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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri Laliet Kumar
आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member Assessment Year:2014-15 Dy. C. I.T Vs. Quislex Legal Services Circle 5(1) (P) Ltd, Hyderabad Hyderabad PAN:AAACQ1153H (Appellant) (Respondent) C.O No.10/Hyd/2022 (Arising out of Assessment Year:2014-15 Quislex Legal Services (P) Vs. Dy. C. I.T Ltd, Hyderabad Circle 5(1) PAN:AAACQ1153H Hyderabad (Appellant) (Respondent) Assessee by: Shri H. Srinivasulu, Advocate Revenue by: Shri Jeeval Lal Lavidiya, CIT(DR) Date of hearing: 06/02/2023 Date of pronouncement: 06/03/2023 O R D E R Per Laliet Kumar, J.M This appeal filed by the Revenue is directed against the order dated 07.01.2022 of the learned CIT (A)-10, relating to A.Y.2014-15 and the C.O is filed by the assessee for the A.Y 2014-15.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
The Revenue has raised the following grounds of appeal:
“1.1 Whether on the facts and circumstances of the case, the CIT(Appeals) is justified in excluding the comparables (i) M/s. Infosys BPO Limited, M/s. Eclerx Services Limited and M/s. MPS Limited, ignoring the Provisions contained in Rule 10B(2) of I.T. Rules, 1962.
2.(i)(a) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in excluding the comparable M/s. Infosys BPO Limited for the ITeS Segment, on the ground of high turnover, brand value, diversified activities, etc., without bringing out as to how have such differences have materially affected the price or cost charged or paid in, or the profit arising from, such transactions in the open market ?
(b) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in excluding the comparable M/s. Infosys BOP Limited on the ground of huge turnover and brand value without appreciating the fact that the turnover does not affect the margins in IT-BPO industry ?
(ii) (a) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is justified in rejecting M/s.Eclerx Services Limited, as comparable on the ground of functional difference when the tax payer has not considered the verticals and horizontals of the ITES sector while selecting comparables and TPO merely followed the same ?
(b) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in excluding M/s. Eclerx Services Limited disregarding the fact that the services cannot be further bifurcated or classified for comparability analysis ?
(iii) Whether on the facts and circumstances of the case and in law the Ld.CIT(A) is justified in rejecting M/s.MPS Limited, as comparable on the ground of bearing substantial risks & concerns, functionally different and established as a premier technology solution provider without bringing out as to how have such differences have materially affected the price or cost charged or paid in, or the profit arising from, such transactions in the open market ?
2.0 Whether on the facts and circumstances of the case, the Ld.CIT(A) is justified in directing to include the company M/s. Ace BPO Services Pvt. Ltd., without appreciating the fact that the TPO has rejected the comparable on account of non-availability of financials of the company and the Ld.CIT(A) erred in adjudicating the inclusion of comparable without remanding to the file of TPO ?
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
(ii) Whether on the facts and circumstances of the case, the Ld.CIT(A) justified in is adjudicating the inclusion of Financial Services comparable M/s. Datamatics Limited, without remanding to the file of TPO? (iii) Whether on the facts and circumstances of the case, the Ld.CIT(A) is justified in directing to include the company M/s. Jindal Intellicon Private Limited, without appreciating the fact that the company is functionally dissimilar ? 3(i) Whether on the facts and circumstances of the case, the Ld.CIT(A), While adjudicating the issue of interest on outstanding trade receivables, is justified in directing to allow the credit period without appreciating the fact that the assessee has not furnished any inter company agreement to prove the credit period is 90 days and the Ld.CIT(A) erred in adjudicating credit period without remanding to the file of TPO? (ii) Whether on the facts and circumstances of the case, the Ld.CIT(A) erred in admitting additional evidence in the form of invoices, without giving an opportunity to the AO and thereby violating provisions of Rule 46A of Income Tax Rules ? 4. Any other ground that may be raised at the time of hearing”.
