TMI Blog2023 (2) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... question, be considered as an operating item for the purpose of computation of operating profit margin of such transaction. The income recognized for such scrips relates to the provision of IT enabled services, as the entitlement to such scrips arises only on account of such IT enabled services rendered by the assessee to its AEs. Accordingly, such income qualifies as a part of operating revenue for the purpose of computation of operating profit margin of the transaction pertaining to rendering of IT enabled services by the assessee. In this case it may be appropriate to consider export incentive as part of operating revenue in a TNMM analysis. - IT(TP)A No. 792/Bang/2022 - - - Dated:- 2-2-2023 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER For the Assessee : Shri Chavali Narayan, CA For the Revenue : Shri Sunil Kumar Singh, CIT-2 ORDER PER ANIKESH BANERJEE, JUDICIAL MEMBER Instant appeal is directed against the order of the Ld. DCIT, Circle 3(1)(1), Bangalore (in brevity the AO), order passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in brevity the Act) for A.Y. 2018-19 by order dated 14.07.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile determining margin of the Appellant a) Not appreciating that the export incentive is directly linked to the provision of services by the Appellant to its group company and should be considered as operating in nature while determining the operating revenue of the Appellant; Without prejudice to the above b) In case export incentive income of INR 7.74,02.570 is treated as non-operating in nature, corresponding expenditure of INR7,74.02.570 shall also be excluded from the total operating costs for computing operating margin of the Appellant Included in Ground No. 2 4. Ground against not following the directions of the Hon'ble DRP while passing the final assessment order regarding: a) inclusion of Sundaram Business Services Limited ( Sundaram ) in final list of comparables b) allowing credit period mentioned in intercompany agreement for computation of interest on AE receivables Included in Ground No. 2 5. Ground against selection of uncomparable companies Not undertaking an objective comparative analysis and inter-alia selecting certain companies as compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed PLI OP/OC i.e. after undertaking working capital adjustment to adjust for differences in receivables and payables order of the comparables selected by the appellant. After the order of the AO, the assessee has challenged the order before the ITAT for judicial consideration. 4. Ground no. 2 grounds against imputing interest on outstanding receivables due from AEs-Adjustment of Rs.95,17,882/-. The Ld. Counsel for the assessee submitted the paper book which is kept in the record. The counsel has first invited our attention that the issue is already settled by the Coordinate Bench in assessee s own case in IT(TP)A No. 290/Bang/2022 for A.Y. 2017-18 by order dated 14.11.2022. The relevant paragraphs are extracted as below. 2.8 The Ld.AR submitted that the delayed/ outstanding receivables should not be considered as a separate international transaction. It was further submitted that determination of ALP in respect of delayed receivables from inter-company transactions is not required since ALP of inter-company transactions of provision of services has been already determined and no separate adjustment is necessary in this regard. 4. This Bench referred to decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with law. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must LIBOR + 300 basis points in accordance with the principles laid down by Hon ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt. Ltd., reported in (2015) 276 CTR 445 by considering a credit of 90 days. Accordingly these ground raised by assessee stands allowed for statistical purposes. 4.1. The Ld. CIT.DR only relied on the order of the revenue authorities and not placed any contrary judgment against the submission of the assessee. 4.2. We consider the submission of the assessee and the order of the Coordinate Bench. The issue is already decided by the Coordinate Bench in favour of the assessee. In the circumstances, the remaining unchanged as compared to the A.Y. 2017-18, this issue is squarely covered in assessee s own case for A.Y. 2017-18. So, the addition made on account of transfer pricing adjustment on outstanding receivables amount of Rs.95,17,882/- is to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the previous year in relation to the international transaction during the course of its normal operations but not including the following, namely: (i) interest income; (ii) income arising on account of foreign currency fluctuations; (iii) income on transfer of assets or investments; (iv) refunds relating to income-tax; (v) provisions written back; (vi) extraordinary incomes; and (vii) other incomes not relating to normal operations of the assessee. (Emphasis supplied) 4.6 The TP guidelines issued by the Organisation for Economic Cooperation and Development ( OECD Guidelines ) state as follows: 2.83 As a matter of principle, only those items that (a) directly or indirectly relate to the controlled transaction at hand and (b) are of an operating nature should be taken into account in the determination of the net profit indicator for the application of the transactional net margin method. 2.84 Costs and revenues that are not related to the controlled transaction under review should be excluded where they materially affect comparability with uncontrolled transactions. (Emphasis supplied) 4.7 Further the UN TP Manual states as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, reference can be drawn from the rationale of the Government of India ( Gol ) for providing SEIS benefit. The SEIS scheme was launched by the Gol with the following objectives: Encouraging export of notified Services from India:1 Making exports of services from India globally competitive:2 and Rewarding exporters to offset infrastructural inefficiencies and associated costs involved and to provide exporters a level playing field. 3 5.2. The assessee relied on judicial precedent also provide support for treating export incentives as operating in nature. The AR relied on the Mumbai Tribunal in the case of Welspun Zucchi Textiles Ltd v ACIT (56 SOT 444) held that DEPB benefit received during the year should be considered as a part of the turnover of assessee and hence it should be considered as operating in nature. The ITAT order was upheld by the Bombay High Court in Income Tax Appeal No. 1286 of 2014. The relevant extract of the ITAT order is reproduced below: (vi) The export sale is also eligible for DEPB benefit and the Appellant has earned such export benefits to the tune of Rs.2.18.78.013/- during the year. This income has been included under the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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