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TMI Blog2021 (4) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... d lower authorities had adopted SBI short term fixed deposit rate on assessee s international transactions without doing any benchmarking as per market rates in the very segment by referring to comparable entities. We accept this instant substantive ground on this count alone and direct the TPO to delete the impugned adjustment. Deemed international transaction - ALP adjustment in respect of recoveries made from resident associated enterprise M/s CDK Global India Private Limited - HELD THAT:- This last issue of deemed international transaction deserves a fresh innings before the TPO. We accordingly deem it appropriate to restore the same back to the file of TPO for his adjudication as per law within three effective opportunities of hearing. The assessee or its authorized representative shall appear before the TPO on or before 31.08.2021 with all necessary papers/ verification of records at its own risk and responsibility in the specified number of opportunities, failing which our remand directions shall stand vacated. - I.T.A. No. 1611/Hyd./2019 - - - Dated:- 9-4-2021 - Shri S.S. Godara, Judicial Member And Shri L.P. Sahu, Accountant Member For the Assessee : Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as a comparables, without appreciating that the said companies were functionally comparable to the Appellant : SagarSoft (India) Limited Akshay Software Technologies Limited Evoke Technologies Private Limited Harbinger Systems Private Limited I2T2 India Limited Infomile Technologies Limited Kireeti Soft Technologies Limited 4. Without prejudice to the above grounds on rejection of functionally dissimilar comparable companies, on the facts and circumstances of the case and in contrary to law, the Ld. TPO erred by incorrectly computing the margin of following comparable companies: Tata Elxsi Limited Nihilent Technologies Limited Thirdware Solutions Limited 5. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the C) Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO in rejecting the transfer pricing analysis / study prepared by the Appellant, without appreciating that none of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied. 6. On the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO erred in and the Hon'ble DRP further erred in considering the facilitation cost of CDK Global (India) Private Limited incurred by the Appellant for transition of sale of dealer services division as the cost of the Appellant and thereby imputing a mark-up on such cost. Further, the Ld. TPO erred in holding this transaction as a deemed international transaction and the Hon'ble DRP erred in holding this transaction as an international transaction. Consequential: 13. On the facts and in the circumstances of the case and in law, the Ld. AO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. AO in levying interest and the said levy of interest being wholly unjustified, ought to be deleted. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, to enable the Hon'ble Members to decide this appeal according to law. 2.1. Learned counsel is fair enough at the outset in not pressing assessee s substantive grounds nos.1, 3, 4, 5, 6 and 8; being general in nature qua the 1st ground and others keeping in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. Next comes assessee s 9th to 11th substantive grounds seeking to delete ALP adjustment in the nature of interest on receivables due to its overseas Associated Enterprises AEs . Suffice to say, it transpires that the learned lower authorities had adopted SBI short term fixed deposit rate on assessee s international transactions without doing any benchmarking as per market rates in the very segment by referring to comparable entities. We accept this instant substantive ground on this count alone and direct the TPO to delete the impugned adjustment. 5. This leaves us with assessee s substantive ground that learned lower authorities have erred in law and on facts in making ALP adjustment of ₹ 18,74,75,482/- in respect of recoveries made from resident associated enterprise M/s CDK Global India Private Limited. Both the learned representatives took us to para 22.4.2 to 22.4.2.5 ( pages 98 to 107 ) of the TPO s order dated 30.11.2018 discussing the issue as under: 22.4.2. Recoveries made from CDK Global India Pvt Ltd without mark-up 22.4.2.1. It is seen from Notes 10, 20, 21 and 23(b) forming part of the financial statements(Annual Report for F. Y. 2014-15) tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. The assessee further submitted that there was no prior agreement between the AE of the assessee and the AE of CDK Global India Limited. Hence, the said transaction would not fall under the meaning of Deemed international transactions. 