The brief facts of the case are that the assessee company in the business of Legal Process Outsourcing filed its Return of Income for the Assessment Year 2014-15 on 28.11.2014 declaring total income of Rs.15,77,08,120/- and Book Profit u/s. 115JB at Rs.9,60,72,463/-. The case was selected for scrutiny and notices u/s. 143(2) and 142(1) dt.31.08.2015 were issued to the assessee. Subsequently, notice u/s 142(1) dt.01.07.2016 along with questionnaire was issued to the assessee. In response, the assessee filed the information and after going through the information furnished and after a detailed discussion in the assessment order, the Assessing Officer completed the assessment by passing order u/s 92CA(3) of the Act dt.30.10.2017 determining the shortfall of Rs.13,39,90,083/- in respect of provision for ITES Page 3 of 19
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad and Rs.2,26,76,464/- being interest on receivables, totaling to Rs.15,66,66,537/- as transfer pricing adjustment. 4. Feeling aggrieved with the order of Assessing Officer, assessee carried the matter before ld.CIT(A), who partly allowed the appeal of the assessee. 5. Feeling aggrieved with the order of ld.CIT(A), the Revenue is now in appeal before us, and simultaneously, the assessee also appealed before us by filing it's Cross – Objections.
It is the contention of the learned DR that the Revenue had challenged the exclusion of M/s. Infosys BPO, M/s. Eclerx Services Ltd, M/s. MPS Ltd, ACE BPO Services Pvt. Ltd, Jindal Intellicom (P) Ltd and M/s. Datamatics Financial Services Ltd without remanding the file to the TPO ignoring the provisions contained in Rule 10B(2) of the I.T. Rules, 1962.
At the outset, the learned AR for the assessee submitted that some of the comparables challenged by the Revenue have been decided by the Tribunal in assessee’s own case for A.Y 2013-14. He drew the attention of the Bench to the order passed by the Tribunal in the case of the assessee for the earlier year. The Tribunal had dealt with the issue of exclusion of M/s. Infosys BPO Ltd, M/s. Eclerx Services Ltd and M/s. MPS Ltd. The relevant paragraphs of the Tribunal in the case of the assessee for the earlier year read as under :
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad “M/s. Infosys BPO Ltd 4. Before us, Learned Departmental Representative submitted that the CIT (Appeals) was not correct in excluding M/s. Infosys BPO Ltd as comparable company. It was the contention of ld.DR that this company is functionally comparable with the assessee and the turnover of this company will not affect the profitability of the comparable. It was also the contention that the selling and marketing expenses are intrinsically connected with the core activities of the assessee. 4.1. On the other hand, the learned Authorised Representative submitted that M/s. Infosys BPO Ltd. is not comparable since the company has diversified functions, top global brand and huge turnover of Rs.1831.36 Crores. He had also submitted that Infosys BPO Ltd is functionally not comparable, its has huge turnover Rs.18131.36 cr as against Rs.83.63 of assessee and that assessee was a captive and renders service to AE only. He further submitted that its sub-contractor expenses was Rs.84 Cr and that its uses it brand for business purposes and it is a top global brand and incurred brand building expenses at Rs.7.6 crores and that selling and marketing expenses were Rs.97.64 Crores which was more than the turnover of assessee. He relied upon the decisions of Infor India (P) Ltd (Pages 102 to 104 of PB-II), ADP(P) Ltd (Pages 175 to 179), Hyundai Engineering India (P) Ltd (Pages 203 to 204 of PB-II), Cadence Design Systems (I) (P) Ltd reported in 93 Taxmann.com, UL India (P) Ltd of ITAT Bangalore Bench (Pages 126 to 129) and also the decision in the case of BT e-Serv (India) Pvt. Ltd Vs. ITO (ITA No.6690/Del/2016 dt.19.06.2018). 4.2. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, Infosys BPO had been deleted by the Co-ordinate Benches decision on which the ld.AR for the assessee had relied. We do not find any reason to take a contrary view and accordingly, we direct the Assessing Officer/TPO to exclude Infosys BPO Company from the list of comparable. Hence, this company is deleted from the set of comparables. M/s. Eclerx Services Ltd.
Learned Departmental Representative submitted that the CIT (Appeals) was not correct in excluding M/s. Eclerx Services Ltd as comparable company since it is a KPO and BPO company and employed skilled manpower/specialized services, therefore this company is comparable to the assessee company. It was submitted by the ld.DR that there was no linkage between the acquisition of the AGILYST INC with the profit earned by the said company.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad 5.1. On the other hand, the ld.AR had submitted that this company is functionally different as it is into KPO whereas the assessee is a BPO company. It was submitted that M/s. Eclerx Services Ltd has not been considered as comparable by the Assessing Officer / TPO for the A.Y. 2012- 13 and 2010-11 in the set aside proceedings. He also relied upon the decision of Hon’ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. [2015] 60 taxmann.com 355 (Delhi) “35. As pointed out by the Special Bench of the Tribunal in Maersk Global Centers (India) (P.) Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feasible. Clearly, no straitjacket formula can be applied. In cases where the categorization of services rendered cannot be defined with certainty, it would be apposite to employ the broad functionality test and then exclude uncontrolled entities, which are found to be materially dissimilar in aspects and features that have a bearing on the profitability of those entities. However, where the controlled transactions are clearly in the nature of lower-end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold.
