TMI Blog2022 (3) TMI 1513X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of being heard is to be granted to assessee. Interest on receivables - As the Ld. Counsel has considered for the rate on receivables to be applied at LIBOR + 2%, respectfully following the view taken by the Coordinate Bench in case of Swiss Re Global Business Solutions India Pvt. Ltd. [ 2022 (1) TMI 1275 - ITAT BANGALORE ] we direct the Ld.AO/TPO to compute the ALP of the transaction accordingly. - IT(TP)A No. 2499/Bang/2017 - - - Dated:- 21-3-2022 - SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER For the Assessee : Shri T. Suryanarayan, Advocate For the Revenue : Dr. Manjunath Karkihalli, CIT-DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal filed by assessee against the final assessment order dated 26.09.2017 for A.Y. 2013-14 by Ld.DCIT, Circle 7(1)(1), Bangalore on following grounds of appeal: Based on the facts and circumstances of the case and in law. Talisma Corporation Private Limited (hereinafter referred to as Appellant ), respectfully craves leave to prefer an appeal against the appeal order passed by the learned Assessing Officer [hereinafter referred to as the learned A0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting year other than March 31 or companies whose financial statements were for a period other than 12 months): c. by rejecting certain comparable companies identified by the Appellant using employee cost greater than 25% of the total revenues as a comparability criterion. d. by rejecting companies having IT income less than 75% of total operating revenue as a comparability criterion; e. by applying only the lower turnover filter of less than I NR 1 crore as a comparability criterion and not applying an appropriate upper turnover filter: f. by exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes: g. in selecting companies which are functionally not comparable to the Appellant: h. in rejecting certain companies which are functionally comparable to the Appellant based on unreasonable comparable criteria; 9. The learned has AO erred, in law and in facts, in initiating penalty proceedings u/s 271(1)(c) of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues for similar reasons has been remanded by Coordinate Bench of this Tribunal for A.Y. 2012-13 in IT(TP)A No. 458/Bang/2017 by order dated 15.02.2022 in order to appreciate the functions performed by assessee in right perspective. The Ld.CIT DR did not particularly object to the issue being remanded for de novo verification. We have perused the submissions advanced by both sides in the light of records placed before us. 6. Admittedly, for both the years under consideration, assessee has been noted to be manufacturer of software product. It is an admitted fact that assessee owns the development of IP of software product being CRM software. Assessee entered into agreement with its AE for being an exclusive distributor for its software product in North America, for which the AE shall pay to assessee a licence fee equal to 30% of gross revenue. This receipt by assessee has been shown as royalty income by assessee. Apart from this, the assessee sells this software directly to third party customers in Asia-pacific region. It is noted that assessee also provides software support services for the CRM software product sold to both AE as well as non-AE. Thus the segments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the Appellant's international transaction is not at arm's length; 3. The learned AO/ TPO erred, in law and facts, in not accepting Other Method as the most appropriate method for benchmarking the payment of royalty transaction; 4. The learned AO/ TPO erred, in law and facts, in not accepting Transactional Net Margin Method ('TNMM') as the most appropriate method for benchmarking the payment of royalty transaction; 5. The learned AO/ TPO erred, in law and in facts, in the rejection of the external comparable uncontrolled transaction ('CUT') search conducted for benchmarking the payment of royalty transaction; 6. The learned AO / TPO erred, in law and facts, has failed to understand the business model of the Appellant and accordingly, erred in considering the Appellant as a distributor of software product; 7. The learned AO / TPO erred, in law and facts, in considering the entire Non-AE sale of Appellant's AE's product, instead of sale of effected by way of payments of royalty; 8. Without prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly connected with the main issue of disallowance and no new facts needs to be investigated for adjudicating the same. 9.1 Considering the submissions and respectfully following the decisions of Hon ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Accordingly, we admit the additional grounds raised by assessee. The Ld.CIT.DR submitted that this issue needs to be verified in detail. The Ld. Counsel submitted that outstanding receivables are only in respect of the provision of software development services by the assessee, and therefore the determination of ALP is not warranted, as the same is subsumed in the ALP of the transaction. The Ld. Counsel submitted that the Ld.TPO considered the interest chargeable at 1.5% p.m. by applying the internal CUP method as per the agreement with the non-AE. He thus comuted the adjustment on receivables at Rs. 95,80,429/-. The Ld. Counsel placed reliance on the order passed by the Coordinate Bench in case of Swiss Re Global Business Solutions India Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. He stated that Finance Act, 2012 inserted Explanation to section 92B, with retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'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 of invoices is akin to loan advanced by ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. The Ld. Counsel agreed for the interest on receivables to be computed at LIBOR rate + 2%. He also admitted that the transaction has to be treated as an independent international transaction and deserved to be bench marked. Accordingly, the Ld.CIT.DR placed reliance on orders passed by authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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