TMI Blog2022 (7) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... t made towards administrative support services to Cisco Systems India Pvt. Ltd. as an international transaction u/s 92B - HELD THAT:- Similar issue came for consideration before this Tribunal in assessee s own case for the assessment year 2016-17 [ 2021 (11) TMI 1155 - ITAT BANGALORE] as hold that the issue of administrative and marketing support services is part of the operating cost and no separate adjustment is warranted. These grounds of assessee are partly allowed for statistical purposes. Interest on outstanding receivables - TPO has concluded that the receivable transaction should be treated as a separate international transaction and given the delay in receipt of receivables from AE s - TP order, passed and adopted SBI PLR rate of 14% as computed interest on delayed receivables - HELD THAT:- Similar issue came for consideration before this Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd [ 2022 (1) TMI 1275 - ITAT BANGALORE] , thus we direct the AO to consider the interest rate in terms of LIBOR and it would be appropriate to take the applicable rate of LIBOR + 2% and directed accordingly. - IT(TP)A No. 321/Bang/2022 - - - Dated:- 21-7-2022 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax, Transfer Pricing Officer 1(1)(2) (hereinafter referred to as the 'learned TPO') for determining the arm's length price (ALP') of the international transaction entered into by the Appellant during the FY 2016-17. 2.2 The learned AO and learned TPO had proposed certain corporate tax and transfer pricing adjustments to the returned income of the Appellant which were incorporated in the draft assessment order dated April 26, 2021, which are as follows! a) Disallowance of depreciation claimed by the Appellant on assets leased out under finance lease arrangement amounting to INR 232,42,69.223; b) Transfer pricing adjustment made by learned TPO pertaining to administrative support services amounting to INR 11,72,93,944; c) Transfer pricing adjustment pertaining to interest on delayed receivables amounting to Rs. 1,79,24,794/- 2.3 Aggrieved by the draft order the Appellant filed objection before the Dispute Resolution Panel-1, Bangalore (`DRP') on July 20, 2021. In line with Hon'ble DRP's directions dated January 27, 2022, the learned TPO in its scrutiny report dated February 21, 2022 has recomputed the interest on delayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 263 of the Act. The Tribunal quashed the proceedings under section 263 on the ground that the AO had applied his mind and had examined the issue on allowability of depreciation on assets given on financial lease in detail. Aggrieved, the department had filed appeal before Hon'ble Karnataka High Court in ITA No.29/2019 dated 18 June 2021, which has upheld the order of ITAT in relation to quashing 263 proceedings initiated by learned CIT. While doing so, the Hon'ble High Court not only held that action of CIT was not proper but also examined the matter on the merits including examining terms of financial lease agreements and comparing it lease agreements in case of ICDS etc. and held that even on the facts and merits of the case, Assessee is entitled for depreciation on financial lease assets. After examining the terms of financial lease with facts in case of Apex court in case of ICDS (Supra) and Hon'ble Karnataka High Court in case of Hewlett Packard India Sales Pvt Ltd (ITA No.142/2013) dated 30 November 2020, it was held that since terms of arrangement entered into by assessee are similar to facts of case of ICDS (Supra) and Hewlett Packard (Supra), the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of ICDS Ltd. (supra) and if there are no material variations in the contracts, then depreciation has to be granted to the assessee as claimed. 10 Pursuant to the order of the Tribunal case for AY 2011-12 and AY 2013-14, the AO has passed the order giving effect for AY 2011-12 recently on September 13, 2021 wherein the AO has examined the agreements signed by assessee with the lessees and recorded the findings that the facts in assessee s case are also similar to facts in case of ICDS Ltd (supra). The AO has held that the assessee has also sold the assets given under finance lease arrangement to the Lessees at the end of the lease term which reinforces that the ownership of the assets under finance lease arrangement lies with the Lessor, i.e., the assessee and hence, assessee only is eligible to claim depreciation on assets given under finance lease arrangement. 11. Further, the ld. AR submitted that that following the decisions for AY 201112 and AY 2013-14, the Bangalore Tribunal in relation to the aforesaid issue for AY 2012-13, AY 2014-15 and AY 2015-16 as well, has remanded the matter back to the file of the AO with similar directions as provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of those agreements which the AO may call for. The AO shall examine these agreements and if the terms conditions mentioned in these agreements are similar to the terms and conditions mentioned in the agreements considered by the Hon ble Supreme Court in the case of ICDS Ltd. (supra) and if there are no material variations in the contracts, then depreciation has to be granted to the assessee as claimed. With these observations, we set aside this issue to the file of AO for fresh adjudication in accordance with the law. 14. Respectfully following the above order of the Tribunal, we are inclined to remit the issue to the file of Assessing Officer for fresh decision with similar directions. 3.3 The Ld. A.R. further submitted that Ld. DRP recently in assessee s own case in assessment year 2018-19 wherein placing reliance on the judgement of Hon ble Karnataka High Court has allowed the depreciation on assets leased under Finance lease arrangement. In our opinion, the facts of the present assessment year is similar to assessment year 2016-17 and it is appropriate to remit the issue to the file of AO for fresh consideration on similar direction. 