Income Tax Appellate Tribunal - Delhi
Teradata India Pvt. Ltd., Gurgaon vs Acit, Circle- 4(1), Gurgaon on 21 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "I-2" : DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA.No.7885/Del./2017
Assessment Year 2013-2014
Terradata India Pvt. Ltd.,
301-302, 3rd Floor, Tower- The ACIT, Circle-4(1),
4A, S-Block, DLF 2nd Floor, HSIIDC Building,
Corporate Park, DLF City vs. Nr. Shankar Chowk, NH-8,
Phase-III, Gurgaon, Udyog Vihar, Phase-V,
Gurugram 0 122 002.
Haryana - 122 002.
PAN AACCT6715A
(Appellant) (Respondent)
For Assessee : Shri Nageshwar Rao, Advocate
For Revenue : Shri Sanjay Kumar Yadav, D.R.
Date of Hearing : 19.02.2018
Date of Pronouncement : 21.02.2018
ORDER
PER BHAVNESH SAINI, J.M.
This appeal by assessee has been directed against the assessment order dated 29th November, 2017, under section 143(3) r.w.s. 144C of the I.T. Act, 1961, passed by ACIT, Circle- 4(1), Gurgaon, for the A.Y. 2013-2014.
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ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon
2. We have heard the learned Representatives of both the parties and perused the material on record.
3. Learned Counsel for the Assessee submitted that Ground Nos. 1 and 2 are general, therefore, the same need no adjudication. He has submitted that Ground Nos. 3 to 6 are T.P. Grounds. However, Ground Nos. 7 to 9 are corporate tax grounds of appeals. Ground No.10 is regarding initiation of penalty proceedings which is independent and distinct proceeding. Ground No.11 is regarding charging of the interest under section 234B of the I.T. Act, which is consequential and mandatory. Therefore, Ground Nos. 10 and 11 are also not argued. Therefore, in the present appeal, ground Nos. 3 to 9 have to be disposed-of. Rest are rejected.
4. Briefly, the background of the case of the assessee- company is that during the course of assessment proceedings, the case of the assessee-company was referred to ACIT/TPO (T.P.), New Delhi, as the assessee-company had entered into international transactions. The order dated 25th October, 2016, 3 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon under section 92CA(3) of the Act was passed by TPO wherein an upward adjustments of Rs.57,57,95,126 was made to the arms length price in relation to international transactions. Thereafter, a draft assessment order was passed on 28th December 2016, wherein the total income of the assessee-company was assessed at Rs.86,23,06,341/- after making addition of Rs.58,32,23,621/- on four counts. Aggrieved by the proposed additions, the assessee-company raised objections against the draft assessment order before DRP. The DRP-I, New Delhi, passed its order dated 26th November, 2017 and issued directions. Accordingly, the impugned assessment order have been passed by the A.O. which is in challenge before the Tribunal.
4.1. The Grounds No.3 to 6 of appeal of the assessee are decided as under.
Part I - Transfer Pricing Grounds
3. That on facts of the case and in law, the DRP/TPO/AO have erred in rejecting the economic analysis undertaken 4 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon by the Appellant by conducting a fresh economic analysis for the impugned transactions.
4. That on facts and in law, the DRP/TPO/AO have grossly erred by charging interest on credit period granted by the company under normal trade practices by:
(i) Identifying outstanding receivables as a separate international transaction;
(ii) By re-characterizing the nature of outstanding receivables as loan advanced to Associated Entities ("AEs")
(iii) By determining the Comparable Uncontrolled Price ("CUP") method as the most appropriate method without providing any comparable uncontrolled transaction(s) thereby compromising the most fundamental rules and provisions laid down in the Act and the Rules to determine the arm's length price of the international transaction;
(iv) By applying an interest rate on outstanding receivables at LIBOR plus 400 basis points. 5
ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon
(v) 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, by making a working capital adjustment.
(vi) By disregarding the order passed by the Hon'ble ITAT in Appellant's own case for A.Y. 2012-2013.
