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PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against the assessment order passed by the DCIT, National Faceless Assessment Centre, Delhi dated 30/09/2021 involving proceedings u/s 143(3) rws 144C(13) rws 144B of the Income Tax Act, 1961 ; in short “the Act”.
Briefly the facts of the case are that the Assessee Company is a wholly owned subsidiary of Intergraph Corporation, USA. The company is engaged in trading of
:- 2 -: ITA-TP No. 486/Hyd/2021 Hexagon Capability Center India Pvt. Ltd., Hyd. software and providing engineering and geospatial software services that enables customers to visualize/analyze complex data. The assessee filed ITR for AY 2017-18 declaring total income at Rs 40,46,96,770/-. Subsequently the case was selected for scrutiny under CASS and accordingly notices u/s 143(2) and 142(1) with questionnaires were issued to the assessee and assessee submitted its replies. One of the reasons for selection of the case under CASS was large value of international transactions in services. Hence, the case was referred to Transfer Pricing officer (TPO) for determination of Arm's Length Price. The TPO in his order u/s. 92CA(3) of the IT Act, 1961 dated 28/01/2021 made an adjustment of Rs 90,17,049/- in respect of assessee's international transaction.
2.1 Subsequently, a Draft Order u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 was passed on 01-04-2021 duly incorporating the adjustment proposed by the TPO.
Aggrieved by this Draft Order, the Assessee filed objections before the Hon'be DRP, Bengaluru. The Hon'ble DRP, vide its Directions u/s 144C(5) of the Income-Tax Act, 1961 dated 19-08-2021 directed the TPO as under:
"Accordingly, the TPO is directed to adopt the SBI short term deposit interest rate for the subject year as the
:- 3 -: ITA-TP No. 486/Hyd/2021 Hexagon Capability Center India Pvt. Ltd., Hyd. ALP interest rate and re-compute the adjustment to be made to the total income".
3.1 Following the Directions of the DRP, the TPO re- computed interest on the trade receivables vide order dated 28.09.2021 at Rs. 94,41,456/-.
The AO passed final assessment order determining the total income of the assessee at Rs. 41,41,38,226/- my making adjustment on account of interest on trade receivables at Rs. 94,41,456/-.
Aggrieved by the order of the AO, the assessee is in appeal before the ITAT.
The assessee has raised 6 grounds of appeal, out of which, the assessee has not pressed ground No. 5 regarding education cess and higher secondary education cess. Therefore, the same is dismissed as not pressed.
6.1 Ground Nos. 3 & 4 are charging of interest u/s 234B and 234C, which are consequential in nature.
6.2 Ground No. 6 is regarding penalty u/s 271(1)(c) and 271BA, which is premature in nature.
:- 4 -: ITA-TP No. 486/Hyd/2021 Hexagon Capability Center India Pvt. Ltd., Hyd. 7. The grounds that are required to be adjudicated by is ground No. 1 (a to j) relating to interest on trade receivables and ground No. 2 regarding disputed tax credit.
Before us, the ld. AR of the assessee that outstanding receivables are not an international transaction and do not fall within the definition of capital financing as amended by Finance Act, 2012.
On the other hand, the ld. DR relied on the order of DRP.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. Similar issue came up for consideration before the coordinate bench of this Tribunal in the case of ITO Vs. Pegasystems Worldwide India Pvt Ltd., in ITA No. 451/Hyd/2016 and others for AYs 2011-12, 2012-13 and 2013-14 vide order dated 09/06/2021, wherein the coordinate bench held as under:
“5. We notice at the outset that the DRP's directions in Revenue's Appeal (ITA 451/H/2016) have placed reliance on the tribunal's Order in assessee's appeal itself ITA No.1758 & 1936 /H/2014 deleting identical adjustment that there is no material on record about the impugned receivables to have arisen as a consequence to sales made to the AE(s) thereby forming an independent transaction u/s. 92B of the Act. We are further informed that the learned lower authorities have adopted State Bank of India's Short Term Deposit
:- 5 -: ITA-TP No. 486/Hyd/2021 Hexagon Capability Center India Pvt. Ltd., Hyd. Rates between 4.7% and 7.25% in AY 2012-13 and 2013-14 whilst making the impugned adjustment. 6. The first and foremost argument raised at both the party's behest is as to whether interest on receivables forms an international transaction or not u/s.92B of the Act. Suffice to say, this tribunal's co- ordinate bench decision "Bechtel India Pvt Ltd" (2017) 85 taxmann.com 121 (Delhi) holds that interest on receivables indeed comes within the purview of section 92B Explanation (c) inserted vide Finance Act 2012 as applicable with retrospective effect from 1/4/2002. Hon'ble Madras high court's recent judgment in PCIT Vs Reddington India dated 10/12/2020 in Tax Appeals 590-591/2019 also holds the same view. We thus, accept the Revenue's arguments in principle that interest on receivables is indeed an international transaction U/s.92B of the Act. 7. Next comes the adjudication of the impugned issue on merits. We notice with the able assistance of both the parties that neither of the TPO in these three assessment years has given any comparable instance in the very segment whilst charging the impugned interest on the assessee's receivables since he had adopted the SBI's term deposit rates only in benchmarking the same. 8. The Revenue's endeavor before us supports the lower authorities' action on the pretext that such receivables are very much akin to a financial transaction to be benchmarked as per the SBI's short term lending or deposit rates. We find no merit in the Revenue's instant argument since Chapter -X of the Act is a special provision wherein each and every adjustment could only be made going by the uncontrolled market price of the transactions in the very segment; followed by benchmarking thereof as per the international currency "LIBOR" rates only. We, therefore, reverse the TPO's identical action in all these Assessment Years in view of the foregoing twin reasons regarding non- quantification of the impugned adjustment(s) segment
:- 6 -: ITA-TP No. 486/Hyd/2021 Hexagon Capability Center India Pvt. Ltd., Hyd. wise and as per the LIBOR rates. Coupled with this, the fact also remains that the Assessee has already succeeded on the very issue in AY 2009-2010. We, thus, follow judicial consistency as whilst confirming the DRP's directions in A.Y: 2011-2012 to the Assessing Officer to delete the impugned interest adjustments on receivables of Rs.2,30,25,260/- and further delete similar adjustments of Rs.12,12,62,138/- and Rs.12,71,68,334/- in assessee's appeals ITA No.131 & 2196/H/2017 in AYs 2012-13 and 2013-14 (supra); respectively. 10.1 As the issue in the case under consideration is similar to the decision, respectfully following the same, the addition of Rs. 94,41,456/- made by the AO on account of interest on outstanding receivables is hereby deleted and the grounds raised on this issue is allowed.
As regards ground No. 2 relating to set off of TDS against disputed tax liability, we direct the AO to verify the TDS and decide the issue in accordance with law. This ground is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes in above terms. Pronounced in the open court on 13th April, 2021.
Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 13th April, 2021.
:- 7 -: ITA-TP No. 486/Hyd/2021 Hexagon Capability Center India Pvt. Ltd., Hyd. kv Copy to : 1 Hexagon Capability Center India Pvt. Ltd., Plot No. 5, Ground 9th, 10th and 11th Floors, Divya Sree Trinity Campus, Hitech city, Near Hotel Lemon Tree, Madhapur, Hyderabad – 500 003 2 DCIT, Circle – 2(2), Hyderabad. 3 DRP – 1, Bengaluru 4 Pr. CIT – 2, Hyderabad. ITAT, DR, Hyderabad. 5 6 Guard File.