TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1383
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....d Rs.2,66,64,328/- under MAT. 6. The assessee company applied TNNM method as most appropriate method for benchmarking the services provided to its AEs and the operating profit/operating cost was used by the assessee company as the profit level indicator to test the assessee company's OP/OC with respect to international transactions with AEs with reference to uncontrolled comparables identified as a result of searches carried out in external databases. 7. Assessee company used capitaline databases to search for the comparables and identified 11 comparables under Software Development Services and arrived at the arithmetic mean of 13.49% as against its own margin of 15.02%. The assessee company's margin being within +5/-5% range, it was concluded that the international transactions with its AEs were at Arm's Length. For transactions under ITES assessee company shortlisted 7 comparables with arithmetic mean PLI OP/OC at 19.24% as against PLI of the taxpayer at 20.02%, it was contented that the international transactions with its AEs were at Arm's length. 8. The learned TOP took operating cost of Rs.8,74,49,838/- for software development segment against the actual operating cost of R....
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....,92,93,17,000 24.58 2 Infosys BPO Ltd 2,54,46,00,00,00 0 43.74 3 L & T Infotech Ltd 23,36,29,52,834 18.08 4 Mindtree Ltd 8,88,02,00,861 11.79 5 Persistent Systems Ltd 6,29,15,80,000 26.68 6 Sasken Communication Technologies Ltd 4,02,87,78,000 26.99 7 Tata Elxsi Ltd 3,61,27,43,012 13.77 8 Zylog Systems Ltd 9,15,97,68,067 26.21 11. The CIT (A) excluded three companies out of the 8 above companies as under: S.No Name of company Operating Revenue OP/OC 1 Infosys BPO Ltd 2,54,46,00,00,00 0 43.74 2 L & T Infotech Ltd 23,36,29,52,834 18.08 3 Tata Elxsi Ltd 3,61,27,43,012 13.77 12. Aggrieved by the order of the Ld CIT CA), the assessee is in appeal before the Tribunal by raising the following grounds of appeal: 1. The Ld. CIT (A)/ Ld.AO are not justified in law in considering wrong comparables and consequently arriving at a high arithmetic mean of 20.35% as a ratio of OP/OC as against the margin of 15.02% of the appellant. 2. The Ld. CIT (A) has erred in upholding the order of Ld. TPO/AO which is not legally correct in rejecting the TP study of the assessee company and conducting the fresh TP analysis for benchmarking the in....
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....chnology services revenue. In the said order the co-ordinate bench has also held this company to be functionally not comparable to a provider of pure software development services to its AE's. Following the decision of the coordinate bench in the case of GT Nexus Software (P.) Ltd. (supra), we direct the TPO/AO to exclude this company, M/s. Acropetal Technologies Ltd. from the list of comparables." 13.2 E-Zest Solutions Ltd: E-Zest Solutions Limited is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, IT design services and in Technology Consulting Services including product development consulting services. These services are high end ITES normally categorised as knowledge process Outsourcing ('KPO') services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional ....
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....as held that while the assessee is into software development services, this company i.e. E-Zest Solutions Ltd., is rendering product development services and high-end technical services which come under the category of KPO services and hence was to be omitted from the set of comparables. Thus, considering these facts and the decision of the Tribunal, TPO was to be directed to exclude the E-Zest Solutions Limited from the list of comparables.[Para 8)" 13.5 Persistent Systems Ltd: Assessee's main objection is that the company Persistent Systems Limited is engaged in software product designing and analytic services and has income from license fee. Hence the same is functionally different from that of Appellant company. Also, the segmental information is not available in the annual report of the company for the year under consideration. In absence of segmental details/ information a company cannot be taken into account for comparability analysis The above view has been upheld by the Hon'ble Chennai ITAT in the case of Symantec Software & Services India (P.) Ltd. (supra). Wherein the Hon'ble ITAT held that : "17.3 We have heard the rival submissions and perused and carefu....
