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TMI Blog2022 (11) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... d financial solutions to the customers of Cisco in India by a variety of financing options. 3. For the AY 2018-19, the Assessee filed the return of income on November 30, 2018, wherein the Assessee had disclosed INR 432,49,59,140 as total income [(under the normal provisions of the Income Tax Act, 1961 and was liable to pay income tax amounting to INR 149,67,81,859 (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 134,29,70,405. The same was discharged by the Assessee by way of taxes deducted at source amounting to INR 27,15,31,483 and advance tax amounting to INR 111,00,00,000 thereby claiming refund of INR 3,85,61,080. Subsequently, the case was picked up for scrutiny assessment under section 143(2) of the Act for which appropriate response was provided. 4. During the scrutiny assessment the jurisdiction of the Assessee was transferred to National e-Assessment Centre, Delhi (hereinafter referred to as the learned faceless AO'). Further, during the assessment proceedings, the learned AO called for certain information/ documents vide noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned TPO/AO has failed to appreciate the fact that the agreement between Cisco Capital and Cisco India for availing of administrative support services (which was in the nature of outsourcing of services to Cisco India or deputation services by Cisco India to Cisco Capital) is bona-fide arrangement and the same cannot be treated as an international transaction under section 92B of the Act. Alleging that Appellant has an arrangement with Cisco India and Cisco Systems International BV ("CSI BV") whereby Appellant has rendered marketing, sales and administrative support services to CSI BV 3. The learned TPO/AO has erred in law and fact by ignoring the fact that the appellant has not rendered any service to CSI BV. 4. The learned TPO/AO has erred in law and fact by alleging a hypothetical international transaction under section 92B of the Act, wherein marketing, sales and administrative support services (which was in the nature of outsourcing of services to Cisco India or deputation services by Cisco India to Cisco Capital) are allegedly rendered by Cisco Capital and re-characterizing the payment made for these services to Cisco India as a transaction entered into pursuant to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecting certain companies as comparable companies ignoring the fact that the companies are functionally different: a) Pressman Advertising Limited b) Axience Consulting Private Limited c) Cheil India Private Limited d) Dun & Bradstreet Information Services India Private Limited e) Majestic Research Service and Solutions Limited 11. Without prejudice, the learned TPO/ AO has erred, in law and on facts. in erroneously selecting the companies that has high fluctuating profit trend as comparable i.e. Pressman Advertising Limited. 12. Without prejudice, the learned TPO/ AO has erred, in law and on facts. in erroneously computing the operating margins of certain comparables." 9. The learned TPO opined that the sales, marketing and related administrative services rendered by Cisco India are related to the Cisco products manufactured by CSI BV/ Cisco Systems Inc ('CSI') for which the ownership of IPR, trade mark, copyright and moral rights belong to the Associated Enterprise ('AE') abroad and accordingly the TPO disregarded the intermediary entity i.e. Cisco Capital and concluded that the services are in substance rendered by Cisco India to CSI BV. 10. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee submits that the rejection of the consistent approach adopted by the Assessee which has been accepted by the TPO in preceding years is incorrect. Given the fact that primary transaction of purchase of networking equipment for lease has been considered at arm's length, the claim of the TPO that the impugned specified domestic transaction should be separately benchmarked is erroneous and unjustified. In this regard, reliance is also placed on the following decision wherein bundled transaction approach has being upheld:- * Sony Ericsson Mobile Communications India Private Limited (231 Taxman 113) (Delhi HC) * Delhi High Court decision in case of Maruti Suzuki India Limited, 129 DTR 25 (Del) * Sony Mobile Communications (ITA No 6410/Del/2012) affirmed by Delhi High Court in (2019) 104 CCH 0355 Del HC * Audco India Ltd (264 Taxman 237) (Bombay High Court) * 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receivable. The grounds read as under - "13. Without prejudice, the learned TPO/ AO has erred. in law and on facts, by determining a transfer pricing adjustment on account of interest on outstanding receivables, not appreciating the fact that such receivables are arising from rebates and discounts offered by CSI BV and should not be tested separately or re-characterized as a loan transaction. 14. Without prejudice, the learned TPO/ AO has erred, in law and on facts, by using the SBI Short term deposit interest rate as against using of LIBOR rate for the transaction denominated in USD." 16. The TPO, without appreciating the nature of the transaction, has concluded that the receivables transaction should be treated as a separate international transaction and given the delay in receipt of receivables from AE's, TPO has re-characterized such receivables to be in the nature of unsecured loan given to AEs in the TP order passed. Accordingly, TPO after considering SBI Short term deposit rate as ALP of interest and granting credit period of 30 days has computed interest on delayed receivables amounting to INR 1,06,89,684 (18,17,00,000*6.41%*335/365). 17. The DRP in its directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is points applicable for year under consideration that worked out to 3.3758% on receivables that exceeded 30 days. It has been argued by Ld.AR that authorities below disregarded business/commercial arrangement between the assessee and its AE's, by holding outstanding receivables to be an independent international transaction. 23.2 Ld.AR placed reliance on decision of Delhi Tribunal in Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT v. Kusum Health Care (P.) Ltd. [2018] 99 taxmann.com 431/[2017] 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. He also placed reliance upon decision of Delhi Tribunal in case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxmann.com 6 which subsequently upheld by Hon'ble Delhi High Court vide order in Pr. CIT v. Bechtel India (P.) Ltd. [IT Appeal No. 379 of 2016, dated 21-7-16] also upheld by Hon'ble Supreme Court vide order, in CC No. 4956/2017. 23.3 It has been submitted by Ld.AR that outstanding receivables are closely linked to main transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.), which dealt with question of law: "(c) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?" 23.6 Ld. CIT. DR. submitted that, while answering above question, Hon'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1-4-2002. Setting aside view taken by Tribunal, Hon'ble Bombay High Court restored the issue to file of Tribunal for fresh decision in light of legislative amendment. It was thus argued that non/under-charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions." 23.9 In view of the above, we deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law." 36. Accordingly, we are of the opinion that deferred receivables would constitute an independent international transaction and the same is required to be benchmarked independently as held by the Hon'ble Karnataka High Court in Pr. CIT v. AMD (India) (P.) Ltd. [IT Appeal No. 274 of 2018, dated 31-8-2018]. 37. Once we have held that the transactio ..... 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