22.4.2.4. The submissions of the assessee were considered and found to be not acceptable for the following reasons. i) The assessee did not furnish any evidence to support that the price negotiation was made between the assessee and the CDK Global India Limited independent of their respective parent companies in USA. It should be noted here that the decision to transfer the Dealer Services Division to CDK Group was made by the ADP LLC, USA and the assessee is merely implementing the said decision. This implies that there is a prior agreement between the AE of the assessee and the third party, by virtue of which the said transaction is covered within the meaning of deemed international transaction. ii) In its TP Study Report, the assessee itself has reported M/s. CDK Global as an Associated Enterprises. From the above it is evident that the services rendered by the assessee to M/s.CDK Global India Limited is a deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh invoice wise aging details of outstanding receivables, in respect of all invoices raised during the FY 2014-15 as well as the invoices which were raised in previous FYs but remained unpaid on the opening day of current FY 2014-15 vis-a-vis credit period as per service agreement with its AEs in following format: S. No Name of AE Invoice No. Date of Invoice Amount (In Rs.) Due date of receipt of payment as per agreement Actual Date(s) of receipt of payment (INR)** Period of delay Interest For the delay period *** Credit period allowed As per service agreement 23.2 Further, the assessee vide its letter dated 16.1 0.2018, submitted as follows, i) Outstanding receivables are not covered under the definition of International Transaction ii) Not an international transaction and no separate adjustment is warranted iii) Working capital adjustment takes into account the outstanding receivables and hence separate adjustment is not required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Accordingly, the delay in receipt of receivables is an international transaction u/s 92B(1) read with clause (v) of section 92F. ii) In view of the above, non-charging or under charging of interest on the excess period of credit allowed to the AE, for the realization of sales invoices would amount to an international transaction. This view finds support in the latest decision of the Hon'ble ITAT, Delhi in the case of Bechtel India Pvt. Ltd.(in ITA No. 6530/Del/2016 dated 16.05.2017). It is important to note that the Hon'ble Bench while arriving at the said conclusion distinguished its own earlier order in Bechtel case, and also rejected the contention that interest gets subsumed in the working capital adjustment. The relevant discussion holding 'deferred receivables' would constitute international transaction is as under:- In the case of Techbooks India International Pvt. Ltd. us. DCIT (supra), taking note of the Explanation inserted by the Finance Act, 2012 to Section 92B, it was observed that there remained no doubt that apart from any short-term or long-term borrowing, etc., or even advance payments or deferred payments, 'any other debt aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; 22. On going through the relevant part of the Explanation inserted with retrospective effect from 1.4.2002, thereby also covering the assessment year under consideration, there remains no doubt that apart from any long-term or short-term lending or borrowing, etc., or any type of advance payments or deferred payments, any other debt arising during the course of business' has also been expressly recognized as an international transaction. That being so, the payment/non-payment of interest or receipt/non-receipt of interest on the loans accepted or allowed in the circumstances as mentioned in this clause of the Explanation, also become international transactions) requiring the determination of their ALP. If the payment of interest is excessive or there is no or low receipt of interest, then such interest expense/income need to be brought to its ALP. The expression debt arising during the course of business' in common parlance encompasses, inter alia, any tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction as per explanation 2 to section 92B w.e.f. 2002 inserted by the Finance Act, 2012. Even outstanding receivables partake the character of capital financing and consequently overdue outstanding is an international transaction . iii) Even prior to the said amendment by the Finance Act, 2012, the Bangalore ITAT, in the case of Logix Micro Systems Ltd. held deferred receivables to be an international transactions with the following reasoning:- As a general rule, we agree with the learned Chartered Accountant that what is to be assessed as income is the income earned by an assessee and not the income that could have been earned by the assessee. Thus there is a real difference between the actual and the probable. But that general rule of taxation is not as such directly applicable to the present case as the TPO was really examining the financial impact of an international transaction. What is made in an analysis of ALP is the evaluation of the said financial impact. On one side the pricing adopted by the assessee for all its international transactions with its AE is comparable and the ALP test is satisfied. To that extent in the present case, the TPO has accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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