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....le. 13.9 The similar view has been taken by Hon'ble Jurisdictional ITAT (Hyderabad Tribunal) in the case of Syniverse Technologies Service (India) (P.) Ltd Vs DCIT [2021) 123 taxmann.com 258 (Hyderabad - Trib.) wherein the Hon'ble ITAT held that "9. We have considered the rival contentions. As seen from the orders placed on record and also consistent stand taken by the Tribunal in various such cases, we have no hesitation in excluding two companies, Persistent Systems iid., and Sasken Communication Technologies Ltd on functionality basis....." 13.10 Igate Global Solutions Ltd During the year under consideration, the company has acquired majority equity interest in Patni Computer Systems Ltd. resulting in an extra ordinary activity and also the company owns significant intangible in its name. Additionally, the company is engaged in diverse functions like software services & ITES, there is no segmental breakup of revenue available for the year. 13.11 The same has been held good by the Hon'ble ITAT Bench 'A' in the case of TRX Technologies India (P.) Ltd. v. Deputy Commissioner of Income Tax, Circle 5(1)(1), Bangalore for the AY 2011-12 as under: "It is s....
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....ompared with this company as there is not segmental data available. Besides, this there was extraordinary events occurred during the year as the company has acquired M/s. Brainhunter lnc., Canada. Thus, as held by this Tribunal in various decisions companies having extraordinary event has to be excluded". 13.15 Persistent Systems & Solutions Ltd Persistent Systems and Solutions Limited is engaged in diversified services such as software consultancy, software product development and system integration services unlike the assessee who is only involved in CSD activities and is hence functionally different. It is seen that apart from functional dissimilarity, this company also own intangibles which is not so in the case of the assessee. Relying on the decision of the High Court of Andhra Pradesh in the case of Intoto Software India (P.) Ltd. (supra), wherein it has been held that software product companies owning intangibles could not be compared with the software development services provider, the TPO is directed to exclude this company from the final set of comparables. 13.16 The Persistent Systems and Solutions Limited is a wholly owned subsidiary of Persistent Systems Ltd. This....
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....velopment. Thus, it is clearly incomparable to the assessee. Further it has significant inventory (nearly 15% of the income from its operations) which substantiates the assessee's contention that it is a product development company, and thus incomparable to the assessee which is engaged in rendering routine IT services. In addition, the services rendered by e-Zest Solutions Limited are diverse such as product development, software services, web development, and support services. The company is also engaged in rendering business intelligence and analytical services, which are akin to IT enabled services / Knowledge Process Outsourcing (KPO) services. Since there are no segmental details available in its Annual Report for the above diverse activities, it is apparent that the company is not comparable and the same needs to be excluded from the final list of comparables. In this context, we rely on the order of the Bangalore Bench of the Tribunal in the case of 3DPLM Software Solutions Ltd. v. DCT [(2014) 42 taxmann.com 333 (BangaloreTrib.)] wherein it has been held that e-Zest Solutions Limited is rendering product development and end to end technical services which comes under the ca....
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....utions Ltd was disputed by the assessee before the lower authorities. 17. We have heard the rival contentions and perused the material available on record. It is clear from the record of the lower authorities that the assessee has not filed any objection to the comparables selected by the TPO namely E-Zest Solutions Ltd before the TPO. Further, before the CIT (A), the assessee has challenged the exclusion of the E-Zest Solutions Ltd on the basis of the turnover stating that the operating revenue of E-Zest Solutions was Rs.12,07,06,696/-. The primary challenge of the assessee was on account of the turnover and the learned CIT (A), while disposing the objections of the assessee, had categorically recorded the above in the findings at page 26 to this effect: "Regarding functional differences I have observed that the search strategy depicted in the TP study of the appellant and the AO, both searched for comparables which are engaged in software development services immaterial of the vertical/functional or service line in which the company is engaged. Verticals are the industry segments, such as . Banking, Finance, Insurance, Health Care Insurance etc. to which the Company caters to.....