(vii) By disregarding the fact that the Hon'ble ITAT had placed reliance on the order passed in case of Kusum Health Care Private Limited (ITA No. 765/2016) by the Hon'ble High Court of Delhi.
5. That without prejudice to the above, once working capital adjustment is granted no separate adjustment on account of outstanding receivables is maintainable.
6. That impugned order is not in conformity with directions of DRP and the additions were made wrongly."
5. The TPO discussed these grounds in para-7 of the order. The A.O. considering the facts and the discussion noted that deferred payment or receivable or any other debt arising 6 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon during the course of business money is held to be "International Transaction" within the meaning of Section 92B(1) of the Act. The TPO after considering all the facts held that interest rate of 12.87% would be arm's length level of interest that needs to be charged for the deemed loan advance for the period of receivable outstanding beyond the period stipulated in the service agreement/invoice. After calculation of the interest, adjustment of Rs.15,34,91,486 was made and total ALP of international transaction was computed at Rs.57,57,95,126. Learned Counsel for the Assessee referred to page-38 of the appeal papers which is order of the DRP, which, adjudicated the issue as ground No.14. The DRP noted that this ground pertains to T.P. adjustment by re-characterization of delayed receivables as a loan and benchmarking the transaction of outstanding receivables from A.E. using interest rate CUP of SBI base rate plus 300 basis points on delays in realization of payment from A.E. against the invoices raised for the provision of services. The objections raised by the taxpayer were considered by the A.O. in the draft assessment order. It was noted that similar ground 7 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon had been raised in A.Y. 2012-2013 as well. The ground has been discussed by the DRP at page 4 and 5 of the rectification order passed on 23rd February, 2017 which is reproduced in the order of the DRP. The DRP considering the background of the issue found that there is no change in the factual matrix of the case from earlier years. The assessee has brought to the notice that ITAT has, in this matter, for A.Y. 2012-2013 held that a separate adjustment should not be made for interest on outstanding receivables, if the working capital adjustment has been undertaken. It is further noted that it is not known whether order of the ITAT dated 08th August, 2017, have been challenged in appeal before the Hon'ble jurisdictional Delhi High Court on the issue. The DRP, therefore, directed that in case no appeal has been filed, the A.O./TPO shall follow order of the Tribunal. In case appeal has been filed/is being filed, the A.O./TPO is directed to apply rate of LIBOR plus 400bps as directed by the DRP in A.Y. 2012-2013. The objections of the assessee- company was accordingly, disposed of.
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ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon
6. Learned Counsel for the Assessee, at the very outset submitted that the identical issue has been decided by ITAT, Delhi Bench in the case of same assessee in A.Y. 2012-2013 in ITA.No.87/Del./2017 dated 08th August, 2017, in favour of the assessee in para-9 of the order. Copy of the order is placed on record. Para-9 of this order is reproduced as under:
"9. We have heard both the parties and perused the relevant case laws along with order of TPO, DRP & A.O. In respect of first issue the Ld. AR relied upon the order of jurisdictional High Court in case of Kusum Health Care Pvt. Ltd. wherein it is held as under:-
10. The Court is unable to agree with the above submissions.
The inclusion in the Explanation to Section 92B of the Act of the expression 'receivables' does not mean that de hors the context every item of 'receivables' appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this 9 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon would have on the working capital of the Assessee will have to be studied. In other words, 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 reflects an international transaction intended to benefit the AE in some way.
11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re- characterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345ITR 241 (Delhi).
The issue in the present appeal is also identical therefore, squarely covered by this judgment in favour 10 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon of the assessee. Therefore, Ground No. 4 & 5 are allowed."
6.1. Learned Counsel for the Assessee submitted that he has verified that no appeal has been filed by the Department before the Hon'ble jurisdictional Delhi High Court against this judgment.
