SGB BRANDSAFWAY PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE -3 (1), HYDERABAD

आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. SGB Brandsafway Private Limited, Hyderabad

(“the assessee”), feeling aggrieved by the order of the Learned Assessing

Officer, National Faceless Appeal Centre (NFAC), Delhi (“Ld. AO”), passed u/s.

143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (“the Act”) as per the

direction of the Learned Dispute Resolution Panel, Bangalore (“Ld. DRP”) on

25.01.2022 for the A.Y. 2017-18.

income (“ROI”) for A.Y. 2017-18 on 30.11.2017 declaring a total income of

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Rs.19,93,72,320/-. In view of the International Transactions involved during

the year under consideration, for determination of Arm’s Length Price (“ALP”),

the case was referred to the Learned Transfer Pricing Officer (“Ld. TPO”). The

Ld. TPO vide his order dated 29.01.2021 suggested upward adjustment of

Rs.63,50,009/-. Accordingly, the Ld. AO passed the draft assessment order on

30.03.2021.

preferred objections before the Ld. DRP. In pursuant to the direction of the Ld.

DRP dated 21.12.2021, the Ld. AO finalised the assessment on 25.01.2022 by

making addition of Rs.2,31,12,720/- on account of upward adjustment in ALP.

appeal before us. The Ld. AR submitted that the ground nos.1 & 2 are general

in nature; ground nos.9, 10 & 11 are consequential in nature and ground no.7

is not pressed. Therefore no separate adjudication is required with regard to

these grounds.

Rs.63,03,791/- on account of interest on outstanding receivable due from

Associated Enterprises (“AEs”), the Ld. DR submitted that their objections are

in two parts. First objection is related to adjustment of interest on

outstanding receivables due from SGB Quebeis LLC (“SGB”) and the other

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objection is towards interest on outstanding receivables from other parties

excluding the amount receivable from SGB.

5.1 With regards to the adjustment of interest on outstanding receivables

of SGB is concerned, the Ld. AR submitted that, the assessee had acquired the

business of Harsco India P. Ltd. (“HIPL”) as a going concern on slump sales

basis. The HIPL had to pay Rs.8,12,66,521/- to SGB and had to receive

Rs.6,63,04,223/- from SGB. While acquiring HIPL, the balance payable /

receivable to / from SGB were also acquired by the assessee and the same are

forming part of the outstanding payables as well as receivables of the assessee.

The Ld. AR submitted that the Ld. TPO/ DRP without considering the facts that

the assessee had an outstanding payable of Rs.8,12,66,521/- towards SGB,

made an adjustment on account of interest on outstanding receivables of

Rs.663,04,223/- from SGB. He submitted that if the receivables is set off from

the outstanding payable, there remains no amount receivable from SGB.

Therefore, relying on the decision of co-ordinate bench of Mumbai ITAT in the

case of WNS Global Services Pvt. Ltd. Vs. ITO 103 taxman.com 75, the Ld. AR

submitted that no adjustment should be made on account of interest on

outstanding receivables of SGB.

5.2 Per contra, the Ld. DR relying on the order of revenue authority,

submitted that the netting off as submitted by Ld. AR, cannot be done in

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absence of any permission from RBI for such netting off. Therefore the Ld. DR

submitted that the adjustment of interest on outstanding receivables of SGB

has been correctly done by the revenue authority without considering the

outstanding payables to SGB.

5.3 We have heard the rival contentions and gone through the records

along with the submissions made by either side. There is no dispute about the

fact that the assessee has outstanding payables as well as outstanding

receivables against SGB. With regard to the objection of the Ld. DR regarding

the permission of RBI related to setting off of debit / credit balances of SGB,

the Ld. AR brought to our attention to page no. 12 and 13 of the paper book

and submitted that the RBI has given such approval, although at a later date,

but the permission of the RBI is without any restriction and can be

implemented to the balances outstanding as on 31.03.2017. Considering the

permission given by RBI and the decision of co-ordinate bench of ITAT in the

case of WNS Global Services Pvt. Ltd. Vs. ITO (supra), we are of the view that

before making any adjustment on account of interest on outstanding

receivables of SGB, the revenue authority should have considered the amount

of outstanding payable to the SGB. Therefore we make a direction to the Ld.

TPO/AO to work out the adjustment on account of interest on outstanding

receivables from SGB after considering the amount payable to SGB.

