TaxTMI 
TaxTMI 
2018 (7) TMI 2239
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....without prejudice to each other: Transfer Pricing grounds: 1. Ld. AO / TPO / DRP have erred in making an addition of Rs. 10,22,69,751 under chapter X of the Act. 2. Ld. AO / TPO / DRP have erred by not accepting the economic analysis undertaken by Appellant and in accepting / rejecting comparables by applying incorrect filters and comparability criteria. Transfer Pricing adjustment in respect of 'Provision of telecommunication and related support services' 3. Ld. AO / TPO / DRP have erred in facts of the case and in law by making an adjustment of Rs. 6,78,19,915 while determining arm's length price of services provided by the Appellant. 4. Ld. AO/ TP0/ DRP have erred in law and in facts and circumstances of the present case by applying inappropriate filters for selection/ rejection of comparables. 5. Ld. AO/ TPO/ DRP have erred in law and in facts and circumstances of the present case, by rejecting certain comparables having Turnover less than INR 5 crores. 6. Ld. AO/ TPO/ DRP have erred in law and in facts and circumstances of the present case, by rejecting certain comparables identified by the Appellant, for having diffe....
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....e Ld AO / TPO / DRP have erred in failing to appreciate that a separate benchmarking and determination of arm's length price of receivables is not warranted. 18. Ld. AO / TPO / DRP have erred in considering outstanding receivables as a loan and imputing interest on the same, thereby making an adjustment of Rs. 3,44,49,836 to the returned income of the Appellant. 19. Without prejudice to the above, Ld. AO / TPO / DRP have erred in failing to appreciate that the Appellant does not charge interest from third parties on its receivables, thus no interest is required to be charged on receivables from AEs also. 20. Without prejudice to the above, Ld. AO / TPO / DRP have erred in undertaking an adjustment on gross outstanding receivables, instead of net outstanding receivables. 21. Without prejudice to above the rate of interest adopted for this purpose is also not justified. Corporate Tax grounds: 22. the learned AO / DRP have erred by making disallowance amounting toINR12,93,901, being the 25% of expenditure incurred by the assessee towards 'sales promotion' on ad-hoc basis. 23. the learned AO / DRP have erred by alleging that sale....
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....nce with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). 3. The learned AO / TPO / DRP have erred in not appreciating that the appellant has undertaken working capital adjustment to account for difference in the working capital intensities of the comparables vis-a-vis the Appellant which inevitably considers the impact of receivables and payables arising from international transactions. 4. The learned AO/TPO/DRP have erred by considering outstanding receivables as a separate international transaction and benchmarking the same using CUP as the Most Appropriate Method. 5. The learned AO/TPO/DRP have erred by re-characterization of outstanding receivables as a loan extended by the appellant to its associated enterprise and imputing interest on the same. 6. The CUP analysis undertaken by the TPO and upheld by DRP is flawed and does not represent an uncontrolled transaction. 7. Without prejudice to the above, the learned AO/ TPO/ DRP have failed to appreciate that the Appellant does not charge any interest from unrelated parties and therefore an application of the arm's length standard requires that no interest s....
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....(Rs.) Provision of telecommunication and related support services 1,214,999,636 Availing of services 138,083,923 Purchase of fixed assets 34,951,630 The method adopted by assessee was TNMM using OP/OC as PLI. Assessee computed its margin at 15.73%, vis-a-vis 12 comparables selected by assessee, whose margin was computed at 1.98%. Dissatisfied with the comparables selected by assessee, Ld.TPO rejected 3 companies and added two companies. Final comparable list determined by Ld.TPO was a set of 4 comparables whose margins were computed at 1.68%. Ld.TPO rejected working capital. The margin thereafter, edited by assessee by refusing certain items considered as non-operating income by assessee came to 6.32%. The adjustment computed by assessee was at Rs. 1,63,641,409/-. Ld.AO also computed interest on receivables by imputing interest @ 11.69% for the delay in receipt of payments at Rs. 3,44,49,836/-. Thus the total adjustment proposed by Ld.TPO was Rs. 19,80,91,245/-. 3. Aggrieved by the draft assessment order, assessee raised objection before DRP. 3.1. Before DRP assessee pointed out certain computational errors and upon verification of the details, D....
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....e to be treated as non-operating as it pertains to nontrade transaction of the assessee and * amount of lease rent equalisation written back; * provision of PF shortfall written back/ other provisions written back, provision of doubtful loans and advances written back * other write-offs/written back on account of reconciliation of profit/loss items; to be treated as operating items as it pertains to regular trade and business transaction of assessee. DRP passed directions in respect of the above as under: "Attention is invited to the detailed discussion at Para 6.7 page 37- 43 of TPO's order. While most of the items supra are covered in the discussion, TPO is directed to examine the objections and recompute the operating margins correctly taking into account the factual inaccuracies pointed out by the taxpayer. After excluding/considering the companies as directed the TPO is directed to rework the OP/OC margin of remaining comparables by removing the computational errors, if any. Before DRP the taxpayer has filed additional evidences supporting breakup of provisions made during the year and provisions written back during t....
