SAP INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH BANGALORE BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER IT(TP)A No.874/BANG/2022 Assessment Year: 2017-18 & IT(TP)A No.875/BANG/2022 Assessment Year: 2018-19 SAP India Private Limited Deputy/Assistant Commissioner 6th Floor, RMZ Ecoworld, 8A of Income Tax, Circle-6(1)(1), Campus, Sarjapur - Bangalore. Vs. Marathahalli Outer Ring Road, Deverabeesanahalli, Bangalore, Karnataka-560103 (PAN: AACCS7483E) (Appellant) (Respondent)

Present for: Appellant by : Shri Chavali Narayanan, CA Respondent by : Shri Sunil Kumar Singh, CIT, DR Date of Hearing : 24.01.2023 Date of Pronouncement : 19.04.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These appeals filed by the assessee are against the order of DCIT/ACIT, Circle-6(1)(1), Bangalore u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) vide separate orders even dated 29.07.2022 against the direction of Dispute Resolution Panel-2, Bengaluru vide Order No. F. No. 224/DRP-2/BANG/2021- 22ITBA/DRP/S/91/2022- 3/1043443971(1) and 225/DRP-2/BANG/2021- 22/ITBA/DRP/S/91/2022-23 /1043477395(1) for the Assessment Years 2017-18 & 2018-19 respectively, dated 13.06.2022.

2 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 2. Grounds taken in the two appeals are reproduced:

2.1. In IT(TP)A No. 874/Bang/2022 for AY 2017-18, grounds are –

“Based on the facts and circumstances of the case and in law, SAP India Private Limited (hereinafter referred to as 'SAP India' or 'Company' or the 'Appellant'), respectfully craves leave to prefer an appeal against the appeal order passed by the DC/ACIT Circle 6(1)(1), BLR [hereinafter referred to as the learned AO'] under section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (Act') pursuant to the Directions issued by the Dispute Resolution Panel (Hon'ble DRP') under section 144C(5) of the Act on the following grounds:

On the facts and circumstances of the case and in law, the leaned AO has erred on the following:

Disallowance of ESOP expenses of Rs. 25,65,94,500 1.

1.1. The learned AO has erred, in law and in facts, in contending that ESOP expenditure are capital in nature and accordingly not allowable under section 37 of the Act, ignoring the fact that said expenses has been incurred wholly and exclusively for the purpose of the business of the Appellant.

1.2. The learned AO has erred in law and in facts in disallowing the ESOP expenditure on the basis that the said expenditure incurred by Appellant is notional or fictitious in nature and hence would not qualify for deduction under Section 37(1) of the Act.

1.3. The learned AO has erred in law and in facts by concluding that parent company (i.e. SAP SE) is incentivizing the employees of the Appellant, therefore any loss incurred in this process should be borne by parent company and not by Appellant.

1.4. The learned AO has erred in law and in facts without appreciating that the discount on ESOP offered to certain eligible employees of the Company was for the purpose of securing the consistent and concentrated efforts of employees and to compensate them for their dedication hard work and commitment and was thus incurred wholly and exclusively for the purpose of business of the Appellant.

1.5. The learned AO has erred, in law and in facts, in not appreciating the principles laid down by the Hon'ble Bangalore ITAT in the case of

3 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 Novo Nordisk India (P.) Ltd. (2014) 63 SOT 242 which is squarely applicable to the case of the Appellant.

Refund of excess tax paid on distribution of dividend of 2. Rs.14,71,87,100

2.1. The learned AO has erred, in law and in facts, by not appreciating the fact that the dividend paid/ distributed by Appellant to its non-resident shareholder, ought to have been restricted to the rate prescribed under the India-Germany Double Taxation Avoidance Agreement ("DTAA").

2.2. Based on facts and the circumstances of the case and in law, the Appellant prays that it is eligible for refund of the excess Dividend Distribution Tax paid by the Appellant.

3.1. The CPC/learned AO has erred in law and in fact in concluding that remittance of employee's contribution to Provident fund of Rs 1,55,74,034 before the due date of filing the return of income under section 139(1) of the Act is not entitled for deduction under the Act and disallowed the same under section 36(1)(va) of the Act.