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Accordingly, we allow this ground of appeal of the assessee for statistical

purposes.

5.4 Now coming to the other issue relating to the interest on outstanding

receivable from the parties other than SGB, the assessee requested for levy of

LIBOR. The Ld. AR also submitted that the Ld. TPO / DRP have taken credit

period of 30 days for calculation of interest on receivables. However, as per

inter company agreement the credit period is for 45 days. Therefore the Ld.

AR prayed for considering the credit period of 45 days for calculation of

interest on outstanding receivables.

5.5 Per contra, the Ld. AR relied on the order of revenue authority and

requested the bench to uphold the order of revenue authority.

5.6 We have heard the rival contentions and gone through the records along

with the submissions made by either side. In the case of CCIT Vs. Techni

(2018) 96 taxman.com 223 (Bom) for the A.Y. 2009-10, Hon’ble Bombay High

Court held that interest chargeable on delayed recovery of export receivables

from the party to be taken at LIBOR rate for determining the ALP on notional

interest on delayed recovery. Respectfully following the same, we are of the

considered opinion that the end of the justice would be met by charging

interest rate at LIBOR +200 points. Therefore, we direct the Ld. TPO / AO to

adopt the same. We also direct the Ld. TPO / AO to take credit period of 45

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days for making adjustment on account of interest on outstanding receivables

after verifying the inter company agreement for credit period of 45 days from

the record of the assessee.

application u/s.154 of the Act has already been filed with the Ld. AO, for which

he brought our attention to page no.1190 of the paper book. After hearing the

Ld. DR, we make a direction to the Ld. AO to dispose of the rectification

application of the assessee along with giving effect to this order.

made addition of Rs.1,48,42,324/- on account of Short Term Capital Gain

(“STCG”) on sale of property, plant and equipment (fixed assets). The Ld. AR

also submitted that during the year under consideration the assessee had sold

some fixed assets. He further submitted that the capital gains on sale of fixed

assets are to be calculated as per the provisions of section 43(6) and section 50

of the Act. He submitted that as per the provisions of the Act, the sale

proceeds of the fixed assets are to be deducted from the WDV of the block of

corresponding fixed assets and the capital gain arises only if the closing WDV

of the block of fixed assets ceases to exist. He brought our attention to page

no.1, 661, 663 and 687 of paper book related to computation of income, fixed

assets schedule, other income schedule and depreciation chart as per the Act

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respectively and submitted that as the closing WDV of the block of fixed assets

does not ceases to exist, there cannot be any capital gain under the Act.

However, in the case of the assessee, the Ld. AO has computed the capital gain

not in accordance with the provisions of the Act, but calculated as per the

books of account of the assessee. Finally he prayed before the bench to delete

the addition made by the Ld. AO on account of such capital gain of

Rs.1,48,42,324/-.

7.1 Per contra, the Ld. DR placed reliance on the order of revenue

authority. The Ld. DR also submitted that proper details were not filed by the

assessee before the revenue authority to reconcile the profits on the sale of

fixed assets as per books of account and the working of WDV of fixed assets as

per the Act. Therefore there is no mistake on the part of the revenue

authority.

7.2 We have heard the rival contentions and gone through the records

along with the submissions made by either side. The Ld. AR brought to our

notice to page no.1, 661, 663 and 687 of paper book related to computation of

income, fixed assets schedule, other income schedule and depreciation chart

as per the Act respectively and submitted that the Ld. AO has calculated the

capital gain on the sale of fixed assets as per books of account of the assessee

and not in accordance with the provisions contained under the Act. We find

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that there is no dispute about the facts that the capital gain on the sale of fixed

assets has been calculated by the Ld. AO in accordance with the books of

account of the assessee and not in accordance with the provisions of the Act.

Therefore we are of the considered view that the Ld. AO has not worked out

the capital gain of fixed assets in accordance with the Act. It is also a fact that

proper working / reconciliation was not filed before the revenue authority to

reconcile the profit on sale of the fixed assets as per books of account and the

working of WDV of fixed assets as per the Act. Therefore we set aside the

issue to the file of Ld. AO with a direction to reverify the issue and calculate the

amount of capital gains on the sale of fixed assets in accordance with the

provisions of the Act. The assessee is also directed to provide all the details to

reconcile the profit on the sale of fixed assets and the working of WDV fixed

assets as per the provisions of the Act without seeking any adjournment.