As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP.
Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real- time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers(India) (P.) Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Bench of the Tribunal in Capital IQ Information Systems (India) (P.) Ltd. (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits.”
5.2. The learned Authorised Representative submitted that M/s. Eclerx Services Ltd. is not comparable since it is functionally different and relied on various ITAT decisions. Since there are no segmental details, expenditure incurred on outsourcing, we are of the opinion that the CIT (Appeals) is justified in excluding this company as comparable.
5.3. In rebuttal, the ld.DR for Revenue had submitted that the decision in the case of Rampgreen Solutions (supra) was for A.Y. 2008-09 and further, the Hon’ble Supreme Court had admitted the SLP against the decision of Hon’ble Delhi High Court. 5.4. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the functions of the assessee as well as e-Clerx have not change for the last two years i.e., from 2010-11 and 2012-13. Further, the Assessing Officer in these two years had not considered e-Clerx as a comparable. In view of the above, we do not find any reason to grant any relief to the Revenue. Accordingly, we uphold the order passed by the ld.CIT(A) excluding the e-Clerx from the list of comparable.
M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd.
M/s. Jindal Intellicom Pvt. Ltd 6. The learned Departmental Representative submitted that the CIT (Appeals) has directed the TPO/A.O. to include the companies M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. without appreciating the fact that these companies are functionally dissimilar. The ld.DR had drawn our attention to page 20 of the order of TPO wherein it was mentioned as under : “This company is rejected being functionally different. The same is evident from the following extract of the annual report.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
Review of operations: During the financial year ended 31st March, 2013 there is a decline in revenue by 11%. However, due to operational efficiency your company has managed to increase Operating Profit (EBIDTA) by 12%. Your company provides IT and ITES Services in the international and domestic market. In the international market, due to depressed market conditions and changes in regulatory policies the company saw decline in revenue in debt collection business stream. On the other hand, your company has started focusing on niche business like customer support, software development, etc. In domestic market, your company is now better positioned and expecting impressive growth potential. Hence, this company is not considered as comparable.” M/s. Informed Technologies Limited 6.1. The ld.DR had submitted that the TPO in his order mentioned that this company was rejected on account of insufficient financial information. However, the ld.CIT(A) had included this comparable after relying upon the decision of the Tribunal in the case of Infor India Pvt Ltd in and 2307/Hyd/2018. M/s. Ace BPO Services Pvt. Ltd 6.2. The ld.DR had submitted that that the TPO had recorded that the financial information of this company is not available in the public domain. However, the ld.CIT(A) had included this comparable after perusing the annual report of the company and also relying upon the decision of the Tribunal in the case of Infor India Pvt Ltd in ITA No.161 and 2307/Hyd/2018. 6.3. The learned Authorised Representative submitted that these three companies namely M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. are functionally not different and comparable with the assessee in RPT, 100% Revenue from medical transcription and BPO services. With respect to ACE BPO Services (P) Ltd, ld.AR submitted that it fulfills all the filters adopted by the TPO and further submitted that no related party transactions. 6.4. We have heard the rival contentions of the parties and perused the material available on record. The ld.CIT(A) had directed to include these comparables in the list of comparable after relying upon the decision in the case of Infor India Pvt Ltd in ITA No.161 and 2307/Hyd/2018. We have the occasion to go through the decision of Infor India (supra) in Paras 30 to 32 of the said decision, it was held by the Tribunal as under :
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
“30 As regards inclusion of Ace BPO Services Ltd is concerned, it is the case of the assessee that this company satisfies all the filters applied by the TPO and therefore, is functionally comparable to the assessee company. He pointed out that the TPO and the DRP have rejected this company on the ground that no information as to the RPT filter has been reported in its Annual Report and therefore, complete information is not available. The learned Counsel for the assessee has drawn our attention to page 507 and 508 of the paper book wherein details of the RPT transactions are given.
The learned DR was also heard who relied upon the orders of the authorities below.