7. On the other hand, Ld. D.R. relied upon the order of the A.O./TPO/DRP.
8. After considering the rival submissions, we are of the view that the issue is covered in favour of the assessee by the order of the ITAT, Delhi Bench in the case of same assessee vide order dated 08th August, 2017, in which the Tribunal following the judgment of the Delhi High Court in the case of Kusum Healthcare Pvt. Ltd., decided the issue in favour of the assessee. The DRP has also issued direction in its order that this issue have been decided in favour of the assessee. But, it is not clear whether any appeal has been filed/being filed by the Department before the Hon'ble jurisdictional Delhi High Court. 11
ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon Learned Counsel for the Assessee, however, made a statement that the Department has not filed any appeal before the Hon'ble jurisdictional Delhi High Court. In this view of the matter, we are of the view that the issue is covered in favour of the assessee by the order of the ITAT, Delhi Bench in the case of the same assessee for the A.Y. 2012-2013 in ITA.No.87/Del./2017 dated 08th August, 2017. Even if an appeal would have been pending before the Hon'ble jurisdictional Delhi High Court, is not a ground to take a contrary view against the assessee unless the order of the Tribunal have been set aside or stayed by the Hon'ble jurisdictional Delhi High Court. In this view of the matter, we set aside the orders of the authorities below and delete the entire addition. In the result, ground Nos. 3 to 6 of the assessee are allowed.
9. Ground No.7 reads as under :
Part II - Corporate tax grounds of appeal :
7. That on the facts and circumstances of the case and in law, the Ld. DRP/AO erred in disallowing the 12 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon claim of "advance written off as shown under head "sundry debts written off' in Profit and loss A/c amounting to Rs.39,25,000 without appreciating the fact that the same has been incurred in the normal course of business and incidental to the operation of the business."
10. Learned Counsel for the Assessee referred to page-39 of the appeal papers which is order of the DRP in which this issue have been adjudicated upon by the DRP. The assessee- company submitted that during the year under consideration, assessee-company had debited Rs.39,25,000/- ("sundry debts written off") in P & L A/c. This amount represents debts which have become bad during the year and were written off in the books of account of the assessee-company. Accordingly, the same were claimed as allowable deduction in computation of taxable income of the assessee-company. It was submitted that the aforesaid sum did not represent a debt which had become bad during the year, as was inadvertently submitted before A.O. 13 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon This amount is, in fact, represents debit balance which was appearing in the accounts of vendor and which was written off, since it was not recoverable. The assessee-company requested the DRP to condone this mistake on the part of the assessee. It was submitted that this sum being loss incurred by the assessee-company in the ordinary course of business and incidental to the operation of the business which was claimed as deduction in the return of income. The A.O. has stated that no deduction can be allowed in respect of bad debt unless such debt or part thereof, has been taken into account in computing the income of the assessee-company of the previous year, in which, the amount of such debt or part thereof, is written off or of an earlier previous year. The DRP noted that assessee- company has not provided any basic details of when the amount was advanced, to whom and for what purpose etc. Neither has it been demonstrated that amount has turned bad or the steps taken by the assessee-company to recover the amounts. Foremost, as mentioned by the A.O, it has not been shown as to in which year it was taken into account for computation of 14 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon income. The DRP did not interfere with the order of the A.O. The objection of the assessee was rejected.
10.1. Learned Counsel for the Assessee referred to pages 263 to 265 of the appeal paper which is objection filed before DRP in which it was highlighted that assessee-company suffered losses in ordinary course of business, which is an allowable deduction. Some case law are also filed in support of the contention. Learned Counsel for the Assessee, however, very fairly stated that no further details are available with the assessee-company, except audit report which was filed.
11. Ld. D.R. on the other hand relied upon the orders of the authorities below.
12. Considering the rival submissions, we are of the view that no interference is called for in the matter. The assessee- company has initially stated that the amount in question represented debts have become bad during the year and were written off in the books of account. However, it was clarified before DRP that it was a wrong submission made by the 15 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon assessee-company because the amount in fact a debit balance was appearing in the accounts of the Vendors which were written off as were not recoverable. The assessee-company claimed that it is a business loss. The assessee-company, however, has not provided any basic details as to when the amount in question was advanced and to whom and for what purpose and what steps have been taken by the assessee- company for recovery of these amounts. Since the assessee- company failed to substantiate the issue of incurring of losses in the ordinary course of business before the authorities below and no further evidence or details have been furnished before Tribunal as well, we are of the view that assessee-company has failed to prove if any actual business losses have been suffered by assessee-company. In these circumstances, ground No.7 of appeal of the assessee-company is dismissed.
