M/S SUBEX LIMITED,BANGALORE vs. INCOME TAX OFFICER WARD-6(1)(4), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI. LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT(TP)A No. 107/Bang/2019 Assessment Year : 2014-15 M/s. Subex Ltd., RMZ Ecoworld, The Income tax Outer Ring Road, Officer, Devarabisanahalli, Ward – 6 (1)(4), Bangalore – 560 103. Bangalore. Vs. PAN: AABCS9255R APPELLANT RESPONDENT Assessee by : Shri Ajay Rotti, CA : Shri Sunil Kumar Singh, CIT- Revenue by DR Date of Hearing : 07-06-2022 Date of Pronouncement : 14-07-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 26/10/2018 passed by Ld.ITO, Ward – 6(1)(4), Bangalore for A.Y. 2014-15 on following grounds of appeal: “The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: 1. Assessment and Reference to Learned Transfer Pricing Officer are bad in law 1.1. The Income tax officer. Ward — 6(1)(4), Bangalore (Learned Assessing Officer or 'Ld. AO') erred in making a reference to the Deputy Commissioner of Income-tax, Transfer Pricing —Range 2(2)(1) (learned Transfer Pricing Officer' or 'Ld. TPO'), inter alia, since he has not recorded

Page 2 of 18 IT(TP)A No. 107/Bang/2019 an opinion that any of the conditions in section 92C(3) of the Income-tax Act, 1961 ('the Act') were satisfied in the instant case. Accordingly, the order passed by the Ld. TPO is without jurisdiction. The Hon'ble Dispute Resolution Panel - 2 ('DRP') erred in upholding the actions of the Ld. AO/ Ld. TPO. 2. Assessment proceedings are time barred as per Section 144C(13) of the Act 2.1. The Ld. AO erred in not completing the assessment within the time limit prescribed as per section 144C(13) of the Act. The order passed under section 143(3) read with section 144C(13) of the Act by the Ld. AO was served on the Appellant on November 29, 2018 whereas the due date for completion of the assessment was October 31, 2018. 3. Erroneous treatment of foreign exchange loss pertaining to Foreign Currency Convertible Bonds as operating in nature 3.1. Given the facts and circumstances of the case, the Ld. AO/ Ld. TPO erred in considering foreign exchange loss on Foreign Currency Convertible Bonds ('FCCBs.) as operating in nature while computing the margins of the Appellant for transfer pricing purposes. The Hon'ble DRP erred in upholding the actions of the Ld. AO/ Ld. TPO disregarding the directions of the Hon'ble Income-tax Appellate Tribunal, Bangalore in Appellant's own case for AY 2010-11 in IT(TP)A No. 373/Bang/2015 dated March 18, 2016. and erroneously relying on rulings incongruous to the facts of the case. 4. Determination of arm's length price by the Ld. TPO 4.1. The Ld. AO/ Ld. TPO grossly erred in law in deviating from the uncontrolled party transaction definition as per Rule 10A of the Income-tax Rules, 1962 and arbitrarily applying a 25% related-party criteria in accepting/ rejecting comparables. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 4.2. The Ld. AO/ Ld. TPO erred on facts by inconsistently applying the functional comparability parameter and in selecting Thirdware Solutions Limited as comparable, which is engaged in diversified activities. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 4.3. The Ld. AO/ Ld. TPO erred on facts by selecting Persistent Systems Limited (Persistent') as a comparable, although: a) Persistent is engaged in Outsourced Product Development activities; and b) Persistent achieved inorganic growth through acquisition of other companies. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO.

