M/s KBACE technologies Prvate Limited , Chennai V. The Deputy Commissioner of Income Tax Circle-4(1)(1), Bangalore

ITTPA 3189/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7612 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 29-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Capital expenditure; Set aside
• Section: 143(3); 92B; 201; 144C; 207; 13; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K.GARODIA, ACCOUNTANT MEMBER ITA NO. 3189/BANG/2018 ASSESSMENT YEAR : 2014 - 15 KBACE TECHNOLOGIES PVT. LTD., 6 TH FLOOR, NEW NO.1655, MENON ETERNITY BUILDING, ST. MARYS ROAD, ALWARPET, CHENNAI 600 018. PAN: AACCK 3468K VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI NAGESHWAR RAO, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR , CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 13 .01.2020 DATE OF PRONOUNCEMENT : 29 .01.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE FI NAL ORDER DATED 28.9.2018 PASSED BY THE DCIT, CIRCLE 4(1)(2), BANGA LORE U/S. 143(3) R.W.S 144C OF THE INCOME-TAX ACT, 1961 [THE ACT]. 2. THE FIRST ISSUE THAT ARISES FOR CONSIDERATION I N THIS APPEAL IS IN RESPECT OF CORRECTNESS OF DETERMINATION OF ARMS LE NGTH PRICE (ALP) IN RESPECT OF AN INTERNATIONAL TRANSACTION OF RENDERIN G SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRI SES (AE). IT IS NOT IN ITA NO.3189/BANG/2018 PAGE 2 OF 12 DISPUTE THAT THE TRANSACTION OF RENDERING OF SOFTWA RE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS AE IS AN INTERNATIONAL TRANS ACTION AND THAT THE ALP OF THE SAME HAS TO BE DETERMINED AS PER THE PROVISIONS OF SECTION 92 OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT TRANSACTION NE T MARGIN METHOD (TNMM) IS THE MOST APPROPRIATE METHOD FOR DETERMINATION OF AL P AND THE PROFIT LEVEL INDICATOR (PLI CHOSEN FOR THE PURPOSE OF COMPARISON OF THE ASSESSEES PROFIT MARGIN WITH THE COMPARABLE COMPANIES IS OP/O C. 3. THE TPO DID NOT ACCEPT THE COMPARABLES CHOSEN BY THE ASSESSEE IN ITS TP STUDY AND THE TPO ON HIS OWN CHOSE 8 COMPARA BLES AND THE ARITHMETIC MEAN OF PROFIT MARGIN OF THOSE COMPANIES WAS AS FOLLOWS:- AMOUNTS IN RS. LAKH S NO NAME OF TAX PAYER OR/SALES OC OP OP/OC (IN % 1 INFOSYS LTD. 46,91,700 32,77,700 11,84,200 36.13% 2 LARSEN & TOUBRO INFOTECH LTD. 4,54,360 3,64,619 8 9,741 24.61% 3 MINDTREE LTD. 2,99,010 2,48,290 5,072 20.43% 4 PERSISTENT SYSTEMS LTD. 1,18,412 87.649 3,07,625 35.10% 5 R S SOFTWARE (INDIA) LTD. 35,188 28,321 6,867 24. 