TMI Blog2022 (7) TMI 1400X X X X Extracts X X X X X X X X Extracts X X X X ..... any - As relying on BORQS Software Solutions P. Ltd. case. [ 2021 (10) TMI 1351 - ITAT BANGALORE] we direct the AO to exclude the margin for AY 2015-16 of while arriving at the 3 year average profit of Infobeans Technologies Ltd. Working capital adjustment - TPO did not allow any adjustment on the working capital as upheld by DRP - In the view of the ruling in the case of M/s. Huawei Technologies India (P) Ltd.[ 2018 (10) TMI 1796 - ITAT BANGALORE] the basis of rejection of the relief by the DRP is no longer valid -We therefore direct the AO/TPO to consider the working capital adjustment in the light of the aforesaid ruling and allow appropriate adjustment in arriving at an arm s length price. TP adjustment towards interest on outstanding receivables - TPO treated the outstanding receivables from AE as in the nature of loan facility given to the AE and imputed interest @ 6 months LIBOR plus 450 basis points which works out to 4.985% - HELD THAT:- Respectfully following the decision of the coordinate Bench of the Tribunal in the case of Barracuda Networks (I) P. Ltd. [ 2022 (5) TMI 322 - ITAT BANGALORE] we hold that interest on receivables is a separate international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice [ALP] of the international transactions with Associated Enterprises [AE]. The TPO made TP adjustment in SWD segment and interest on receivables for an amount of Rs.11,50,59,080. The AO passed the draft assessment order incorporating the TP adjustment. In addition to TP adjustment, the AO also made a disallowance of depreciation on goodwill claimed by the assessee. The assessee filed objections before the DRP. 4. The DRP confirmed the TP adjustment and the addition towards depreciation on goodwill. The DRP s directions with respect to interest on delayed receivables resulted in an increase of TP adjustment by Rs.34,35,189. Consequently, the AO passed the final assessment order against which the assessee is in appeal before the Tribunal. TP adjustment in SWD segment 5. During the year under consideration, the assessee has entered into the following international transactions with its AE:- International transaction Value(INR) Billing (Revenue) 1,02,94,57,156/- Direct Salary other Cost 64,09,05,083/- Business SG A other cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,13,77,27,649 Price received OR 1,02,94,57,156 Shortfall being adjustment ALP-OR 10,82,70,493 9. The TPO while arriving at the above TP adjustment did not consider the working capital adjustment. 10. Aggrieved, the assessee filed its objections before the DRP contending that the turnover filter should have an upper limit and the same is not applied by the TPO. The DRP rejected the contention of the assessee stating that there is no correlation between the profit margins and the turnover of companies as far as service sector is concerned. 11. Before us the ld. AR reiterated the submissions made before the lower authorities and also drew our attention to the decision of the coordinate Bench of the Tribunal in the case of BORQS Software Solutions P. Ltd. v. ITO in IT(TP)A No.310/Bang/2021 by order dated 25.10.2021 for AY 2016-17 in this regard. This Tribunal in the case of ON Semiconductor Technology India P. Ltd. in IT(TP)A No.291/Bang/2021 dated 21.72.2022 following the decision of BORQS Software Solutions P. Ltd. (supra) has held as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be taken for working out the average profit margins of this company which is to be included in the dataset. 14. Following the above decision of the Tribunal, we hold that the margin of Inteq Software Ltd. for AY 2014-15 should not be considered and therefore direct to exclude this company from the comparables. 15. The next issue raised is with regard to exclusion of Infobeans Technologies Ltd. on the basis that it is functionally not comparable for AY 2015-16 and therefore the margin of that year should be exclude while computing the average margin of that company. The ld. AR placed reliance on the decision of BORQS Software Solutions P. Ltd. (supra) wherein it was held that 28. The above conclusions of the DRP have not been countered by the Assessee and by merely relying on findings in earlier AY that this company was held to be not a comparable company, the Assessee cannot seek exclusion of this company from the list of comparable companies. The only direction that the Assessee can get is that the margins for AY 2015-16 in which year this company was regarded as not comparable have to be ignored in arriving at the average of three years profit margin of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mations, estimations and assumptions may not lead to reliable results. 16. The CIT (A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT (A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hatsoever has been pointed out in these working by the CIT (A). We may also further add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT (A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT (A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: (3) An uncontrolled transaction shall be comparable to an international transaction if (i) none of the differences, if any, between the transactions being compared, or between the enterprises en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He brought to our attention the fact that in the case of the assessee the payable amount outstanding to AE is more than the receivable and this fact has not been considered by the TPO while computing the interest adjustment. He therefore submitted that no adjustment towards interest on receivables is warranted. Reliance was placed on the decision of the Delhi Bench of the Tribunal in Bechtel India P. Ltd. in ITA No.1478/Del/2015 which was confirmed by the Delhi High Court and the SLP before the Supreme Court was dismissed. Therefore, the principle laid down by the Delhi Tribunal with regard to interest on receivables has reached finality. 