Page 3 of 18 IT(TP)A No. 107/Bang/2019 4.4. The Ld. AO/ Ld. TPO erred in not applying an upper- turnover filter to identify comparable companies. However, the Ld. AO/ Ld. TPO has applied a lower turnover filter and has accordingly rejected comparable companies with turnover less than INR 1 crore. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO of not applying the upper turnover filter. 5. Restriction of the adjustment value on software development income to the\ proportionate value of international transaction The Ld. AO/ Ld. TPO erred in not restricting the adjustment value on software development income to the extent of the international transactions (i.e. proportionate adjustment) with the Associated Enterprises i.e., being 50.70% of the total software development income of the Company. The Hon'ble DRP erred in upholding the actions of the Ld. AO/ Ld. TPO. 6. Erroneous transfer pricing adjustments arising from interest on trade receivables 6.1. The Ld. AO/ Ld. TPO has erred in considering outstanding receivables from Associated Enterprises (`AEs') to be a separate international transaction and computing interest on the same. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 6.2. The Ld. AO/ Ld. TPO erred in not appreciating that creation of trade receivables was a secondary transaction arising out of international transactions with AEs which has already been benchmarked at the time of income recognition. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 6.3. The Ld. AO/ Ld. TPO erred in not appreciating that the underlying agreement does not have a clause for interest on outstanding balance and hence no such interest is payable by AEs. The Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO. 6.4. Without prejudice to the above, the Ld. AO/ Ld. TPO failed to appreciate that interest on trade receivables, to the extent prudently applicable, has been implicitly factored by the Appellant in pricing its transactions with its Associated Enterprises and could be verified using a working capital adjustment. 7. Erroneous levy of interest under section 234A and 234B 7.1. The Ld. AO has erred in levying interest of INR 17,80,158 under section 234A of the Act, despite the Appellant furnishing return of income within the prescribed due date of November 30, 2014. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it.

Page 4 of 18 IT(TP)A No. 107/Bang/2019 7.2. The Ld. AO has erred in levying interest of INR 4,89.54.345 under section 234B of the Act. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it. 8. Erroneous non-set-off of brought forward business losses and unabsorbed depreciation 8.1. The Ld. AO has erred in not setting-off brought forward business losses and unabsorbed depreciation pertaining to AY 2008-09. 9. Erroneous non-set-off of MAT credit entitlement 9.1. The Ld. AO has erred in law in not setting-off MAT credit entitlement pertaining to earlier AYs. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it. 10. Erroneous non-grant of Foreign Tax Credit 10.1. The Ld. AO has erred in law in not granting Foreign Tax Credit. The Hon'ble DRP has erred in not adjudicating this ground of objection raised by the Appellant before it. 11. Initiation of penalty proceedings under section 271(1)(c) of the Act 11.1. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. The DRP has erred in dismissing the Appellant's objection against initiation of penalty proceedings. 12. Relief 12.1. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.” 2. Brief facts of the case are as under: 2.1 Assessee is in the business of software development and filed its return of income on 27/11/2014 declaring Nil income under the normal provisions of the Act and book loss of Rs.(-)6,71,67,878/- under MAT provisions. The return was processed u/s. 143(1) of the Act and the case was selected for scrutiny and notice u/s. 143(2) of the Act and 142(1) was issued to assessee. In response to the statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as

Page 5 of 18 IT(TP)A No. 107/Bang/2019 called for. The Ld.AO noted that the assessee for the year under consideration entered into international transaction with its associated enterprise exceeding Rs. 15 crores, and accordingly reference was made to the transfer pricing officer under 92CA of the Act. 2.2 On receipt of reference under 92CA, the Ld.TPO called upon the assessee to file economic details of the international transaction, with the associated enterprise. Upon receipt of the details, the Ld.TPO observed that, following were the international transaction between the assessee and its AE:

2.3 The Ld.TPO observed that assessee had used OP/OC as the PLI for computing its margin at 15.63%. The Ld.TPO noted that assessee treated foreign exchange fluctuation as operating in nature for computing the PLI of tested party of the comparables. The assessee used 4 comparables for SWD service segment. Applying TNMM as the most appropriate method, computed the arms length margin. The PLI in the hands of the comparable was determined by considering weighted average method for the preceding 3 years by the assessee. The Ld.TPO after verifying the details observed that the margin of the comparables computed by the assessee was at 12.56%.

Page 6 of 18 IT(TP)A No. 107/Bang/2019 2.4 Dissatisfied with the transfer pricing study by the assessee, the Ld.TPO applied certain filters and short listed a set of following 6 companies and issued show cause notice to assessee.

