9911796707
TMI Blog2024 (6) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... ivables - AR submitted that the assessee is a debt free entity, working capital adjustment is not given and also that the assessee has not been charging any interest to non-AEs - HELD THAT:- In the case of CIT Vs. Cotton Naturals (I) (P.) Ltd. [ 2015 (3) TMI 1031 - DELHI HIGH COURT ] the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid; that the interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 the Hon'ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon'ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs, that the parameters cannot be different for outbound and inbound loans, and a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voking section 40(a)(i) of the Act. Ground of the appeal is accordingly dismissed. Appeal of the assessee is partly allowed and for statistical purpose. - Shri K.Narasimha Chary, Judicial Member And Shri Madhusudan Sawdia, Accountant Member For the Assessee : Shri E.V. Sri Krishna, AR For the Revenue : Ms. L. Sunitha Rao, CIT-DR ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the final assessment order dated 17/03/2021 passed consequent to the directions of Hon'ble Dispute Resolution Panel, Bengaluru ( DRP ), in the case of M/s. Satyam Venture Engineering Services Pvt. Ltd., ( the assessee ) for the assessment year 2016-17, under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (for short the Act ) assessee filed this appeal. 2. Three issues need adjudication in this appeal. One is determination of the most appropriate method to benchmark the international transaction in respect of IT enabled Services (ITeS), second one is related to the Transfer Pricing (TP) adjustment in respect of the interest on trade receivables and the third one relates to the disallowances under section 40(a)(ia) of the Act. 3. Briefly stated relevant facts are that the assessee is into the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of assessee for the assessment years 2009-10 and 2010-11 was brought to the notice of the Revenue authorities. She strongly supported the view taken by the Revenue authorities and submitted that the learned DRP is justified in upholding the findings of the learned TPO on this aspect. 7. We have gone through the record in the light of the submissions made on either side. On the aspect of adoption of the most appropriate method, in assessee s own case for the assessment year 2009-10, a Co-ordinate Bench of this Tribunal held that:- 10. Having regard to the rival contentions and the material on record, we find that where the assessee has both the AE as well as non-AE transactions, the operating profit and operating cost relating to the AE transactions alone ought to be considered for arriving at the ALP and thereafter the fixed cost attributable to both the transactions ought to be apportioned. When the TPO has adopted the TNMM as the most appropriate method and the assessee has rendered similar services to both the AEs and non- AEs, and the non-AE transaction satisfy the internal TNMM. The AO, therefore, ought to have considered them for arriving at the ALP. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot covered in the definition of international transaction as defined under section 92B of the Act; that the receivables are consequential/closely linked to the principal transaction of provision of services; that the re-characterising the outstanding receivables as unsecured loan extended by the assessee to its AEs is improper; that the assessee is fully funded by its AEs and does not bear any working capital risks; that the assessee does not charge any interest on outstanding receivables from third party customers as well; and that the assessee has outstanding payables due to AEs on which no interest has been levied by the AEs as well. 11. Learned AR in the alternative submitted that in the case of Afton Chemical India Private Limited vs. ITO in ITA No. 1467/Hyd/2019, by order dated 05/09/2022 had taken a view that in these sorts of cases, the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points, and he placed reliance on the decision of the Hon ble Delhi High Court in the case of CIT VS. vs M/S Cotton Naturals (I) Pvt. Ltd. [2015] 55 taxmann.com 523 (Delhi). He also placed reliance on the decisions report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015] 55 taxmann.com 523 (Delhi), since this aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House (supra) and confirmed by the Hon'ble Bombay High Court. CottonNaturals (I) (P.) Ltd. (supra) is also on the same aspect. 14. On this aspect, Mumbai Bench of the Tribunal, in the case of Tecnimont ICB House (supra), considered the view taken in Everst Kanto Cylinder Ltd. v. Asstt. CIT (LTU) [2014] 52 taxmann.com 395 (Mum.); PMP Auto Components (P.) Ltd. v. [IT Appeal No. 1484 (Mum.) of 2014, dated 22-8-2014]; Hinduja Global Solutions Ltd. v. Addl. CIT [2013] 145 ITD 361/35 taxmann.com 348 (Mum.); Tata Autocomp Systems Ltd. v. Asstt. CIT [2012] 52 SOT 48/21 taxmann.com 6 (Mum.); CIT v. Tata Autocomp Systems Ltd. [2015] 56 taxmann.com 206 (Bom.); Four Soft Ltd. v. Dy. CIT [2011] 142 TTJ 358 (Hyd.); and Everst Kanto Cylinder Ltd. v. Asstt. CIT (LTU) [2015] 56 taxmann.com 361 (Mum.) wherein the Tribunal has upheld use of LIBOR for the purpose of benchmarking loan/advance given to foreign AE's, and held that the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions (Third Edition) under Article 11 in paragraph 115, the Hon'ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon'ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs, that the parameters cannot be different for outbound and inbound loans, and a similar reasoning applies to both inbound and outbound loans. 16. Respectfully following the judicial opinion stated supra, we are of the considered opinion that the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points. We direct the learned Assessing Officer / learned TPO to adopt the same. Grounds are partly allowed accordingly. 17. Adverting to the disallowance under section 40(a)(i) of the Act, it comprises of three additions, namely, Rs. 8,46,35,315/- paid to Techno Support Co. Ltd., Rs. 44,19,715/- paid to Adecco Bangna Recruitment Ltd., and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apan learned DRP found that there is no reference in the agreement as to any secondment of employees by the assessee to the said company, the assessee did not produce any other documents to show the employees were seconded to Techno Support, Japan and the purpose of such secondment, if any. Learned DRP, therefore, did not believe the version of the assessee as to the secondment of employees. 22. Before us the assessee produced the employment contracts for the employees whose salaries are paid by cheque to Techno Support, Japan and reimbursed by the assessee, working for reimbursement of the salary cost for each month raised by the Techno Support, Japan and the invoices that were already submitted in scrutiny proceedings, as additional evidence. Learned AR submitted that though the invoices were submitted before the authorities during scrutiny proceedings, such invoices were not referred to in the orders. Learned AR submitted that the employment contracts for the employees were in Japanese language, but are translated now. He prayed that an opportunity may be granted to the assessee to prove the fact of secondment of employees and reimbursement of their salaries. 23. Having regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s represent reimbursement of salary of the seconded employees, with a Markup of 6%. For want of evidence on this aspect, the authorities did not believe that these payments were made towards reimbursement of the salary of the seconded employees. On the other hand, as a matter of fact, learned DRP found that these payments were made in consideration for the software development services provided by the German entity to the assessee, and for provision of technical personnel, all of which clearly fall within the purview of FTS under article 13(4) of the India-Germany DTAA, requiring tax to be deducted on the said payments. 27. As against these findings of the learned DRP, absolutely there is no material produced before us to return a different factual finding. Further even in respect of the assessee having any income through its branch in Germany, there is no evidence produced before us nor our attention is drawn to any such material. In these circumstances, we do not find any reason to interfere with the findings of the authorities and we uphold the addition of Rs. 37,27,534/- made by the learned Assessing Officer, invoking section 40(a)(i) of the Act. Ground No. 17 of the appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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