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....report for the A.Y 2010-11, whereas A.Y under consideration before us is 2011-12. There is no factual findings given before us or even before the Hon'ble Coordinate Bench in the case of Blue Yonder India (P) Ltd demonstrating on the basis of the financials of E-Zest Solutions Ltd , that the activities of the assessee are dissimilar to that of the E-Zest Solutions Ltd. 19. In the light of the above, we deem it fit and proper to remand this issue back to the file of the CIT (A) for the purpose of considering afresh whether E-Zest Solutions Ltd is having functional dissimilarities with that of the assessee or not. The assessee is directed to produce all the financials including the Annual General Report and other documents to prove that E-Zest Solutions Ltd is functionally dissimilar to that of the assessee. 20. Now we come to other comparables; i.Acropetal Technologies (Seg). ii. ICRA Techno Analytics Ltd. and iii Persistent Systems & Solutions Ltd. Acropetal Technologies (Seg.) In this regard, the learned AR had submitted that these 3 companies are also functionally dissimilar to that of the assessee and further, these three companies are also considered by the Coordinate Benc....
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....authorities and the CIT (A) based on the submission of the assessee is passing the order, then it cannot be stated that the assessee is aggrieved by the order passed by the CIT (A). Since the assessee is not aggrieved by the order passed by the CIT (A) with respect to inclusion of these three companies, therefore, the assessee does not have a right to challenge the order of the CIT (A) for exclusion of these companies before us. In the light of the above, we do not find any error in the order passed by the CIT (A) with respect to these three companies namely I. Acropetal Technologies (Seg).II) ICRA Techno Analytics Ltd. and III) Persistent Systems & Solutions Ltd. Acropetal Technologies (Seg.) . Accordingly, we reject the argument of the assessee. 25. Now the assessee, had also submitted before us that in ground numbers 5 & 6, the assessee is not only challenging the inclusion of the 4 companies but also submitted in the written submission for exclusion of other 5 companies. "Considering the above submissions and the case laws, we request the Hon'ble Tribunal to exclude the companies as mentioned in Ground No. 6 i Acropetal Technologies See Ground No. 6 v E-Zest Solutions Lt....
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....aid decision, we hold that companies listed in paragraph 8 of this order, whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies. " 15.3 In Capital IQ Information Systems (India) (P.) Ltd v. DCIT [2013J 32 taxmann.com 21 (Hyderabad - Trib.) it was held that "21. On considering the submissions of the assessee in relation to these three companies, we find that the TPO has excluded the companies whose turnover is less than Rs. One Crore, on the ground that they may not be representing the industry trend. That very logic also applies to the companies having high turnover of over Rs.200 crores as against the assessee's turnover of only Rs. 60 crores, and therefore, it would be fair enough to exclude those companies also. " 16.0 Our Detailed submissions for exclusion of above 5 companies are as under: 16.1 Ground No. 6(vii) Igate Global Solutions Ltd: Igate Global Solutions Ltd During the year under consideration, the company has acquired majority equity interest in Patni Computer Systems Ltd. resulting in an extra ordinary activity and also the company owns significant intangible in its name. Addition....
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....d. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis. we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. " Similar view has been taken by Hon'ble Jurisdictional ITAT (Hyderabad Tribunal) in the case of Syniverse Technologies Service (India) (P.) Ltd Vs DCIT [2021J 123 taxmann.com 258 (Hyderabad - Trib.) wherein the Hon'ble ITAT held that "9. We have considered the rival contentions. As seen from the orders placed on record and also consistent stand taken by the Tribunal in various such cases, we have no hesitation in excluding two companies, Pe....