Disallowance of notional IND-AS adjustment of Rs. 4. 1,30,60,532

4.1. The CPC/ learned AO has erred, in law and in facts, by not considering the fact that the notional IND-AS adjustment of Rs. 1,30,60,532 was reduced from income from other sources at arrive at the total income under the provisions of the Act.

5.1. Based on the facts and circumstances of the case, the Appellant respectfully submits that, the learned AO has erred, in law and in fact, in not granting full TDS credit of Rs. 270,09,01,239 claimed in the return of income.

5.2. The learned AO has erred in law and in facts, in not granting full TCS credit of Rs. 11,925 claimed in the return of income.

Levy of interest 6.

4 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 6.1. The learned AO has erred, in law and in facts, in levying interest under section 234B of the Act amounting to Rs. 73,58,29,568.

6.2. The learned AO has erred, in law and in facts, in levying interest under section 234C of the Act amounting to Rs. 4,47,15,835.

Initiation of Penalty proceedings under section 270A read 7. with section 274 of the Act

7.1. The learned AO has erred, in law and on facts, in initiating penalty proceedings under section 274 read with section 270A of the Act.

The Appellant submits that each of the above grounds is independent and without prejudice to one another.

The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”

2.2. In IT(TP)A No. 875/Bang/2022 for AY 2018-19, grounds are –

“Based on the facts and circumstances of the case and in law, SAP India Private Limited (hereinafter referred to as 'SAP India' or 'Company' or the 'Appellant'), respectfully craves leave to prefer an appeal against the appeal order passed by the DC/ACIT Circle 6(1)(1), BLR [hereinafter referred to as the learned AO'] under section 143(3) r.w.s 144C(13) of the Income- tax Act, 1961 ('Act') pursuant to the Directions issued by the Dispute Resolution Panel (Hon'ble DRP') under section 144C(5) of the Act on the following grounds:

On the facts and circumstances of the case and in law, the leaned AO has erred on the following:

Disallowance of ESOP expenses of Rs. 35,40,00,000 1.

1.1. The learned AO has erred, in law and in facts, in contending that ESOP expenditure are capital in nature and accordingly not allowable under section 37 of the Act, ignoring the fact that said expenses has been incurred wholly and exclusively for the purpose of the business of the Appellant.

5 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 1.2. The learned AO has erred in law and in facts in disallowing the ESOP expenditure on the basis that the said expenditure incurred by Appellant is notional or fictitious in nature and hence would not qualify for deduction under Section 37(1) of the Act.

1.3. The learned AO has erred in law and in facts by concluding that parent company (i.e. SAP SE) is incentivizing the employees of the Appellant, therefore any loss incurred in this process should be borne by parent company and not by Appellant.

1.4. The learned AO has erred in law and in facts without appreciating that the discount on ESOP offered to certain eligible employees of the Company was for the purpose of securing the consistent and concentrated efforts of employees and to compensate them for their dedication hard work and commitment and was thus incurred wholly and exclusively for the purpose of business of the Appellant.

1.5. The learned AO has erred, in law and in facts, in not appreciating the principles laid down by the Hon'ble Bangalore ITAT in the case of Novo Nordisk India (P.) Ltd. (2014) 63 SOT 242 which is squarely applicable to the case of the Appellant.

Notional interest on delayed receivables from AEs 2.

2.1. The learned TPO/ AO has erred, in law and on facts, by determining a transfer pricing adjustment of Rs. 4,12,67,948 on account of interest on outstanding receivables, not appreciating the fact that such receivables are closely linked to the primary transactions and should not be tested separately or re- characterized as a loan transaction.

2.2 Without prejudice, the learned TPO/AO has erred, in law and on facts, by using the SBI Short term deposit interest rate as against using of LIBOR rates.

Initiation of Penalty proceedings under section 270A 3. read with section 274 of the Act

3.1. The learned AO has erred, in law and on facts, in initiating penalty proceedings under section 274 read with section 270A of the Act.

6 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 The Appellant submits that each of the above grounds is independent and without prejudice to one another.

The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”

3.1. During the course of assessment, Ld. AO observed that assessee claimed a deduction in the computation of income on account of “ESOP cost borne by the company.” Assessee furnished its reply explaining the issue of equity shares to its employees under ESOS schemes stating that ESOP cost is in the nature of discount given by the assessee to its employees on issue of shares under its ESOS scheme which is an allowable business expenditure u/s. 37 of the Act and has been incurred for appreciating and encouraging employees for their loyalty and performance towards the assessee company.

