Income Tax Appellate Tribunal - Bangalore
Marlabs Innovations Private Limited, ... vs Deputy Commissioner Of Income Tax ... on 27 February, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND
Ms. PADMAVATHY S, ACCOUNTANT MEMBER
IT(TP)A No.963/Bang/2022
Assessment year : 2018-19
Marlabs Innovations Private Ltd., Vs. The Deputy Commissioner
14th Floor, Citrine Block-4, of Income Tax,
BWT Centre, Circle 4(1)(1),
Marathahalli Outer Ring Road, Bengaluru.
Mahadevapura,
Bangalore - 560 048.
PAN: AAECM 6806F
APPELLANT RESPONDENT
Appellant by : Shri L. Bharath, CA
Respondent by : Shri Sunil Kumar Singh, CIT-2 (DR)(ITAT), Bengaluru.
Date of hearing : 27.02.2023
Date of Pronouncement : 27.02.2023
ORDER
Per Padmavathy S., Accountant Member
This appeal is against the final order of assessment passed by the AO, Assessment Unit, Income Tax Department dated 28.7.2022 for the assessment year 2018-19.
2. The assessee is a company engaged in provision of Software Development (SWD) services and IT enabled services (ITES) to Marlab Inc. (AE). The assessee filed the return of income for AY IT(TP)A No.963/Bang/2022 Page 2 of 18 2018-19 on 27.11.2018 declaring a total income of Rs.12,86,04,670 under normal provisions and an income of Rs.11,71,41,762 u/s 115JB. The case was selected for scrutiny and statutory notices were duly served on the assessee. Reference was made to the TPO to determine the ALP of the transactions the assessee has entered into with its AE.
3. The TPO made the following adjustments :-
S. Description Adjustment u/s 92CA
No. (In Rs.)
1 Software Development Segment Rs.6,82,65,017/-
2 ITES Segment Rs.1,73,95,200/-
3 Trade Receivables Rs.36,19,348/-
Total adjustment u/s 92CA Rs.8,92,79,565/-
4. Aggrieved, the assessee raised its objections before the DRP and accordingly the TP adjustment was reduced to Rs.5,38,21,502. The assessee is in appeal against the final order of assessment passed pursuant to the DRP directions.
5. During the course of hearing, the ld. AR submitted that out of 20 grounds raised, the following grounds are pressed :-
Ground No.10 - ITeS Segment - Exclusion of Domex E Data P. Ltd Ground No.11 - TPO not applying upper turnover filter Ground Nos.15 to 18 - Notional interest on receivables Ground No.19 - Non granting of TDS and advance tax credit
6. The ld. AR submitted that the assessee has also raised additional grounds with regard to exclusion of certain companies based on IT(TP)A No.963/Bang/2022 Page 3 of 18 application of upper turnover filter. The ld. AR also submitted that these companies were omitted to be included in the list of companies while raising the main grounds and since the same does not warrant examination of any fresh issues, prayed for admission of additional ground.
7. After hearing both the parties, following the Hon'ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional grounds are admitted for adjudication.
8. The assessee has chosen TNMM as the most appropriate method for SWD and ITeS segments. Operating profit/operating is taken as the Profit Level Indicator. The margins computed as per the TP study in these 2 segments are as given below:-
PARTICULARS SWD ITES.
Operating revenue 99,29,81,133 18,88,85,333
Operating Cost('OC') 86,34,61,855 16,42,48,115
Operating Profit ('OP') 12,95,19,278 2,46,37,217
OP / OC 15% 15%
9. During the TP proceedings, the TPO rejected some of the comparables chosen by the assessee. The TPO applied fresh filters to choose comparables and accordingly arrived at the arm's length mean margin at 23.60% for SWD segment and a margin of 26.34% for ITeS segment. The TPO worked out the TP adjustment based on these IT(TP)A No.963/Bang/2022 Page 4 of 18 margins for Rs.8,56,60,217. The DRP gave partial relief whereby the TP adjustment was reduced.