25% 6 CIGNITI TECHNOLOGIES LTD. 5,563 4,359 1,204 27.62 % 7 S Q S INDIA B F S I LTD. 20,061 16,394 3,667 22.37 % 8 THIRDWARE SOLUTION LTD. 19,883 13,742 6,140 44.68 % AVERAGE 29.40% 4. THE ASSESSEE WAS AGGRIEVED BY THE INCLUSION OF C ERTAIN COMPARABLES IN THE FINAL LIST OF COMPARABLE COMPANI ES CHOSEN BY THE TPO. THE ASSESSEE WAS ALSO AGGRIEVED BY THE ACTION OF TH E TPO IN NOT ACCEPTING SOME OTHER COMPARABLE COMPANIES CHOSEN BY THE ASSES SEE IN ITS TP ANALYSIS. THE TPO ULTIMATELY DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTIONS AND ADDITION TO BE MADE TO THE TOTAL I NCOME AS FOLLOWS:- ITA NO.3189/BANG/2018 PAGE 3 OF 12 SWD ARM'S LENGTH MEAN MARGIN ON COST 29.40 % OPERATING COST 162140385 PRICE RECEIVED 187853506 ARM'S LENGTH PRICE(ALP)@ 129.40% OF OPERATING COST) 209809658 VARIATION IN PRICE 21956152 3% OF PRICE RECEIVED 5635605 SHORTFALL BEING ADJUSTMENT 21956152 THE ABOVE SHORTFALL OF RS.2,19,56,152/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S. 92CA IN RESPECT OF SOFTWARE DEVELOP MENT SEGMENT OF THE TAXPAYERS INTERNATIONAL TRANSACTIONS. 5. THE AO INCORPORATED THE ADDITIONS SUGGESTED BY T HE TPO IN HIS DRAFT ORDER OF ASSESSMENT AGAINST WHICH THE ASSESSEE FILE D OBJECTIONS BEFORE THE DRP, BUT WITHOUT MUCH SUCCESS. HENCE THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE FINAL ORDER OF ASSESSMENT. 6. WE HAVE HEARD THE FINAL SUBMISSIONS. THOUGH THE RE WERE MANY GROUNDS OF APPEAL RAISED BY ASSESSEE IN THE GROUNDS OF APPEAL FILED BY THE ASSESSEE, AT THE TIME OF HEARING THE LD. COUNSEL FO R THE ASSESSEE PRESSED FOR ADJUDICATION OF ONLY EXCLUSION OF 5 COMPARABLE COMPANIES CHOSEN BY THE TPO AND HAS PRAYED FOR INCLUSION OF 3 COMPANIES . THE 5 COMPARABLES SOUGHT TO BE EXCLUDED BY THE ASSESSEE IN THIS APPEA L ARE; (1) INFOSYS LTD., (2) L&T INFOTECH LTD., (3) MINDTREE LTD., (4) PERSI STENT SYSTEMS LTD. AND (5) THIRDWARE SOLUTIONS LTD. THE ASSESSEE SEEKS INCLUS ION OF 3 COMPANIES VIZ., SAGARSOFT INDIA LTD., EVOKE TECHNOLOGIES P. L TD. & MAVERICK SYSTEMS LTD. 7. AS FAR AS INCLUSION OF 5 COMPANIES LISTED ABOVE WHICH ARE PART OF THE FINAL COMPARABLE COMPANIES CHOSEN BY THE TPO ARE CO NCERNED, WE FIND THAT THE TURNOVER OF THESE COMPANIES IS 10 TIMES GR EATER THAN THE TURNOVER ITA NO.3189/BANG/2018 PAGE 4 OF 12 OF THE ASSESSEE WHICH IS ONLY A SUM OF RS.18,79,48, 280. THE TURNOVER OF INFOSYS LTD. IS RS.44,431 CRORES, THAT OF L&T INFOT ECH LTD. IS RS.4,644 CRORES, MINDTREE LTD. 3032 CRORES, PERSISTENT SYSTE MS LTD. 1084 CRORES & THIRDWARE SOLUTIONS LTD. 207 CRORES. IT HAS BEEN H ELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF ACUSYS SOFTWARE (I) P. LTD. V. ITO IN ITA NO.223/2017, JUDGMENT DATED 14.8.2018 THAT IF THE TURNOVER OF THE COMPARABLE COMPANY IS LESS OR MORE THAN 10 TIMES TH E TURNOVER OF ASSESSEE, THEN IT CANNOT BE CONSIDERED AS A COMPARA BLE COMPANY. IN THE LIGHT OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT, WE ARE OF THE VIEW THAT THE AFORESAID 5 COMPANIES SHOULD BE EXCLUDED F ROM