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....egmental result for software development services is available. The company earns it revenue from software development services and also from sale of software products. Zylog Systems derives its revenue primarily from software development services, consultancy services, projects and e-governance projects. Also, it is pertinent to note that company does not meet the software development services to revenue filter adopted by the learned TPO as it consists of only 21.6%. Based on the above fact the Hon'ble Delhi Tribunal in the case of Fiserv India (P.) Ltd Vs A CIT [2020J 121 taxmann.com 2]] (Delhi - Trib.) has excluded this company from the final list of comparables. "15.3 We have heard rival submission of the parties and perused the relevant material on record. On perusal of the profit and loss account of the company which is available on page 1051 of the paperbook, we find that the Revenue of Rs. 899,11,06,874/- has been shown from Software Development services and the products and no separate revenue or segmental result for software development services have been reported in the annual report. In absence of any separate segmental result of software development servic....
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....rd. Undisputedly, there is no challenge by the assessee before us that the filter applied by the TPO in the TP study was incorrect or inappropriate and does not have sanction of law. In our view, the assessee was required to maintain the TP analysis document in terms of law and even the assessee has not filed any TP study initially before the TPO and therefore provision of section 92C( 3) were invoked. Thereafter a show cause notice dated 14.7.2014 was issued to the taxpayer, in response thereof the reply along with TP study was filled . Further, the assessee has not challenged any of these comparable selected by the TPO during the proceedings before the TPO and even before the learned CIT (A) . the challenge of the assessee was only with respect to 8 comparable , out of which 3 were excluded by the CIT(A) and remaining 5 comparable were included by the CIT(A) . 29. The learned CIT (A) while passing the impugned order have considered the turnover filter in great details and after considering the turnover filter and the legality of the turnover filter, have excluded the three comparables namely Infosys, L&T Infotech and Tata Elexi Ltd. The CIT (A) in Para 13.5 of his order had ment....
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....with the contention of the appellant and rejected the submissions. Thus ground No.2.3. is partly allowed. 30. In our view, once the assessee has not challenged the functional dissimilarities of these 5 companies before the lower authorities, now it is not permissible for the assessee to raise this issue at this stage, as the assessee was not aggrieved by the order passed by the CIT(A) qua these 5 companies . In our view, we do not find any merit of considering exclusion of these three companies and accordingly we dismiss the challenged raised by the assessee for the exclusion of these 5 companies. In the result the ground 5 & 6 is partly allowed. We remand the issue of exclusion of E-ZEST SOLUTIONS to the file of CIT(A) , however in respect to the claim of exclusion of other companies , we reject the ground raised by the assessee for the reasons mentioned herein above. Ground no 7 & 8 31. With regard to Grounds 7 & 8 pertains to the receivables, the learned AR had drawn our attention to the order passed by the CIT (A) whereby in page 44, the learned CIT (A) at para 15.3. held as under: "15.3 Reasonable Rate of Interest- The rate at which interest is levied continues to be ....
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....nterest at 8% without any basis. In this regard, the written submissions made by the assessee reads as under: "17.0 Trade Receivables 17.1 We would like to submit that the receivables arise in the course of business and arc not to be treated as loans for levy of interest. Whereas arm's length price adjustments can be made only in respect of an 'international transaction' as per section 92B of the Act. Outstanding receivables relates to principal transaction. The explanation brought by amendment in Finance Act, 2012 even though retrospective, does not cover outstanding receivable transaction as the word 'capital financing' used there particularly refers to loans or advances given for capital financing. 17.2 Whereas in Assessee's case, these are outstanding balances for the sale of services but not in the nature of capital financing. The words are to be interpreted invoking the principles ejusdem generis and thus the outstanding receivables from AE cannot be equated to capital financing as amended by the provisions of the Act. The relevant extract from Explanation (i) (c) of section 92B of the Act is given below for ready reference: Explanation: ....
