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Income Tax Appellate Tribunal, DELHI BENCH ‘I’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal filed by the assessee is directed against the order of Assessing Officer passed pursuant to the directions of the Dispute Resolution Panel (DRP) for the assessment year 2016-17.
The grounds of appeal
taken by the assessee read as under :- “On the facts and circumstances of the case and in law, the Hon’ble DRP vide its directions dated
7. October 2020 grossly erred in upholding addition pertaining to interest on outstanding receivables made by the Learned AO to returned income of the Appellant vide draft assessment order dated
19. December 2019 passed under section 143(3) of the Act.
That on the facts and circumstances of the case and in law,
The Learned AO/ TPO/ DRP have erred in making an addition of INR 12,074,056 to the total income of the Appellant due to adjustment in the arm's length price (“ALP”) of the international transaction pertaining to interest on receivables (“impugned transaction”).
2. The Learned AO/ TPO/ DRP have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for the impugned transaction.
3. By imputing interest on delayed receipts of receivables from the Associated Enterprises (“AEs”), the Learned AO/ TPO/ DRP have grossly erred in:
i. Identifying outstanding receivables as a separate international transaction by ignoring the fact that account receivables arising from an international transaction are closely linked to the main transaction and should be benchmarked, using a combined transaction approach and carrying out working capital adjustment; ii. By re-characterizing the nature of outstanding receivables as unsecured loan advanced to AEs; iii. Imputing interest on outstanding receivable to its AEs ignoring the fact that the Appellant is a debt-free company; iv. Without prejudice to the Ground No.3(i), 3(ii) and 3(iii) above, the Learned TPO/ AO/ DRP have failed to appreciate that:
(a) the Appellant does not charge any interest from unrelated parties; and (b) the AEs do not charge any interest from the Appellant on outstanding payables towards the AEs v. Without prejudice to Ground No. 3(i), 3(ii) and 3(iii) above, the Learned AO/ TPO/ DRP have failed to appreciate that even if interest needs to be charged on the receivables, 90 days (as mentioned under section 92CE of the Act) should be considered to establish arm’s length interest. vi. Without prejudice to Ground No. 3(i), 3(ii) and 3(iii) above, the Learned AO/ TPO/ DRP have failed to ./2021 appreciate that even if interest needs to be charged on the receivables, the average receivable days of comparable companies selected by the Learned DRP/TPO, should be considered to establish arm’s length interest. 4. The Learned AO has grossly erred both in facts and in law in proposing to charge interest under section 234Aof the Act. 5. The learned AO has erred in initiating penalty under section 271(1)(c) of the Act.”
Brief facts of the case are that the assessee is engaged in the business of providing software consulting, systems design, enterprise application and computer programming services to its customers in India and outside India. During the course of assessment proceedings, assessee had submitted working capital adjusted margins of the comparable companies to account for impact of outstanding receivables and duly bench marked the receivables arising from the international transaction undertaken by the assessee during the relevant year by treating it as closely linked to the main service transactions. However, the AO/TPO rejected the economic analysis undertaken by assessee and imputed interest at the rate of 4.609 % (6 Month LIBOR rate plus 400 basis points) on the inter-company receivables outstanding beyond 30 days period by treating it as advancing of unsecured loan to the Associated Enterprises ("AEs"). Accordingly, the AO/ TPO determined transfer pricing adjustment of INR 5,54,066 in the draft assessment order dated 19th December 2019. ./2021 Aggrieved by the draft assessment order dated 19th December, 3.1 2019, the assessee filed its objections before the DRP on 16th January 2020. Subsequently, TPO suo moto issued rectified order dated 28th February 2020 in which the adjustment amount was increased to INR 1,20,74,056 as interest on outstanding receivables was inadvertently computed by TPO on unrelated parties instead of related parties. The DRP, in its directions dated 7th October 2020, upheld the 3.2 actions of the TPO/AO and retained the aforesaid adjustment, while allowing credit period of 60 days. Aggrieved by the final assessment order dated 30th March, 2021, 4 the assessee filed an appeal before the ITAT challenging the additions made by the AO/TPO and DRP. We have heard both the parties and perused the material on record. 5. Ld. Counsel of the assessee submitted that the identical issue was considered by this Tribunal in the immediately preceding assessment year and this Tribunal has remitted the matter with certain directions to TPO/ AO. He submitted that his arguments for the current year will also remain the same, hence he prayed for similar directions. 6. Per contra, ld. DR for the Revenue submitted that assessee has also submitted petition for acceptance of additional evidences. To this, ld. Counsel for the assessee submitted that he shall not be pressing for admission of additional evidences.
own case for immediately preceding assessment year i.e. AY 2015-16 in vide order dated 11.10.2022 on the impugned issued has held as under :-
“14. We have given thoughtful consideration to the orders of the authorities below qua the issue. We find force in the contention of the ld. counsel for the assessee. Since the assessee has provided similar services to unrelated parties and claims that no interest was charged with respect to outstanding receivables from unrelated parties, in all fairness, this contention cannot be brushed aside lightly, though needs due verification by lower authorities.
We, therefore, restore this issue to the file of the TPO/Assessing Officer. The assessee is directed to furnish necessary documentary evidences to demonstrate that on outstanding receivables from unrelated parties, no interest was charged on similar transactions as that with AEs and the Assessing Officer/TPO is directed to examine the same and decide the issue afresh as per provisions of law.”
We find that the facts in the aforesaid order are identical to the present assessment year. Accordingly, with the same directions, we remit the issue to the AO/TPO.
In the result, this appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on this 20th day of June, 2023.