Accordingly, this ground of the assessee is allowed for statistical purposes.

adhoc disallowance of 10% on carriage outward expenditure of Rs.18,33,453/-.

However, the Ld. CIT(A) reduced the adhoc disallowance from 10% to 5%. The

Ld. AR submitted that they had filed all the details along with the

corresponding invoices with regard to the carriage outward expenses before

the revenue authority and the revenue authority did not find any discrepancy

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on their submission. Even if there was no discrepancy in the submission of the

assessee, the revenue authority made the disallowance on adhoc basis, which

is not permissible as per law. Therefore he prayed before the bench to delete

the addition made by the revenue authority.

8.1 The Ld. DR relied on the order of revenue authority. She also submitted

that the copy of all invoices with regard to carriage outward expenses were not

submitted before the revenue authority. Therefore she prayed before the

bench to uphold the order of revenue authority.

8.2 We have heard the rival contentions and gone through the records along

with the submissions made by either side. As submitted by Ld. AR that they

have already filed all the details with regard to the carriage outward expenses

along with the corresponding invoices before the revenue authority and even if

no discrepancy was noticed on such submission, the revenue authority made

the disallowances on adhoc basis. However the Ld. DR submitted that the

copy of all invoices with regard to carriage outward expenses were not

submitted before the revenue authority. We are of the considered opinion that

if all the necessary details along with the corresponding invoices are filed

before the revenue authorities, the revenue authorities are not allowed to

make any disallowances on adhoc basis in absence of any discrepancy.

However, as submitted by Ld. DR some invoices were not submitted before

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the revenue authority, we set aside the issue to the file of the Ld. AO to verify

all the expenditure with the corresponding invoices and if no discrepancy is

noticed on such verification then delete the entire addition. However, if the

Ld. AO found any discrepancy on such verification, he should restrict the

disallowances upto the amount as held by the Ld. CIT(A). The assessee is also

directed to submit all the invoices corresponding to the carriage outward

expenditure before the Ld. AO without taking any adjournment. Accordingly,

this ground of the assessee is allowed for statistical purposes.

levied interest u/s.234A of the Act on the assessee. He further submitted that

the interest u/s.234A of the Act is only leviable, if the assessee has not filed its

ROI within the due date specified u/s.139(1) of the Act. He also submitted that

the due date for filing the ROI for A.Y. 2017-18 was 30.11.2017 and the

assessee also filed its ROI on 30.11.2017. Hence the assessee filed the ROI

within due date prescribed u/s.139(1) of the Act. Therefore the Ld. AR

submitted that as the assessee has filed its ROI within the due date prescribed

u/s.139(1) of the Act, no interest u/s.234A of the Act can be levied in the case

of the assessee. Therefore he prayed before the bench to delete the interest

levied u/s.234A of the Act by the Ld. AO.

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9.1 Per contra, the Ld. DR placed reliance on the revenue authorities and

requested the bench to uphold the order of the revenue authorities.

9.2 We have heard the rival contentions and gone through the records

along with the submissions made by either side. We have also gone through

the provisions contained in section 234A of the Act. It is abundantly clear that

the interest u/s.234A of the Act is to be leviable on the assessee, if the

assessee failed to file its ROI within the specified due date prescribed

u/s.139(1) of the Act. There is no dispute about the fact that the assessee has

filed the ROI on 30.11.2017 i.e. within the specified due date prescribed

u/s.139(1) of the Act. Therefore, we are of the considered opinion that, as the

assessee has filed its ROI within the due date specified u/s.139(1) of the Act,

no interest can be levied on the assessee u/s.234A of the Act. Therefore, we

delete the addition made by the Ld. AO. Accordingly, this ground of appeal is

allowed.

purposes.

Order pronounced in the open Court on 5th Nov., 2024.

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Sd/- Sd/-

(K. NARASIMHA CHARY) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad. Dated: 05.11.2024.

* Reddy gp

Copy of the Order forwarded to : 1. M/s. SGB Brandsafway Pvt. Ltd., Ground Floor, KVR Plaza,Plot No.1-98/5/78-79, Sy. No.67, Jubilee Enclave, Hitec City, Madhapur, Hyderabad-500081 2. ITO, Ward 3(1), Hyderabad. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file.

BY ORDER,