Pr. Commissioner Of Income Tax-1 v. Amadeus India Pvt.ltd

$~50 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 901/2019 PR. COMMISSIONER OF INCOME TAX-1 ..... Appellant Through:Mr. Zoheb Hossain, Senior StandingCounsel. versus AMADEUS INDIA PVT.LTD ..... Respondent Through:Mr. Mayank Nagi and Mr. PulkitVerma, Advocates. CORAM:HON'BLE MR. JUSTICE VIPIN SANGHIHON'BLE MR. JUSTICE SANJEEV NARULAO R D E R%16.10.2019 C.M. No. 45245/2019 (delay) 1. By this application, the applicant seeks condonation of delay of 54 days inre-filing the application. For the reasons stated in the application, the delayis condoned. 2. The application stands disposed of in the aforesaid terms. ITA 901/2019 3. The Revenue is in appeal to assail the order dated 27.02.2019 passed bythe Income Tax Appellate Tribunal, Delhi Bench ‘I’, New Delhi. We areconcerned with ITA 1662/Del/2016 relevant to the assessment year 2011-12in respect of the Respondent assessee. The Tribunal has rejected the saidappeal. On the issue of Transfer Pricing Adjustment on account of AMP expenses, the Tribunal relied upon the Coordinate Bench decision in theRespondent assessee’s own case for the assessment year 2010-11 which hasbeen upheld by this Court in ITA 154/2017 deleting the addition on theground that the TPO has wrongly invoked the provisions of Chapter X of theAct for the said AMP spent. In relation to the issue of deduction underSection 10A, the ITAT has followed its own decision in the Respondentassessee own case for the assessment year 2009-10 and held that theassessee is eligible for the claim of deduction under Section 10A of the Act.It has also relied upon the order of this Court in ITA 154/2017 dated22.05.2017 which has upheld the findings of the Tribunal for the assessmentyear 2009-10. Mr. Hossain learned senior standing counsel for the Appellantfairly states that so far as these issues are concerned, they stand concludedby this Court. He further states that Special Leave Petitions have beenpreferred before the Supreme Court on both the aforesaid aspects which arepending before the Supreme Court. The submission of Mr. Hossain relatesto the issue of adjustment on account of interest on delayed receivables. TheITAT has followed its own decision in assessment year 2009-10 and hasinvoked the decision of this Court in Principal Commissioner of IncomeTax v. Kusum Healthcare Pvt. Ltd.,[2017] 398 ITR 66 (Delhi) to delete thisaddition. The submission of Mr. Hossain is that in Kusum Healthcare(supra), this Court held that there has to be a proper inquiry by the TransferPricing Officer by analyzing the statistics over a period of time to discernthe pattern, if any, which would indicate that viz-a-viz the receivables forsupplies made to an associated enterprise, the payment of debts in aninternational transaction was intended to benefit the associated enterprise, insome way. He submits that in the present case, the Transfer Pricing Officer had undertaken a study of the transactions that the assessee entered into withits associated enterprise and the delay in payment of invoices raised by theassessee, and on that basis had sought to make an addition to the tune of Rs.8,98,683/-. The Tribunal has dealt with this issue in the following manner: “9.0 We have carefully considered the submissions made andperused the material available on record. It is observed that thecoordinate Bench in A. Y. 2009-10 had adjudicated upon theidentical, issue in favour of the assessee as under:- "11. We have considered the arguments advanced by the partiesand perused the material available on record. Undisputedly, inthe present case the benchmarking of the main internationaltransactions applying the transactional net margin method hasbeen accepted by the Transfer Pricing Officer. Considering this,we find that the ratio laid down by the Mumbai Income-taxAppellate Tribunal in Rusabh Diamonds' case (supra) is clearlyapplicable to the facts instant case. In the said judgment, it hasbeen held by a co-ordinate Bench of the Tribunal as under(head note from Rusabh Diamonds): "11. We have considered the arguments advanced by the partiesand perused the material available on record. Undisputedly, inthe present case the benchmarking of the main internationaltransactions applying the transactional net margin method hasbeen accepted by the Transfer Pricing Officer. Considering this,we find that the ratio laid down by the Mumbai Income-taxAppellate Tribunal in Rusabh Diamonds' case (supra) is clearlyapplicable to the facts instant case. In the said judgment, it hasbeen held by a co-ordinate Bench of the Tribunal as under(head note from Rusabh Diamonds): "The interest income is an integral part of the PBITinasmuch as interest income, in cases other than financecompanies, is required to be included in the 'other income'and thus affects the profit before interest and taxes. Whileprofit before interest and taxes does not take into account'interest expenditure, it does take into account 'interestincome’ because the interest income is part of the 'otherincome·, under pre-amended as well as post -amendedSchedule VI to the Companies Act, which is duly taken intoaccount into computation of PBIT. In a way PBIT is amisnomer, as while PBIT does not take into account interestexpenditure, it does take into account interest incomeappearing in the other income. Once the profitability, as perPBIT, is found to be comparable, there cannot be a separateadjustment for interest income on delayed realisation, whichis an integral part of the PBIT figure. (paragraph 12.) As for the Revenue's suggestion that it is to be verifiedwhether the comparable’s include interest income, if any,all one can say is that the statutory provisions require theinterest income, unless it is an interest income of the financeand