THE LIST OF COMPARABLE COMPANIES. WE HOLD AND DIRECT ACCORDING LY. 8. AS FAR AS INCLUSION OF 3 COMPANIES WHICH WAS ARG UED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE, THE FIRST COMPANY WHICH THE ASSESSEE SEEKS FOR INCLUSION IS SAGARSOFT (I) LTD. THIS COM PANY WAS REJECTED BY THE TPO BY APPLYING THE RPT FILTER WHICH WAS NOT ACCEPT ED BY THE DRP. THE DRP DIRECTED THE TPO TO CONSIDER THE COMPARABILITY OF THIS COMPANY AFRESH. THE TPO WHILE GIVING EFFECT TO THE ORDER O F DRP, CHOSE TO REJECT THIS COMPANY AS A COMPARABLE BY POINTING OUT THAT T HIS COMPANY FAILS THE PERSISTENT LOSS FILTER. IT WAS THE SUBMISSION OF T HE LD. COUNSEL FOR THE ASSESSEE THAT THAT IN THE LIGHT OF DECISION OF ITAT PUNE BENCH IN THE CASE OF YEZAKI (I) PVT. LTD., ITA NO.621/PUN/2014 AY 2009-1 0 , ORDER DATED 11.17.2019, THE PERSISTENT LOSS FILTER CAN BE APPLIED ONLY IF T HERE IS A LOSS IN 3 SUCCESSIVE ASSESSMENT YEARS AND THAT IF THERE IS A PROFIT IN ANY ONE OF THE 3 PAST FINANCIAL YEARS, THEN THAT COMPANY CANNOT BE EXCLUDED ON THE BASIS OF PERSISTENT LOSS MAKING FILTER. IT WAS SUBMITTED THAT ALL OTHER FILTERS HAVE BEEN ACCEPTED BY THE TPO IN THE ORDER GIVING EFFECT AND THEREFORE THIS COMPANY DESERVES TO BE INCLUDED AS A COMPARABLE COM PANY. 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUB MISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT I F IN ANY OF THE THREE ITA NO.3189/BANG/2018 PAGE 5 OF 12 PREVIOUS FINANCIAL YEARS, IF SAGARSOFT (I) LTD. HAS MADE A PROFIT, THEN IT SHALL NOT BE EXCLUDED BY APPLYING THE PERSISTENT LOSS FIL TER. THE TPO/AO WILL VERIFY THIS ASPECT AND CONSIDER INCLUSION OF THIS C OMPANY IN THE FINAL COMPARABLES IN ACCORDANCE WITH LAW, AFTER DUE OPPOR TUNITY TO THE ASSESSEE. 10. THE NEXT COMPANY WHICH THE ASSESSEE SEEKS INCLU SION IS EVOKE TECHNOLOGIES LTD. IT IS THE PLEA OF ASSESSEE THAT THE TPO AND THE DRP INCLUDED THIS COMPANY ON THE GROUND THAT THIS COMPA NY FAILS THE EXPORT REVENUE FILTER I.E., EXPORT TURNOVER IS LESS THAN 7 5% OF THE TURNOVER OF COMPANY. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TO PAGE 2421 OF THE ASSESSEES PB WHICH CONTAINS THE ANNUAL REPORT OF T HIS COMPANY FOR FY 2014-15 IN WHICH THERE IS A REFERENCE TO THE REVENU E OF THIS COMPANY FOR THE YEAR 2014-15 TO BE RS.55,60,87,264 AND THE EXPO RT TURNOVER, OUT OF THIS TO BE RS.55,44,99,764. ATTENTION WAS ALSO DRAWN TO PAGES 2397 AND 2395 TO SHOW THAT THE EXPORT INCOME AS PER FINANCIAL STA TEMENT WAS 79.60%. IN THE LIGHT OF THE ABOVE STATEMENTS, WE ARE OF THE VI EW THAT IT WOULD BE JUST AND APPROPRIATE TO REMAND THE ISSUE FOR FRESH CONSI DERATION BY THE AO/TPO IN ACCORDANCE WITH LAW, AFTER DUE OPPORTUNITY TO TH E ASSESSEE. 