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....he absence of any income arising from the transaction, the same cannot be computed having regard to the arm's length price. The above view has been upheld by Hon'ble Bangalore ITAT in the case of Lotus Labs Pvt Ltd [TS-624-ITAT-2017(Bang)-TPJ wherein the Hon'ble Bangalore ITAT set aside matter back to AO/TPO with a direction "to reconsider the issue of transfer pricing by clubbing and aggregating this transaction with the main transaction of providing service to the AE. 17.6 The above view has been upheld in various cases by the Hon'ble jurisdictional Hyderabad Tribunal some of them are as follows: a. Dhanush Infotech Pvt Ltd Vs ACIT. ITA No. 2082/Hyd/2017 (AY 2013-14) b. Open Text Corporation India Pvt Ltd Vs DCIT. ITA No. 232/Hyd/16 (AY 201112) c. M/s Hexagon Capability Centre India Private Limited Vs ACIT, ITA Nos. 251/HYD/2016 & 841HYD/2017 (AY 2011-12 and A~2.0~12-13). 17.7 Further, once the TNMM method has applied it takes into account all the income and expenditure of the entity and takes the net margin as profit level indicated. Further, we wish to submit that TNMM takes care of the interest income if any forgone by the assessee on account ....
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....essment Centre, New Delhi {202l J 132 taxmann.com 220 (Delhi - Trib.) the Hon'ble Delhi Tribunal held: "11. From the above, it is, therefore, clear that when once the working capital adjustment is given, it subsumes the interest on receivables and no separate benchmark for it has to be made. Respectfully following the view taken by the Hon'ble jurisdictional High Court in the case of Kusum Healthcare (supra), we hold that the addition made on account of interest on receivables cannot be sustained. " * Kusum Healthcare Pvt. Ltd. Kusum Healthcare (P.) Ltd. Vs. ACIT [2015} 62 taxmann.com 79 (Delhi - Trib.)" (Para 7 to 10) "10. The above analysis empirically demonstrates that the differential impact of working capital of the assessee vis-a-vis its comparables has already been factored in the pricing/profitability of the assessee which is more than that working capital adjusted margin of the comparables. Hence, any further adjustment to the margins of the assessee on the pretext of outstanding receivables is unwarranted and wholly unjustified 13. Following the orders of the Tribunal, we set aside this issue to the record of the Assessing Officer / Transfer Pricing Of....
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....tted that the TPO has tried to bring within the ambit of Section 92, a transaction that is non-existent and in the absence of any provision in the Act, the tax-payer cannot be subjected to tax in respect of 'hypothetical income'. In the case on hand, since no income has been earned or can be said to have been earned by the assessee in respect of interest chargeable from AEs, the question of applying the provisions of Section 92 of the Act does not arise. In support of this proposition, the assessee placed reliance on the following judicial pronouncements :- 1. Vodafone India Services Pvt Ltd v. UOI (W.P No. 871 of 2014) 2. Evonik Degussa p.Ltd v. ACIT - OSD, Circle 3(1) (ITA No. 7653/Mum/2011) of 1TAT, Mumbai Bench 11.2.3 It was also submitted by the assessee that it had not charged any interest for delayed realisations even in the case of Non-AE transactions. It was submitted that the debts were outstanding with both the AEs and Non-AEs for a period exceeding the credit period purely because of business reasons and that this is a common business practice prevailing in the industry and the delay if any in the payment is not due to extension of credit period by the ....
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....be charged on such a delayed payment. From the summary of payment submitted by the learned Counsel, it is seen that the billing is done on quarterly basis and, accordingly, the payment is being received. Therefore, the delay is not wholly on account of late payment by the AEs only. Moreover, the T.P. Adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. Thus, on the facts and circumstances of the case, we are of the opinion that addition an account of notional interest relating to alleged delayed payment in collection of receivables from the AEs is uncalled for on the facts of the present case and is, accordingly, deleted. " 11.4.2 Following the above decision of the ITAT, Mumbai Bench in the case of Evonik Degussa India P. Ltd. (supra), we also hold that the addition on account of notional interest relating to alleged delayed payment in collection of receivables from AEs is not called for. However, as can be seen from the extract of the decision reproduced above, the above decision has been rendered in the factual context that there has been no agreement for charging inte....