banking companies, to be included in the other incomewhich is taken into account for computing PBIT. Thepresumption, therefore, is that the accounts are drawn up asper the statutory requirements, and the exclusions from'other income' are specifically discussed on the facts of eachcase, and as such constitute integral part of the transferpricing documentation. There is nothing on record to showthese exclusions. (paragraph 15)· As regards the contention that normally all interest incomesare excluded in the computation of PBIT as such incomesrarely constitute operational income, there· is no need to beguided by such hypothesis and generalities. There is nothingon the records, to show such exclusions on the facts of thiscase. In any event, setting off of interest expenditure withinterest on account of delay in realisation of debts, even ifso, is not too common an occurrence and more ofexceptions than the rule. The apprehensions of the 'Revenueate purely hypothetical and, therefore, devoid of legallysustainable merits. (paragraph 16). In view of these discussions, as also bearing in mindentirety of the case, no arm's length price adjustments canbe made, in respect of delay in relation' or sale proceeds.Such being conclusion, there is no need to address thespecific factual arguments advanced by the assessee. Ineffect thus the grievance of the assessee is upheld and directthe Assessing Officer to delete the impugned arm's lengthprice adjustment. (paragraph 17) Explanation to section 92B There is, however, one more aspect of the matter for which the impugned arm's length price adjustment must be deleted.(paragraph 19) It is noted that everything hinges on application of theExplanation to section 92B, vide Finance Act, 2012,, thoughwith retrospective effect from April 1, 2002. (paragraph 20) In view of these discussions, as also bearing in mindentirety of the case, no arm's length price adjustments canbe made, in respect of delay in relation' or sale proceeds.Such being conclusion, there is no need to address thespecific factual arguments advanced by the assessee. Ineffect thus the grievance of the assessee is upheld and directthe Assessing Officer to delete the impugned arm's lengthprice adjustment. (paragraph 17) Explanation to section 92B There is, however, one more aspect of the matter for which the impugned arm's length price adjustment must be deleted.(paragraph 19) It is noted that everything hinges on application of theExplanation to section 92B, vide Finance Act, 2012,, thoughwith retrospective effect from April 1, 2002. (paragraph 20) The amendment so made by the Finance Act, 2012, stated tobe with retrospective effect April 1, 2002, inserts anExplanation to section 92B. ln plain words; this amendment,inter alia, implies that capital financing of any type,including by way of 'deferred payment or receivable or anyother debt arising during the course of business' willconstitute an international transaction under section 92B.Going by this definition 'any debts arising during the courseof business' will constitute an international transaction. Atrade debt is, accordingly covered by this definition.However, since the assessment year that one is dealing withis prior to the assessment year 2012-13, the next importantquestion is whether this amendment could be held to beapplicableintheassessmentyearbeforeaswell.Undoubtedly, the amendment is said to be retrospective butthen the question really is whether just stating the law to beretrospective will make it retrospective in effect. (paragraph29) It is very important to bear in mind the fact that right nowone is dealing with amendment of a transfer pricing relatedprovision which is in the nature of a SAAR (specific anti-abuse rule) and that every anti-abuse legislation, whetherSAAR (specific anti-abuse rule)or GAAR [general anti-abuse rule] is a legislation seeking the taxpayers toorganize their affairs in a manner complaint with the normsset out in such anti-abuse legislation. An anti-abuselegislation does not trigger the levy of taxes; it only tells youwhat behavior is acceptable or what is not acceptable. What triggers levy of taxes is non-compliance with the manner in which the anti-abuse regulations require thetaxpayers to conduct their affairs. In that sense, all anti-abuse legislations seek a certain degree of compliance withthe norms set out therein. It is, therefore, only elementarythat amendments in the anti-abuse legislations can only beprospective. It does not make sense that someone tells youtoday as to how you should have behaved yesterday, andthen goes on to levy a tax because you did not behave in thatmanner yesterday. (paragraph 36) When this is put to the Department, his stock reply is thatthe amendment only clarifies the law, it does not expand thelaw. (paragraph 37). Well, if the 2012 amendment does not add anything orexpand the scope of international transaction defined undersection 92B, assuming that it indeed does not this provisionhas already been judicially interpreted, and the matter reststhere unless it is reversed by a higher judicial forum.However, if the 2012 amendment does increase the scope ofinternational transaction under section 92B, there is no wayit could be implemented for the period prior to this lawcoming on the statute, i.e., May 28, 2012. The law is wellsettled.Itdoesnotexpectanyonetoperformanimpossibility. (paragraph 38) When this is put to the Department, his stock reply is thatthe amendment only clarifies the law, it does not expand thelaw. (paragraph 37). Well, if the 2012 amendment does not add anything orexpand the scope of international transaction defined undersection 92B, assuming that it indeed does not this provisionhas already been judicially interpreted, and the matter reststhere unless it is reversed by a higher judicial forum.However, if the 2012 amendment does increase the scope ofinternational transaction under section 92B, there is no wayit could be implemented for the period prior to this lawcoming on the statute, i.e., May 28, 2012. The law is wellsettled.Itdoesnotexpectanyonetoperformanimpossibility. (paragraph 38) It is for this reason that the Explanation to section 92B,though stated to be clarificatory and stated to be effectivefrom April 1, 2002, has to be necessarily treated as effectivefrom at best the assessment year 2013-14. 