AB INBEV GCC SERVICES INDIA PRIVATE LIMITED (EARLIER KNOWN AS GCC SERVICES INDIA PRIVATE LIMITED),BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE

ORDER

PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the final assessment order passed by the NFAC, Delhi dated 21/02/2022 for A.Y. 2017-18 on following grounds of appeal:

2. Grounds against imputing interest on outstanding receivables due from AEs – Adjustment of INR 41,71,929 a) Not appreciating that outstanding receivables is not covered in the definition of international transaction as defined u/s 92B of the Act in the facts and circumstances of the case; b) Not appreciating that the receivables are consequential/ closely linked to the principal transaction of provision of services and hence have been aggregated for determination of ALP under TNMM; c) Not appreciating the fact that the working capital adjustments undertaken take into account the impact of outstanding receivables of the controlled transactions vis-à-vis the uncontrolled transactions in determining the arm’s length margin and no separate benchmarking is required; d) Not appreciating the facts and circumstances surrounding the receivables and re- characterising the outstanding receivables as 31.9609% of unsecured loans advanced to AEs; adjustment amount of INR 41,71,929 = INR e) Not following any statutorily prescribed 13,33,386 method and without doing any comparability benchmarking as prescribed under Chapter X of the Act. Without prejudice to the above f) Not considering netting off of outstanding receivables and payables from/ to AEs; g) Considering SBI short-term deposit rates for imputing notional interest instead of LIBOR; and h) Considering credit period of 45 days instead of the industry average credit period Page 3 of 17 IT(TP)A No. 290/Bang/2022

3. Ground on erroneous initiation of penalty under section 270A of the Act Ld. AO was not justified and rather grossly erred NA in law and in facts by initiating penalty proceedings under section 270A of the Act by falsely stating that the Assessee has under- reported the income.

4. Increase in book profits u/s 115JB and computation of tax liability u/s 115JB of the Act – Adjustment of INR 13,27,364 That on the facts and in law, Ld. AO was not justified and has erred in considering the book 21.3416% of profit at INR 36,97,81,854 while computing tax adjustment amount of liability in computation sheet, instead of book INR 13,27,364 = INR profit as per return of income of INR 283,281 36,84,54,490, where there is no adjustment being proposed to book profit in final assessment order and thereby leading to erroneous addition of INR 13,27,364 to the book profit returned by the Appellant. 5. Erroneous computation of total income The Ld. AO has erred in facts and in law by 31.9609% of considering incorrect total income as per adjustment amount of Intimation u/s 143(1) of the Act, which consists INR 1,84,174 = INR of arithmetical error, thereby leading to 58,864 adjustment of INR 1,84,174 while computing assessed income of the Appellant.

6. Shortfall in computation of interest u/s 244A of the Act That on the facts and in law, Ld. AO was not NA justified and has erroneously computed interest u/s 244A at INR 3,30,884, thereby resulting in short grant of interest. Necessary directions may please be given to the Ld. AO in this regard. 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. Brief facts of the case are as under: 2.1 The assessee was incorporated to provide a range of centralized back office services in the nature of finance, accounting, administration, human resources, etc. in support of Page 4 of 17 IT(TP)A No. 290/Bang/2022 its Group entities' business. The assessee is a wholly owned subsidiary of Interbrew International B.V.. Netherlands which is ultimately held by AB InBev. 2.2 The Assessee filed its return of income for the year under consideration on 29/11/2017 declaring its total income under the normal provisions of the Act at INR 7,26,32,430/- and under section 115JB (MAT) at INR 36,84,54,490/-. 2.3 The case was selected for scrutiny assessment by the Ld.AO and also referred assessee’s case to the Ld.TPO for determination of Arm's Length Price of the international transactions entered by the assessee with the AEs. 2.4 The Assessee made time to time submissions in response to the notices issued by the Ld. TPO. During the FY 2016-17, the Assessee had entered into the international transactions of provision of back office support services in the nature of IT enabled services. The Assessee applied TNMM as the most appropriate method and computed its margin that was within the range of the adjusted PLI (OP/OC) (i.e. after undertaking working capital adjustment to adjust for differences in receivables and payables) of the comparables selected by the Assessee in its TP study report. Accordingly, the transaction of provision of IT enabled services was concluded by the Assessee to be at arm's length. Ld.TPO after considering the submissions by the assessee proposed adjustment in relation to interest on delayed collection of receivables by applying the 6 months LIBOR plus 400 basis points after granting credit period of 30 days.

Page 5 of 17 IT(TP)A No. 290/Bang/2022 2.5 Subsequently, the draft assessment order dated 06/04/2021 was passed by the National Faceless Assessment Centre (NFAC'). In the said order the NFAC proposed to make the following variations to the returned income of the Assessee: Amount Particulars (in INR) Returned Business Income 7,28,16,601 7,28,16,601 Disallowance of arm's length Add: 25,19,50,424 price 25,19,50424 Add: Disallowance u/s 37 3,29,629 Total Assessed income 32,50,96,654 32,50,96,654 2.6 DRP vide its directions dated 24/01/2022 provided partial relief to the Assessee by directing the Ld.AO/TPO to include 5 companies and exclude 1 company from the final set of comparables, re-compute the interest on delayed receivables by taking credit period of 45 days or as per agreement or as per invoices at SBI short term deposit rates. The DRP rejected the interest rate of LIBOR + 400 basis points used by the Ld.TPO to benchmark the interest on delayed receivables and directed the Ld.TPO to adopt the SBI short term deposit interest rate for the subject year as the ALP interest rate on delayed receivables and re-compute the adjustment to be made to the total income invoice wise after allowing credit period of 45 days or as per agreement or as per invoices. 2.7 On receipt of DRP direction, the Ld.AO passed the final assessment order by making addition in the hands of the assessee as directed by DRP. Aggrieved by the order of Ld.AO, the assessee filed appeal before this Tribunal.

