NetCracker Technology Solutions (India) Private Limited, Hyderabad V. Asst. Commissioner of Income Tax, Circle-16(1), Hyderabad

ITA 1746/Hyd/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5670 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Assessment Year: 2013-2014
• Appeal Filed On: 18-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: RAGHNATHAN S
• Keywords: Transfer pricing; International transaction; Competent authority; Notional interest; Revised return
• Section: 143(3); 142(1); 234B; 115JB; 143(1)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1746 /HYD/201 7 ASSESSMENT YEAR: 20 13 - 14 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD. , HYDERABAD. PAN A ACC C0701B VS. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAGHNATHAN S. REVENUE BY : SHRI Y.V.S.T. SAI DATE OF HEARING : 20 - 1 1 - 201 8 DATE OF PRONOUNCEMENT : 31 - 0 1 - 201 9 O R D E R PER S . RIFAUR RAHMAN, A .M.: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED U/S 143(3) RWS 92CA(3) & 144C(13) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) FOR THE AY 2013 - 14. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY, FILED ITS RETURN OF INCOME FOR THE AY 2013 - 14 ON 2 8 /11/2013 DECLARING INCOME OF RS. 52,62,50,925/ - AND BOOK PROFIT OF RS. 53,87,12,479/ - U/S 115JB , WHICH WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY A ND NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND DULY SERVED ON TH E ASSESSEE. IN RESPONSE TO THE SAID NOTICES, THE AR OF THE ASSESSEE FURNISHED THE INFORMATION CALLED FOR. 2.1 AFTER VERIFICATION OF THE INFORMATION, THE AO REFERRED THE MATTER TO TPO U/S 92CA(1) OF THE ACT, WITH THE PRIOR APPROVAL OF THE PR.CIT - 2 , HYDERABA D FOR DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF 2 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. INTERNATIONAL TRANSACTION REPORTED BY THE ASSESSEE FOR THE FY RELEVANT TO AY 2013 - 14 . 3. PROFILE OF THE TAXPAYER: M/S NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD. IS ENGAGED IN THE SOFTWARE DEVE LOPMENT AND SUPPORT SERVICES TO ITS AE. 3.1 INTERNATIONAL TRANSACTIONS: AS PER 3CEB REPORT/TP DOCUMENT, THE INTERNATIONAL TRANSACTIONS REFLECTED ARE AS UNDER: AE NATURE OF TRANSACTION AMOUNT (RS.) NETCRACKER TECHNOLOGY SOLUTIONS INC, USA (FORMERLY CONV ERGYS INFORMATION MANAGEMENT GROUP INC, USA) PROVISION OF SOFTWARE DEVELOPMENT AND SUPPORT SERVICES COMMUNICATION COST TRAINING FEES PROFESSIONAL CHARGES PAID 1,54,61,396 54,65,396 40,544 1,130,407 CONVERGYS CUSTOMER MANAGEMENT GROUP INC, USA SOFTWARE DEVELOPMENT AND SUPPORT SERVICES 3,54,78,335 CONVERGYS INTERVOICE INC. SOFTWARE DEVELOPMENT AND SUPPORT SERVICES 2,14,73,994 CONVERGYS INDONESIA PT T RAVEL AND PER DIEM REIMBURSABLE EXPENSES 1,62,17,645 TOTAL 1,62,61,40,014 THE TPO NOTED THAT THE ASSESSEE HAS NOT REPORTED THE OUTSTANDING RECEIVABLE FROM AES IN FORM 3CEB 3.2 EXAMINATION OF TP DOCUMENT/FORM 3CEB BY TAXPAYER: THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALYSIS AND HAS SUMMARIZED IT AS UNDER: 3 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. NATURE OF INTERNATIO NAL TRANSACTION AMOUNT (IN RS.) MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABLES PROVISION OF SOFTWARE DEVELOPMENT AND SUPPORT SERVICES 1,603,106,022 TNMM O P /OC 18.45% 12.74% PROFESSIONAL CHARGES PAID 11,30,407 COMMUNICATION CHARGES PAID 54,65,396 TRAINING FEES PAID 40,544 TRAVEL AND PER DIEM REIMBURSABLE EXPENSES CUP THE TPO NOTED THAT WITH REGARD TO SOFTWARE DE VELOPMENT AND SUPPORT SERVICES AND OTHER CHARGES PAID, THE ASSESSEE HAS ADOPTED TNMM USING NCP AS THE PLI AS THE MOST APPROPRIATE METHOD. THE ASSESSEE HAD USED PROWESS AND CAPITALINE PLUS DATABASE IN SEARCH FOR COMPARABLE COMPANIES AND RELIED ON THE DATE P ERTAINING TO THE FYS 2010 - 11, 2011 - 12 AND 2012 - 13. AFTER APPLYING CERTAIN FILTERS, THE ASSESSEE HAS SHORTLISTED 13 COMPARABLES, ARITHMETIC MEAN (WEIGHTED AVERAGE) WAS COMPUTED AT 12.74%, AS AGAINST THE PLI OF THE ASSESSEE AT 18.45%. ACCORDINGLY, THE ASSESS EE HOLDS THE TRANSACTION TO BE WITHIN ARMS LENGTH. 3.3 ANALYSIS OF TRANSACTIONS: AS PER THE AUDITED STATEMENT OF ACCOUNTS, THE FINANCIALS OF THE ASSESSEE ARE AS UNDER: DESCRIPTION AMOUNT IN RS. OPERATIVE REVENUE 1,77,38,24,139 OPERATING COST 1,49,43,5 9,536 OPERATING PROFIT 27,94,64,603 OP/OR (%) 15.75 OP/OC (%) 18.70 THE TPO OBSERVED THAT DUE TO CERTAIN DEFECTS IN THE TP DOCUMENT, THE TP STUDY FILED BY THE ASSESSEE IS REJECTED AND AN INDEPENDENT 4 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. SEARCH WAS CONDUCTED BY THE TPO USING PROWESS AND CAPITALINE DATABASE AND USING CONTEMPORANEOUS DATA FOR SOFTWARE DEVELOPMENT SERVICES. AFTER APPLYING CERTAIN FILTERS, A SET OF COMPARABLES HAVE BEEN ARRIVED AT BY THE TPO AND SINCE THE ASSESSEES MARGIN IS WITHIN THE +/ - 3% VARIATION OF THE COMPARABLE COMPANIES, NO ADJUSTMENT WAS PROPOSED. 3.4 AS REGARDS RECEIVABLES, THE TPO OBS ERVED THAT THE ASSESSEE HAS RECEIVABLES AT THE END OF THE YEAR. WHEN THE TPO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF RAISING THE INVOICE AND SUBSEQUENT LY PROPOSED TO CHARGE INTEREST @ 14.45%, TO WHICH, THE ASSESSEE REPLIED THAT OUTSTANDING RECEIVABLES ARE CONSEQUENT TO THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SDS AND NOT IN THE NATURE OF ANY ADVANCE/LOANS. FURTHER, IT WAS SUBMITTED THAT SINE THESE ARE CLOSELY LINKED WITH THE SALE OF SERVICES THEY HAVE BEEN AGGREGATED WITH THE PRINCIPLE TRANSACTIO N OF SALES FOR THE PURPOSE OF ECONOMIC ANALYSIS AND IT IS FULLY FUNDED ENTITY AND THE SALES AND RECEIVABLES ARE RUNNING ACCOUNTS AND THE WCA DULY CONSIDERED THE IMPACT OF OUTSTANDING RECEIVABLES. 3.5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE TPO REFERRING TO THE RETROSPECTIVE INTRODUCTION OF EXPLANATION TO SECTION 92B, INTEREST CHARGED @ 14.45% ON THE RECEIVABLES RECEIVED BEYOND THE DUE DATE, WHICH COMES TO RS. 1,07,27,259/ - AS PER THE TABLE AT PAGE 5 OF HIS ORDER. THUS, THE ARMS LENGTH PRIC E OF INTEREST ON RECEIVABLES IS RS. 1,07,27,259/ - AND THE SHORTFALL OF RS. 1,07,27,259/ - IS TREATED TOWARDS ADJUSTMENT. 