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....lowed to Micro USA. This adjustment must be deleted for the short reason that it was part of the arrangement that specified credit period was allowed and thus the cost of funds blocked in the credit period was inbuilt in the sale price. " In view of the above, we reiterate that receivables cannot be considered as a separate international transaction, but arises as a result of the international transaction. Hence the same will have to be aggregated for the purpose of economic analysis. Thus, it is incorrect to consider it as a separate international transaction for determination of arm's length price since the receivables have already been accounted for and subsumed with the principal international transaction. 17.11 Also, in the recent case of Avnet India Ltd v. DCIT [TS-629ITAT-2015(Bang)-TP), the Hon'ble Bangalore Tribunal ruled that interest on delayed realization of sale proceeds from AE is not a separate international transaction but an integral part of sale made to AE. It further holds that "there can be no separate international transaction of 'interest' in the international transaction of sale. Early or late realization of sale proceeds is only inciden....
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.... entitled for the benefit of average LIBOR rate existing at that time which was 0.79% and addition of adhoc 2% is not proper. In that view of the matter, the addition of 2% interest in the income is required to be quashed and set aside. 12. The appeal and cross objection of the assessee stands allowed to the aforesaid extent. 13. All the issues are answered in favour of the assessee and against the department. Further, Supreme Court has endorsed the above judgment by dismissing the Special Leave Petition ("SLP") filed by the revenue in the case of CIT Vs Vaibhav Gems Ltd [2018) 99 taxmann.com 2 (SC). 17.18 Therefore, based on the above se decision even if your goodself consider the trade receivables as a separate international transaction, we pray your good office to consider average LIBOR rate for calculation of interest. 17.19 The similar view has been upheld in the recent case Open Text Corporation India (P.) Ltd Vs ITO [2021] 127 taxmann.com 399 (Hyderabad - Trib.) wherein the Hon'ble ITAT held that : "2. The assessee's sole substantive grievance pleads that the learned lower authorities have erred in law and on facts in making Arm's Length Price (....
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....ot as per LIBOR rate applicable in case of international transactions but after taking SBI's prime lending rate (PLR) @14.45% in the TPO order and upheld to the extent between 6.5% to 8% as applicable in case of domestic term deposits. Regarding Revenue's contention that TPO as well as the DRP have rightly treated the foregoing benchmark as per the short term deposit rate in the SBI, ITAI' found no merit in the same on the premise that such a short term deposit cannot be taken at par with an international transaction u/s.92B since the latter involves foreign currency and overseas market conditions. ITAI' also stated that the lower authorities had not adopted any comparable in the very segment as well so as to come to the conclusion that assessee's receivables in case of overseas AEs involved more than the market practice of reasonable time period. Accordingly, ITAI' deleted the ALP adjustment of Rs.1. 20 crores. " 17.20 Further, without prejudice to our above arguments even if the receivables are considered as loan or advance given to AE then "No separate adjustment for overdue receivables from AE if TNMM is MAM". 17.21 The similar view has been taken ....
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....ted to be deleted therefore. " 33. Per contra, the learned DR had submitted that the total turnover of the assessee company was Rs.9,00,86,960 against which the trade receivable was Rs.5,84,94,810. It was submitted by the learned DR that more than 60% of the total turnover of the assessee was due and receivable from the AE and the contention of the assessee that the LIBOR+200 points is required to be charged as against the interest of 8% cannot be accepted. FINDINGS OF BENCH 34. We have heard the rival contentions and perused the material available on record including the documents and submissions made before us. Before we deal with the issue, we would like to record the three judgments passed by High Courts on this. 35. In the case of Kusum Health Care (P.) Ltd.* [2018] 99 taxmann.com 431 (Delhi), Delhi High court had held as under :- 10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign associated enterprises would automatically be cha....