11. THE NEXT COMPANY WHICH THE ASSESSEE SEEKS INCLU SION IN THE LIST OF COMPARABLE COMPANIES IS MAVERICK SYSTEMS LTD. ON T HIS COMPARABLE CHOSEN BY THE ASSESSEE IN ITS TP STUDY, THE TPO HAS NOT DISCUSSED THE REASONS FOR EXCLUDING IT FROM THE LIST OF COMPARABL E COMPANIES. IN ITS OBJECTIONS BEFORE THE DRP, IT WAS CONTENDED BY THE ASSESSEE THAT THE SOFTWARE TESTING SERVICES IS A WING OF SOFTWARE DEV ELOPMENT SERVICES AND IS FUNCTIONALLY SIMILAR. THE ENTIRE REVENUE IS FROM E XPORT OF SOFTWARE DEVELOPMENT AND THIS COMPANY SATISFIES ALL THESE FI LTERS. THE DRP, HOWEVER, OBSERVED THAT FROM THE ANNUAL REPORT THIS COMPANY HAD INCURRED SUBSTANTIAL EXPENSES TO THE TUNE OF 6% OF THE TURNO VER TOWARDS R&D AND THAT THERE WAS A THRESHOLD LIMIT OF 3% OF REVENUE T OWARDS R&D EXPENSES TO CONSIDER A COMPANY AS A SOFTWARE DEVELOPMENT SERVIC ES COMPANY. SINCE ITA NO.3189/BANG/2018 PAGE 6 OF 12 THE R&D FILTER OF 3% OF REVENUE WAS NOT SATISFIED, THIS COMPANY DESERVED TO BE EXCLUDED. THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED BEFORE US THAT THIS WAS NEVER A FILTER APPLIED BY THE TPO IN HIS T P ANALYSIS. APART FROM THE ABOVE SUBMISSIONS, IT WAS ALSO SUBMITTED THAT I NCURRING OF R&D EXPENSES EXCLUDING CAPITAL EXPENDITURE WAS ONLY RS. 95.25 LAKHS AND THAT CONSTITUTED 1.12% OF TURNOVER. WE ARE OF THE VIEW THAT THIS ASPECT ALSO NEEDS TO BE LOOKED INTO AFRESH BY THE TPO/AO AND AC CORDINGLY WE SET ASIDE THE ORDER OF THE DRP ON THIS ISSUE AND REMAND THE QUESTION OF COMPARABILITY OF THIS COMPANY TO THE TPO/AO FOR FRE SH CONSIDERATION IN ACCORDANCE WITH THE LAW, AFTER DUE OPPORTUNITY TO T HE ASSESSEE. 12. THE SECOND ISSUE WHICH REQUIRES CONSIDERATION B Y THE TRIBUNAL IN THIS APPEAL IS THE QUESTION WITH REGARD TO DETERMIN ATION OF ALP IN RESPECT OF AN INTERNATIONAL TRANSACTION WHEREBY INTEREST INCOM E WAS ATTRIBUTED BY THE TPO/AO ON THE DELAYED RECOVERY OF TRADE RECEIVABLES . THE TPO REJECTED THE PLEA OF ASSESSEE THAT ANY DELAY OR EXTENDED PER IOD OF CREDIT ALLOWED ON TRADE RECEIVABLES CANNOT BE AN INTERNATIONAL TRANSA CTION AND THEREFORE THERE CANNOT BE ANY BENCHMARKING OF THE SAID TRANSACTION. IT WAS ALSO PLEA OF THE ASSESSEE THAT WHEN TNMM IS ADOPTED AS THE MOST APPR OPRIATE METHOD, THE EFFECT OF THE EXTENDING THE CREDIT PERIOD FOR TRADE RECEIVABLES WILL GET SUBSUMED IN WORKING CAPITAL ADJUSTMENT AND NO SEPAR ATE ADDITION ON ACCOUNT OF INTEREST INCOME SHOULD BE MADE. THE ABO VE CONTENTION WAS REJECTED BY THE TPO AND DETERMINED THE ALP OBSERVIN G AS FOLLOWS:- 18. COMPUTATION OF INTEREST ON DELAYED RECEIVABLES AS DISCUSSED IN THE PRECEDING PARAGRAPHS, INTEREST ON THE DELAYED TRADE RECEIVABLES IS COMPUTED UNDER THE WEIGHTED AV ERAGE METHOD, USING LIBOR- 6 MONTHS + 300/400 BASIS POINT S APPLICABLE FOR THE FY 2013-14, WHICH WORKS