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.... not granted working capital adjustment by not considering the written back amount as operating items. In the application for rectification filed by assessee, assessee has submitted all relevant information/details regarding the breakup of the provision written back. We therefore direct Ld.TPO to recompute working capital adjustment by considering these items as operating items after due verification. It is observed that DRP has directed to compute working capital adjustment by using safe harbour rules. It is very much evident from observations of order passed by DRP that CBDT had notified these rules vide notification dated 18/09/13. However Hon'ble Delhi Tribunal in case of Rolls-Royce India Pvt. Ltd. vs. DCIT reported in [2016] 69 taxmann.com 209, has held it to be applicable from 18/09/2013. 7.4. With the above direction we remit this issue back to Ld. TPO/AO for recomputing the working capital adjustment by considering provisions written back as operating items without applying Safe Harbour Rules. 7.5. Accordingly this ground raised by the assessee stands allowed for statistical purposes. 8. Ground No. 10 The next adjustment challanged by Ld.Counsel is in respec....
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....avour of the assessee by the decision of the Hon'ble Delhi High Court in case of Kusum healthcare." It has been mentioned by Ld.Counsel that there is no functional difference in present year under consideration vis-a-vis immediately preceding Assessment Year. Ld. Counsel submitted that Delhi Tribunal in Kusum Healthcare Pvt.Ltd vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. (2017) 398 ITR 66 (Del), held that no interest could have been charged as it cannot be considered as international transaction. 9.2. On the contrary Ld.CIT DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of his contentions, he read out relevant parts of DRP's direction, in which Panel relying upon decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) held that interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 has inserted Explanation to Section 92B, with ....
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....y High Court restored the issue to the file of Tribunal for fresh decision in the light of legislative amendment. It was thus argued that non/undercharging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction and ALP of such international transaction has been rightly determined by Ld.TPO. In so far as the charging of the rate of interest is concerned, he relied on the decision of the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 9.4. We have perused the submissions advanced by both the sides in the light of the records placed before us. 9.5. On perusal of service agreement between assessee and AE placed at page 337-353 of paper book it is observed that there is no specific period mentioned for the payments to be received from its AE. Ld.TPO, therefore estimated a period of 30 days as allowable for payment receivables ....
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....ication under Rule 29 seeking admission of additional evidence. Ld.Counsel submitted that these expenses are incurred for sales promotion and details have been fully furnished before Ld.AO vide submission dated 07/01/15. It has been submitted that these were genuine expenses incurred wholly and exclusively for purposes of business, and is allowable under section 37 (1) of the Act. 11.2. Ld.Counsel submitted that these documents were not considered either by Ld. AO/DRP. 11.3. Ld. CIT DR submitted that the issue may be set said to Ld. AO for due verification of the same. 11.4. We have perused the submissions advanced by both the sides in the light of the records placed before us. It is observed that corporate tax grounds raised before us involve disallowance towards sales promotion expenses and legal and professional expenses. Application for admitting additional evidence in respect of sales promotion expenses has been filed by assessee before us. 11.5. We therefore set aside these issues to Ld.AO for verification of invoices placed in the form of additional evidences in respect of the sales promotion expenses and then allow the claim as per law. Assessee is directed t....
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....s. ACIT reported in (2015) 62 Taxmann.com 79, deleted the addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. (2017) 398 ITR 66 (Del), held that no interest could have been charged as it cannot be considered as international transaction. 15.3. On the contrary Ld. CIT DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of his contentions, he read out relevant parts of DRP's direction, in which the Panel relying upon the decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) held that interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 has inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include- ...... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or a....
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.... has been rightly determined by Ld.TPO. In so far as the charging of the rate of interest is concerned, he relied on the decision of the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 16. We have perused the submissions advanced by both the sides in the light of the records placed before us. On perusal of service agreement between assessee and AE placed at page 337-353 of paper book it is observed that there is no specific period mentioned for the payments to be received from its AE. Ld.TPO, therefore estimated a period of 30 days as allowable for payment receivables and any delay beyond 30 days has been bench marked as international transaction by imputing interest at the rate of 9.60% LIBOR +300 basis points. Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 has observed that: "There....
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....e 22 (b) of the Tax Audit Report. Ld.Counsel submitted that prior period income was suomoto offered to tax by assessee during relevant Assessment Year and has claimed expenses of Rs. 30,992,565/- which comprises of expenses amounting to Rs. 61,59,151/-. At this juncture Ld.Counsel submitted that said sum of Rs. 61,14 9,151/- has been offered to tax in return of income for Assessment Year 201011. Subsequently said expenditure has been reported under the head 'prior period expenses' for Assessment Year 2012-13 and assessee claimed deduction while computing taxable income for Assessment Year 2012-13 which has been denied by Ld.AO. 18.3. Ld.Counsel submitted that in anticipation Assessee before us raised additional ground for assessment year 2011-12, pertaining to allowability of prior period expenses, which is as under: Additional ground No. 30 "That, on facts and circumstances of the case and in law, without prejudice to ground No. 9 in relation to AY 2012-13, and in the event prior period expenses of INR 64,46,782 are not considered deductible in the hands of the appellant for AY 2012-11, the said expenses shall be allowable as a deduction during AY 2011-12, i.e....