2.5 The Ld.TPO after deliberation with the assessee in respect of the comparables selected, finalised following set of 5 comparables with average margin of 32.87% and 24.19% for the SWD service segment and Marketing and Allied Service Segment, respectively. 2.6 The Ld.TPO proposed adjustment of Rs.41,53,84,810/- and Rs.29,73,40,648/- as shortfall in respect of SWD segment and Marking and Allied Service segment respectively. The Ld.TPO thereafter observed that, the assessee had not benchmarked the receivables with delay. The Ld.TPO after referring to various propositions computed interest on delayed receivables as under:

Page 7 of 18 IT(TP)A No. 107/Bang/2019 2.7 The Ld.TPO used weighted average method by adopting LIBOR of six months + 400 basis points. The Ld.TPO computed the proposed adjustment under 3 heads as follows:

2.8 On receipt of the order u/s. 92CA, the Ld.AO passed draft assessment order by making further additions in the hands of the assessee that are as follows: Addition u/s. 40(a)(ia) at Rs. 3,15,97,095/- 2.9 On receipt of the draft assessment order dated 26/12/2017, assessee filed objections before the DRP. The DRP after considering various submissions of the assessee, rejected the objections partly. The DRP partly considered the claim of the assessee by directing the Ld.AO to compute the adjustment invoicewise with reference to amounts received beyond the credit period / not received within the credit period. 2.10 On receipt of the DRP directions, the Ld.AO passed the impugned assessment order, by deleting the adjustment under marketing and allied service segment and the interest on trade receivables was computed at Rs. 10,55,41,811/-, SWD service segment of Rs.20,65,31,366/-. In respect of the disallowance of the professional charges for non-deduction of TDS, the Ld.AO upheld the addition in the hands of the assessee as proposed in the draft assessment order.

Page 8 of 18 IT(TP)A No. 107/Bang/2019 2.11 Aggrieved by the order of Ld.AO, assessee is in appeal before this Tribunal. 3. At the outset, the Ld.AR submitted that Ground no. 1 is general in nature and does not require adjudication. 4. Ground no. 2, 4 & 5 are not pressed. Accordingly, these grounds are dismissed as not pressed. 5. In respect of Ground no. 3, the Ld.AR submitted that in the assessee’s own case for A.Y. 2010-11 forex gain on restatement of FCCB is held to be operating in nature. It is submitted that, also in respect of unrealised foreign exchange gain on FCCBS, whether to be treated as income or not, was also concluded in favour of assessee in assessee’s own case in ITA No. 689/Bang/2014 which forms part of the order passed by this Tribunal for A.Y. 2010-11. It is submitted that following the view in A.Y. 2010-11, assessee did not claim foreign exchange gain of FCCB for acquisition of capital asset in the computation of income and the same was treated as operational income while computing margin under the transfer pricing provisions. 6. The Ld.DR submitted that the same may be verified and considered in accordance with law. 7. We have perused the submissions advanced by both sides in the light of records placed before us. 8. We note that Coordinate Bench of this Tribunal for A.Y. 2010-11 in assessee’s own case considered the issue by observing as under: “10.1. Coming to the issue in Ground Nos. 16 & 17, the facts are that assessee has issued FCCBs amounting to Rs. 780.75 Crores for the purpose IT(TP)A Nos.373 & 374/Bang/2015 of acquisition of Subex America INC, a overseas subsidiary. The investment in Subex America's INC amounting to Rs. 774.95 Crores appears in schedule