OUT TO 4 .3836%. THE QUANTUM OF ADJUSTMENT WORKS OUT TO RS.8,08,957/- AS UNDER: ITA NO.3189/BANG/2018 PAGE 7 OF 12 DELAY IN RECOVER(DAYS) 39.62838271 TOTAL INVOICE AMOUNT FOR THE PERIOD 1699,73,415 RATE OF INTERESTS PER ANNUM 4.3836% INTEREST CALCULATED 8,08,957 13. ON APPEAL BY THE ASSESSEE, THE DRP CONFIRMED T HE ORDER OF TPO BY OBSERVING AS FOLLOWS:- PANEL: ALL THE ABOVE GROUNDS RELATE TO THE SAME IS SUE AND HENCE CONSIDERED TOGETHER. IT WAS NOTED BY THE TPO THAT S UBSTANTIAL AMOUNTS WERE PENDING AS RECEIVABLES BEYOND THE ALLO WABLE CREDIT PERIOD AND TPO CHARGED ARM'S LENGTH INTEREST ON THE SAME @ 6 MONTHS LIBOR PLUS 400 BASIS POINTS (4.3836%). BEFOR E DRP ASSESSEE CONTENDED THAT THE OUTSTANDING RECEIVABLE CANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTION. HAVING CONSIDERED THE SUBMISSIONS. WE FIND THAT IN VIEW OF THE AMENDMENT INSERTED BY WAY OF EXPLANATION TO SEC.92B WITH RETROSPECTIVE EFFECT FROM 1-4-2002; INTERNATIONAL T RANSACTION' WOULD SPECIFICALLY INCLUDE WITHIN ITS AMBIT. 'DEFER RED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS' AND HENCE NON-CHARGING OR UNDER-CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE FO R THE REALIZATION OF INVOICES WOULD AMOUNT TO AN INTERNAT IONAL TRANSACTION. THIS VIEW FINDS SUPPORT IN THE LATEST DECISION OF THE HONOURABLE ITAT DELHI IN THE CASE OF BECHTEL INDIA PVT LTD (IN ITA NO.6530/DE1/2016 DATED 16 MAY 2017). IT IS IMPO RTANT TO NOTE THAT THE HON'BLE BENCH WHILE ARRIVING AT THE S AID CONCLUSION DISTINGUISHED ITS EARLIER ORDER IN BECHT EL CASE. AND ALSO REJECTED THE CONTENTION THAT INTEREST GETS SUB SUMED IN THE WORKING CAPITAL ADJUSTMENT. THE RELEVANT DISCUSSION HOLDING 'DEFERRED RECEIVABLES' WOULD CONSTITUTE INTERNATION AL TRANSACTION IS AS UNDER: '14...... ...IN THE CASE OF TECHBOOKS INDIA INTERNA TIONAL PVT. LTD VS. DCIT (SUPRA), TAKING NOTE OF THE &PLANATION INSERTED BY THE FINANCE ACT, 2012 TO SECTION 92B, IT WAS OBSERVED THAT THERE REMAINED NO DOUBT THAT APART FR OM ITA NO.3189/BANG/2018 PAGE 8 OF 12 ANY SHORT-TERM OR LONG-TERM BORROWING, ETC.. OR EVE N ADVANCE PAYMENTS OR DEFERRED PAYMENTS. 'ANY OTHER D EBT ARISING DURING THE COURSE OF BUSINESS' HAD ALSO BEE N EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANSACTIO N. IN THE SAID DECISION, THE DECISION OF THE HORRIBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. PATNI COMPUTER SY STEMS WAS ALSO CONSIDERED, WHEREIN HON'BLE BOMBAY HIGH CO URT SET ASIDE THE VIEW TAKEN BY THE TRIBUNAL IN VIEW OF AMENDMENT TO SECTION 92B. THE DECISION IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. WAS DULY CONSIDERED IN T HE CASE OF ,4MERIPRISE INDIA PVT. LTD AND IT WAS OBSER VED FROM PARA 20 TO 23 AS UNDER: THE LD AR SUPPORTED THE