3.2. After hearing both the parties, we find that identical issue came up for consideration before the Coordinate Bench of the Tribunal in the case of Novo Nordisk India (P) Ltd. [2014] 63 SOT 242 (Bang), wherein it was held as under:

“In the present case, there is no dispute that the liability has accrued to the assessee during the previous year. The only question to be decided is as to whether it is the expenditure of the assessee or that of the parent company.

7 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 The foreign parent company has a policy of offering ESOP to its employees to attract the best talent as its work force. In pursuance of this policy of the foreign parent company, allowed its subsidiaries/ affiliates across the world to issue its shares to the employees.

As far as the assessee in the present case which is an affiliate of the foreign parent company is concerned, the shares were in fact acquired by the assessee from the parent company and there was actual outflow of cash from the assessee to the foreign parent company.

The price at which shares were issued to the employees was paid by employee to the Assessee who in turn paid it to the parent company. The difference between the fair market value of the shares of the price at which shares were issued to the employees was met by the Assessee.

This factual position is not disputed at any stage by the revenue. In such circumstances, we do not see any basis on which it could be said that the expenditure in question was a capital expenditure of the foreign parent company.

As far as the assessee is concerned, the difference between the fair market value of the shares of the parent company and the price at which those shares were issued to its employees in India was and employee cost which is a revenue expenditure incurred for the purpose of the business of the company and had to be allowed as deduction.

There is no reason why this expenditure should not be considered as expenditure wholly and exclusively incurred for the purpose of business of the assessee.

With regard to the observations of the Commissioner (Appeals) that the ESOP actually benefits only the parent company, it can be said that the expenditure in. question is wholly and exclusively for the purpose of the business of the assessee and the fact that the parent company is also benefited by reason of a motivated work force would be no ground to deny the claim of the assessee for deduction, which otherwise satisfies all the conditions referred to in section 37(1).

The facts and circumstances of the present case, he expenditure in question was wholly and exclusively for the purpose of the business of the assessee and had to be allowed as deduction as a revenue expenditure.

In the result, the appeal of the assessee is allowed.

8 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 3.3. In view of the above decision of the Coordinate Bench, we allow this ground taken by the assessee i.e. ground no. 1 in both the years under appeal before us.

4.1. Brief facts on this issue are that assessee has paid DDT of Rs.28,92,93,181/- at the applicable rate of 20.36% u/s. 115-O of the Act on dividend distributed to SAP SE, Germany. Against this, assessee has claimed that it is liable to pay DDT of only Rs.14,21,06,081/- @ 10% under the DTAA between Germany and India and thus, eligible for claim of refund of Rs.14,71,87,100/- on the excess DDT paid.

4.2. In support of the above submissions, assessee placed reliance on the decision of Coordinate Bench, Delhi in the case of Giesecke & Devrient India Pvt Ltd Vs. ACIT [2020] 120 taxmann.com 338 (Del). The correctness of the aforesaid decision has however been doubted by another Division Bench at Mumbai in the case of DCIT, Mumbai Circle 11(3)1), Mumbai Vs. Tata Oil India (P) Ltd., and an order of reference dated 23.6.2021, recommending constitution of a Special Bench to decide the issue, has been made to the Hon’ble

9 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 President of the Tribunal. We find that on this issue, there has been conflicting views and the matter has been referred by the Mumbai Bench of ITAT for constitution of a Special Bench. Considering this development, we find it proper and just to remit the matter back to the file of ld. AO for consideration of the issue afresh in the light of the outcome of decision of the Special bench of ITAT on the issue, after affording a reasonable opportunity to the assessee. Accordingly, ground no. 2 is allowed for statistical purpose for both the years under appeal.

10 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 considered in the schedule Business & Profession and included in the schedule, Income from Other sources.

6.1. Facts in brief on this issue are that in the computation of income, assessee had reduced an amount of Rs.79,38,96,496/- from schedule BP stating that the same is considered under the head schedule OS i.e. other sources. However, under the head schedule OS, amount of Rs.78,08,35,964/- was considered and offered to tax, thereby resulting in difference of Rs.1,30,60,532/- which is on account of notional IND-AS adjustment.