1n addition tothis reason, in the light of the Delhi High Court’s guidancein the case of DIT v. New Skies Satellite BV [2016] 382 ITR114 (Delhi); 68 taxmann.com 8; [2016-TII-6-HC-DEL-INTL] also, the amendment in the definition of internationaltransaction under section 92B to the extent it pertains to theissuance of corporate guarantee being outside the scope of‘internationaltransaction’,cannotbesaidtoberetrospective in effect.The fact that it is stated to be retrospective, in the light of the aforesaid guidance of theDelhi High Court would not alter the situation, and it canonly be treated as prospective in effect, i.e., with effect fromApril 1, 2012, onwards. (paragraph 39) For the detailed reasons set out above, the amendment insection 92B, at least to the extent it dealt with the questionof issuance of corporate guarantees, is effective from April1, 2012. The assessment year being an assessment yearprior to that date, the amended provisions of section 92Bhave no application in the matter. (paragraph 43)." Respectfully following the above, ground Nos. 7 and 8 of theappeal are allowed and the Assessing Officer is directed todelete the addition" 9.1 It is not disputed that the revenue has not filed any appealbefore ·the Hon'ble High Court against the above decision of the,Tribunal on the issue in dispute in A.Y. 2009-10. Moreover,following the decision in of A.Y. 2009-10, the coordinate Bench,in A.Y. 2010-11, has again decided the issue in favour of theassessee. It will also be relevant to note that there is noadjustment proposed on this issue by the TPO in A.Ys. 2011-12 &2013-14. The contention of the Ld. DRP that working capitaladjustment would not subsume adjustment on account of overduereceivables is no more good law. Support, in this regard is foundfrom the Hon’ble jurisdictional High Court’s decision in case ofKusum Healthcare (supra) wherein Hon’ble High Court has ''10. The Court is unable to agree with the abovesubmissions. Theinclusion in the Explanation to Section92B of the Act of the expression 'receivables' does not meanthat de hors the context every item of 'receivables'appearing in the accounts of an entity, which may havedealingswithforeignAEswouldautomaticallybecharacterised as an international transaction. There may bea·delay in collection of monies for supplies made, evenbeyond 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 would have on the workingcapital of the Assessee will have to be studied. In otherwords, there has to be a proper inquiry by the TPO byanalysing the statistics over a period of time to discern apattern which would indicate that vis-a-vis the receivablesfor the supplies made to an AE, the arrangement reflects aninternational transaction intended to benefit the AE in someway. will have to be investigated on a case to case basis.Importantly, the impact this would have on the workingcapital of the Assessee will have to be studied. In otherwords, there has to be a proper inquiry by the TPO byanalysing the statistics over a period of time to discern apattern which would indicate that vis-a-vis the receivablesfor the supplies made to an AE, the arrangement reflects aninternational transaction intended to benefit the AE in someway. 11. The Court finds that the entire focus of the AO was onjust one AY and the figure of receivables in relation to thatAY can hardly reflect a pattern that would justify a TPOconcluding that the figure of receivables beyond 180 daysconstitutes an international transaction by itself. With theAssessee having already factored in the impact of thereceivables on the working capital and thereby on itspricing/profitability vis-a-vis that of its comparables; anyfurther adjustment only on the basis of the outstandingreceivables would have distorted the picture and re-characterisedthetransaction.Thiswasclearlyimpermissible in law as explained by this Court in CIT v.EKL Appliancaes Ltd. (2012) 345” 4. The submission of Mr. Hossain is that the principles of res judicata arenot applicable since assessment in respect of each year is different andtherefore merely because the department has not appealed against thedecision of the ITAT in respect of the assessee for the assessment year 2009-10, it would not preclude the department from pursuing the present appeal. 5. Having heard Mr. Hossain, we find no merit in the present appeal. This isfor the reason that the perusal of the transactions undertaken by the assesseewith the associated enterprise in respect whereof the TPO sought to make anaddition of Rs. 8,98,683/- towards interest on delayed payment, shows that no pattern is discernible which would suggest any arrangement orunderstanding between the assessee and its associated enterprise, that wouldqualify the said transaction as an international transaction.In fact, thepattern which emerges from several invoices examined by the TPO, is thatmore often than not, the payment was made by the associated enterpriseeven before the expiry of the credit period of thirty days. Thus, on facts,there was no basis to make the said addition. The grounds of challenge urgedare all factual. 6. In view of the above, no question of law arises in the present appeal andthe same is dismissed. VIPIN SANGHI, J OCTOBER 16, 2019nk SANJEEV NARULA, J