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2022 (6) TMI 340 - AT - Income TaxTP Adjustment - selection of comparable - Infosys BPO inclusion - HELD THAT - We find similar issue has been considered by the Coordinate Bench of this Tribunal in Assessee s own case 2020 (9) TMI 1257 - ITAT DELHI M/s. Infosys BPO LTD. (erstwhile Infosys BPO Ltd.) has been excluded from the comparables. Since the margin would be within plus or Minus 5%, the Assessee s international transaction is at Arm s Length, the said fact has not disputed by the Ld. D.R. Therefore, the addition made in the issue under consideration will not sustain. Working capital adjustment - As relying on case of Kusum Healthcare Pvt. Ltd 2015 (4) TMI 180 - ITAT DELHI once the impact of receivable on working capital is evaluated and the consequent profitability/pricing is compared vis- -vis the draft comparables, there is no requirement of any further adjustment. Accordingly, we allow the grounds of appeal.
Issues Involved:
1. Validity of the final assessment order and directions passed by the Learned Dispute Resolution Panel (Ld. DRP). 2. Non-quoting of the mandatory Document Identification Number (DIN) in the Ld. DRP's directions. 3. Enhancement of the income by INR 6,71,83,164 by the NaFAC/ Ld. DRP/ Ld. TPO. 4. Determination of Arm's Length Price (ALP) for international transactions pertaining to Information Technology Enabled Services (ITeS). 5. Enhancement of the income by INR 11,98,636 by treating receivables outstanding beyond 60 days as deemed loans and charging notional interest. Detailed Analysis: Issue 1: Validity of the Final Assessment Order and Ld. DRP Directions The Assessee contested the final assessment order dated 11/01/2022 and the directions of the Ld. DRP as erroneous and bad in law. The Tribunal examined the procedural adherence and found that the assessment followed due process, including scrutiny under Section 143(2) and the subsequent adjustments and directions under Section 92CA and 144C. Issue 2: Non-quoting of Mandatory DIN The Assessee argued that the directions issued by the Ld. DRP did not quote the mandatory DIN, as required by Circular No. 19/2019. The Tribunal did not provide a specific ruling on this procedural lapse, focusing instead on the substantive issues of the case. Issue 3: Enhancement of Income by INR 6,71,83,164 The Tribunal scrutinized the enhancement of income by INR 6,71,83,164, which was based on the Ld. TPO's findings and the Ld. DRP's directions. The Assessee argued that the findings were erroneous and based on conjectures. The Tribunal found merit in the Assessee's contention that the inclusion of Infosys BPM Ltd. as a comparable was inappropriate due to differences in functional profiles and revenue recognition policies. Issue 4: Determination of ALP for ITeS The Tribunal focused on the inclusion and exclusion of comparables for determining the ALP. The Assessee contended that Infosys BPM Ltd. should be excluded, citing differences in business models and previous Tribunal rulings in its favor. The Tribunal agreed, referencing its own decision in the Assessee's case for AY 2012-13, and directed the exclusion of Infosys BPM Ltd. This exclusion brought the Assessee's margin within the acceptable range, thereby nullifying the need for the disputed adjustment. Issue 5: Enhancement of Income by INR 11,98,636 The Tribunal addressed the issue of treating receivables outstanding beyond 60 days as deemed loans and charging notional interest. The Assessee argued that these receivables do not constitute an 'international transaction' under Section 92B of the Act and that the average collection period was within a reasonable time. The Tribunal referred to the Hon'ble High Court's decision in Kusum Healthcare Pvt. Ltd., which supported the Assessee's position that once the impact of receivables on working capital is factored in, no further adjustment is warranted. Consequently, the Tribunal allowed the Assessee's grounds on this issue. Conclusion: The Tribunal ruled in favor of the Assessee, allowing the appeal and directing the exclusion of Infosys BPM Ltd. from the set of comparables. This adjustment rendered the Assessee's international transactions at Arm's Length, negating the need for the contentious income enhancements. The Tribunal also upheld the Assessee's position on the treatment of outstanding receivables, citing relevant judicial precedents. The appeal was allowed in its entirety, and the final assessment order was adjusted accordingly. Order pronounced in the Open Court on this 26th day of May, 2022.
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