Page 6 of 17 IT(TP)A No. 290/Bang/2022 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. 2.9 The Ld.AR alternatively submitted that, the assessee had trade payables amounting to Rs. 46,83,18,399 to its AE and invoices during the year amounting to Rs.1,71,05,79,298 to the AE in relation to the receipt of business support services availed for provision of services. The Ld.AR submitted that the AE provided the assessee with a credit period of 150 days from date of raising of invoice for making payments against the services rendered. (Refer page 181 of Item 5 of the appeal set). Further, it was submitted that the weighted average credit period by the Assessee to AEs -49.32 days is less than the credit period extended to Assessee by third parties. Therefore, the credit period provided by the Assessee is less than the credit period received from third parties. Hence, no adjustment is warranted on outstanding receivables from AEs. 2.10 It was argued by Ld.AR that, the authorities below disregarded business/commercial arrangement between the assessee and its AE’s, by holding outstanding receivables to be an independent international transaction. The Ld.AR placed reliance on decision of Hon’ble Delhi Tribunal in Kusum Healthcare Pvt. Ltd. vs. ACIT reported in (2015) 62 Taxmann.com Page 7 of 17 IT(TP)A No. 290/Bang/2022 79, deleted addition by considering the above principle, and subsequently Hon’ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. reported in (2017) 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. Reliance was also placed on the decision of Hon’ble Delhi Tribunal in case of Bechtel India vs DCIT reported in (2016) 66 taxman.com 6 which was subsequently upheld by Hon’ble Delhi High Court vide order dated 21/07/16 in also upheld by Hon’ble Supreme Court vide order dated 21/07/17, in CC No. 4956/2017. 2.11 It was submitted by the 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 when the company agree to provide for extending credit period with mutual consent and it does not provide any interest clause in case of delay there cannot be any chargeability of interest. He alternatively argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. Without prejudice to the above contention, it was submitted that the outstanding receivables need not be treated as a separate international transaction as if same could be benchmarked using a combined transaction approach, by combining the outstanding receivables with the main international transaction of provision of services due to the Page 8 of 17 IT(TP)A No. 290/Bang/2022 fact that receivables are a result of the international transactions of the Assessee.

Page 10 of 17 IT(TP)A No. 290/Bang/2022 3.3 In so far as charging of rate of interest is concerned, he relied on decision of the Hon’ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd. reported in (2015) 276 CTR 445 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. We have perused the submissions advanced by both the sides in the light of the records placed before us.

by assessee stands allowed for statistical purposes.

5. Ground No. 4: This ground is raised due to increase in book profit u/s 115JB and computation of tax liability u/s 115JB of

Page 12 of 17 IT(TP)A No. 290/Bang/2022 the Act. It was submitted that following are the computational errors that needs to be considered. The Ld.AR submitted that the Ld. AO was not justified and in considering the book profit at INR 36,97,81,854 while computing tax liability in computation sheet, instead of book profit as per return of income of INR 36.84,54.490, where there is no adjustment being proposed to book profit in final assessment order and thereby leading to erroneous addition of INR 13,27,364 to the book profit returned by the Assessee. 5.1 The Ld.AR submitted that as per ROI filed, the deemed total income under the MAT provisions is INR 36,84,54,490. However, vide the Final Assessment Order, the same has been arrived at INR 36,97.81,854. In this regard, the adjustment of INR 13,27,364 made is already considered in the ROI filed by the Assessee as discussed below. The Ld.AR relied on following table in support of the computation error by Ld.AO/TPO. As per As per ROI Computation Sn Description filed & Final sheet to Final Order Order

Page 13 of 17 IT(TP)A No. 290/Bang/2022 Explanation 1.—For the purposes of this section, "book profit" means the profit as shown in the statement of profit and loss for the relevant previous year prepared under sub-section (2), as increased by— if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss. and as reduced by. — (viii) the amount of deferred tax, if any such amount is credited to the statement of profit and loss. 5.3 In light of the above, as per explanation to Section 115JB(2) of the Act, the amount of deferred tax, if any, credited to statement of profit and loss is to be reduced while calculating the amount of book profits as per MAT provisions. 5.4 Accordingly, in the instant case, the deferred tax which has been credited to statement of profit and loss account amounting to INR 16,57,043 was reduced while computing the book profits in the return of income filed by the Assessee. However, the same is not considered in the computation sheet annexed to the Order passed by the Ld. AO.

Page 15 of 17 IT(TP)A No. 290/Bang/2022 8.1 Further it was submitted that on the facts and in law, the Ld.AO was not justified and has erroneously computed interest u/s. 244A at INR 3,30,884/-, thereby resulting in short grant of interest. Necessary directions may please be given to the Ld.AO in this regard. On the contrary, the Ld.DR submitted that these issues do not arise out of the orders passed by the authorities below and therefore are to be rejected. We have perused the submissions advanced by both sides in the light of records placed before us.