M/S. ANZ SUPPORT SERVICES INDIA PRIVATE LIMITED,BENGALURU vs. INCOME-TAX OFFICER, WARD-1(1)(1), BENGALURU

The assessee is engaged in the business of provision of Information Technology enabled Services (ITeS) to its Associated Enterprise (AE). The assessee has raised as many as 24 grounds of appeal. Ground No.1 raised by the assessee is general in nature and calls for no specific adjudication.

IT(TP)A No.58/Bang/2019 Page 2 of 13 Grounds 2 to 11 are with regard to determination of ALP in respect of international transaction of rendering ITeS by the assessee to its AE. These grounds were not pressed for adjudication as the assessee entered into a Bilateral Advance Pricing Agreement (APA) with the CBDT dated 31.08.2018 which is applicable for 5 years commencing from Assessment Year 2016-17 to 2020-21 and roll back year commencing from 2012-13 to 2015-16. It was submitted by the learned Counsel for the assessee that the assessee has filed modified return of income as per the margin agreed under the APA and paid taxes accordingly. The AO is yet to pass an order in the modified returns filed on 22.11.2018 by the assessee. Grounds 2 to 11 accordingly were not pressed for adjudication by the assessee, hence dismissed.

Grounds 12 to 16 raised by the assessee reads as follows:

The assessee is engaged in the business of providing ITeS to its group companies. The assessee had entered into international transaction with its AE. The assessee had allowed credit period for payment by the AE. The Transfer Pricing Officer (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 and made adjustment by imputing interest on outstanding receivables and held that —

The TPO levied interest on delayed receivables for the credit period in excess of 30 days (as mentioned in the inter-company agreement) @ 4.3836% for USD, 7.25% for AUD and 7.21% for NZD (i.e. 6 months

The Dispute Resolution Panel (DRP) vide its directions dated 06 September 2018, did not grant any relief and upheld the same to be a separate international transaction. However, the Hon'ble DRP directed the learned AO / TPO to compute interest on delayed receivables using short term deposit rates of interest of State Bank of India prevailing in FY 2013-14. The DRP held 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 deposits and not at the rate applicable to loans. Aggrieved by the order of the AO incorporating the addition as modified by the DRP, the assessee has raised ground Nos.12 to 16 before the Tribunal.

The learned Counsel for the assessee brought to our notice that it had filed an application for Bilateral Advance Pricing Agreement to the competent authority under the Act in respect of the international transaction of allowing credit period to the AE also. As per the APA, a realization period of 60 days has been agreed for the realisation of invoices pertaining to international transactions (i.e. ITeS) from 01 April 2017 entered into with the AEs (refer Pg No. 643 of Paperbook I). Further. the actual weighted realization period for AY 2014-15 is 48 days (refer Pg No. 626 to 632 of Paperbook I). It was submitted by him that the realization period of 60 days as agreed in the APA for subsequent years (FY 2016-17 onwards) should also be applicable for AY 2014-15 (rollback year). It was submitted that during the APA proceedings, the detailed weighted average realization period for rollback years including AY 2014-15 were submitted with the IT(TP)A No.58/Bang/2019 Page 5 of 13 India Competent Authority office (Pg No. 622 to 632 of Paperbook I). The Indian Competent Authority office observed that the 60 days credit period will be considered as normal and for late realization beyond 60 days prevailing bank rate will be charged.

It is the plea of the learned Counsel for assessee that the concept and the methodology laid down in APA can have a 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 realization period of 60 days to the assessee.

Our attention was drawn to the clarifications on rollback provisions issued by the CBDT vide Circular No. 10/2015 dated 10 June 2015, Rule 10MA(2)(i) of the Income Tax Rules mandates that the rollback provision shall apply in respect of an international transaction that is same as the international transaction to which the agreement (other than the rollback provision) 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 nature for all the nine years covered under APA, that the approach on credit period agreed in the APA for subsequent years is applicable to the AY 2014-15 (rollback year) as well.

