2018 (2) TMI 1151 - ITAT DELHI

Transfer pricing adjustment - international transaction of ‘Provision of ITES ’- aggregation of both the SDS and ITES and treating the assessee as an ITES provider for the purposes of choosing comparables and benchmarking - Held that:- The assessee did not have any authenticated figures of revenue and costs in respect of ITES and SDS separately. Once the position is such that neither the revenue from two segments can be ascertained nor its costs, we fail to appreciate as to how the benchmarking can be done for two separate transactions of ITES and SDS in a separate manner. Ergo, we approve the action of the authorities below in aggregating the ITES and SDS segments for the purpose of benchmarking.

Selection of the comparables - selecting companies rendering only ITES renders the comparison incompatible due to the basic functional difference, thereby vitiating the entire exercise of benchmarking. What is required to be done is to select companies rendering both ITES and SDS. As this exercise can be properly done at the end of the TPO, we set aside the impugned order on this score and remit the matter to the file of TPO/Assessing Officer for determining the ALP of the assessee’s combined international transaction of ‘Provision of ITES and SDS’ afresh by considering such companies as comparable which are rendering both ITES and SDS. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such proceedings.

Transfer pricing adjustment in the international transaction of ‘Interest on receivables' - It is seen that the assessee reported an international transaction of ‘Interest on receivables’ amounting to ₹ 49,18,007/-. It is further discernible from the Agreement that no credit period has been prescribed for realization of invoices. On a specific query, it was admitted that there were no trade transactions with non AEs. In such a scenario, it is difficult to make any comparative analysis of the time allowed for realization by the assessee to AEs vis-à-vis non-AEs.

Applying the decision in Kusum Health Care (2017 (4) TMI 1254 - DELHI HIGH COURT), 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. In view of the above decision in Avenue Asia Advisors (2017 (9) TMI 1295 - DELHI HIGH COURT), we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in conformity with the above referred judgment