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TMI Blog2023 (4) TMI 1363X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 - ITAT DELHI ] The correctness of the aforesaid decision has however been doubted in some other cases. We find that on this issue, there has been conflicting view, we find it proper and just to remit the matter back to the file of ld. AO for consideration of the issue afresh - Accordingly, ground no. 2 is allowed for statistical purpose. Disallowance towards delay in deposit of employees contribution to Provident Fund before the due date - HELD THAT:- This issue is covered against the assessee by the decision of Hon ble Supreme Court in the case of Checkmate Services Pvt. Ltd. [ 2022 (10) TMI 617 - SUPREME COURT ] wherein it has been held that deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B. Disallowance of notional IND-AS (Accounting Standards issued by Institute of Chartered Accountants of India) adjustment - HELD THAT:- Lease deposit is required to be measured at fair value on initial recognition. The difference between the amount of deposit and its fair value is treated as prepaid lease expenses and amortized o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding receivables for more than 30 days by treating it as a separate international transaction. We are in concurrence with the ld. TPO taking 30 days as normal credit period for computing the interest on outstanding receivables which are to be netted off with the payables with the AEs. Rate of interest - As we find that adjustment is to be computed considering the interest rate applicable to transactions denominated in the currency in which the invoices are raised, in accordance with the view in the judgment of Cotton Naturals (I) (P.) Ltd. [ 2015 (3) TMI 1031 - DELHI HIGH COURT ] in which it is held that it is the currency in which the loan is to be repaid which determines the rate of interest and hence the prime lending rate should not be considered for determining the interest rate. In the present case, assessee has raised invoices on its AEs in EURO and hence, the EUR LIBOR prevalent during the financial year 2017-18 relevant to AY 2018-19 is to be considered for determining the arm s length rate of interest to be charged on the net outstanding receivables. Accordingly, ld. AO / TPO is directed to give effect to the above findings and directions and re-compute the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant, therefore any loss incurred in this process should be borne by parent company and not by Appellant. 1.4. The learned AO has erred in law and in facts without appreciating that the discount on ESOP offered to certain eligible employees of the Company was for the purpose of securing the consistent and concentrated efforts of employees and to compensate them for their dedication hard work and commitment and was thus incurred wholly and exclusively for the purpose of business of the Appellant. 1.5. The learned AO has erred, in law and in facts, in not appreciating the principles laid down by the Hon'ble Bangalore ITAT in the case of Novo Nordisk India (P.) Ltd. (2014) 63 SOT 242 which is squarely applicable to the case of the Appellant. 2. Refund of excess tax paid on distribution of dividend of Rs. 14,71,87,100 2.1. The learned AO has erred, in law and in facts, by not appreciating the fact that the dividend paid/ distributed by Appellant to its non-resident shareholder, ought to have been restricted to the rate prescribed under the India-Germany Double Taxation Avoidance Agreement ( DTAA ). 2.2. Based on facts and the circumstances of the case and in law, the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;SAP India' or 'Company' or the 'Appellant'), respectfully craves leave to prefer an appeal against the appeal order passed by the DC/ACIT Circle 6(1)(1), BLR [hereinafter referred to as the learned AO'] under section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 ('Act') pursuant to the Directions issued by the Dispute Resolution Panel (Hon'ble DRP') under section 144C(5) of the Act on the following grounds: On the facts and circumstances of the case and in law, the leaned AO has erred on the following: 1. Disallowance of ESOP expenses of Rs. 35,40,00,000 1.1. The learned AO has erred, in law and in facts, in contending that ESOP expenditure are capital in nature and accordingly not allowable under section 37 of the Act, ignoring the fact that said expenses has been incurred wholly and exclusively for the purpose of the business of the Appellant. 1.2. The learned AO has erred in law and in facts in disallowing the ESOP expenditure on the basis that the said expenditure incurred by Appellant is notional or fictitious in nature and hence would not qualify for deduction under Section 37(1) of the Act. 1.3. The learned AO has erred in law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, Ld. AO observed that assessee claimed a deduction in the computation of income on account of ESOP cost borne by the company. Assessee furnished its reply explaining the issue of equity shares to its employees under ESOS schemes stating that ESOP cost is in the nature of discount given by the assessee to its employees on issue of shares under its ESOS scheme which is an allowable business expenditure u/s. 37 of the Act and has been incurred for appreciating and encouraging employees for their loyalty and performance towards the assessee company. 