TMI Blog2022 (2) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... of benchmarking of interest on receivables also to the file of the Ld AO/TPO, who shall follow the decision in the case of Kusum Healthcare Private Limited [ 2015 (4) TMI 180 - ITAT DELHI ] and ensure that, if working capital adjustment has been allowed to the assessee, no further addition is required for interest on outstanding receivables. The assessee shall be provided adequate opportunity of being heard on the issue in dispute. The ground Nos. 4 to 4.4 of the appeal are accordingly allowed for statistical purposes. - ITA No.851/Del/2021 - - - Dated:- 18-11-2021 - Shri O.P. Kant, Accountant Member And Shri K.N. Chary, Judicial Member For the Appellant : Sh. Ravi Sharma, Adv. For the Respondent : Sh. Sukesh Kumar Jain, CIT(DR) ORDER PER O.P. KANT, AM: This appeal by the assessee is directed against final assessment order dated 31/03/2021 passed by the Learned Additional/Joint/Deputy/Assistant Commissioner of Income-tax/ Income Tax Officer (i.e. Learned Assessing Officer), of National E-assessment Centre, New Delhi, for assessment year 2016-17 pursuant to the direction of Learned Dispute Resolution Panel-1, New Delhi (in short the Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of additional/ revised filters, and disregarding Assessee s filters in determining the ALP for the international transactions; 3.4 disregarding and conveniently ignoring the submissions/rebuttals against the rejection reasons provided in the show cause notice on the comparables accepted by the Appellant in its TP Study, based on its surmise and conjecture without adequate supporting or evidence; 3.5 including companies having high margin / volatile operating profit margins in the final comparables set for benchmarking a low risk captive unit such as the Appellant; 3.6 including certain companies in the final set of comparables that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 3.7 excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 3.8 by committing factual /computational errors in selection/ rejection of proposed comparables and/ or in the operating profit mark-ups of the comparables; 3.9 ignoring the business/ commercial reality that the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year under consideration, the assessee was primarily engaged in providing information technology enabled network management/technical support and other back office support services (ITes) to its group company in Ireland and Contract Software Development services (CSD/IT) for downloading software application for use within Equant group/Associated Enterprises (AEs). For the year under consideration, the assessee filed return of income on 30/11/2016 declaring total income of ₹ 47,03,81,790/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short the Act ) were issued and complied with. In view of international transaction entered into by the assessee with its Associated Enterprises, the Learned Assessing Officer referred the matter for determination of arm s-length price of those transactions to the Learned transfer pricing officer (TPO). The adjustment of ₹ 25,32,78,406/- to CST (Contract Software Development) and ITes segment and ₹ 10,73,91,387/- for interest on receivables, totalling to ₹ 36,06,69,793 proposed by the learned TPO was incorporated by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature of International transaction Most appropriate method Profit level indicator Assessee s operating mark-up (OP/TC) Working capital adjusted OP/TC of comparables CSD TNMM OP/TC 15.00% 35th Percentile : 13.02% Median: 17.72% 65th Percentile:19.20% 5.2 The learned TPO rejected the search analysis of the assessee and undertook a search using the current year data and revised filters. He proposed a set of 20 comparables and determined average of operating profit/total cost at 24.12%. The learned TPO rejected the separate benchmarking for CSD and ITeS segments and he aggregated both the segments for determining the arm slength price. 5.3 Before us, the Learned counsel of the assessee submitted that Tribunal in the assessee s own case for assessment year 2013-14 has accepted that both the segments need to be benchmarked separately. The Tribunal while deciding the aforesaid appeal held that revenue department in the previous years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.9 of the appeal are accordingly allowed for statistical purposes. 6. The ground No. 4 to 4.4 relates to transfer pricing adjustment of interest on receivables. 6.1 Brief facts qua the issue in dispute are that the learned TPO classified the trade receivables outstanding beyond 60 days as unsecured loan and charged notional interest at the rate of 12.70% per annum considering the SBI base rate +300 base points. The Learned DRP also upheld the adjustment proposed by the learned TPO. 6.2 Before us, the learned counsel of the assessee submitted that issue of interest on outstanding receivables has been adjudicated by the Tribunal in assessee s own case for assessment year 2014-15 (ITA No. 6751/Del/2018) and assessment year 2015-16 (ITA No. 7364/Del/2019). The learned counsel submitted that following the decision of the Hon ble Delhi High Court in the case of PCIT Vs Kusum Healthcare Private Limited (supra), no adjustment is required, if working capital adjustment has been allowed to the assessee while determining arm s-length price of main transactions. 6.3 The Learned DR, on the other hand, relied on the order of the lower authorities. 6.4 We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by the court in CTT v. EKL Appliances Ltd. (2012) 345ITR 241 (Del). The Id. DR pointed out that the Revenue has preferred SLP before the Hon ble Supreme Court against the judgment of the Hon'bte High Court of Delhi. In our understanding, since the operation of the judgment of the Hon'ble High Court is not stayed by the Hon'ble Supreme Court, the same is binding on us and, therefore, respectfully following the decision of the coordinate bench, affirmed by the Hon ble High Court [supra] we direct the Assessing Officer/TPO to delete the addition of ₹ 1,45,27,731/-. 6.5 It is undisputed that issue in dispute is covered by the decision of the Tribunal (supra). Thus, respectfully following the same, the addition in dispute needs to be deleted. However, we find that benchmarking of the main transaction has already been restored to the file of the learned AO/TPO, therefore, we restore this issue of benchmarking of interest on receivables also to the file of the Ld AO/TPO, who shall follow the decision of the Hon ble Delhi High Court in the case of K ..... X X X X Extracts X X X X X X X X Extracts X X X X
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