TaxTMI 
TaxTMI 
2025 (6) TMI 41
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....er of Income-tax, Circle 8(1), Hyderabad ('L.d. AO') in pursuance to the directions dated 08.06.2022 passed under section 144C(5) of the Act by the Learned Dispute Resolution Panel - 1, Bengaluru ('Ld. DRP') to the extent prejudicial to the Appellant, is bad in law, contrary to the facts and circumstances of the case and is liable to be quashed. 2. On the facts and in the circumstances of the case and in law, the final assessment order dated 30.07.2022 passed by the Ld. AO in violation of section 144B of the Act is without jurisdiction, bad in law and is liable to be quashed. Grounds on Transfer Pricing issues: 3. On the facts and in the circumstances of the case and in law, the Ld. DRP erred in upholding the action of the Ld. AO / Learned Transfer Pricing Officer ('Ld. TPO') in making a transfer pricing adjustments amounting to Rs. 6,03,14.533 comprising of adjustments on account of: 3.1 International transaction pertaining to provision of Information Technology ('IT") enabled back-office services - R$. 5.97.75,244; and 3.2 Levying notional interest on trade receivables - Rs. 5.39,289. 4. On the fact....
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....l Intellicom Limited - BPO Segment 10. On the facts and in the circumstances of the case and in law, the L.d. AO/ L.d. TPO/ 1.d. DRP erred in not considering certain items of revenue/expenditure as operating/non-operating for certain companies. 11. On the facts and in the circumstances of the case and in law, the Ld. AO/ Ld. TPO/ Ld. DRP erred in not correcting the errors in computation of margins for certain companies. 12. On the facts and circumstances of the case, and in law, without prejudice to the above grounds of objections, Ld. AO/ Ld. TPO/ Ld. DRP erred in computing the adjustment at an entity level instead of restricting to the segment pertaining to the international transaction with the AE. 13. On the facts and in the circumstances of the case and in law, Ld. AO / Ld. TPO/ Ld. DRP erred in: 13.1 Not granting working capital adjustment; and 13.2 Not granting risk adjustment. Ground with respect to levying of notional interest on trade receivables: 14. On the facts and circumstances of the case and in law, Ld. DRP/Ld. TPO / Ld. AO has erred in making an adjustment of INR 5,39,289 towards interest on re....
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.... is illegal; thus making the final assessment order bad in law, null and void and so liable to be quashed. 20. On the facts and circumstances of the case and in law, the draft order dated 10 September 2021 issued under section 143(3) read with section 144B read with section 144C of the Act by the Assessment Unit for AY 2018-19 is barred by limitation and therefore, is void-ab-initio, bad in law and is liable to be quashed." 21. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in not mentioning the fact of taking necessary approval in the final assessment order, for transferring of the matter to the Assessing Officer as per the provisions of section 144B(8) of the Act, thereby raising a presumption that no approval is taken, rendering the order under section 143(3) r.w.s. 144C(13) bad in law and liable to be quashed. Further, the Assessee craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. Further, this ground of appeal is independent of the grounds of appeal already filed....
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....s.1 to 4 are general in nature, ground nos.15 & 16 are consequential and they are not pressing ground nos.5 to 7, 9 to 12, 13.2 and 21 . Therefore, the Ld. AR submitted that these grounds do not need separate adjudication. Accordingly, ground nos. 1 to 7, 9 to 12, 13.2,15,16 and 21 are dismissed being not pressed. 7. Ground no.8 & 17 of the assessee is related to the seeking of exclusion of ten companies from the set of comparables . However, the Ld. AR submitted that, they are pressing for exclusion of only 4 companies from the list of comparables i.e. Infosys BPM Limited ("Infosys BPM"), Inteq BPO Services Limited ("Inteq BPO"), Eclerx Services Limited ("Eclerx") and Tech Mahindra Business Services Limited ("Tech Mahindra") on the basis of turnover filter. The Ld. AR further submitted that the turnover of the assessee is Rs. 62.89 Crores, however, the turnover of (i) Infosys BPM, (ii) Inteq BPO (iii) Eclerx and (iv) Tech Mahindra are Rs. 3061 crores, 2.45 crores, 1144.02 crores and Rs. 703.6 crores respectively, which are significantly vary as compared to the turnover of the assessee. Accordingly, these comparables are liable to be excluded from the list of compara....
