TMI Blog2022 (7) TMI 1355X X X X Extracts X X X X X X X X Extracts X X X X ..... MI 1295 - DELHI HIGH COURT] - Following the earlier decision in Kusum Healthcare [ 2017 (4) TMI 1254 - DELHI HIGH COURT] it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra),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. We deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law. Set off of brought forward business losses and unabsorbed depreciation, set off of MAT credit, and non-granting of foreign tax credit - HELD THAT:- We direct the Ld.AO to consider the above claim in accordance with law. The assessee is directed to furnish relevant information / de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase for AY 2010-11 in IT(TP)A No. 373/Bang/2015 dated March 18, 2016. and erroneously relying on rulings incongruous to the facts of the case. 4. Determination of arm's length price by the Ld. TPO 4.1. The Ld. AO/ Ld. TPO grossly erred in law in deviating from the uncontrolled party transaction definition as per Rule 10A of the Income-tax Rules, 1962 and arbitrarily applying a 25% related-party criteria in accepting/ rejecting comparables. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 4.2. The Ld. AO/ Ld. TPO erred on facts by inconsistently applying the functional comparability parameter and in selecting Thirdware Solutions Limited as comparable, which is engaged in diversified activities. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 4.3. The Ld. AO/ Ld. TPO erred on facts by selecting Persistent Systems Limited (Persistent') as a comparable, although: a) Persistent is engaged in Outsourced Product Development activities; and b) Persistent achieved inorganic growth through acquisition of other companies. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 4.4. The Ld. AO/ Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating this ground of objection raised by the Appellant before it. 7.2. The Ld. AO has erred in levying interest of INR 4,89.54.345 under section 234B of the Act. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it. 8. Erroneous non-set-off of brought forward business losses and unabsorbed depreciation 8.1. The Ld. AO has erred in not setting-off brought forward business losses and unabsorbed depreciation pertaining to AY 2008-09. 9. Erroneous non-set-off of MAT credit entitlement 9.1. The Ld. AO has erred in law in not setting-off MAT credit entitlement pertaining to earlier AYs. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it. 10. Erroneous non-grant of Foreign Tax Credit 10.1. The Ld. AO has erred in law in not granting Foreign Tax Credit. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it. 11. Initiation of penalty proceedings under section 271(1)(c) of the Act 11.1. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of following 6 companies and issued show cause notice to assessee. 2.5 The Ld.TPO after deliberation with the assessee in respect of the comparables selected, finalised following set of 5 comparables with average margin of 32.87% and 24.19% for the SWD service segment and Marketing and Allied Service Segment, respectively. 2.6 The Ld.TPO proposed adjustment of Rs.41,53,84,810/- and Rs.29,73,40,648/- as shortfall in respect of SWD segment and Marking and Allied Service segment respectively. The Ld.TPO thereafter observed that, the assessee had not benchmarked the receivables with delay. The Ld.TPO after referring to various propositions computed interest on delayed receivables as under: 2.7 The Ld.TPO used weighted average method by adopting LIBOR of six months + 400 basis points. The Ld.TPO computed the proposed adjustment under 3 heads as follows: 2.8 On receipt of the order u/s. 92CA, the Ld.AO passed draft assessment order by making further additions in the hands of the assessee that are as follows: Addition u/s. 40(a)(ia) at Rs. 3,15,97,095/- 2.9 On receipt of the draft assessment order dated 26/12/2017, assessee filed objections before the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in Subex America's INC amounting to Rs. 774.95 Crores appears in schedule 'G' to the financial statements. Assessee has recognized un- realised foreign exchange fluctuation gain amounting to Rs. 91.88 Crores on restatement of FCCBs and credited the same to its P L A/c. However, restatement gain being related to investment in Subex America was not offered to tax in the return of income. AO has not allowed the exclusion from the computation of income. The DRP it seems allowed the said income to be operational income while considering the TP adjustments. Assessee has not questioned the above order of the DRP in TP matter. However, as far as the issue whether un-realized foreign exchange gain on FCCBs should be treated as 'income' or not has been concluded in favour of assessee by the orders of Co-ordinate Bench in ITA No. 689/Bang/2014 dt. 19-06-2015, wherein it was held as under: 37. The last issue that arises for consideration is as to whether unrealised foreign exchange gain should be treated as Income or not? 38. The stand of the Assessee in this regard was that the gain is on capital account and cannot be regarded as income. The Assessee also po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination in this batch of civil appeals is : whether the assessee was entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance sheet date pending actual payment of the varied liability. In this batch of civil appeals, we are concerned with increase in the existing liability on account of foreign exchange fluctuations on capital account . 40. After considering the provisions of Sec.43A of the Act, the Hon'ble Supreme Court held that Sec. 43A(1) applies where as a result of change in rate of exchange there is an increase or reduction in the liability of the assessee in terms of Indian rupees to pay the price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for the purpose of acquiring the asset. 43A(1) has no application unless the asset is acquired and the liability existed, before the change in the rate of exchange takes effect. Increase or decrease in liability for repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be on capital account and not taxable. We accordingly hold in favour of the Assessee on this issue . Respectfully following the same, we direct the AO to treat the above amount as on capital accout, to be adjusted in capital accounts. However, if any benefit was obtained by assessee in the TP provisions by treating this amount as operational income, we direct the AO/TPO to examine the working again, so as to exclude the amount from the computation and if any adjustment is required. Assessee cannot take advantage of its own stand to the detriment of Revenue in TP provisions. There should be a constant approach. Treatment of this gain as operational income does not arise as the same was not treated as income, therefore any computation based on that has to be reexamined. This issue can be considered by the TPO afresh and if IT(TP)A Nos.373 374/Bang/2015 necessary, necessary proceedings can be initiated under the TP provisions as a direction by the Bench. With these directions, these grounds are allowed. 9. We direct the Ld.AO to verify the claim of assessee that the gain has not been claimed in the computation of income and forms part of computing the margin as per transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Explanation provides that: (i) the expression international transaction shall include- (c) capital financing, including any type of long-term or shortterm borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;.... . 10.4 Ld.CIT.DR submitted that expression debt arising during the course of business refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables as loans and advances to associated enterprise would amount to double taxation. Hon ble Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 has observed that: There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis- -vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was obse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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