4. WHEN THE ASSESSEE CARRIED THE OBJECTIONS BEFORE THE DRP, THE DRP DIRECTED THE AO TO APPLY THE APPLICABLE INTEREST AS PER DOMESTIC TE RM DEPOSIT RATES OF SBI PREVAILING FOR THE FY 2012 - 13. 5. AS PER THE DIRECTIONS OF DRP, THE AO COMPUTED THE INTEREST ON RECEIVABLES AT RS. 48,84,781/ - AS AGAINST 1,07,27,259/ - COMPUTED BY THE TPO. 5 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. 6. AGGRIEVED BY THE ORDER OF DRP, THE ASSESSEE IS IN APP EAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN CONTRARY TO LAW, THE ASSESSMENT ORDER ('FINAL ORDER') ISSUED UNDER SECTION 143(3) READ WITH SECTION ('R.W.S.') 92CA(3) R.W.S 144C( 1 3) OF THE INCOM E - TAX ACT, 1961 ('ACT') PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 16(1), HYDERABAD ('LD. AO') DATED 15 SEPTEMBER 2017 IN PURSUANCE OF THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP'), HYDERABAD DATED 23 AUGUST 2017 UND ER SECTION 144C (5) OF THE ACT IS BAD IN LAW. TRANSFER PRICING ADJUSTMENT ON THE OUTSTANDING RECEIVABLES IS BAD IN LAW AND THE APPELLANT RAISES THE FOLLOWING GROUNDS: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED ON FA CTS AND CIRCUMSTANCES OF THE CASE IN CONSIDERING OUTSTANDING RECEIVABLE, WHICH IS AN OUTCOME OF THE PRINCIPAL INTERNATIONAL TRANSACTION, AS A SEPARATE AND DISTINCT INTERNATIONAL TRANSACTION AND FURTHER ERRED IN CONFIRMING A TRANSFER PRICING ADJUSTMENT IN T HE NATURE OF INTEREST ON RECEIVABLES AMOUNTING TO RS.48,84,781 / - . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN NOT CONSIDERING THE FACT THAT THE WORKING CAPITAL ADJUSTMENT EVALUATES THE OUTSTANDING RECEIVABLE IN A CONTROLLED SCENARIO VIS - A - VIS UNCONTROLLED SCENARIO AND THAT DIFFERE NTIAL IMPACT OF WORKING CAPITAL OF THE APPELLANT VIS - A - VIS ITS COMPARABLES HAS ALREADY BEEN FACTORED IN THE PRICING/PROFITABILITY OF THE APPELLANT. AND HENCE, LEVYING INTEREST ON RECEIVABLES AMOUNTS TO DOUBLE ADJUSTMENT. WITHOUT PREJUDICE TO THE FACT THAT NO ARM'S LENGTH DETERMINATION AND CONSEQUENTIAL TRANSFER PRICING ADJUSTMENT IS WARRANTED ON OUTSTANDING RECEIVABLES, THE APPELLANT WOULD LIKE TO RAISE THE FOLLOWING GROUNDS AGAINST THE COMPUTATION METHODOLOGY OF THE LD. AO: 4. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN APPLYING THE CREDIT PERIOD AVAILABLE TO THE APPELLANT , AS PER THE INTERCOMPANY AGREEMENT, AS BENC H MA RK FOR COMPUTING THE TRANSFER PRICING ADJUSTMENT SINCE CREDIT PERIOD BASED ON INTER COMPANY AGREEMEN T DEFIES TRANSFER PRICING PROVISIONS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN BRINGING NOTIONAL INTEREST TO TAX WITHOUT CONSIDERING THE FACT THAT NEITHER THE AE NOR THE APPELLANT CHARGES ANY INTEREST IN CASE OF DELAY IN PAYMENT. 