TMI Blog2022 (8) TMI 1449X X X X Extracts X X X X X X X X Extracts X X X X ..... nces Private Limited [ 2022 (2) TMI 1402 - ITAT BANGALORE] pertains to the different financial year. Moreover, during the course of the TP assessment, the assessee has pressed for mark up of 300 to 400 basis points over and above the LIBOR rate and the same cannot be brought down to 200 basis points merely on the basis of the strength of ruling given in different case considering the facts of that case. Given the variability of interest rate on a time-to-time basis, we direct the TPO to determine the appropriate mark up to be charged over and above the LIBOR rate. Interest has been imputed for the entire year on the receivables instead of the remaining delayed beyond six months - We find merit in the submission of the learned DR that the period mentioned in the agreement between the assessee and AE should not be considered for the purpose of benchmarking and even to determine whether trade receivable constitutes an international transaction. The very purpose of undertaking benchmarking exercise is to compare the tainted transaction, i.e., the transaction between two related parties/AEs, with that of transactions that are carried on by independent parties on arm s length basis. If w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter, the issue of exclusion of Excel Infoways Limited is restored to the files of the TPO. The TPO is directed to examine the contentions raised, which mentioned supra, and shall verify whether Excel Infoways Limited satisfies the employees cost filter. Negative Working Capital Adjustment - assessee is a captive service provider, which is entirely funded by the AE and it does not have any borrowings - HELD THAT:- The nature of the assessee, its arrangement with its AE and financial particulars to allow the relief on the basis of which the above rulings have been rendered, are not forthcoming from the documents available on records. There is no whisper in the orders of the lower authorities with respect to these factual aspects. As the issue requires examination of various facts, we direct the AO/TPO to consider the same in the light of the jurisdictional rulings on negative working capital adjustment in the case of captive service providers and allow the relief to the assessee. Accordingly, ground 9.5 is allowed for statistical purposes. - SHRI GEORGE GEORGE K, JM SHRI LAXMI PRASAD SAHU, AM For the Appellant : Sri. Vishal Kalra, CA For the Respondent : Sri. Harishchandra Naik, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 14 grounds. The assessee had also filed two additional grounds vide its applications dated 30.01.2019 and 17.03.2021. However, the additional grounds were not argued during the course of hearing. Grounds 1, 2 and 10 to 14 were not pressed. Grounds 3 to 5 regarding re- characterization of receivables as loan was not argued by the learned AR. The surviving grounds, namely, grounds 6 to 9, reads as follows:- 6. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in arbitrarily adopting a notional rate @ 14.47% for imputing the interest, which is excessive and unreasonable. 6.1 That on the facts and circumstances of the case and in law, the AO/DRP have erred in applying the notional interest rate @ 14,47% using the information obtained under section 133(6) of the Act, from CRISIL without sharing or providing any opportunity to the Appellant to rebut I cross examine the information used to benchmark the alleged international transaction. 6.2 Without prejudice, the AO/DRP/TPO have erred in not appreciating that the alleged international transaction should have been benchmarked using LIBOR rate, as trade receivables were USD denominated. 7. Without pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2013- 2014) amounting to Rs. 28,67,11,130 and alleging delay in receipt of the same had re-characterized it as an international transaction of loan. The TPO in this regard held hat CUP is being applied and therefore interest that would be charged by an unrelated party for lending a loan in open market is being applied. To consider the aforesaid rate government bonds credited with BBB rating by CRISIL were considered and the return on those bonds at 14.47% was applied by the TPO on the alleged delayed receivables. For computing the delayed receivables, the TPO applied the interest for a period of one year. The DRP confirmed the view taken by the TPO. 7. Aggrieved, the assessee has raised this issue before the ITAT. Before the Tribunal, the limited submission of the learned AR is that LIBOR rate should be applied in computation of interest against SBI PLI rate. Further, it was submitted that it would be appropriate to take interest rate of LIBOR+2%. In this regard, the learned AR placed reliance on the order of the jurisdictional Bench of the Tribunal in the case Bioplus Life Sciences Private Limited v. DCIT in ITA No.3150/Bang/2018 (order dated 23.02.2022). Further, it was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99 CCH 0070 (mum HC). It is ordered accordingly. 