3.2. After hearing both the parties, we find that identical issue came up for consideration before the Coordinate Bench of the Tribunal in the case of Novo Nordisk India (P) Ltd. [2014] 63 SOT 242 (Bang), wherein it was held as under: In the present case, there is no dispute that the liability has accrued to the assessee during the previous year. The only question to be decided is as to whether it is the expenditure of the assessee or that of the parent company. The foreign parent company has a policy of offering ESOP to its employees to attract the best talent as its work force. In pursuance of this policy of the foreign parent company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal for AY 2017-18 is in respect of claim of refund of excess tax paid of Rs. 14,71,87,100/-on distribution of dividend by the assessee to its non-resident shareholders which according to the assessee, ought to have been restricted to the rate prescribed under the Indo-German Double Taxation Avoidance Agreement (DTAA). Assessee has claimed that it is eligible for refund of the excess Dividend Distribution Tax (DDT) paid by it. 4.1. Brief facts on this issue are that assessee has paid DDT of Rs. 28,92,93,181/-at the applicable rate of 20.36% u/s. 115-O of the Act on dividend distributed to SAP SE, Germany. Against this, assessee has claimed that it is liable to pay DDT of only Rs. 14,21,06,081/-@ 10% under the DTAA between Germany and India and thus, eligible for claim of refund of Rs. 14,71,87,100/-on the excess DDT paid. 4.2. In support of the above submissions, assessee placed reliance on the decision of Coordinate Bench, Delhi in the case of Giesecke Devrient India Pvt Ltd Vs. ACIT [2020] 120 taxmann.com 338 (Del). The correctness of the aforesaid decision has however been doubted by another Division Bench at Mumbai in the case of DCIT, Mumbai Circle 11(3)1), Mumbai Vs. Tata Oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious lease office premises on interest free refundable deposit. These refundable lease deposits are financial asset under the IND-AS. Lease deposit is required to be measured at fair value on initial recognition. The difference between the amount of deposit and its fair value is treated as prepaid lease expenses and amortized over the term of the lease. These amortized prepaid rents being notional expenses charged to the statement of Profit and Loss is disallowed in the tax computation. Further, interest income on lease deposit would accrue over the period of lease. It represents notional income arising on fair valuation of rental deposits recognised as per requirement of IND-AS and credited to the statement of Profit and Loss. No interest has actually accrued or arisen on this deposit and income is recognised on notional basis. Accordingly, since income is to be recognised on the principle of real income, the amount of Rs. 1,30,60,532/-was reduced from income from other sources to arrive at the total income under the provisions of the Act. 6.3. Considering the above stated facts, we do not find any reason to interfere with the direction given by the Ld. DRP to the ld. AO to reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he EUR LIBOR prevalent during the financial year 2017-18 relevant to AY 2018-19 should be considered for benchmarking to determine arm s length rate of interest to be charged on the impugned transactions. 11. Per contra, Ld. CIT DR submitted that deferred receivables constitute a separate international transaction which has to be benchmarked in regard to delay beyond the reasonable credit period as per the TP regulations and the issue is no longer res integra, in the light of decision of the Hon ble jurisdictional High Court of Karnataka in the case of DCIT v. AMD India Pvt. Ltd. in ITA No. 274/2018 dated 31.08.2018 [TS-993-HC-2018-Kar-TP] wherein it is held that the transaction of extending extra credit period would constitute an independent international transaction. He placed reliance on the order of Ld. DRP who has elaborately dealt with the two issues raised by the assessee by citing all the relevant judicial precedents. 12. We have heard the rival contentions and perused the material on record. The present issue before us relating to whether or not the interest on receivables is a separate international transaction and the rate of interest to be considered therein has been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [2016] 66 taxman.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 transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 23.4. On the contrary Ld. CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and ALP of such international transaction has to be determined by Ld. TPO. Insofar as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing-up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol.-Trib.), held that outstanding sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 PCIT v. AMD (India) Pl. Ltd., ITA No. 274/2018 dated 31.8.2018. 37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly 13. The above decision has taken in to account several judicial precedents including that of the Hon ble Jurisdictional High Court of Karnataka in the case of AMD India Pvt. Ltd. (supra) which carries the force of binding nature as well as the amendment to section 92B by Finance Act, 2012 with retr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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