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....s per explanation 2 to section 92B of the Act w.e.f. 01.04.2002 inserted by the Finance Act, 2012. Therefore, even the outstanding receivable partake the character of capital financing and consequently, overdue outstanding 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. Therefore, we reject the contention of the assessee that outstanding receivable is not an 'international transaction' and therefore, hence, according to us, interest on it requires to be imputed." Thus, this is a redundant contention, because as has been highlighted by the ITAT, by a plain reading of the (retrospectively applicable) amendment that introduced the Explanation to section 92B of the Act by Finance Act, 2012, it is determinable that if there is any delay in the realization of a trading debt arising from the sale of goods or services rendered in the course of carrying on the business, it is liable to be visited with transfer pricing adjustment on account of interest income short charged/uncharged. Hence, the assessee's contention that the ITAT erred in concluding th....
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.... trade receivables were 5.84 crores and if the assessee is required to bear the cost of Rs.5,84,94,810 without any carrying cost, then the assessee would be rendering the services at ALP at a lower rate than the comparable cases . undoubtedly the assessee would be incurring the infrastructure cost, manpower cost, raw material, bank financial charges for the purpose of manufacturing or delivering of the services/goods to its AE , failing to receive Rs.5.86 crores from AE in time had economic consequences , hence assessee is required to be compensated for delay in receiving its outstanding . It needs no business sense, if a person rendering services or supply the goods after making the afront payment, then the services/goods would be available at a lower rate and in case of converse situation of delayed payment goods/services would be available at higher value , as the cost of delay/ upfront payment would be factored in the price . In the present case, TPO as well as the assessee have determined the ALP of the international transactions after considering the price charged by the assessee from its AE, albeit without factoring in interest to be chargeable on the delay in receiving the ....
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....equirements. 41. The judgments relied upon by the assessee in support of its claim are not applicable to the facts of the present case. The first judgment relied upon by the assessee at page 157 of the Paper Book is Pegasystems Worldwide India P Ltd (ITA No.1758/Hyd/2014) reported in (2015) 64 Taxmann.com 470 (Hyd-Trib). In paragraph 17.3, the Tribunal had not granted the notional interest on the outstanding receivables. As a matter of fact, the said judgment pertains to the A.Y 2010-11 and by the Finance Act 2012 (Expenditure. i(c) was inserted with retrospective effect from 1.4.2002 whereby the international transaction shall include receivables or any other debt arising during the course of business. In our view, the Tribunal was not having the benefit of the said change in law while deciding the issue. Therefore, the said decision of the Tribunal is not applicable to the facts of the present case. The second judgment relied upon by the assessee is in the case of Bisazz India (P) Ltd vs. Dy.CIT by the ITAT Ahmedabad Bench on 8/8/2018, wherein the Tribunal in Para 9.1 has held that "such interest is includible in operating income and the operating income itself has been acce....
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....allowed the applicability or LIBOR+200 points interest free loan provided by the appellant to its AEs. In the present case, admittedly, the case is not pertaining to the loan transactions given by the assessee to its AEs. However, in the present case, there is a delay of receiving consideration from the AEs and the total amount due to the assessee from the AEs is more than 60% of its total turnover. Therefore, the LIBOR+200 points rate cannot be applied to a transaction where the cases of delay in receivables from the AEs. Hence, the above judgment is also not applicable. The 7th judgment relied upon by the assessee is in the case of Open Text Corporation India (P) Ltd vs. Income Tax Officer reported in (2021) 127 taxmann.com 399 (Hyd.Trib), In this judgment at Para 2.2 had held that the short term deposit cannot take part with an international transaction. In our view, the issue before us is not with respect to short term deposit but is of receivables from the AEs to the assessee. Undoubtedly, the receivables from the AE have been held to be an international transaction in view of the decision of the Hon'ble Karnataka High Court in the case of CIT vs. AMD India (P) Ltd in ....