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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI N V VASUDEVAN & MS. PADMAVATHY S
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND MS. PADMAVATHY S, ACCOUNTANT MEMBER
IT(TP)A No.185/Bang/2021
Assessment year : 2015-16
ANZ Support Services India Private Vs. The Dy. Commissioner of Income- Limted tax , Eucallyptus Circle-1(1)(1), Manyata Embassy Business Park – Bengaluru. SEZ K.R Purram, Hobli Bengaluru - 560045
APPELLANT RESPONDENT
Assessee by : Shri. Chavali Narayanan, C.A Revenue by : Dr. Manjunath Karkihalli, CIT(DR)
Date of hearing : 04.04.2022 Date of Pronouncement : 06.04.2022
O R D E R Per Padmavathy S, Accountant Member
This appeal of the assessee is directed against the order DCIT, Circle-1(1)(1) (the AO), Bengaluru passed u/s 143(3) r.w.s 144C of the Income-tax Act 1961 (the Act) dated 31/03/2021 for the asst. year 2015-16.
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The assessee is part of Australia and New Zealand Banking Group Limited, Melbourne (“ANZBGL”) and is in the business of providing IT enabled services (ITeS) to its Associated Enterprises (AE) i.e. ANZBGL branches and group entities. In terms of the provisions of Sec.92-A of the Act, the assessee and its wholly owned holding company were Associated Enterprises ("AEs"). In terms of Sec.92B(1) of the Act, the transaction of providing ITeS was an "international transaction" and in terms of Sec.92(1) of the Act, any income arising from an international transaction shall be computed having regard to the arm's length price.
A bilateral Advance Pricing Agreement (APA) was entered into between the CBDT and the assessee on 30/08/2018 and the APA is applicable for five years commencing from financial year 2015-16 to 2019-20 and also for four rollback years commencing from financial year 2011-12 to 2014-15.
The assessee filed the return of income for the assessment year 2015-16 on 25/11/2015 and later filed the revised return on 23/02/2016 declaring a final income of Rs.64,61,25,270. The case was selected for scrutiny through CASS and notice under 143(2) of the Act dated 19/03/2016 was duly served on the assessee. Since the assessee company had international transactions on trade receivables with the
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AE as per section 92B of the Act, the case was referred to the transfer pricing officer (TPO) in order to determine the arms length price. In pursuant to the APA the assessee filed modified return on 26/10/2018. The TPO made an adjustment towards outstanding receivables treating the same as a separate international transaction and calculated interest @ 4.3836%. The assessee raised objections before the DRP and the DRP confirmed the treatment of the outstanding receivables as a separate international transaction, but gave direction to adopt the State Bank of India short term deposit rate for computing the interest. The AO passed the final order giving effect to the directions of the DRP.
The issue for consideration is determining the transfer pricing adjustment on account of the interest on outstanding receivables amounting to Rs.2,17,00,959. The assessee raised the following grounds in this regard
(i) The learned AO has erred in assessing the total income at INR 66,78 ,26,230 without having regard to the modified return of income filed by the assessee on 29 October 2018 pursuant to the Advance Pricing Agreement (APA) signed on 30th August 2018
(ii) The learned AO/TPO/DRP have erred in law and in facts by not considering interest on delayed receivables as a covered transaction under the Bilateral APA and not appreciating that the realization period of 60 days should be applicable for the subject year
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(iii) The learned AO/TPO/DRP have erred in law and in facts in re- characterizing the outstanding receivable as on 31st March 2015 as a loan transaction and determining transfer pricing adjustment on account of interest on outstanding receivables mounting to INR 2,17,00,959
(iv) Without prejudice to our ground of appeal number 3 above The learned AO/TPO/DRP have erred in law and in facts by not appreciating that the outstanding trade receivable from its AEs arise from the Information Technology Enabled Services (ITeS) transaction which is to be considered as closely linked to such transaction and should not be tested separately from arms length perspective
(v) Without prejudice to our ground of appeal number 3 above t The learned AO/TPO/DRP have erred in law and in facts by using short-term deposit rates of interest of State Bank of India prevailing for financial year 2014-15 as the arms length interest rate for computing notional interest to be charged on the alleged delay in collection of receivables
The assessee had entered into International transaction with the AEs with respect to providing ITeS. The assessee had allowed credit period for payment by the AEs. The TPO in his order passed under section 92CA of the Act considered the grant of excessive credit period beyond normal period to the AE as an international transaction. The TPO made adjustment by imputing interest on outstanding receivable and held that -
(i) Outstanding receivable is a separate international transaction
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(ii) These funds could have been deployed for earning at least interest income and therefore the assessee has incurred cost in connection with the benefit and thus provided services to its AEs by way of delayed deposit receipt of receivables
(iii) The delay in receipt of receivables from AEs was not compensated through a set off in any other transaction
(iv) Delayed receivables are in the nature of unsecured loan given to AEs
Thereafter in the absence of invoice wise details the TPO levied interest on delayed receivable for a credit period in excess of 30 days (as mentioned in the intercompany agreement) at 4.3836 % (i.e. 6 months LIBOR plus 400 Basis points) on the average net receivables from AEs as on opening and closing dates of the subject financial year
Aggrieved, the assessee filed the objections before the DRP raising the following contentions
(i) The outstanding receivables cannot be treated as a separate International transaction
(ii) all services related costs are embedded in the remuneration received from the AEs. As the account receivable from an international transactions are closely linked to the main international transaction it should be benchmarked using an aggregated approach
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(iii) Outstanding receivables from AEs cannot be characterized as loan advanced to AEs
(iv) Working capital adjustment appropriately takes into account the delayed outstanding receivables hence separate adjustment is unwarranted
(v) No interest cost to the assessee
(vi)The commercial wisdom of the assessee cannot be questioned
(vii) The actual credit period allowed by the assessee to be compared with average credit period of comparables
(viii) The information provided during the APA finalization should have been considered in allowing credit period of 60 days
(ix) The ALP rate adopted by the TPO is not correct
The DRP vide direction dated 29th May 2020 April upheld that outstanding receivable is a separate international transaction and directed the TPO to compute interest on delayed receivables using short term deposit rates of interest of SBI prevailing in financial year 2014-15 taking invoice wise details of realization. The DRP in the order had stated that if the funds were brought in time and those funds were properly deployed the assessee may earn an income at the maximum rate applicable to deposit and not at the rate applicable to loans.