We have considered the submissions and are of the view that AY 2014 -15 is covered under roll-back period of the APA. Also, the FAR for all the years covered under APA is same. Hence, the period of realization of 60 days which is agreed in the APA for 01 April 2017 onwards should be considered for AY 2014-15 as well. The principle laid down in the decisions referred to in paragraph 10 of this order will apply to the present case also. We hold and direct accordingly.

The issues with regard to corporate taxes are projected by the assessee in grounds 17 to 24 which reads as follows:

As far as these grounds are concerned, the facts are that in the draft assessment order, the AO considered/ treated the software expenditure amounting to INR 6,50,52,354 as capital expenditure stating that license charges are paid for continuing the usage of software and allowed depreciation at 30% of the said expenses amounting to INR 1,95,15,706, thereby disallowing INR 4,55,36,648 and also re-determined the deduction under section 10AA of the Act after excluding travel and communication expenses only from export turnover, thereby disallowing INR 80,39,365.

On objections to the draft Order of Assessment, the DRP passed an order directing the AO to verify the invoices and allow the software expenditure if the license is for a period less than a year and if not, expenditure to be capitalised and depreciation to be allowed at 60% and also exclude the communication expenses and travel expenses in foreign currency that are attributable to delivery of product or service outside India from export turnover as well as total turnover while computing the eligible deduction under Section 10AA of the Act.

The AO passed final Order of Assessment pursuant to DRP's direction which is the order impugned in this appeal in which the bills were not submitted as per the requirements and being not supported by the purchase order and that the bills did not mention the period for which the expenditure was incurred towards software license and subscription to data base. Further, the AO also disregarded with the submission dated 10 October 2018 on the basis that it was filed beyond 10 days granted by DRP and thereby disallowed INR 6,50,52,354 considering the same to be in the nature of capital expenditure and accordingly, allowed depreciation of INR 1.95,15,706. In this regard, the AO acknowledged the DRP direction of IT(TP)A No.58/Bang/2019 Page 9 of 13 allowing depreciation @ 60%, however, in the computation of tax liability, has considered depreciation at a rate of 30% only.

Further, in relation to deduction under section 10AA of the Act, while the AO did acknowledge the allowance as per the directions of DRP however, in the computation of tax liability, the disallowance was retained.

In the draft assessment order, the AO did not to grant credit of foreign tax paid by the assessee which was also upheld by the Hon'ble DRP. The assessee was not given an opportunity to file any detail in this regard, the copy of withholding tax certificate evidencing the taxes paid in foreign countries (Vietnam and Taiwan) were filed as additional evidence before the Tribunal.

It is the contention of the assessee that based on the DRP direction, the assessee filed the details of software expenses specifying the period of renewal of software in the said AY. However, the AO did not accept the details filed by assessee (vide its letter dated 26 September 2018 and 10 October 2018) disregarding the fact that the invoices disclosed the period of software licence and also balance details filed by the assessee was within the additional time granted by the AO (vide its letter dated 10 October 2018). The assessee has therefore filed an application under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963, to admit the details as additional evidence which application in our view deserves to be accepted for adjudication of issue in appeal.

The learned Counsel for the assessee gave us the details of software expenses which was disregarded by the learned AO while passing the final assessment order for AY 2014-15.

The assessee has also filed the copy of invoices that were submitted before the AO (vide its letter dated 26 September 2018) in the Paperbook filed before us. (Pg No. 899 of Paperbook II). Further, in relation to the details of invoices filed by assessee vide submission dated 10 October 2018, the assessee has filed copy of invoices as an additional evidence before us on 18 February 2021.

In relation to deduction under section 10AA of the Act (with respect to communication and travelling expenses), the AO acknowledged the allowance as per the directions of DRP, however, in the computation of tax liability, the disallowance was retained.

The assessee has submitted the copy of withholding tax certificates before us evidencing taxes amounting to INR 17,27,084 paid in foreign countries, hence the assessee should be allowed the credit under section 90 of the Act.