IMPUGNED ORDER BY RELYING ON A TRIBUNAL ORDER DATED 31.3.2015 PASSED IN KUSUM HEALTHCARE PVT. LTD. VS. ACTT (ITA NO.6814/DEL/2014) IN WHICH IT HAS BEEN HELD THAT NO ADDITIONAL IMPUTATIO N OF INTEREST ON THE OUTSTANDING RECEIVABLES IS WARRANTE D IF THE PRICING/PROFITABILITY IS MORE THAN THE WORKING CAPI TAL ADJUSTED MARGIN OF THE COMPARABLES. IN THE OPPOSITI ON, THE LD. DR RELIED ON A LATER ORDER DATED 6.7.2015 P ASSED BY THE TRIBUNAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA), IN WHICH THE TRANSFER PRICING ADJUSTM ENT ON ACCOUNT OF THE DELAYED REALIZATION OF INVOICES FROM .4ES HAS BEEN UPHELD. THE LD. DR CONTENDED THAT THE ORDE R IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SUPRA), TIN S BEEN PASSED WITHOUT CONSIDERING THE AMENDMENT TO SECTION 92B CARRIED OUT BY THE FINANCE ACT, 2017 WITH RETROSPECTIVE EFFECT FROM 1.4.2002, WHICH HAS BEEN DULY TAKEN INTO ACCOUNT BY THE TRIBUNAL IN ITS LATER-ORD ER IN TECHBOOKS INTERNATIONAL PVT. LTD. (SUPRA). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED AS HIGHL IGHTED ABOVE, THAT THE ASSESSEE ARGUED BEFORE THE TPO THAT INTERE ST ON RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION. AT THIS STAGE, IT WOULD HE APPOSITE TO NOTE THAT THE FINANCE ACT, 201 2 HAS INSERTED EXPLANATION TO SECTION 9211 WITH RETROSPECTIVE EFFE CT FROM 1.4.2002. CLAUSE (I) OF THIS EXPLANATION. WHICH IS OTHERWISE ALSO FAR REMOVAL OF DOUBTS, GIVES MEANING TO THE EXPRESS ION 'INTERNATIONAL TRANSACTION' IN AN INCLUSIVE MANNER. SUB-CLAUSE (C) OF CLAUSE (0 OF THIS EXPLANATION. WHICH IS RELEVANT FOR OUR PURPOSE, PROVIDES AS UNDER:- ITA NO.3189/BANG/2018 PAGE 9 OF 12 EXPLANATION- FOR THE REMOVED OF DOUBTS, IT IS HERE BY CLARIFIED THEN-(I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE (A) . (B) .. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING. LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TY PE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS: 22. ON GOING THROUGH THE RELEVANT PART OF THE EXPLA NATION INSERTED WITH RETROSPECTIVE EFFECT FROM 1.4.2002, T HEREBY ALSO COVERING THE ASSESSMENT YEAR UNDER CONSIDERATION, T HERE REMAINS NO DOUBT THAT APART FROM ANY LONG-TERM OR SHORT-TER M 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 INTERNATIO NAL TRANSACTION. THAT BEING SO, THE PAYMENT/NON-PAYMENT OF INTEREST OR RECEIPT/NON-RECEIPT OF INTEREST ON THE LOANS ACC EPTED OR ALLOWED IN THE CIRCUMSTANCES AS MENTIONED IN THIS CLAUSE OF THE EXPLANATION, ALSO BECOME INTERNATIONAL TRANSACTIONS , REQUIRING THE DETERMINATION OF THEIR ALP. IF THE PAYMENT OF INTER EST IS EXCESSIVE OR THERE IS NO OR LOW RECEIPT OF INTEREST , THEN SUCH INTEREST EXPENSE/INCOME NEED TO BE BROUGHT TO ITS A LP. THE EXPRESSION 'DEBT