6 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITION OF RS. 48,84,781/ - MADE BY THE LD. AO BE HELD TO BE UNTENABLE AND BE DELETED SINCE THE ADDITION HAS BEEN MADE BY COMPUTING INTEREST ON AN INVOICE TO INVOICE B ASIS AS AGAINST ON A WEIGHTED AVERAGE BASIS FOR ALL INVOICES RAISED DURING THE YEAR UNDER CONSIDERATION WHICH IS 87 DAYS IN THE PRESENT CASE. THE APPROACH IS CONTRARY TO THE PRINCIPAL AND TERMS ALLOWED UNDER ADVANCE PRICING AGREEMENT (' AP A') SIGNED ON 29 TH AUGUST 2016 WHICH IS APPLICABLE FOR THE SUBSEQUENT YEARS, WHEREIN INTER ALIA THE WEIGHTED AVERAGE PERIOD OF REALIZATION OF INVOICES FROM ITS ASSOCIATED ENTERPRISES (' AE') ALLOWED IS WITHIN 94 DAYS. COM P UTATION OF INTEREST LIABIL ITY UNDER SECTION 234B AND 234C OF THE ACT 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN LEVYING INTEREST LIABILITY UNDER SECTION 234B AND 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD TO / ALTER / AMEND / SUBSTITUTE ANY OF THE ABOVE GROU NDS OF APPEAL, AT THE TIME, BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE APPELLATE AUTHORITY TO DECIDE THIS APPEAL ACCORDING TO LAW. 7. THE LD. AR OF THE ASSESSEE RELIED ON THE ORDER OF ITAT, HYDERABAD IN THE CASE OF DHANUSH INFOTE CH PVT. LTD., IN ITA NO. 2082/HYD/2017, ORDER DATED 17/10/2018 , A COPY OF WHICH IS AVAILABLE ON RECORD. 8. LD. DR, ON THE OTHER HAND, FILED SYNOPSIS WHEREIN IT WAS STATED AS UNDER: 4. GROUND NO: 1 IS GENERAL IN NATURE. WITH REGARD TO GROUND NO: 2, IT IS SUBMITTED THAT AS PER CLAUSE (I)(C) OF EXPLANATION TO 92B(2), 'CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MA RKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS' IS A SEPARATE INTERNATIONAL TRANSACTION. THEREFORE, THE GROUND NO: 2 IS DEVOID OF MERIT. VARIOUS BENCHES OF HON' BLE ITAT ALSO RECOGNIZED THIS FACT. 5. REGARDING GROUND NO: 3, IT IS SUBMITTED THAT INTERESTED IS NOT SUBSUMED IN THE WORKING CAPITAL ADJUSTMENT. AS ALREADY SUBMITTED ABOVE, RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HON'BLE ITAT, DELHI BENCH IN THE CASE OF BECHTEL INDIA PVT LTD DATED 16/05/2017. 7 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. 6. WITH REGARD TO GROUND NO: 4, THAT THE INTERCOMPANY AGREEMENT DEFIES TP PROVISIONS, IT IS SUBMITTED THAT SUCH AN ARGUMENT IS COUNTER TO THE PROVISIONS OF TP IN LETTER AND SPIRIT. AS PER THE EXISTING P ROVISIONS OF INCOME TAX ACT, THE APPELLANT IS BOUND TO CONSIDER EACH AND EVERY INTERNATIONAL TRANSACTION AND SUBJECT THE SAME TO TP STUDY. THE ALP HAS TO BE DETERMINED ON PRINCIPAL TO PRINCIPAL BASIS AND NOT ON THE BASIS OF INTERCOMPANY AGREEMENT BETWEEN T HE AES AND THE APPELLANT. THE PRINCIPAL TO PRINCIPAL APPROACH IS THE CORE OF TP AND ANY AGREEMENT HAS TO BE ANALYZED IN THE FRAMEWORK OF THE SAID APPROACH ONLY. 7. WITH REGARD TO GROUND NO: 5 THAT THE TPO LEVIED NOTIONAL INTEREST, IT IS SUBMITTED THAT THI S GROUND IS A MISCONCEIVED GROUND BECAUSE THE ENTIRE GAMUT OF TP ADJUSTMENTS ARE NOTIONAL AND THE TRANSACTIONS IN DELAYED REALIZATION