TaxTMI 
TaxTMI 
2022 (7) TMI 1417
X X X X Extracts X X X X
X X X X Extracts X X X X
....l solutions to the customers of Cisco in India by a variety of financing options. 2.1 For the AY -2017-18, the Appellant filed the return of income on November 11, 2017, wherein the Appellant had disclosed INR 369,08,46,410 as total income [(under the normal provisions of the Income Tax Act, 1961 (`the Act')] and was liable to pay income tax amounting to INR 127,73,28,126 (including surcharge and education cess). Post availing tax credit under Section 115JAA of the Act [Minimum Alternate Tax (MAT') provisions], the net tax liability was determined to INR 43,68,24,082. The same was discharged by the Appellant by way of taxes deducted at source amounting to INR 27,63,89,762 and advance tax amounting to INR 24,50,00,000 thereby claiming refund of INR 8,45,65,680. Subsequently, the case was picked up for scrutiny assessment under section 143(2) of the Act by the Assistant Commissioner of Income Tax - Circle 2(1)(1) vide notice dated September 5, 2018, for which appropriate response was provided. During the scrutiny assessment the jurisdiction of the Appellant was transferred to National e-Assessment Centre, Delhi (hereinafter referred to as the `learned faceless AO'). Fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s erred in law and in fact by disregarding the ownership status of Cisco Capital in relation to the assets leased out by it under finance lease, thereby disallowing the claim for depreciation made by Cisco Capital in the return of income. 2) Without prejudice to the above grounds, the learned AO has erred in law and in fact, by not allowing depreciation on the opening written down value ("WDV") of the block of assets leased out under finance lease arrangement, pursuant to allowance of depreciation on the same block of assets for some of the prior years. 3) Without prejudice to the above grounds, the learned AO has erred law and in fact by not deducting the lease rentals received by the Assessee on assets leased out under finance lease (offered to tax by the Assessee in the return of income filed) while computing total income of the Assessee, in spite of depreciation on such assets being disallowed." 3.2 The first ground for our consideration is with regard to disallowance of depreciation on assets given under finance lease. After hearing both the parties, we are of the opinion that similar issue came for our consideration before this Tribunal in assessee'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 32 or the Act of 1961 and therefore, the substantial question of law involved in the present appeal is no longer res integra and is squarely covered by the decision of the Hon'ble Supreme Court in M/s ICDS Ltd (Supra) as well as the judgement delivered by the Division bench of this court in case of Hewlett Packard India Sales Pvt Ltd (Supra)." 9. The ld. AR further submitted that the Tribunal in Assessee's own case for AY 2011-12 and AY 2013-14 dated June 7, 2019 has held that the decision in the case of M/s Asea Brown Boveri Ltd Vs. Industrial Finance Corporation of India & Ors in CA 3574 of 1998 dated October 27, 2004 as relied on by the Department is not on the issue of claim of depreciation of assets given on financial lease under the Act and was rendered in an appeal under section 10 of the Special Court Act, 1992. Further, the Tribunal also observed that the decision of the Hon'ble Supreme Court in the case of ICDS (supra) was delivered much after the judgement of in the case of Asea Brown Boveri Ltd (supa). Accordingly, the Tribunal has reversed the findings in the final assessment order dated November 24, 2017 and remanded the matter back to AO&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the judgment of Hon'ble Supreme Court in the case of M/s. Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India & Ors. in CA 3574 of 1998 dated October 27, ,2004. This judgment is not on the issue of claim of depreciation of assets given on financial lease under the Income-Tax Act, 1961 ["the Act"]. This judgment was rendered in an appeal under section 10 of the Special Courts (Trials of Offences relating to Transactions in Securities) Act, 1992. In fact, the judgment of Hon'ble Supreme Court in the case of ICDS Ltd. (supra) has been delivered much after the judgment in the case of Asea Brown Boveri Ltd (supra). Hence, these findings of the ld. AO, which were approved by the DRP are hereby reversed as these are not in accordance with law. 7. Be it as it may, as at page 18 of the final assessment order for the AY 2011-12, the AO records that the assessee was asked to produce copies of agreements and that the assessee had only produced a few of them. We agree with the argument of the ld. DR that at least some more agreements have to be produced for examination before the AO, so that the submissions of the assessee that, the terms of the agreement in these fina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earned AO has erred in law by re-computing the total income of the appellant without giving effect to the set off of brought forward depreciation loss from the prior years." 4.1 The Ld. A.R. has not pressed the above grounds and hence these grounds are dismissed as not pressed. 