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....2016] 69 taxmann.com 180, the Hon'ble Bombay High Court while placing reliance on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Agnity India Technologies (P) Ltd. [2013] 36 taxmann.com 289 held that turnover is obviously a relevant factor to be considered for comparability and the large and bigger company in the area of development of software cannot be benchmarked or equated with little size companies; whereas the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P) Ltd. (supra) held that turnover filter is an inappropriate filter and when once the company is found functionally comparable, it cannot be rejected from the set of comparables on the ground of the turnover. 12. In this situation, the Co-ordinate Bench of this Tribunal took a view in the case of M/s. Galax E Solutions India Pvt. Ltd. vs. ACIT, (2022) 192 ITD 326 (Bang.)(Trib.) took a view that where two views are available on an issue, the issue favourable to the assessee has to be adopted and, therefore, followed the decisions of the Hon'ble High Court. 13. Even the ICAI TP guidance note on transfer pricing clearly lays down that a ....
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.... crores turnover cannot be compared with an entity having Rs. 201 crores turnover. Thus, as it is clear from the above illustration that it gives ambiguous result as two entities having difference of Rs. 1 crore cannot be considered as comparable, whereas on the other hand difference of Rs. 199 crores can be considered as comparable company. Therefore, such classification of comparables on the basis of companies selected on turnover basis is not appropriate and acceptable. The turnover, no doubt, is a relevant factor to be taken into account, but there should be some proper and reasonable parameter to apply the difference of turnover between the assessee and the comparable which may be a multiple in the range of 2 times, 3 times, X times or any other number of times which should be applied to all the comparable companies, instead of taking a slab from Rs. 1 crore to Rs. 200 crores...." 15. With this premise, the Co-ordinate Bench of this Tribunal in the case of M/s. Maxim India Integrated Circuit Design Pvt. Ltd. (supra) held that the turnover filter upto ten times can be applied. 16. Hon'ble Karnataka High Court in the case of Acusis Software India (P) Ltd. v....
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....e of turnover filter at ten times on both the ends and conduct search afresh to take a plausible view. Therefore, respectfully following the decision of this Tribunal in the case of iMedX Information Services (P.) Ltd. Vs. DCIT (supra), we hold that, turnover filter is inevitable for a proper Transfer Pricing analysis. Further, there is no dispute about the fact that the turnover of (i) Infosys BPM, (ii) Inteq BPO (iii) Eclerx and (iv) Tech Mahindra clearly breaches the threshold set by this Tribunal in the case of iMedX Information Services (P.) Ltd. Vs. DCIT (supra). Therefore, respectfully following the decision of this Tribunal in the case of iMedX Information Services (P.) Ltd. Vs. DCIT (supra), we hold that (i) Infosys BPM, (ii) Inteq BPO (iii) Eclerx and (iv) Tech Mahindra cannot be considered as good comparable companies. 7.4 Further, we observe that, the Ld. TPO did not apply the turnover filter of 10 times (both upward and downward) to other comparables as well. Therefore, in the interest of justice, we deem it appropriate to remand the issue back to Ld. TPO, granting liberty to the Ld. TPO to apply the turnover filter uniformly to all the comparables and carryout the ....
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....ble uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and comparable uncontrolled transactions which could materially affect the amount of net profit margin. In our view, difference in levels of working capital between the tested party and the comparables have an affects on the margins and profitability. Therefore, the Ld. TPO's approach in insisting upon daily/monthly working capital cycle data of third-party comparables is, in our considered view, unjustified, particularly when such data is admittedly not available in the public domain. The assessee cannot be expected to obtain information which is beyond its reach. Therefore, we are of the considered opinion that, WCA cannot be denied merely due to the absence of detailed working capital cycle data and the adjustment should be granted based on average of opening and closing balances. Hence, we direct the Ld. TPO to grant appropriate WCA to the assessee while determining the ALP, by adopting the average of opening and closing working capital balances of comparables, as available from their annual reports. Accordingly, the ground No. 13.1 of the assesse....
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.... We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0 per cent optional convertible preferential shares. Thus, it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length inter....
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....action should be the data relating to the financial year in which the international transaction has been entered into. The proviso permits consideration of data, not more than two years prior to the financial year, if such data reveals facts which would have influenced determination of transfer price in relation to the transaction being compared. The transaction in question was entered into in the year 2002-03 when the loans were granted to the AE. This was the financial year of the international transaction. Payment of interest is also an international transaction but would have reference to the year in which the loan was granted in case of a long term loan. However, in such situations, question may arise whether the case would fall under the second exception mentioned in the case of E.K.L. Appliances (supra), when an AE has the right to recall and ask for repayment of loan. These aspects have not been considered and applied by the TPO, DRP and the Assessing Officer. Neither has this ground been argued before us on behalf the Revenue. We, therefore, would not proceed to examine the said aspect and leave the question open. Similarly, we have not expressed any opinion on the issue o....