Having regard to the fact that the details with regard to the RPT transaction of the company have been given, we are of the opinion that the findings of the DRP & TPO are factually incorrect. Therefore, we remand the comparability of this company also to the AO/TPO for reconsideration. Needless to mention that the assessee should be given a fair opportunity of hearing.”
6.5 Similarly, the Tribunal in the case of Infor India (P) Ltd in Paras 47 to 49 held as under : “47. The assessee is seeking inclusion of the following companies: i) Caliber Point Business Solutions Ltd ii) Ace BPO Services Ltd iii) Allsec Technologies Ltd iv) Jindal Intellicom Ltd v) Informed Technologies Ltd.
At the time of hearing, the learned Counsel for the assessee submitted that the assessee is not pressing for inclusion of Allsec Technologies Ltd and Jindal Intellecom Ltd. Therefore, grounds relating to these two companies are rejected as not pressed.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
As regards the other companies which are sought to be included, we find that the comparability of these companies have been considered by us in the earlier A.Y 2013-14 in the above paragraphs and for the detailed reasons given therein, these companies are directed to be considered by the TPO afresh. Therefore, the grounds relating to these companies are treated as allowed for statistical purposes.
6.6 In our considered opinion, the ld.CIT(A) had misread the decision of the Tribunal in the case of Infor India Ltd (supra). In the said case, the Tribunal had remanded back the matter to the file of TPO / Assessing Officer for fresh consideration. In the light of the above, we also remit the issue of comparability in respect of these three companies i.e. M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. to examine and decide as per law.
In rebuttal, the ld.DR had submitted that each year is a separate and distinct assessment year and therefore, the finding of the Tribunal in assessee’s own case for the earlier year is not binding and the facts of the present case are required to be re-examined.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered various decisions cited before us by both sides. We respectfully, following the decision of the Coordinate Bench in assessee’s own case for the A.Y 2013-14, to exclude M/s. Infosys BPO and M/s. Eclerx Services Ltd from the list of comparables. The TPO is directed to pass the order giving effect in accordance with the law.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
With respect to the inclusion of ACE BPO Services Pvt. Ltd, and Jindal Intellicom (P) Ltd, the Tribunal had issued the following directions in the case of the assessee for the earlier year which read as under :
“6.7. In our considered opinion, the ld.CIT(A) had misread the decision of the Tribunal in the case of Infor India Ltd (supra). In the said case, the Tribunal had remanded back the matter to the file of TPO / Assessing Officer for fresh consideration. In the light of the above, we also remit the issue of comparability in respect of these three companies i.e. M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. to examine and decide as per law.”
Respectfully following our decision in the case of assessee for the assessment year 2013-14, we also remand back the inclusion of these two comparables to the file of the learned TPO to pass appropriate order after considering the directions issued by us and also after affording the opportunity to the assessee.
M/s. MPS Ltd
12. The ld.DR had drawn our attention to pages 28 to 30 of the order of DRP wherein the profile of the company had been captured by the DRP. It is the contention of the ld.DR that this company is the leader in the field of the services offered by it. Further, it was also the contention that the assessee company is also leader in its own field and thus, both are having the similar functions and profiles and therefore, this company is required to be included and the ld.CIT(A) had wrongly excluded this company from the list of comparables.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
Per contra, the ld.AR had drawn our attention to paper book at page 427 wherein the function profile of the company are captured. As per it, the company namely, M/s. MPS Ltd is engaged in printing books, journals and digital services for it’s A.E and further, the Revenue from the publishing business was only 58.9% of the total revenue. Lastly, it was submitted that this company is not fulfilling the filters as applied by the TPO, which is clear from page 7 of the order of TPO. On the basis of the above, it was submitted that as this company is failing on the filter applied by the TPO namely, the Revenue from ITES is less than 75% of the total operation revenue, therefore, this company has rightly been excluded by the TPO.
14 The learned AR in this regard drew the attention of the Bench to the TPO order where the finding of the TPO has been given on the basis of which it has been held that these two companies are functionally comparable with the assessee company. For the above proposition, the learned AR drew the attention of the Bench to the profile of the assessee and also all these comparables. On the basis of the above, it was submitted that both these comparables fall within the broader of ITeS services and therefore, the TPO has rightly included. He further submitted that in fact, the assessee in its TP study has taken MPS Ltd as suitable comparable and thereafter filing the objection, he has raised the objection. Similarly, submissions were made by the learned DR for the Datamatics Financial Services Ltd.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
The learned AR further submitted that these two companies are required to be remanded back to the file of the Assessing Officer for fresh adjudication as has been done by the Tribunal while deciding the issue in the case of ADAP case. He has drawn our attention to the order passed by the Tribunal while deciding the M.A in the case of ADAP.