6.4 In view of the above co-ordinate bench order of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra), we direct the A.O. to calculate the interest rate on outstanding receivable from AE by adopting LIBOR + 2%. It is ordered accordingly. 6.5 In the result, ground No. 6(d) is allowed. 10. In view of the above coordinate Bench order, adoption of LIBOR plus appropriate markup is considered appropriate benchmark for international transaction of USD-denominated trade receivables as against the use of the rate of interest prevalent in India. With respect to the mark-up that has been charged over and above LIBOR, it is well accepted that such arbitrary numbers cannot be adopted without it being backed by a benchmarking exercise, which is a mandate of the law. However, the ruling in the case of M/s. Bioplus Life Sciences Private Limited v. DCIT (supra) pertains to the different financial year. Moreover, during the course of the TP assessment, the assessee has pressed for mark up of 300 to 400 basis points over and above the LIBOR rate (para 13.5 of the TP order) and the same cannot be brought down to 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit period till the date of its realization or the financial year end, whichever is later. It is ordered accordingly. Therefore, the issue raised in grounds 7 and 8 are also allowed for statistical purposes. Transfer pricing adjustment relating to ITES segment (Grounds 9.1 to 9.4) 9. The comparison of the TP study of the assessee and that of the computation of ALP and the adjustment made by the TPO are as under:- Particulars As per assessee As per TPO Methodology TNMM Sales (refer A/R at 296 of PB, TP study at pg.257 of PB) 79,35,97,751 79,35,97,751 Add : Exchange gain 8,69,03,616 8,69,03,616 Operating Revenue (INR) 88,05,01,367 88,05,01,367 Personal cost 47,62,39,234 47,62,39,234 Transcription outsourcing expenses 10,09,35,537 10,09,35,537 Transcription outsourcing for prior period -- 8,32,459 Other operating expenses 7,45,76,095 7,45,76,095 Depreciation 1,10,08,779 1,10,08,779 Operating Cost 66,27,59,645 66,35,92,104 Operating Profit (INR) 21,77,41,722 21,69,09,263 Margin considered (OP/OC) 32.85% 32.69% ALP as per TPO order after DRP (refer pg 3 of PB) 33.08% Working capital adjustment -7.86 ALP after working capital adjustment 40.94% TP adjustment (INR) 5,47,65,344 5 percent r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited v. ITO (supra) has directed exclusion of this comparable for the assessment year in question. The relevant finding of the Tribunal in the case of M/s.Fulcrum Fund Services (India) Private Limited v. ITO (supra) reads as follows:- 7.3.1. The sum and substance of the conclusion of the ITAT in the passage quoted above is that the decision rendered by the Tribunal in the case of Genesis Integrated Systems (I) P. Ltd. (2012) [53 SOT 159] lays down the correct law on the application of turnover filter and that decision has to be followed. In the decision rendered in the case of Genesis Integrates Systems (I) Pvt. Ltd., it has been held that companies with turnover of above Rs. 200 crores cannot be compared with companies with turnover of less than Rs. 200 Crores. In view of the aforesaid decision of the Tribunal, we hold that the CIT(A) erred in not accepting the claim of assessee for excluding of companies, whose turnovers were more than Rs. 200 Crores and those companies remain un-comparable with assessee, because assessee s turnover was only Rs. 27.61 Crores. The 02 companies which would stand excluded by the application of turnover filter from the set of 10 set of companies c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as comparable. It is ordered accordingly. Excel Infoways Limited (Segment) 20. The TPO held that Excel Infoways Limited (EIL) is engaged in providing voice based services, customer services which include outbound sales, marketing, voice, email response, real time chat, knowledge management and other value added services. Hence, it is comparable. The employee cost of the ITES segment is 26% and therefore it passes the employee cost filter. The DRP upheld the view taken by the TPO. 21. Aggrieved, the assessee has raised the issue before the Tribunal. The learned AR submitted that the total employee cost of EIL is Rs. 202,15,300 as against the total turnover of Rs. 15,49,21,000. Thus, the employee cost ratio is 13%. It is further submitted that the TPO has considered only ITES segment with turnover of Rs. 7,90,96,950. However, while computing the employee cost ratio of the segment, he has allocated the entire employee cost to the ITES segment with no allocation of Infra Activity segment which accounts to 49 per cent of EIL s total revenue on the basis of information obtained u/s 133(6) of the Act. It was stated that it is highly impractical that no employee has been hired by EIL for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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