4. Ground Nos.4 5 6 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and the same cannot be treated as an international transaction under section 92B of the Act. Alleging that Appellant has an arrangement with Cisco India and Cisco Systems International BV ( CSI BV ) whereby Appellant has rendered marketing, sales and administrative support services to CSI BV The learned TPO/AO has erred in law and fact by ignoring the fact that the appellant has not rendered any service to CSI BV. 10. The learned TPO/AO has erred in law and fact by alleging a hypothetical international transaction under section 92B of the Act, wherein marketing, sales and administrative support services (which was in the nature of outsourcing of services to Cisco India or deputation services by Cisco India to Cisco Capital) are allegedly rendered by Cisco Capital and re-characterizing the payment made for these services to Cisco India as a transaction entered into pursuant to an understanding/ arrangement between Cisco Capital. Cisco India and CSI BV. 11. The learned TPO/AO has erred in law and fact by ignoring that in absence of an arrangement/ understanding between Cisco Capital, Cisco India and CSI BV, the adjustment is outside the purview of the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts. in erroneously computing the operating margins of certain comparables. 6. The crux of the above grounds are that TPO has made an adjustment alleging payment made towards administrative support services to Cisco Systems India Pvt. Ltd. as an international transaction u/s 92B of the Act. Similar issue came for consideration before this Tribunal in assessee s own case for the assessment year 2016-17 in IT(TP)A No.309/Bang/2021 dated 8.11.2021 held as under:- 18. By ground No.9, the assessee grievance is bundled approach for benchmarking should be accepted. At the outset, the ld. AR submitted that the TPO has accepted the bundled approach of aggregation of payment of fees for administrative support services in the preceding years (i.e. from the incorporation year to AY 2015-16). Also, the Tribunal in its order passed for the AY 2015-16 dated April 8, 2021 has accepted the bundled transaction approach adopted by the Assessee. There has been no change in the functions, assets and risk analysis in the current year vis-a-vis preceding years. In this context, the Assessee submits that the rejection of the consistent approach adopted by the Assessee which has been accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, we hold that payment of administrative and marketing support services is part of the operating cost, no separate adjustment is warranted. This ground of the assessee is partly allowed. 22. In the result, the appeal of the assessee is partly allowed for statistical purposes. 7. In view of the above order of the Tribunal, we hold that the issue of administrative and marketing support services is part of the operating cost and no separate adjustment is warranted. These grounds of assessee are partly allowed for statistical purposes. 8. Ground Nos.18 19 of the appeal of the assessee are reproduced as under:- C. Grounds of appeal in relation to interest on outstanding receivables 18. Without prejudice, the learned TPO/ AO has erred. in law and on facts, by determining a transfer pricing adjustment on account of interest on outstanding receivables, not appreciating the fact that such receivables are arising from rebates and discounts offered by CSI BV and should not be tested separately or re-characterized as a loan transaction. 19. Without prejudice, the learned TPO/ AO has erred, in law and on facts, by using the SBI Short term deposit interest rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es beyond such stipulated period is a separate international transaction. Allowinq working capital adjustment in the international transaction of rendering of services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs beyond the stipulated period allowed as per agreement. In the case of Mckinsey Knowledge Centre Pvt. Ltd. (supra), again, the Tribunal reiterated this reasoning and, inter alia, observed that: ....... In our considered opinion, whereas, the international transaction of purchase/sale of goods from/to AE contemplates comparison of the price charged/paid for such goods by impliedly including the interest for the period allowed for realization of invoices as per the terms of the agreement, the international transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the international transaction of purchase/sale of goods. 20. The Tribunal also explained that if an invoice is raised during the year and the proceeds are realized within the year, but, beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable for year under consideration that worked out to 3.3758% on receivables that exceeded 30 days. It has been argued by Ld.AR that authorities below disregarded business/commercial arrangement between the assessee and its AE's, by holding outstanding receivables to be an independent international transaction. 23.2. Ld.AR placed reliance on decision of Delhi Tribunal in Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT v. Kusum Health Care (P.) Ltd. [2018] 99 taxmann.com 431/[2017] 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. He also placed reliance upon decision of Delhi Tribunal in case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxman.com 6 which subsequently upheld by Hon'ble Delhi High Court vide order 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 transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Delhi Bench in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.), which dealt with question of law: (c) 'Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises? 23.6. Ld.CIT.DR submitted that, while answering above question, Hon'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, Hon'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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier decision in Kusum Healthcare (supra), 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), 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 characterised as international transactions. 23.9. In view of the above, 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. 36. Accordingly, we are of the opinion that 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