10. The ld. AR with regard to ground Nos. 11 submitted that the TPO while applying the filters did not apply the upper turnover filter with respect to the comparables on both SWD and ITeS segments. The ld. AR also submitted that if the upper turnover filter is applied and the comparables are excluded accordingly, then the price charged by the assessee on the international transactions would be at arm's length as compared to the comparables. The ld. AR further submitted that the issue is covered by the decision of coordinate Bench in the case of Altair Engineering India P. Ltd. v. ACIT, IT(TP)A No.1025/Bang/2022 dated 9.1.2023. The ld. DR relied on the orders of the lower authorities.
11. We heard the parties. We notice that the coordinate Bench in the case of Altair Engineering India P. Ltd. (supra) has considered the issue of application of upper turnover filter and held that -
"18. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the Assessee and in favour of the Revenue, respectively. The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt.Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon'ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT Vs. Pentair Water India Pvt.Ltd., Tax Appeal No.18 of IT(TP)A No.963/Bang/2022 Page 5 of 18 2015 dated 16.9.2015 wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra):
"41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010, relying on Dun and Bradstreet's analysis, held grouping of companies having turnover of Rs. 1 crore to Rs.200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:-
"9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 IT(TP)A No.963/Bang/2022 Page 6 of 18 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study."
42. The Assessee's turnover was around Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon'ble High Courts of Bombay and Delhi and both are nonjurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference."
19. The Tribunal in the case of Autodesk India Pvt. Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Bangalore-Tribunal), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations:
"17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non- jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 IT(TP)A No.963/Bang/2022 Page 7 of 18 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee.
17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011.
The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co- ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble IT(TP)A No.963/Bang/2022 Page 8 of 18 Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)."
20. In view of the aforesaid decision, we hold that companies listed in Ground No.10.5.1 of the original grounds of appeal whose turnover in the current year is admittedly more than Rs.200 Crores should be excluded from the list of comparable companies."
12. We further notice that in the same decision the coordinate Bench has applied the same principles of applying upper turnover filter for ITeS segment also and held that -
"30. The learned counsel for the Assessee prayed for exclusion of the following 7 companies out of the final list of 11 comparable companies that remain after DRP directions and in this regard raised ground No.11.5.2 of the original grounds of appeal, which reads as follows:
"11.5.2. The Lower Authorities are not justified in failing to adopt the upper turnover filter of Rs. 200 crores that resulted in wrongful selection of following 7 companies selected by the TPO:
1) Microland Ltd.;
2) Tech Mahindra Business Services Ltd;
3) Infosys B P M Services Pvt. Ltd;
4) Access Healthcare Services Pvt. Ltd
5) Motif India Infotech Pvt. Ltd;
6) Eclerx Services Limited;
7) MPS Ltd."
IT(TP)A No.963/Bang/2022 Page 9 of 18
31. We have already seen that the Assessee's turnover in the ITeS was only Rs. 12,88,48,604 after adjustment of revenue by the TPO. We have also seen while deciding the application of turnover filter in SWD services Segment that companies with turnover of Rs.200 crores or more cannot be compared with companies having turnover of less than Rs.200 crores. For the reasons stated therein, we direct exclusion of the companies listed in ground No.11.5.2 whose turnover is admitted above Rs.200 crores from the list of comparable companies.
13. We notice that the turnover of assessee in SWD segment is 99.29 crores and in ITeS segment 18.88 crores. Respectfully following the above decision of the coordinate Bench, we direct the TPO to apply upper turnover filter and exclude the companies having turnover of more than Rs.200 crores in SWD and ITeS segments including companies sought to be excluded through additional ground. It is ordered accordingly.
14. In ground No.10, out of the total list of companies sought to be excluded in both SWD and ITeS segments, the ld. AR prayed for exclusion of only Domex E Data P. Ltd. from ITeS segment during the course of hearing. The ld. AR also submitted that exclusion of this company is covered by the decision of Altair Engg. (supra) based on functionality and since the assessee's functions are similar to Altair Engineering, the ration is applicable in assessee's case also.