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Aggrieved by the order of the Dr P the assessee filed an appeal before The Tribunal.
The Ld AR submitted that as per the APA a period of 60 days has been agreed for the realisation of invoices pertaining to International transactions from 1st April 2017 entered into with the AEs and that the actual weighted average realisation period for the assessment year 2015-16 is 53 days (refer page number 343 of paper book 1). The Ld AR also submitted that during the APA proceedings the detailed weighted average realisation period for rollbacks years including assessment year 2015-16 was submitted with the Indian competent authorities office and the Indian competent authorities office observed that the weighted average receivable days where within 60 days therefore accordingly agreed for the credit period from 1st April 2017 onwards to be at 60 days. The Ld AR further submitted that the co-ordinate bench of the Tribunal in assessee’s own case for the assessment year 2014-15 (IT(TP)A No.58/Ban/2019) has dealt with the same issue and held in favour of the assessee. The Ld AR drew our attention to the fact that the year under consideration is part of the rollback year and the decision of the Hon’ble Tribunal which is rendered for one of the rollback years on the same issue is squarely applicable to the assessee’s case.
The Ld DR relied on the decisions of the lower authorities.
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We have considered the rival submissions and perused the materials on record. We notice that the coordinator bench of the Tribunal in assessee’s own case (supra) has considered as a similar issue for the rollback years covered under the AP and has held that
“8. It is the plea of the learned counsel for the assessee that the concept and the methodology laid down in APA can have guidance value for the revenue authorities. The main intent of the APA is to protect the fair share of the revenue of the states in simple and efficient manner and to protect the tax base. Therefore the agreement entered into by CBDT with the assessee which has considered all the aspects of the manner of determination of ALP should be given highest sanctity and hence mechanism suggested in that agreement should be necessarily followed wherein the APA clearly provides a realisation period of 60 days to the assessee.
Our attention was drawn to the clarification on rollback provisions issued by the CBDT vide circular number 10/2015 dated 10th June 2015 rule 10MA(2)(i) of the Income-Tax rules mandates that rollback provisions shall apply in respect of an international transaction that is same as the international transaction to which the agreement applies. Further the Functions Assets and Risks (FAR) analysis should not differ materially. Since there is no change in the FAR analysis of the assessee and the nature of international transactions are identical in the nature for all the nine years covered under APA, that the approach on credit period agreed in the APA for subsequent years is applicable for the assessment year 2014-15 (rollback year) as well 10. The learnt counsel for the assessee further placed Reliance on the judicial proceedings in support of his arguments were in the Honorable branches of the Tribunal have held that the
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methodologies/approach has agreed with CBDT in the APA covered years shall be applied for other years as well which are not covered under APA Ameriprise India Pvt Ltd (TS-174-HC-2016(DEL)-TP) Celtick Technologies Ltd (TS-552-ITAT-2019(Mum)-TP) Abicor Binzel Production (India) Pvt Ltd. (TS-1036-ITAT- 2017(PUN)-TP)
We have considered the submissions and are of the view that the assessment year 2014-15 is covered under the rollback period of APA. Also the FAR for all the years covered under APA is same. Hence the period of realisation of 60 days which is agreed in the APA for 1st April 2017 onwards should be considered for assessment year 2014-15 as well. The principle laid down in the decision referred to in paragraph 10 of this order, will apply to the present case also. We hold and direct accordingly.
The year under consideration i.e. AY 2015-16 is also part of the rollback years as per the APA and the weighted average realisation period for the assessment year under consideration is 53 days which is within the realisation period of 60 days allowed under the APA. The FAR for all the years covered under the APA is same and hence the decision of the Hon’ble Tribunal in assessee’s own case (supra) is directly applicable to the year under consideration also. We respectfully follow the decision of the co-ordinate bench of the Tribunal and hold that period of realisation of 60 days which is agreed in the APA for 1st April 2017 onwards should be considered for
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assessment year 2015-16 as well. The appeal is allowed in favour of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in court on 5th April, 2022
Sd/- Sd/- (N.V.VASUDEVAN) ( PADMAVATHY S) Vice President Accountant Member Bangalore, Dated, 5th April, 2022 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.
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Date of Dictation …………………………………… 2. Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr.P.S .……………………………. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ………………….. 9. Date on which order goes for Xerox & endorsement…………………………………… 10. Date on which the file goes to the Head Clerk ……………………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. ……………………………………………..