13. Ground No.8 reads as under :
"8. That on the facts and circumstances of the case and in law, the Ld. DRP/ AO erred in disallowing the 16 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon claim of "Stock written-off amounting to Rs.15,71,561 without appreciating the fact that the same has been incurred on account of obsolete spare parts actually written-off as per the accounting policy regularly followed by the Appellant."
14. Learned Counsel for the Assessee referred to page-40 of the appeal paper which is order of the DRP. The DRP noted that during the year under consideration, assessee-company had debited a sum of Rs.15,71,661 as "stock written off" to its P & L A/c and claimed the same as an allowable expense under the Act. This write off was on account of some of the spare parts found obsolete during the course of stock verification conducted by the assessee-company for the relevant year. It was submitted that Accounting Standard-2 - Valuation on inventory (AS-2) issued by the ICAI prescribes that inventories lying as on the end of the year are to be valued as per the consistent method of valuing the inventories at 'lower of cost and net realizable value'. It further provides that where an item of inventory becomes 17 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon obsolete, cost may not be recoverable and a charge to P & L A/c on account of such obsolescence has to be made to bring down the value of inventory at net realizable value. In line with the above prescribed treatment, assessee had written off the value of spares it found obsolete during the course of verification. Such amount relates to actual reduction in the value of spare parts held by the assessee-company for its business and loss incurred on such account is a trading/business loss of the assessee-company which is fully allowable under the Act. 14.1. The assessee-company regularly employed mercantile system of accounting and as per the mandate of AS- 2 so applicable, the deduction is allowable on commercial accounting. The claim of assessee-company has not been controverted by A.O. The A.O. merely stated that assessee- company apart from furnishing ledger account could not furnish report of any Engineer, Production Head, Certificate of third party, to suggest that inventory has become obsolete. No show cause notice was issued to the assessee-company at the 18 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon assessment stage. The DRP considering the issue noted that A.O. has not brought any evidence on record to show that the amount written off by the assessee-company, has been claimed wrongly or is bogus. The A.O. was, therefore, directed to verify submissions of the assessee-company and pass a speaking order.
14.2. Learned Counsel for the Assessee referred to page 12 of the appeal paper which is assessment order in which the A.O. in para 6.2.5 after considering the submissions of the assessee- company observed that "no evidence apart from a copy of the ledger of the stock written off was filed by assessee. There is no list of stock that is written off submitted by assessee. There is no evidence produced by the assessee to substantiate that the stock written off was genuine or to substantiate the fact that the spare parts written off were in fact obsolete." In the absence of any evidence it could not be ascertained that claim made by the assessee-company for written off of obsolete stock is genuine. 19
ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon The claim of assessee-company, was accordingly, rejected by the A.O.
15. Learned Counsel for the Assessee referred to PB 272 and 273 which is objection filed before DRP as is noted above. He has submitted that assessee-company has no other evidence in support of the claim made before the authorities below.
16. Considering the facts of the case in the light of submission of Learned Counsel for the Assessee, we are of the view that no interference is called for in the matter. The assessee-company did not file any evidence in support of its claim except filing copy of the ledger account. Assessee- company did not submit any report of Engineer or Production Head to verify that actually the inventory has become obsolete. Mere filing of the ledger account is not sufficient to support the claim of the assessee-company that the stock has become obsolete. Merely referring to Accounting Standard would not support the claim of the assessee-company that in fact the stock of the assessee-company has become obsolete. In the absence 20 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon of any evidence in support of the claim of the assessee- company, no interference is called for in the matter. The DRP has given one more chance to the assessee-company to get the claim verified before A.O. However, the assessee-company did not avail the opportunity and did not produce any relevant or cogent evidence before A.O. to substantiate the claim of obsolete stock. No interference is called for in the matter. Ground No.8 of appeal of assessee-company is dismissed.