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...."The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender's State or that in the borrower's is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt.B1. II 725 (1994), re. 1 § AStG). A differentiation between debt-claims or debts in national currency and those in foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt- claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. ....
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....-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply." 8. The Hon'ble High Court has answered the question whether the interest rate prevailing in India should be applied for the lender who is an Indian Company/Assessee or the lending rate prevailing in the US, the place of the AE should be applied. The Hon'ble High Court has held that the interest rate should be the market determined rate applied to the currency concerned in which the loan has to be repaid. The interest rate should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of resident of either party. Once the loan or credit is given in foreign currency and also to be repaid in same currency, the interest applicable to loan granted and to be returned in Indian rupee would not be the relevant comparable. The Hon'ble High Court has held that the PLR rate would not be applicable and should not be applied for determining the interest rate in such cases where loan to be repaid in foreign currency. This issue was again considered by the ....
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....that the assessee also paid interest to another AE in the USA, namely, iGATE Corporation, USA at 5.9% on its External Commercial Borrowings (ECB). He further recorded in para 57 of the impugned order that the TPO accepted this transaction and made no transfer pricing adjustment on this score, thereby, he also impliedly accepting this transaction at ALP. The viewpoint of the ld. CIT(A) on this point is not fully correct. We have noted above that the TPO worked out the transfer pricing adjustment by considering the loans advanced by the assessee to both of its AEs, including Symphoni Interactive LLC, USA. Be that as it may, it is seen that the ld. CIT(A) also impliedly accepted the interest earned by the assessee from Symphoni Interactive LLC, USA, at 6% as at ALP, against which the Department has no grudge as the assail is only to the application of EURIBOR of 4.42%, which relates to the loan advanced by the assessee to Mascot GmbH, Germany. As such, we are confining ourselves only to international transaction of receipt of interest from Mascot GmbH, Germany. As against the assessee charging interest at the rate of 1.50% from Mascot GmbH, Germany, the TPO determined the arm's le....
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....minative of the arm's length rate of interest charged by the assessee-lender. 7. Now we espouse the second facet of the dispute relating to the determination of the arm's length rate of interest. It is seen that the ld. CIT(A) has held that average EURIBOR for the A.Y. 2007- 08 should be considered as a benchmark. In determining the average EURIBOR at 4.42%, he relied on an order passed by the Tribunal in which the average LIBOR was considered at 4.42%. In other words, the ld. CIT(A) considered EURIBOR as a comparable uncontrolled transaction for the purpose of benchmarking the rate of interest charged by the assessee. 8. At this juncture, we consider it expedient to clarify that EURIBOR (Euro Inter-bank Offered Rate) is not a rate of interest, in itself, at which loans are advanced by banks in Euros to borrowers. EURIBOR is a reference rate which is calculated from the average interest rate at which Euro Zone Banks offer lending on inter-bank market. While calculating EURIBOR, 15% of the lowest and 15% of the highest interest rates collected by a panel of European banks are eliminated and the remaining 70% form the basis for its calculation. In such circu....
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....Assessing Officer/TPO is directed to adopt the LIBOR + 200 basis as comparable rate for benchmarking the transaction of outstanding receivables from AEs after allowing a credit period of 60 days as a normal credit period without any interest." 9.4 On perusal of above, we found that this Tribunal has adopted LIBOR rate for benchmarking the transactions of outstanding receivables from the AEs. We have also gone through the decision of this tribunal in the case of Hetero Lab Limited Vs. ACIT(supra) relied by the revenue and found that, the Tribunal has given it's findings relying on the decisions of some Tribunals, however, this Tribunal in the case of HARSCO India Private Ltd. v/s DCIT (supra) has given it's findings relying on the decisions Hon'ble Bombay high court. In our considered opinion the decision of hon'ble high court always prevails over the decision of Tribunal. Therefore, respectfully following the decision of this Tribunal in the case of HARSCO India Private Ltd. v/s DCIT (supra), we hold that, the justice will be served by applying LIBOR + 200 basis points on trade receivables in the case of the assessee. Therefore, we direct the Ld. AO/TPO to apply LIBOR + 200 basi....