15. We heard both the parties and perused the material on record. We notice that the coordinate Bench in the case of Altair Engg (supra) has considered the exclusion of Domex E Data P. Ltd. and held that -
IT(TP)A No.963/Bang/2022 Page 10 of 18 "34. In so far as comparability of Domex E Data Pvt. Ltd., is concerned, the argument was that this company is engaged in providing KPO and therefore cannot be compared with an ITeS such as the assessee. On this objection, the DRP again held that ITeS and KPO have to be regarded as one and the same. Learned Counsel has pointed out that in the following decisions, Tribunal has taken the view that companies rendering KPO services cannot be regarded as a comparable company with an ITeS company.
Transperfect Solutions India Pvt. Ltd vs ACIT [[TS-497- ITAT2022(PUN)-TP]] AY 2016-17 Schlumberger India Technology Centre (P.) Ltd. Vs DCIT [TS- 473ITAT- 2022(PUN)-TP] AY 2016-17 Credence Resource Management (P.) Ltd vs ACIT [2022] 138 taxmann.com 543 (Pune - Trib.), for AY 2016-17
35. In the light of the aforesaid decisions, we are of the view that Domex E Data Pvt. Ltd., should be excluded from the list of comparable companies."
16. We notice that the profile of the assessee is providing SWD and ITeS services which is similar to Altair Engg. Therefore in our considered view, the ratio laid down by the coordinate Bench is applicable to assessee's case also and accordingly, we direct the TPO to exclude Domex E Data P. Ltd. from the list of comparables.
17. The TPO is directed to re-compute the ALP of the international transactions as per the directions given in this order.
18. Through Ground Nos. 15 to 18 the assessee is contending the incorrect adjustment on account of notional interest on outstanding receivables. The Ld. TPO determined a notional interest of Rs. 36,19,348/- as arm's length remuneration for the receivables IT(TP)A No.963/Bang/2022 Page 11 of 18 outstanding from the AE by applying LIBOR+450 points. In this regard, the ld AR submitted that -
a. The Ld. TPO has not identified the tested party and has not confirmed whether the Company has entered into similar transactions with unrelated parties.
b. The Ld. TPO also failed to take into consideration that the Company also has contracts with its customers for its domestic sales. Where there are delays in receiving moneys from these customers, no interest is charged. This arrangement itself constitutes the CUP that ought to have been considered by the Ld. TPO.
c. The Ld. TPO erred in not appreciating that the Company had not charged any interest on the receivables outstanding from third party non-AEs to whom it provides services as part of its domestic segment.
d. The Ld. TPO erred in computing the notional interest from the date of invoice relating to the outstanding receivables itself and without considering any period as an interest-free period.
e. Further, the Company submits that the receivable outstanding from its AE of approx. Rs. 33.26 crore does not constitute an international transaction. The only international transaction entered into by the Company with its AE is the transaction relating to provision of SWD and ITES services. The outstanding balance as on 31.03.2018 of approx. Rs. 33.26 crore is the result of such international transaction. If not for the sale transaction, the said amount would not have arisen.
f. The Ld. TPO also erred in enhancing the 6-month LIBOR by 450 basis points as a cover for fluctuation in foreign exchange without any rationale. It is submitted that only the LIBOR rate ought to be considered without any spread since there is no methodology that is available in comparable uncontrolled circumstances. The Ld. TPO has also erroneously adopted the rate of 100 basis points without any rationale.
IT(TP)A No.963/Bang/2022 Page 12 of 18
19. The ld. AR relied on the decision of the coordinate bench in the case of Tio-Tech Pvt. Ltd. v. DCIT, IT(TP)A 237/Bang/2021 dated 12.10.2022 wherein it was held that -
26. We have considered the rival submissions and perused the material on record. We have heard the rival submissions and perused the material on record. The impugned issue is squarely covered by the decision of the coordinate Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) wherein it was held as under:-
"35. The only other issue that remains for adjudication is ground No.15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee's own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:-
"23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables.
From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore separate addition is not called for.
23.1. Ld.TPO computed interest on outstanding receivables under weighted average method using LIBOR + 300 basis points applicable for year under consideration that worked out to 3.3758% on receivables that exceeded 30 days. It has been argued by Ld.AR that authorities below disregarded business/commercial arrangement between the assessee and its IT(TP)A No.963/Bang/2022 Page 13 of 18 AE's, by holding outstanding receivables to be an independent international transaction.