16. Further, he has drawn our attention to the order passed by the learned CIT (A) dealing with the above said contention.
“11. We have heard the rival arguments made by both the sides, perused the material available on record. The TPO has brought on record the functional similarities between the assessee and these two companies. However, the learned CIT (A) had deleted these two companies by passing a cryptic and non-speaking order. Since the order passed by the learned CIT (A) is not a speaking order, therefore, in our view, the interest of justice shall be done that these two companies be again sent back to the file of the TPO for fresh adjudication after affording opportunities of hearing to the assessee.
With respect to the receivables in Ground No.3 and 3.1, the learned DR drew the attention of the Bench in the case of the Tribunal during the previous year where the Tribunal had decided the issue of outstanding receivables by holding that the LIBOR+ shall be applied for the outstanding after the credit period of 30 days. The learned AR relied upon the other decision and submitted that the issue of the outstanding issue is debatable.
13. After hearing both the sides, we decide the issue as under:
We have heard the rival submissions and perused the material on record. Admittedly, the law has been fairly settled with respect to whether the trade receivables would constitute an international transaction or not within the meaning of Chapter X of Income Tax Act. For the ready reference, we are reproducing below the decision rendered by the Co-ordinate Bench of the Tribunal in the case of Altisource Business Solutions (P.) Ltd. Vs. Income- tax Officer reported in [2022] 141 taxmann.com 77 (Bangalore - Trib.), wherein it was held as under :
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
“15. The amendment is to the effect that "international transaction" would specifically include within its ambit. 'deferred payment or receivable or any other debt arising during the course of business' and hence non-charging or under-charging of interest on the excess period of credit allowed to the AE for the realization of invoices would amount to an international transaction. It was so held by the ITAT Delhi Bench in the case of Bechtel India (P.) Ltd (supra). It is important to note that the Bench while arriving at the said conclusion distinguished its earlier order in the case of Kusum Healthcare (P.) Ltd v. Asstt. CIT [2015] 62 taxmann.com 79 (Delhi-Trib) and rejected the contention that interest gets subsumed in the working capital adjustment. The Hon`ble Bombay High court in the case of CIT v. Patni Computer Systems Ltd, [2013] 33 taxmann.com 3/215 Taxman 108 dealt, inter alia, with the following 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?"
While answering the above question, the Hon'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 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 price of the goods. However, if the agreement does not specify the term of the payment, even then assessee must be given benefit of credit period which is accepted business practice in the trade. The ITAT confirmed 30 days as the normal credit period adopted by the TPO.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
The foregoing discussion discloses that non-charging or under-charging of interest on the excess period of credit allowed to the AE, for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. In view of the above observations. the reliance placed by the ld. counsel for the assessee on earlier decisions cannot be accepted. Similarly, Considering the above discussion, it is held that deferred trade receivable constitutes international transaction.”
15. In our considered opinion, the view taken by the ld.CIT(A) resonant with the view taken by the Bangalore Tribunal. Further, we found that the ld.CIT(A) has restricted the charging of interest at LIBOR +200 basis points allowing the credit period of 60 days. This view of the ld.CIT(A) is in accordance with law. Though, the ld.AR cited the decision in the case of OSI System Pvt. Ltd. Vs. CIT in ITA No.221/Hyd/2015. In our view, the said decision is not applicable to the facts of the case as the Tribunal in the said case had held applicability of LIBOR +200 basis points to be applied on the trade receivables (Para 6.6). Similarly, the Tribunal without assigning any reason has held that 120 days credit period is reasonable period. In our view, no documentary evidence has been brought on record before us so that we can infer that 120 days credit period is a reasonable period. “
17. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the ld.CIT(A) in Para 9.4.3.(iii) have directed the TPO to exclude this comparable. However, the order passed by the ld.CIT(A) is lacking in reasoning and basis for arriving at the above said finding. In our view, the objection raised by the Revenue, needs to be allowed and the exclusion of M/s. MPS Ltd. is required to be sent back to the file of the ld.CIT(A) with a direction to pass afresh order considering the rival contentions of the parties.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad M/s. Datamatics Financial Services Ltd
The ld.DR had drawn our attention to the order passed by the ld.CIT(A) at page 36 wherein the ld.CIT(A) without any discussion, had directed to accept the Datamatics Financial Services as a comparable. It was the contention of the ld.DR that the order passed by the ld.CIT(A) was a cryptic and non-speaking order, and therefore, the issue of inclusion of Datamatics is required to be reconsidered by the ld.CIT(A) after giving the opportunity to the Assessing Officer / TPO.