ARISING DURING THE COURSE OF BUSIN ESS' IN COMMON PARLANCE ENCOMPASSES, INTER ALIA, ANY TRADING DEBT ARISING FROM THE SALE OF GOODS OR SERVICES RENDERED IN THE COURS E OF CARRYING ON THE BUSINESS. ONCE ANY DEBT ARISING DURING THE COUR SE OF BUSINESS HAS BEEN ORDAINED BY THE LEGISLATURE AS AN INTERNAT IONAL TRANSACTION, IT IS, BUT, NATURAL THAT IF THERE IS A NY DELAY IN THE REALIZATION OF SUCH DEBT ARISING DURING THE COURSE OF BUSINESS, IT IS LIABLE TO BE VISITED WITH, THE TP ADJUSTMENT ON ACC OUNT OF INTEREST INCOME SHORT CHARGED OR UNCHARGED. UNDER SUCH CIRCU MSTANCES, THE CONTENTION TAKEN BY THE ASSESSEE BEFORE THE TPO THAT IT IS NOT AN INTERNATIONAL TRANSACTION, TURNS OUT TO BE BEREF T OF ANY FORCE. ITA NO.3189/BANG/2018 PAGE 10 OF 12 23. THE HON`BLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. PATNI COMPUTER SYSTEMS LTD, (2013) 215 TAXMAN 108 ( BOM) DEALT, INTER ALIA, WITH THE FOLLOWING QUESTION OF L AW:- '(C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE TRIBUNAL DID NOT ERR IN HOLDING THAT THE L OSS SUFFERED BY THE ASSESSEE BY ALLOWING EXCESS PERIOD OF CREDIT TO THE ASSOCIATED ENTERPRISES WITHOUT CHARGING AN INTEREST DURING SUC H CREDIT PERIOD WOULD NOT AMOUNT TO INTERNATIONAL TRANSACTION WHERE AS SECTION 9213(1) OF THE INCOME-TAX ACT, 1961 REFERS TO ANY O THER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME , LOSSES OR ASSETS OF SUCH ENTERPRISES?' 24. WHILE ANSWERING THE ABOVE QUESTION, THE HON'BLE HIGH COURT NOTICED THAT AN AMENDMENT TO SECTION 9213 HAS BEEN CARRIED OUT BY THE FINANCE ACT, 2012 WITH RETROSPEC TIVE EFFECT FROM 1.4.2002. SETTING ASIDE THE VIEW TAKEN BY THE TRIBUNAL, THE HON'BLE HIGH COURT RESTORED THIS ITA NO.6530/DE1/20 16 ISSUE TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN THE LIGHT OF THE LEGISLATIVE AMENDMENT. 25. THE FOREGOING DISCUSSION DISCLOSES THAT NON-CHA RGING OR UNDER- CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AF, FOR THE REALIZATION OF INVOICES AMOUNTS TO AN INTERNATIONAL TRANSACTION ARID THE ALP OF SUCH AN I NTERNATIONAL TRANSACTION IS REQUIRED TO BE DETERMINED.' 18. IN VIEW OF THE ABOVE OBSERVATIONS. THE RELIAN CE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON EARLIER DECISIONS CANNO T BE ACCEPTED.' SIMILARLY, IN THE CASE OF BT E SERV (TS-849-ITAT-20 17(DEL)-TP) THE HON'BLE ITAT DELHI HELD THAT UNDOUBTEDLY THE RECEIV ABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF THE BUSINESS IS I NCLUDED IN THE DEFINITION OF 'CAPITAL FINANCING' AS AN 'INTERNATIONAL TRANSAC TION' AS PER EXPLANATION 2 TO SECTION 92B OF THE ACT W.E.F. 01.04.2002 INSERTE D BY THE FINANCE ACT 2012. THEREFORE, EVEN THE OUTSTANDING RECEIVABLE PA RTAKE THE CHARACTER OF CAPITAL FINANCING AND CONSEQUENTLY. OVERDUE