17. On ground Nos.7 and 8, Learned Counsel for the Assessee also made an alternative submission and submitted that assessee-company followed Cost plus method and in case, the cost is disallowed by dismissing the Ground Nos.7 and 8 of appeal of assessee, it would increase in profit. Therefore, while determining PLI (Profit Level Indicator), same may be considered to give corresponding benefit in this year. The alternative claim is objected to by the Ld. D.R. because it is not arising out of the orders of the authorities below.
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ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon 17.1. On consideration of the rival submissions, we are of the view that alternative claim of assessee-company, cannot be considered at this stage. The only issue of T.P. were raised in Ground Nos. 3 to 6 which have been allowed. Therefore, it would have no connection for determining the T.P. issue. Further, the alternative claim of assessee-company is not arising out of the orders of the authorities below. This alternative claim of assessee-company is, therefore, rejected.
18. Ground No.9 of appeal of assessee as under :
"9. That on the facts and circumstances of the case and in law, the Ld. DRP/AO erred in disallowing a sum of Rs.19,31,934 as excess depreciation claim on fixed assets acquired by the appellant from NCR Corporation India Private Limited."
19. Learned Counsel for the Assessee referred to page-41 of the appeal paper which is adjudication by the DRP on this issue. The DRP with regard to issue of disallowance of depreciation on the fixed assets acquired by assessee-company 22 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon from NCR Corporation in F.Y. 2007-2008 noted that this issue have been dealt with in earlier A.Ys. 2009-2010, 2010-2011, 2011-2012 and 2012-2013 and objections of the assessee- company have been dismissed. Accordingly, this ground has been dismissed.
19.1. Learned Counsel for the Assessee submitted that this issue is covered in favour of the assessee by the order of ITAT, Delhi Bench for A.Y. 2012-2013 in ITA.No.87/Del./2017 dated 08th August, 2017, in which in para-10, the Tribunal restored the matter to the file of the A.O. to verify the claim of assessee- company as per law. The findings of the Tribunal are reproduced as under:
10. As relates to Ground No. 14 & 15, similar issue was raised in AY 2008-2009 which was remanded back to the Assessing Officer to verify the claim of depreciation by the Tribunal vide order dated 01.08.2016 in ITA No. 791/Del/2013. The extract of the said order is as follows:- 23
ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon "11.4. The Ld.AR submitted that the Ld.AO on one hand accepted the difference in the liability but he submitted that the differential amount between the purchase consideration and the value as per the valuation certificate did not accelerate the difference in the fixed assets. He submitted that the differential amount between the purchase consideration and the value of assets as per the valuation certificate has to be transferred to capital reserve as it represents the actual cost of assets to the assessee and the depreciation should be fully allowed on the same. 11.5. On the contrary the ld.AR relied upon the orders passed by the authorities below.
11.6. We have perused the orders passed by the authorities below and the arguments advanced by both the parties. It is seen that the Ld. AO had taken different figures for calculating the value of fixed assets. We accordingly set aside the issue to the Ld. AO to verify the claim of the assessee as per law."
Thus on similar line in the present Assessment year also the Assessing Officer is directed to verify the claim of the assessee as per law.
Therefore, Ground NO. 14 & 15 are partly allowed as 24 ITA.No.7885/Del./2017 Terradata India Pvt. Ltd., Gurgaon the matter is remanded back to the Assessing Officer to verify the said claim."
20. After considering the rival contentions and in the light of the order of the Tribunal dated 08th August, 2017, we by respectfully following the order of the Tribunal dated 08th August, 2017 (supra), direct the A.O. to verify the claim of the assessee-company as per law and pass consequential order. Ground No.9 of appeal of assessee-company is allowed for statistical purposes.
21. In the result, appeal of assessee is partly allowed as indicated above.
Order pronounced in the open Court.
Sd/- Sd/-
(L.P. SAHU) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 21st February, 2018
VBP/-
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ITA.No.7885/Del./2017 Terradata
India Pvt. Ltd., Gurgaon
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT 'I-2' Bench, Delhi
6. Guard File.
// BY Order //
Assessment. Registrar : ITAT Delhi Benches :
Delhi.