On the other hand, ld.AR raised no objection for remanding this issue of inclusion to the file of lower authorities. However, it was submitted that the argument of the assessee taken in the case of M/s. MPS Ltd, may also be considered for the inclusion of present comparable.
We have heard the rival contentions of the parties and perused the material available on record. As the order passed by the ld.CIT(A) is cryptic, non-speaking order and lacking the material particulars which are required to be discussed and decided by the ld.CIT(A), we deem it appropriate to remand the issue of inclusion of this company to the file of ld.CIT(A) with a direction to decided afresh after affording opportunity to the parties.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad Receivables: 21. In this regard, the parties have drawn our attention to the order passed by the Tribunal in the case of the assessee for the A.Y. 2013-14 wherein the following directions were issued. It was submitted that similar directions were issued by the Tribunal.
“12. In our considered opinion, the view taken by the ld.CIT(A) is resonant with the view taken by the Bangalore Tribunal. Further, we found that the ld.CIT(A) has restricted the charging of interest at LIBOR +200 basis points allowing the credit period of 60 days. This view of the ld.CIT(A) is in accordance with law. Though, the ld.AR cited the decision in the case of OSI System Pvt. Ltd. Vs. CIT in ITA No.221/Hyd/2015. In our view, the said decision is not applicable to the facts of the case as the Tribunal in the said case had held applicability of LIBOR +200 basis points to be applied on the trade receivables (Para 6.6). Similarly, the Tribunal without assigning any reason has held that 120 days credit period is reasonable period. In our view, no documentary evidence has been brought on record before us so that we can infer that 120 days credit period is a reasonable period. In our view, the ld.CIT(A) after relying upon the decision of OSI Systems (supra) for the reasons best known to him, had arbitrarily reduced the credit period from 120 days to 60 days. In our view, the approach of ld.CIT(A) is without any basis. Hence, we direct the TPO / Assessing Officer to charge interest at LIBOR + 200 points. Further, we direct Assessing Officer / TPO to allow the credit period and charge interest over and above the outstanding period of 120 days.
We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the above said directions were issued in the case of the assessee. However, the Tribunal vide its Corrigendum dt.24.02.2023 had corrected some typographical mistakes suo moto in its order in passed on 26.12.2022. After correcting the said typographical mistakes, the order of the Tribunal reads as under :
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
“12. In our considered opinion, the view taken by the ld.CIT(A) is resonant with the view taken by the Bangalore Tribunal. Further, we found that the ld.CIT(A) has restricted the charging of interest at LIBOR +200 basis points allowing the credit period of 60 days. This view of the ld.CIT(A) is in accordance with law. Though, the ld.AR cited the decision in the case of OSI System Pvt. Ltd. Vs. CIT in in our view, the said decision is not applicable to the facts of the case as the Tribunal in the said case had held applicability of LIBOR +200 basis points to be applied on the trade receivables (Para 6.6). Similarly, the Tribunal without assigning any reason has held that 120 days credit period is reasonable period. In our view, no documentary evidence has been brought on record before us so that we can infer that 120 days credit period is a reasonable period. In our view, the approach of ld.CIT(A) cannot be faulted with. Hence, we direct the TPO / Assessing Officer to charge interest at LIBOR + 200 points. Further, we direct the Assessing Officer / TPO to allow the credit period and charge interest over and above the outstanding period of 60 days.
In view of the above, we direct the TPO / Assessing Officer to decide the issue afresh after considering our directions reproduced hereinabove at para 9.1. for the current assessment year as well.
In the result, appeal of the Revenue is allowed for statistical purposes.
The C.O filed by the assessee in support of seeking inclusion of one company. At the outset the learned AR has not pressed the C.O and accordingly the same is treated as dismissed.
In the result. C.O filed by the assessee is dismissed.
ITA 105 and CO 10 of 2022 Quislex Legal Services P Ltd Hyderabad
To sum up, the C.O filed by the assessee is dismissed and the appeal of the Revenue is allowed for statistical purposes.
Order pronounced in the Open Court on 06th March, 2023.