OUTSTAN DING IS AN 'INTERNATIONAL TRANSACTION'. THE NATURAL COROLLARY WOULD BE OF IMPUTING INTEREST ON SUCH 'CAPITAL FINANCING' IF SAME IS NOT CHARGED AT ARM'S LENGTH. THE 17`AT CONCLUDED THAT IF OUTSTANDING RECEIVABLES ARE WITHIN THE TERMS OF AGREEMENT THEN IT MAY BE ARGUED THAT INTEREST ON SUCH OUTSTANDING IS ALREADY COVERED IN THE SALE PRICE OF THE GOODS. HOW EVER, IF THE AGREEMENT ITA NO.3189/BANG/2018 PAGE 11 OF 12 DOES NOT SPECIFY THE TERM OF THE PAYMENT EVEN THEN ASSESSEE MUST BE GIVEN BENEFIT OF CREDIT PERIOD WHICH IS ACCEPTED BU SINESS PRACTICE IN THE TRADE. THE ITAT CONFIRMED 30 DAYS AS THE NORMAL CRE DIT PERIOD ADOPTED BY THE TPO. CONSIDERING THE ABOVE DISCUSSION, IT IS HELD THAT D EFERRED TRADE RECEIVABLE CONSTITUTES INTERNATIONAL TRANSACTION AND THE TPO H AS CORRECTLY MADE ADJUSTMENT TO THE DIFFERED TRADE RECEIVABLES. GROUN DS REJECTED. 14. AGGRIEVED BY THE ORDER OF DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE TRANSACTION OF GIVING EXTENDED CREDIT PERIOD CANNOT BE REGARDED AS INTERNATIONAL TRANSACTION AND IN THIS REGARD RELIED ON THE DECISI ON OF ITAT DELHI BENCH IN THE CASE OF BECTEL INDIA P. LTD. V. DCIT, ITA 1478/DEL/2015, AY 2010-11, ORDER DATED 21.12.2015. 15. THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DER OF DRP WHEREIN THE DRP HAS PLACED RELIANCE ON THE DECISION OF THE SAME DELHI BENCH OF ITAT IN THE CASE OF BECTEL INDIA P. LTD., ITA 6530/DEL/2016, ORDER DATE D 16.5.2017 , WHEREIN THE EARLIER DECISION OF THE ITAT WAS DIST INGUISHED AND IT WAS HELD THAT THE MERE FAT THAT WORKING CAPITAL ADJ USTMENT IS DONE WHILE DETERMINING THE ALP IN RESPECT OF ENHANCED CREDIT P ERIOD WILL NOT SUBSUME THE DETERMINATION OF ALP IN RESPECT OF ENHANCED CRE DIT PERIOD GIVEN FOR TRADE RECEIVABLES. HE ALSO BROUGHT TO OUR NOTICE R ETROSPECTIVE AMENDMENT TO SECTION 92B OF THE ACT W.E.F. 1.4.2002 WHEREBY D EFERRED PAYMENT ON RECEIVABLES OR ANY OTHER DEBT ARISING DURING THE CO URSE OF BUSINESS WAS ALSO INCLUDED AS AN INTERNATIONAL TRANSACTION. IN VIEW OF THE AFORESAID DECISION CITED BY THE LD. DR, WE ARE OF THE VIEW TH AT THE ORDER OF DRP HAS TO BE UPHELD. ACCORDINGLY, WE UPHOLD THE ORDER OF DRP AND FIND NO MERIT IN THE GRIEVANCES PROJECTED BY THE ASSESSEE. NO OTHER ARGUMENTS WERE ADVANCED ON THIS ISSUE EXCEPT THE CONTENTION THAT T HE EXTENDED CREDIT ITA NO.3189/BANG/2018 PAGE 12 OF 12 PERIOD ALLOWED TO AE ON ACCOUNT OF TRADE RECEIVABLE S WILL NOT CONSTITUTE AN INTERNATIONAL TRANSACTION ATTRACTING THE PROVISIONS OF SEC.92 OF THE ACT. 16. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JANUARY, 2020. SD/- SD/- ( A.K.GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 29 TH JANUARY, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.