Page 9 of 18 IT(TP)A No. 107/Bang/2019 'G' to the financial statements. Assessee has recognized un- realised foreign exchange fluctuation gain amounting to Rs. 91.88 Crores on restatement of FCCBs and credited the same to its P&L A/c. However, restatement gain being related to investment in Subex America was not offered to tax in the return of income. AO has not allowed the exclusion from the computation of income. The DRP it seems allowed the said income to be operational income while considering the TP adjustments. Assessee has not questioned the above order of the DRP in TP matter. However, as far as the issue whether un-realized foreign exchange gain on FCCBs should be treated as 'income' or not has been concluded in favour of assessee by the orders of Co-ordinate Bench in ITA No. 689/Bang/2014 dt. 19-06-2015, wherein it was held as under: "37. The last issue that arises for consideration is as to whether unrealised foreign exchange gain should be treated as "Income" or not? 38. The stand of the Assessee in this regard was that the gain is on capital account and cannot be regarded as income. The Assessee also pointed out that in the subsequent year, there was a loss on account of restatement of the Assessee's liability on account of adverse fluctuation of foreign exchange and consequent liability on account of FCCBs and in that year the Assessee did not claim the loss as it was on capital account. The Assessee has therefore been consistent and not inconsistent as has been observed by the CIT in the impugned order u/s.263 of the Act. The learned counsel for the Assessee has before us placed reliance on the decision of the Hon'ble Supreme Court in the case of Woodward Governors 312 ITR 254 and the decision of the decision of the Hon'ble Madras High Court in the case of CIT Vs. PVP Ventures Ltd. (2012) 23 Taxmann.com 286 (Mad.). 39. The factual position that the exchange fluctuation is owing to restatement of FCCBs is not disputed. The admitted position is that FCCBs were issued for purpose IT(TP)A Nos.373 & 374/Bang/2015 of acquisition of a new industrial undertaking and was therefore on capital account. The Hon'ble supreme Court in the case of Woodward Governor (supra) laid down the principles in this regard. The Hon'ble Court in Para-4 of its judgment observed as follows:- "At the outset, for the sake of convenience, we may state that in this batch of civil appeals broadly we have before us two categories. In the first category, we are concerned with exchange differences arising in foreign currency

Page 10 of 18 IT(TP)A No. 107/Bang/2019 transaction on revenue items. In such category, we are concerned with the assessee(s) incurring loss on revenue account. In that category, we are concerned with the provisions of ss. 28, 29, 37(1) and 145 of the IT Act, 1961 ("1961 Act"). In the second category of cases, we are concerned with exchange differences arising on repayment of liabilities incurred for the purpose of acquiring fixed assets. In other words, in the second category of cases, we are concerned with the assessee(s) incurring liabilities on capital account. In such cases, we are required to consider the provisions of s. 43(1), 43A (both, before and after amendment vide Finance Act, 2002)." Thereafter in para 22 of its judgment it dealt with cases where the fluctuation is on account of capital items as follows:- "Facts in M/s Honda Siel Power Products Ltd. (Civil Appeal arising out of SLP(C) No. 7632/08) Capital account case : 22. The main issue which arises for determination in this batch of civil appeals is : whether the assessee was entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance sheet date pending actual payment of the varied liability. In this batch of civil appeals, we are concerned with increase in the existing liability on account of foreign exchange fluctuations on "capital account"." 40. After considering the provisions of Sec.43A of the Act, the Hon'ble Supreme Court held that Sec. 43A(1) applies where as a result of change in rate of exchange there is an increase or reduction in the liability of the assessee in terms of Indian rupees to pay the price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for the purpose of acquiring the asset. 43A(1) has no application unless the asset is acquired and the liability existed, before the change in the rate of exchange takes effect. Increase or decrease in liability for repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account of fluctuation in the rate of exchange, irrespective of the date of actual payment in foreign currency. 41. In the case of PVP Ventures Ltd. (supra), the facts were that the Assessee gained from exchange fluctuation. The fluctuation was on foreign exchange received pursuant to issue of shares in the form of GDS. The assessee kept a part of the money abroad. When the money was brought to