5. Ground Nos.7 to 17 of the appeal of the assessee are reproduced as under:- "B. Grounds of appeal in relation to transfer pricing matters Initiating scrutiny proceedings in relation to Specified domestic transaction, not considering amendment made by Finance Act - 2017 7. The learned AO/TPO has erred in law and fact, by initiating scrutiny proceedings in relation to the specified domestic transaction of payment made by the Appellant towards the fees for administrative support services to the AE. disregarding the deletion of clause (i) of section 92BA of the Act by virtue of amendment by the Finance Act, 2017 w.e.f April 1, 2017. Transfer pricing adjustment on account of re-characterization of payment made for administration support services Treating payment for administrative support services to Cisco Systems India Private Limited ('Cisco India') a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3. Without prejudice, the learned TPO/ AO has erred, in law and in fact, considering certain pure administrative and selling expenses as AMP expenses, and therefore adjustment made considering such expenditure is unwarranted; Rejection of benchmarking analysis undertaken by Appellant 14. Without prejudice to the other grounds, the learned AO/TPO have erred. in law and in fact by a) not appreciating the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with Income Tax Rules, 1962, b) rejecting the transfer pricing approach identified by the Appellant in its transfer pricing documentation report maintained, c) conducting a fresh economic analysis for identification of comparables (with unreasonable comparability criteria) and determining of the ALP in connection with the impugned specified domestic transaction. Rejection of Non-comparable companies 15. Without prejudice, the learned TPO/ AO has erred. in law and in fact. by selecting certain companies as comparable companies ignoring the fact that the companies are functionally different: a) Pressman Advertising Limit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * Bangalore Tribunal in the case of M/s. Forsoc Chemicals India Private Limited vs. ACTT [IT(TP)A No.1813/Bang/2013) * Bangalore Tribunal in case of M/s Parametrics Technology Private Limited Vs DCIT, ITA No.359(Bang)/2016 19. Accordingly, it was submitted that as the assessee's primary transaction of import of equipment from AE (Appellant's margin 5.90%) has been accepted at arm's length after considering the payment of administrative and marketing support services as part of operating cost, no separate adjustment is warranted in respect of the same. 20. We have both the parties. This issue came up for consideration in assessee's own case in AY 2015-16 in IT(TP)A No.2614/Bang/2019 and by order dated 8.4.2021 the Tribunal held as under:- "6.7 It is also an admitted fact that assessee has been carrying out these activities in a bundled format in the preceding years which has not been objected by the Ld.TPO/AO. Further that all these expenses incurred by assessee towards administrative expenses and sales and marketing expenses stands subsumed in the operating expenses under TNMM for computing the arm's length margin of the internati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alization of receivable is factored in the profitability / pricing of the assessee. Such an assumption may be acceptable only to the extent of credit period agreed between the parties and cannot be extended beyond. Working capital adjustment can have no impact on determination of ALP on interest receivables from the AEs beyond the stipulated credit period. The Hon'ble ITAT Delhi in the case of-Bechtel (in ITA No.6530/Del/2016 dated 16 May 2017), deviating from its earlier order in the same case, rejected the contention that interest gets subsumed in the working capital adjustment. The Tribunal held that the deferred receivable transaction has to be analysed as a separate international transaction, and also observed that working capital adjustment can have no impact on the determination of ALP of international transaction relating to interest on deferred receivable. The relevant extract of the observation is as under: "19. In the case of Ameriprise (supra), it has been observed that the working capital adjustment is in respect of international transaction of rendering services to the AE. Interest for credit period allowed as per the agreement is given in the price charg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rest on delayed receivables at Rs.89,11,183/-. 10. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration before this Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. In IT(TP)A No.397/Bang/2021 dated 21.1.2022 wherein held as under: "35. The only other issue that remains for adjudication is ground No.15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee's own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:- "23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective custom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 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 longterm or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol. - Trib.), held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per Explanation to section 92B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would ha....