ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD.,GURGAON vs. DCIT, CIRCLE-3, GURGAON

This appeal by the assessee is preferred against the order of the Dy. Commissioner of Income Tax [Appeals] – dated 25.09.2018 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] pertaining to assessment year 2014-15.

The solitary grievance of the assessee relates to the transfer pricing adjustment of Rs. 1.45 crores made by the Assessing Officer following the directions of the DRP by treating the receivables outstanding beyond 60 days from the associated enterprises [AEs] as deemed loan and charging notional interest on the basis of average State Bank of India base rate of 9.83% per annum plus 300 basis points.

The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused.

Briefly stated, the appellant company is a subsidiary of EGN BV, Netherlands. The appellant company is primarily engaged in providing Information Technology enabled network management / technical support and other back-office support services to its Group Company. It also undertakes software development services for developing software applications which are used within the Orange Group.

The international transactions reported by the assessee during the year in Form 3CEB report is as under:

During the course of transfer pricing assessment proceedings, the TPO was of the firm belief that since the payment for invoices raised by the assessee have not been received within the stipulated time. Delayed payments were treated as unsecured loan advance to the AEs. The TPO proposed to charge a normal rate as per the annual average yield of corporate bonds pertaining to credit rating of the AEs for the period of delay in receipt of payment beyond the time stipulated in the services agreement.

In its reply dated 09.10.2017, the assessee furnished invoice details of receivables alongwith their duration/period. The TPO was not convinced with the reply of the assessee and proceeded by treating the receivables as loan to the AEs and bench marked the interest rate based on base rate of SBI taking the same at 9.83% to which 400 basis points were added and, accordingly, interest rate was arrived at 13.83%. The TPO proposed an upward adjustment of Rs. 2,48,13,810/-

The assessee raised objections before the DRP and the DRP issued directions dated 23.03.2018 upholding the action of the TPO for taking SBI PLR as CUP but directed to add 300 basis points to the same. The DRP further directed to take 60 days to be reasonable period beyond which interest must be charged on outstanding receivables. Following the directions of the DRP final addition was made at Rs. 1,45,27,731/-.

Aggrieved by this the assessee is before us.

It is the say of the ld. AR that interest on receivables is not an international transaction as the interest proposed to be charged, if any, is already built in the sale price and thus no interest needs to be computed on the outstanding receivables from the AEs. The ld. AR further pointed out that the operating profit margin has not been disturbed by the Assessing Officer/TPO. Therefore, no separate adjustment is to be made in so far as outstanding receivables are concerned.

Having heard the rival submissions, we are of the considered opinion that since no disturbance has been made in so far as OP margin of the assessee is concerned the OPN has been arrived after making working capital adjustment. Operating mark up of the appellant company is 16.19% whereas the comparables working capital adjustment mark up comes to 15.72%. This shows that the profit margin of the appellant company is higher than that of the comparables. The ratio laid down by the Tribunal in the case of Kusum Healthcare Pvt Ltd 6814/DEL/2014 squarely applies. The relevant findings of the coordinate bench read as under:

This decision of the coordinate bench has been affirmed by the Hon'ble High Court of Delhi in vide order dated 24.04.2017. The relevant findings of the Hon'ble High Court read as under:

The ld. DR pointed out that the Revenue has preferred SLP before the Hon'ble Supreme Court against the judgment of the Hon'ble High Court of Delhi. In our understanding, since the operation of the judgment of the Hon'ble High Court is not stayed by the Hon'ble Supreme Court, the same is binding on us and, therefore, respectfully following the decision of the coordinate bench, affirmed by the Hon'ble High Court [supra] we direct the Assessing Officer/TPO to delete the addition of Rs. 1,45,27,731/-

In the result, the appeal filed by the assessee in is allowed.