23.2. Ld.AR placed reliance on decision of Delhi Tribunal in Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT v. Kusum Health Care (P.) Ltd. [2018] 99 taxmann.com 431/[2017] 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. He also placed reliance upon decision of Delhi Tribunal in case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxman.com 6 which subsequently upheld by Hon'ble Delhi High Court vide order in Pr. CIT v. Bechtel India (P.) Ltd. [IT Appeal No. 379 of 2016, dated 21-7-16] also upheld by Hon'ble Supreme Court vide order, in CC No. 4956/2017.
23.3. It has been submitted by Ld.AR that outstanding receivables are closely linked to main transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances.
23.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that:
(i) the expression "international transaction" shall include--
. . . . . (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of IT(TP)A No.963/Bang/2022 Page 14 of 18 marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble Delhi Bench in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.), which dealt with question of law:
"(c) 'Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?"
23.6. Ld.CIT.DR submitted that, while answering above question, Hon'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, Hon'ble Bombay High Court restored the issue to file of Tribunal for fresh decision in light of legislative amendment. It was thus argued that non/under-charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international IT(TP)A No.963/Bang/2022 Page 15 of 18 transaction and ALP of such international transaction has to be determined by Ld.TPO. Insofar as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing-up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined.
23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us.
This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol. - Trib.), held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per Explanation to section 92B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR.
23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that:
"There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for IT(TP)A No.963/Bang/2022 Page 16 of 18 consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd v. DCIT [2017] 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterised as international transactions."
23.9. In view of the above, we deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law."
36. Accordingly, we are of the opinion that deferred receivables would constitute an independent international transaction and the same is required to be benchmarked independently as held by the Hon'ble Karnataka High Court in PCIT v. AMD (India) Pl. Ltd., ITA No.274/2018 dated 31.8.2018.
37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly"
27. In view of the above discussion and considering the decision of the of the coordinate bench of the Tribunal and the judgment of the Hon'ble High Court of Karnataka in the case of AMD (India) Pvt. Ltd. (supra), we hold that the treatment of interest on deferred receivables is rightly considered as IT(TP)A No.963/Bang/2022 Page 17 of 18 an independent international transaction and benchmarked separately by the revenue authorities.
20. Respectfully following the above decision of the coordinate bench we hold that the interest on receivable is a separate international transaction as has been rightly considered by the lower authorities. With regard to calculation of interest, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC) and direct the TPO to consider the interest at the rate of LIBOR rate + 2%. The TPO is also directed to consider a credit period of 30 days considering the fact the assessee has collected the payments against the receivables within a period of 90 days as submitted by the ld AR. It is ordered accordingly."
21. Through ground No.19, the assessee is contending the AO restricting the TDS credit and credit for advance tax. In this regard, the ld. AR submitted that there was a merger during the year under consideration of the assessee with Marlab Software P. Ltd. The ld. AR submitted that the AO while giving credit for TDS has considered only the amount in the name of the assessee and did not consider the TDS and advanced tax standing to the credit of assessee's predecessor Marlab Software P. Ltd. The ld. AR further submitted that the relevant documents with regard to amalgamation and financial statements were submitted before the AO and prayed for a direction in this regard.
22. We heard the rival submissions and perused the material on record. We noticed that the assessee has submitted the relevant IT(TP)A No.963/Bang/2022 Page 18 of 18 documents with regard to amalgamation before the lower authorities and the same have not been considered while giving credit for TDS. We therefore remit the issue back to the AO with a direction to consider the TDS and advance tax in the name of Marlab Software P. Ltd. and decide the issue in accordance with law.
23. Ground No. 20 with regard to interest u/s. 234B and 234C is consequential.
24. In the result, the appeal by the assessee is partly allowed.
Pronounced in the open court on this 27th day of February, 2023.
Sd/- Sd/-
( GEORGE GEORGE K. ) ( PADMAVATHY S. )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore,
Dated, the 27th February, 2023.
/Desai S Murthy /
Copy to:
1. Appellant 2. Respondent 3. CIT 4. CIT(A)
5. DR, ITAT, Bangalore.
By order
Assistant Registrar
ITAT, Bangalore.