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TMI Blog2021 (3) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/Bang/2018 - - - Dated:- 18-3-2021 - Shri Chandra Poojari, Accountant Member And Shri George George K., Judicial Member For the Appellant : Shri P.C. Khincha, CA For the Respondent : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the assessee is directed against the order of DCIT, Circle 3(1)(2), Bangalore passed u/s. 143(3) r.w.s. 144C r.w.s. 92CA of the Income-tax Act, 1961 [the Act] dated 9.2.2018. 2. The assessee has raised the following grounds of appeal:- 1. The Orders passed by learned Deputy Commissioner of Income Tax, Circle-3(1)1) Bangalore (hereinafter referred to as AO for brevity), learned Assistant Commissioner of Income Tax, Transfer Pricing-1(3)(2), Bangalore (hereinafter referred to as TPO for brevity) and Honorable Dispute Resolution Panel-1 (hereinafter referred to as Honorable DRP) ( AO TPO and DRP collectively referred as -lower authorities for brevity) are bad in law and liable to be quashed; GROUNDS RELATING TO TP ADJUSTMENT WITH RESPECT TO INTEREST ON DELAYED TRADE RECEIVABLES 1. The lower authorities have erred in: (i) Computing a transfer pricin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prays accordingly. 3. The assessee, ISG Novasoft Technologies Limited ( ISGN India ), a company incorporated under the Companies Act, 1956, is engaged in the business of providing IT Support and IT enabled services [ITeS] in the nature of mortgage processing support and technical support services [broadly classified as ITeS] to its AE. 4. For AY 2014-15, the assessee filed a return of income on 30th March 2016, declaring taxable income of ₹ 16,82,41,890/-. During the year under consideration the assessee entered into international transaction with its AE of rendering ITeS services and receipt of reimbursement. With respect to international transactions entered into with AE, the AO made a reference u/s 92CA of the Act to the TPO after getting the necessary approval from the PCIT. The TPO passed an Order on 25.10.2017 making an adjustment of ₹ 3,59,22,610/- in respect of ITeS segment and ₹ 3,27,21,491/- in respect of notional interest on outstanding receivables. 5. Thereafter, the AO passed the Draft Assessment Order on 26.12.2017 incorporating the TP adjustment. The AO further disallowed ₹ 5,28,888/- towards provision for rent. Aggrieved, by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing decisions: Case law Page no. of PB II Bechtel India Pvt. Ltd. v. DCIT I.T.A .No. 1478/Del/2015 [TS-638-ITAT-2015(DEL)-TP] (pages 365 to 387 of PB-II) Findings at page 385, para 15.1 PCIT v. Bechtel India Pvt. Ltd. ITA 379/2016 [TS-508-HC-2016(DEL)-TP] (pages 388 to 389 of PB-II) Findings at page 389, para 4 Inductis (India) (P.) Ltd. Vs. ITO [2018] 99 taxmann.com 167 (Delhi - Trib.) Findings at page 393, para 11 and 12 12. The ld. AR submitted that as the assessee is a debt free company, and therefore following the ratio of above decisions, TP adjustment relating to notional interest on receivable should be deleted. 13. Without prejudice to above, the ld. AR submitted that LIBOR has to be adopted. In the Order u/s 92CA, the TPO has presumed that the assessee s average maturity period of receivables is between 3 to 5 years and added 300 basis points to LIBOR based on RBI Master Circular. The TPO further added 100 basis point for currency risk. 14. In this regard, it is submitted that weighted average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP] Page 445, para 11 LIBOR + ITO v Genpact Infrastructure (Hyderabad) Pvt. Ltd, ITA No. 2063/Del/2015 Page 462-463, para 11 LIBOR + 200bps CIT v. Aurionpro Solutions Ltd. [TS-474 2017(BOM)-TP] Page 456, para 8 17. The ld. AR submitted that varying rates have been adopted in various judicial decisions. It was submitted that the rate favourable to the assessee should be adopted. The prevailing LIBOR rate without any additional basis points should be considered for benchmarking the rate of interest on the outstanding receivables especially in the light of the fact that the assessee is a debt free company, not subjected to any working capital risk. 18. As regards Reasonable Credit Period, the TPO has calculated interest from the date of invoice. The ld. AR submitted that in the commercial world, every person would give reasonable time to the debtor for payment. Therefore, interest cannot be charged from the date of invoice. The assessee has outstanding receivable only from its AE for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Further, it was submitted that once it is an international transaction, TP adjustment is to be made on applying LIBOR rate as applicable to the country where the AE is situated and for the excess period of credit allowed to AE for realisation of invoices. For this purpose, she relied on the following case laws:- 1. Swiss Re Global Business Solutions India Pvt. Ltd. Vs DCIT IT(TP)A No.3181/Bang./2018 dated 21/05/2020 (Bang.Trib.) (Pg. 24-29, Para 23) 2. Arrow Electronics India Pvt. Ltd. Vs DCIT, IT(TP)A No.140/B/2014 dtd. 23.10.2019 (Bang.Trib.) (Page 16-19, Para 14 - 17) 3. The DCIT Vs M/s CGI Information Systems Management Consultation Pvt. Ltd., IT(TP)A No.505/B/16, IT(TP)A No.626/B/16 CO No.146/B/18 dtd. 30.01.2020 (Bang.Trib.)(Page 27-32, Para 3.5.1 - 3.5.8). 24. We have heard both the parties and perused the material on record. The ld. AR fairly conceded that outstanding amount on account of sales/services billed to AE akin to loan advanced by assessee is an international transaction. As held by the Hon ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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