LUMEN IT INDIA PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

ITTPA 1334/BANG/2024Status: FixedITAT Bangalore16 May 2025AY 2020-2121 pages
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What were the facts?

Lumen IT India Private Limited (formerly Century Link Technologies India Private Limited) is an Indian company providing software development and IT-enabled services. For Assessment Year 2020-21, it filed its return of income and Form 10-IC late, by 43 and 38 days respectively. The delay was attributed to the amalgamation of the company with Cognilytics Software and Consulting Private Limited, approved by the National Company Law Tribunal effective from April 1, 2019. The assessee's return was processed under section 143(1), with an adjustment for delayed employee PF contribution. The assessment was selected for scrutiny, and the Assessing Officer/Transfer Pricing Officer (TPO) examined international transactions with Associated Enterprises (AEs). The TPO initially accepted the assessee's transfer pricing report but later sought an ageing analysis of receivables from AEs and proposed interest on delayed receivables, treating them as unsecured loans.

What did the Tribunal hold?

The Tribunal decided the issues as follows: Regarding the delay in filing the return and Form 10-IC, the judgment indicates that the issue of condonation under section 119(2)(b) was raised but the operative part of the order does not explicitly state a finding or decision on this specific ground. However, the final outcome suggests that the appeal was partly allowed, implying some relief or decision on at least one of the grounds. Regarding the interest on delayed receivables, the Tribunal held that the extra credit period allowed to Associated Enterprises (AEs) constitutes an independent international transaction. This decision was based on the reasoning that outstanding sums of invoices are akin to loans advanced by the assessee to foreign AEs, making them international transactions as per the Explanation to Section 92B of the Act. The Tribunal referred to the decision of the Hon'ble Karnataka High Court in PCIT v. AMD (India) Pl. Ltd. and the Bombay High Court in CIT v. Aurionpro Solutions Ltd. It was held that the transaction would have to be looked upon by applying commercial principles, and the interest rate should be determined using the London Inter Bank Offer Rate (LIBOR) plus 2%. The Tribunal concluded that the treatment of interest on deferred receivables was rightly considered as an independent international transaction and benchmarked separately by the revenue authorities. Consequently, this ground of the assessee was dismissed.

What were the issues?

1. Whether the delay in filing the return of income and Form 10-IC for AY 2020-21 warrants condonation under section 119(2)(b) of the Income Tax Act, 1961. 2. Whether the extra credit period allowed for realization of invoices from Associated Enterprises constitutes an international transaction requiring benchmarking under Section 92B of the Income Tax Act, 1961, and if so, what is the Arm's Length Price (ALP) for such transaction. Assessee's arguments: - The delay in filing was due to the amalgamation process and subsequent consolidation of accounts, which was beyond the assessee's control. The CBDT petition for condonation was pending. - The TPO's proposal to charge interest on delayed receivables was not considered appropriate as it would lead to double taxation, especially if working capital adjustments were made under TNMM. Reliance was placed on the decisions in Orange Business Services India Solutions (P.) Ltd. and Avenue Asia Advisors Pvt. Ltd. Revenue's arguments: - The delay in filing the return and Form 10-IC was not justified. The assessee had not established sufficient cause for the delay. - Following the amendment to Section 92B by the Finance Act, 2012, the non-charging or under-charging of interest on excess credit allowed to AEs for realization of invoices amounts to an international transaction. The ALP of such a transaction needs to be determined by the TPO. Reliance was placed on CIT v. Cotton Naturals (I) (P.) Ltd. for the rate of interest.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 115BAA,Section 139(1),Section 119(2)(b),Section 143(1),Section 36(1)(va),Section 143(2),Section 92CA(2),Section 92D(3),Section 92D(1),Section 92B

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Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE

Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY

For Respondent: Ms. Neera Malhotra, D.R
Hearing: 18.02.2025Pronounced: 16.05.2025

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of ld. DCIT, Circle-4(1)(1) Bangalore dated 16.05.2024 vide DIN & Order No. ITBA/AST/S/143(3)/2024-25/1064945002(1) passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2020-21. 2. The assessee has raised the following grounds of appeal:

IT(TP)A No.1334/Bang/2024 Lumen IT India Private Limited, Bangalore IT(TP)A No.1334/Bang/2024 Lumen IT India Private Limited, Bangalore IT(TP)A

The order continues below.

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