23. We have considered the rival submissions and perused the material on record. We notice that in the case of Bechtel India P. Ltd. (supra), the Delhi Tribunal has held that if the assessee is a debt free company, it is not justifiable to presume that borrowed funds have been utilized to pass on the facility to its AEs. In the present case, the ld. AR submits that the assessee is a debt free company. We also notice that the coordinate Bench of this in Barracuda Networks India Pvt. Ltd. in IT(TP)A No.229/Bang/2021 has held that 41. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble High Court noticed that an amendment to section 92B has been carried out by the Finance Act, 2012 with retrospective effect from 1-4-2002. Setting aside the view taken by the Tribunal, the Hon'ble High Court restored this issue to the file of the Tribunal for fresh decision in the light of the legislative amendment. In the case of BT e - Serv (India) (P.) Ltd. v. ITO [2017] 87 taxmann.com 251 (Delhi - Trib) the ITAT Delhi Bench held that undoubtedly the receivable or any other debt arising during the course of the business is included in the definition of 'capital financing' as an 'international transaction' as per explanation 2 to section 92B of the Act w.e.f. 1-4-2002 inserted by the Finance Act 2012. Therefore, even the outstanding receivable partake the character of capital financing and consequently, overdue outstanding is an international transaction . The natural corollary would be of imputing interest on such capital financing if same is not charged at arm's length. The ITAT concluded that if outstanding receivables are within the terms of agreement, then it may be argued that interest on such outstanding is already covered in the sale pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation of invoices up to 150 days was factored in the price charged for the services rendered. Annexure-1 to the TPO's order gives details of the instances of late realization or non-realization of advances up to the year ending. First three and a half pages of this Annexure indicate number of days for which there was delayed realization. Such delay ranges from 175 days to 217 days. The remaining pages disclose no realization of invoices up to 31st March, 2010. When we consider the dates of invoices in the remaining pages, it is manifested that in certain cases these invoices have been raised on 31st August, 30th or September or 31st October, 2009. In all such cases, the period of 150 days already stood expired as on 31st March, 2010 and the assessee ought to have charged interest on the delay in realizing such invoices along with the first three and a half pages in which there is an absolute and identified delay in realization of invoices beyond the stipulated period. When the interest for realization of trade advances up to 150 days is part and parcel of the price charged from the AE, then the delay up to this extent cannot give rise to a separate international transaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 92B. 13.13 In so far as the question of rate of interest is concerned, we find that this issue is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in the case of Cotton Naturals (I) (P.) Ltd. (supra), in which it has been held that it is the currency in which the loan is to be repaid which determines the rate of interest and hence the prime lending rate should not be considered for determining the interest rate. Under such circumstances, we set aside the impugned order and remit the matter to the file of TPO/AO for a fresh determination of addition on account of transfer pricing adjustment towards interest not realized from its AE on the debts arising during the course of business in line with our above observations. 44. We are of the view that the issue with regard to determination of ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reason that in the case of United Breweries Ltd. (supra), the assessee therein being the United Breweries was an amalgamating company or the transferor company who had goodwill in its books of account prior to the merger and the assessee in the present case is the transferee company who did not have any goodwill in the books of account prior to amalgamation and post amalgamation assessee acquired the goodwill. This aspect has been very well explained in the decision of Hon'ble Delhi Tribunal in the case of Aricent Technologies (Holdings) Ltd. (supra) as under : 60. The DR further emphasized that if the 6th proviso to section 32 (i) is considered the depreciation under this provision is to be restricted to the amount considering that amalgamation has not taken place and since in the hands of the amalgamating companies the depreciation on goodwill would have been zero there cannot be deprecation in the hand of the amalgamated company. In support reliance was placed on the decision of the coordinate bench of the Tribunal Bangalore in ITA No. 722, 801 and 1065/Bang/2014. Once again the DR is not appreciating the facts of the case in hand in their true perspective. It has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amalgamating company amounted to goodwill for which the depreciation was to be allowed. The Hon'ble High Court of Delhi in the case of Hindustan Coca Cola Beverages Private Limited 331 ITR 192 has upheld the findings of the Tribunal that payments made towards business acquired on slum price and a part of the price so paid was allocated to the intangible asset covered under the head goodwill. 10. Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) while considering an identical issue, held that goodwill arising on amalgamation to be a capital asset eligible for depreciation. The facts in the case of Smifs Securities Ltd. (supra) were similar to that of the present assessee. The consideration paid by the amalgamated company over and above the net assets of the amalgamating company should be considered as goodwill arising on amalgamation. 11. Based on the above, we are of the opinion that the depreciation claimed by the assessee on goodwill acquired deserves to be allowed in accordance with law. Ld.AO is directed to compute depreciation in accordance with the principles laid down in case of Smifs Securities Ltd. (supra). 29. Respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