6.2. Assessee had taken various lease office premises on interest free refundable deposit. These refundable lease deposits are financial asset under the IND-AS. Lease deposit is required to be measured at fair value on initial recognition. The difference between the amount of deposit and its fair value is treated as prepaid lease expenses and amortized over the term of the lease. These amortized prepaid rents being notional expenses charged to the statement of Profit and Loss is disallowed in the tax computation. Further, interest income on lease deposit would accrue over the period of lease. It represents notional income arising on fair valuation of rental deposits recognised as per requirement of IND-AS and credited to the statement of Profit and Loss. No interest has actually accrued or arisen on this deposit and income is recognised on notional basis. Accordingly, since income is to be recognised on the principle of real income, the amount of Rs.1,30,60,532/- was

11 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 reduced from income from other sources to arrive at the total income under the provisions of the Act.

6.3. Considering the above stated facts, we do not find any reason to interfere with the direction given by the Ld. DRP to the ld. AO to reconcile the difference and accordingly, this ground of appeal is allowed for statistical purposes.

12 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 receivables for the relevant year is 47 days for the software distribution segment. Ld. TPO levied interest on outstanding receivables for more than 30 days by treating it as a separate international transaction. Ld. Counsel for the assessee further stated that assessee does not pay any interest on outstanding payables to its AEs. Accordingly, by principle of consistency, no interest should be charged on outstanding receivables from AEs as well. He further stated that assessee does not have a practice of charging interest or penalty on the outstanding balance of receivable from party whether it is AE or non-AE. Therefore, imputation of interest on the amount of receivable from AEs is not correct.

13 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 independent international transaction. He placed reliance on the order of Ld. DRP who has elaborately dealt with the two issues raised by the assessee by citing all the relevant judicial precedents.

“23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore separate addition is not called for.

23.1. Ld.TPO computed interest on outstanding receivables under weighted average method using LIBOR + 300 basis points 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.

14 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 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 transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances.

23.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that:

(i) the expression "international transaction" shall include— . . . . . (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has

15 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble 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 international transaction and ALP of such international transaction has to be determined by Ld.TPO. Insofar as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing-up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined.

23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us.

This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol. - Trib.), held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per Explanation to section 92B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR.

23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange

16 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that:

"There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd v. DCIT [2017] 398 ITR 120 (Del). Following the 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.”

17 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 13. The above decision has taken in to account several judicial precedents including that of the Hon’ble Jurisdictional High Court of Karnataka in the case of AMD India Pvt. Ltd. (supra) which carries the force of binding nature as well as the amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002 to arrive at a conclusion that deferred receivables would constitute an independent international transaction and the same is required to be benchmarked independently. Respectfully following the above stated decision of the Coordinate Bench of ITAT Bangalore in the case of Swiss Re Global Solutions India Pvt. Ltd. (supra), in the present case before us, we hld that the outstanding receivables of the assessee from its AEs constitute international transactions liable to be benchmarked independently. However, in the present case, while arriving at the quantum of the said receivables, we do accept the contention of the ld. Counsel of the assessee for netting off the outstanding payables by the assessee to the AEs so that interest is computed on the net outstanding receivables for the year under consideration. Ld. Counsel has stated that the weighted average realisation of receivables for the relevant year is 47 days for the software distribution segment against which ld. TPO levied interest on outstanding receivables for more than 30 days by treating it as a separate international transaction. We are in concurrence with the ld. TPO taking 30 days as normal credit period for computing the interest on outstanding receivables which are to be netted off with the payables with the AEs.

18 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 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. In the present case, assessee has raised invoices on its AEs in EURO and hence, the EUR LIBOR prevalent during the financial year 2017-18 relevant to AY 2018-19 is to be considered for determining the arm’s length rate of interest to be charged on the net outstanding receivables.

Order pronounced in the open court on 19th April, 2023.

Sd/- Sd/- (George George K) (Girish Agrawal) Judicial Member Accountant Member

Dated: 19th April, 2023

JD, Sr. P.S.

19 IT(TP)A Nos. 874 & 875/Bang/2022 SAP India Pvt. Ltd. AYs 2017-18 & 2018-19 Copy to:

//True Copy// By Order

Assistant Registrar ITAT, Bangalore Benches, Bangalore