Page 11 of 18 IT(TP)A No. 107/Bang/2019 India, due to strong dollar position, the assessee gained on the repatriated amount. This was claimed as a capital receipt. The amount had direct nexus with the capital raised and consequently the assessee IT(TP)A Nos.373 & 374/Bang/2015 contended the same was a capital receipt. The Commissioner of Income Tax pointed out that there was no dispute with regard to the fact that the exchange fluctuation income related to the deposit of money raised by the assessee from the GDS issue. Pointing out the printed prospectus to the issue of GDS, the Commissioner viewed that the aggregate net proceeds received were used principally to fund the establishment of offshore software development and the balance was used for working capital and for other general corporate purposes. The Commissioner viewed that the assessee had kept FDs of the GDS proceeds on its own and not because of any compulsion. Consequently, the amount received on account of exchange fluctuation to the tune of Rs.16,35,77,977/- was to be treated as revenue receipt and the Assessing Officer erred in reducing it in the income of the assessee while computing the deduction under Section 80HHE. The Hon'ble Madras High Court held that the claim of the revenue was unsustainable. The Hon'ble Court held that since the amount had direct nexus with the capital raised, the assessee's claim that the same was capital receipt and hence not taxable was correct. 42. In our view the facts of the case in the decision of the Madras High Court in the case of PVP Ventures Ltd. (supra), is identical to the facts of the case of the Assessee in this appeal. FCCBs are instruments issued to investors for raising funds which is repayable after certain period. It is a debt instrument. The increase or decrease in liability on account of fluctuation in foreign exchange as on the date of the Balance sheet would increase or decrease the liability of the Assessee and such liability would be on capital account. Therefore the gain or loss would be on capital account and not taxable. We accordingly hold in favour of the Assessee on this issue". Respectfully following the same, we direct the AO to treat the above amount as on capital accout, to be adjusted in capital accounts. However, if any benefit was obtained by assessee in the TP provisions by treating this amount as operational income, we direct the AO/TPO to examine the working again, so as to exclude the amount from the computation and if any adjustment is required. Assessee cannot take advantage of its own stand to the detriment of Revenue in TP provisions. There should be a constant approach. Treatment of this gain as operational income

Page 12 of 18 IT(TP)A No. 107/Bang/2019 does not arise as the same was not treated as income, therefore any computation based on that has to be reexamined. This issue can be considered by the TPO afresh and if IT(TP)A Nos.373 & 374/Bang/2015 necessary, necessary proceedings can be initiated under the TP provisions as a direction by the Bench. With these directions, these grounds are allowed.” 9. We direct the Ld.AO to verify the claim of assessee that the gain has not been claimed in the computation of income and forms part of computing the margin as per transfer pricing provisions. The Ld.TPO is directed to consider the claim in accordance with the above view in assessee’s own case for A.Y. 2010-11 (supra). 10. Ground no. 6 is in respect of interest on trade receivables. 10.1 The Ld.TPO computed interest on outstanding receivables at the rate equal to 4.3087% on receivables that exceeded 90 days as per the directions of the DRP. 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. The Ld.AR placed reliance on decision of Delhi Tribunal in Kusum Healthcare Pvt. Ltd. vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon’ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. (2017) 398 ITR 66 (Del), 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 vs DCIT reported in (2016) 66 taxman.com 6 which subsequently upheld by Hon’able Delhi High Court vide order dated 21/07/16 in ITA No. 379/2016, also upheld by Hon’ble Supreme Court vide order dated 21/07/17, in CC No. 4956/2017.

Page 13 of 18 IT(TP)A No. 107/Bang/2019 10.2 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. 10.3 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 Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) 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;....’. 10.4 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.

Page 14 of 18 IT(TP)A No. 107/Bang/2019 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 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 vs. Patni Computer Systems Ltd., (2013) 215 Taxmann 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?” 10.5 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

Page 15 of 18 IT(TP)A No. 107/Bang/2019 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. 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 (2015) 276 CTR 445 (Del) 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. 10.6 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 in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15-7-2016, 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 92 B of the Act. Alternatively, it also argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables as loans and advances to associated enterprise would amount to double taxation. Hon’ble Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 has observed that: “There may be a delay in collection

Page 16 of 18 IT(TP)A No. 107/Bang/2019 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-à-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. vs. 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 characterized as international transactions.” 10.7 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. Accordingly these ground raised by assessee stands allowed for statistical purposes.

Page 17 of 18 IT(TP)A No. 107/Bang/2019 11. Ground nos. 7 & 11 are consequential in nature and do not require adjudication. 12. Ground nos. 8-10 are in respect of the claim of assessee in respect of set off of brought forward business losses and unabsorbed depreciation, set off of MAT credit, and non-granting of foreign tax credit. We direct the Ld.AO to consider the above claim in accordance with law. The assessee is directed to furnish relevant information / details in support of the claim. Accordingly, these grounds filed by assessee stands allowed for statistical purposes. 13. Except for the above grounds considered hereinabove, no other grounds have been argued by assessee. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in open court on 14th July, 2022.

Sd/- Sd/- (LAXMI PRASAD SAHU) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 14th July, 2022. /MS /

Page 18 of 18 IT(TP)A No. 107/Bang/2019 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, ITAT, Bangalore