. (SUPRA) AND TECHBOOKS INTERNATIONAL (P.) LTD. (SUPRA) DID NOT A PPROVE THE REASONING ABOUT SUCH INTEREST SUBSUMING IN WORKING CAPITAL AD JUSTMENT. IT FOUND 5 ITA NO. 87/DEL/2017 THAT THE WORKING CAPITAL DETERMINED. GRANTING OF WO RKING CAPITAL ADJUSTMENT HAS BEEN HELD TO BE CONFINED TO THE INTE RNATIONAL TRANSACTION OF RENDERING OF SERVICES, WHOSE ALP IS SEPARATELY D ETERMINABLE. ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION OF INTERE ST RECEIVABLE FROM ITS AES FOR LATE REALIZATION OF INVOICES BEYOND SUCH ST IPULATED PERIOD IS A SEPARATE INTERNATIONAL TRANSACTION. ALLOWING WORKIN G CAPITAL ADJUSTMENT IN THE INTERNATIONAL TRANSACTION OF RENDERING SERVI CES HAS BEEN HELD TO HAVE NO IMPACT ON THE DETERMINATION OF ALP OF THE I NTERNATIONAL TRANSACTION OF INTEREST ON RECEIVABLES FROM AES BEY OND THE STIPULATED PERIOD ALLOWED AS PER THE AGREEMENT. IN OUR CONSIDE RED OPINION, WHEREAS, THE INTERNATIONAL TRANSACTION OF PURCHASE/SALE OF G OODS FROM/TO AE CONTEMPLATES COMPARISON OF THE PRICE CHARGED/PAID F OR SUCH GOODS BY IMPLIEDLY INCLUDING THE INTEREST FOR THE PERIOD ALL OWED FOR REALIZATION OF INVOICES AS PER THE TERMS OF THE AGREEMENT, THE INT ERNATIONAL TRANSACTION OF CHARGING INTEREST ON LATE RECOVERY OF TRADE RECEIVA BLE COVERS THE PERIOD WHICH STARTS WITH THE TERMINATION OF THE PERIOD OF CREDIT ALLOWED UNDER THE AGREEMENT, WHICH IS SUBJECT MATTER OF THE INTERNATI ONAL TRANSACTION OF PURCHASE/SALE OF GOODS. THERE IS ONE MORE FALLACY I N THE ARGUMENT ABOUT THE SUBSUMING OF INTEREST INCOME IN THE WORKING CAP ITAL ADJUSTMENT. IT IS SIMPLE THAT WORKING CAPITAL ADJUSTMENT IS ORDINARIL Y COMPUTED BY CONSIDERING THE AVERAGE OF THE OPENING AND CLOSING VALUES OF INVENTORIES, RECEIVABLES AND PAYABLES. A TRANSFER PRICING ADJUST MENT ON ACCOUNT OF INTEREST ON DELAYED REALIZATION OF INVOICE VALUE HA S NOTHING TO DO WITH THE CLOSING OR OPENING VALUES. IT DEPENDS ON THE PERIOD OF REALIZATION ON TRANSACTION TO TRANSACTION BASIS. TO PUT IT DIFFERE NTLY, SUPPOSE AN INVOICE IS RAISED ON 1ST MAY; PERIOD ALLOWED FOR REALIZATIO N IS TWO MONTHS; AND THE INVOICE IS ACTUALLY REALIZED ON 31ST DECEMBER. NOTWITHSTANDING THE FACT THAT INTEREST ON SUCH LATE REALIZATION WOULD B ECOME CHARGEABLE FOR A PERIOD OF 6 MONTHS (FROM 1ST JULY TO 31ST DECEMBER) , BUT THE AMOUNT OF INVOICE WILL NOT BE RECEIVABLE AS AT THE END OF THE FINANCIAL YEAR ON 31ST MARCH. AS SUCH, THIS RECEIVABLE WOULD NOT HAVE AN I MPACT ON THE WORKING 6 ITA NO. 87/DEL/2017 CAPITAL ADJUSTMENT IN ANY MANNER, BUT WOULD CALL FO R ADDITION ON ACCOUNT OF THE LATE REALIZATION OF INVOICE VALUE FOR A PERI OD OF SIX MONTHS. FOLLOWING THE ORDERS IN AMERIPRISE (SUPRA) AND TECHBOOKS INTE RNATIONAL (SUPRA), WE UPHOLD THE VIEW TAKEN BY THE TPO ON THIS ISSUE. INT EREST ON LATE REALIZATION OF INVOICES IS DIRECTED TO CHARGED IN L INE WITH THE DIRECTIONS GIVEN IN THE ABOVE ORDERS OF THE DELHI BENCH OF THE TRIBUNAL. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT CASE LAWS ALONG WITH ORDER OF TPO, DRP & A.O. IN RESPECT OF FIRST ISSUE THE LD. AR RELIED UPON THE ORDER OF JURISDICTIONAL HIGH COURT IN CASE OF K USUM HEALTH CARE PVT. LTD. WHEREIN IT IS HELD AS UNDER:- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUB MISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEX T EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTIT Y, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CH ARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CAS E BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL OF TH E ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE HAS TO BE A PROPE R INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TIME TO D ISCERN A PATTERN WHICH WOULD INDICATE THAT VIS-A-VIS THE RECEIVABLES FOR T HE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANS ACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT A Y CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT TH E FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSA CTION BY ITSELF. WITH 7 ITA NO. 87/DEL/2017 THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROF ITABILITY VIS-A-VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS 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 THIS COURT IN CIT V. EKL APPLIANCES LT D. (2012) 345ITR 241 (DELHI ). THE ISSUE IN THE PRESENT APPEAL IS ALSO IDENTICAL THEREFORE, SQUARELY COVERED BY THIS JUDGMENT IN FAVOUR OF THE ASSESSEE. THEREFORE, GROUND NO. 4 & 5 ARE ALLOWED. 10. AS RELATES TO GROUND NO. 14 & 15, SIMILAR ISSUE WAS RAISED IN AY 2008- 2009 WHICH WAS REMANDED BACK TO THE ASSESSING OFFIC ER TO VERIFY THE CLAIM OF DEPRECIATION BY THE TRIBUNAL VIDE ORDER DATED 01.08 .2016 IN ITA NO. 791/DEL/2013. THE EXTRACT OF THE SAID ORDER IS AS FOLLOWS:- 11.4 THE LD.AR SUBMITTED THAT THE LD.AO ON ONE HAN D ACCEPTED THE DIFFERENCE IN THE LIABILITY BUT HE SUBMITTED THAT T HE DIFFERENTIAL AMOUNT BETWEEN THE PURCHASE CONSIDERATION AND THE VALUE AS PER THE VALUATION CERTIFICATE DID NOT ACCELERATE THE DIFFERENCE IN TH E FIXED ASSETS. HE SUBMITTED THAT THE DIFFERENTIAL AMOUNT BETWEEN THE PURCHASE CONSIDERATION AND THE VALUE OF ASSETS AS PER THE VALUATION CERTIF ICATE HAS TO BE TRANSFERRED TO CAPITAL RESERVE AS IT REPRESENTS THE ACTUAL COST OF ASSETS TO THE ASSESSEE AND THE DEPRECIATION SHOULD BE FULLY ALLOW ED ON THE SAME. 11.5. ON THE CONTRARY THE LD.AR RELIED UPON THE ORDERS P ASSED BY THE AUTHORITIES BELOW. 11.6. WE HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITI ES BELOW AND THE ARGUMENTS ADVANCED BY BOTH THE PARTIES. IT IS S EEN THAT THE LD. AO 8 ITA NO. 87/DEL/2017 HAD TAKEN DIFFERENT FIGURES FOR CALCULATING THE VAL UE OF FIXED ASSETS. WE ACCORDINGLY SET ASIDE THE ISSUE TO THE LD. AO TO VE RIFY THE CLA IM OF THE ASSESSEE AS PER LAW. THUS ON SIMILAR LINE IN THE PRESENT ASSESSMENT YEA R ALSO THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF THE ASSE SSEE AS PER LAW. THEREFORE, GROUND NO. 14 & 15 ARE PARTLY ALLOWED AS THE MATTER IS REMANDED BACK TO THE ASSESSING OFFICER TO VERIFY THE SAID CLAIM. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH AUGUST, 2017 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 08/08/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 13/07/2017 PS 9 ITA NO. 87/DEL/2017 2. DRAFT PLACED BEFORE AUTHOR 14/07/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 10.08.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 0 .08.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.