OF RECEIVABLES IS NO EXCEPTION. THE ENTIRE SCHEME OF TP IS DESIGNED TO BENCHMARK INTERNATIONAL TRANSACTIONS IN THE FRAMEWO RK OF PRINCIPAL TO PRINCIPAL TRANSACTIONS AND MAKE ADJUSTMENTS WHEREVER NECESSARY. MERELY BECAUSE THE AE DOES NOT PAY INTEREST AND THE APPELLANT DOES NOT RECEIVE INTEREST, THE TRANSACTIONS WOULD NOT BE ACCEPTED ON FACE VALUE. THE NECESSITY OF TP ADJUSTMENT OR OTHERWISE WOULD BE REVEALED ONLY THROUGH TP ANALYSIS. 8. WITH REGARD TO GROUND NO: 6, IT IS SUBMITTED THAT WHEN THE TRANSACTION WISE DATA IS AVAILABLE THERE IS NO NEED TO AGGREGATE THE DATA AND FIND OUT A MEAN PERIOD TO BE APPLIED ACROSS THE BOARD. W HEN THE ANALYSIS IS BASED ON CUP METHOD, IT IS THE TRANSACTIONAL APPROACH WHICH PREVAILS AND NOT THE AGGREGATE METHOD. THE D RP DETERMINED THE INTEREST UNDER THE CUP BEING THE 'DOMESTIC T D R RATE OF SBI' AND THE SAME HAS TO BE APPLIED TO EACH TRANSACTION. WI TH REGARD TO THE FACT THAT THE APPROACH OF THE TPO/ D RP IS CONTRARY TO THE APPROACH OF APA DATED 29/08/2016 WHICH IS APPLICABLE TO SUBSEQUENT YEARS, IT IS SUBMITTED THAT AS CLARIFIED BY CB D T IN CIRCULAR NO: 10/2015, ROLLBACK IS NOT AVAILABLE IN CASES WHERE REVISED RETURN IS NOT FILED. ALSO, THE APPELLANT DOES NOT HAVE THE OPTION TO SELECTIVELY CHOOSE ROLLBACK FOR ONE YEAR. THE ROLL BACK IN SUCH CASE WOULD APPLY TO ALL FOUR YEARS. AS PER THE EXPLANATION, THE INTERNATIONAL TRANSACTION IN RECEIVABLES EXISTED FO R ALL EARLIER FOUR YEARS ALSO. ALSO, AS PER RULE 10MA OF IT RULES, THE APPELLANT HAS TO MAKE AN APPLICATION FOR ROLLBACK IN THE SPECIFIED FORM AND CANNOT SEEK SELECTIVE ROLLBACK WITHOUT MAKING SUCH APPLICATION BEFORE THE COMPETENT AUTHORITY. THE DECISION I N THE CASE OF LOTUS FOOTWEAR ENTERPRISES CITED BY THE APPELLANT IS NOT APPLICABLE BECAUSE THE SAID DECISION ONLY SETS ASIDE THE MATTER TO BE DECIDED AS PER LAW WITH REGARD TO NATURE OF THE SAID ASSESSEE FOR A.Y 2009 - 10. WITH REGARD TO THE DECISION IN CASE OF RANBAXY LABORATORIES RELIED UPON BY THE APPELLANT, THE HON'BLE ITAT 8 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. DREW SUPPORT FROM RULE 10MA IN THE SAID CASE. HOWEVER, IN THE PRESENT CASE, RECEIVABLES ARE NOT REPORTED AS AN INTERNATIONAL TRANSACTION BY THE APPELLANT. HENCE, THE SAID DECISION IS NO T APPLICABLE TO THE APPELLANT BECAUSE THERE IS NO DISCLOSURE IN THE 3CEB REPORT ABOUT THE TRANSACTIONS WHICH ARE SUBJECT MATTER OF APPEAL. ALSO, IN THE SAID CASE, THE ASSESSMENT YEAR UNDER CONSIDERATION WAS BEYOND THE ROLLBACK PERIOD FOR WHICH RULE 10MA WO ULD NOT BE APPLICABLE. FOR THE YEARS FOR WHICH ROLLBACK IS AVAILABLE, THE APPELLANT HAS TO FOLLOW THE PROCEDURE AS LAID DOWN IN RULE 10MA AND CANNOT CLAIM THAT THE APA HAS PERSUASIVE POWER FOR THE YEAR FOR WHICH ROLLBACK IS AVAILABLE. THE CONTENTS OF APA A LSO NEED TO BE EXAMINED BEFORE ACCEPTING THE CLAIM BECAUSE THE GUIDING PRINCIPLES ARE NOT IMPORTANT. 9. WITH REGARD TO GROUND NO: 7, NO SUBMISSIONS ARE MADE AS THE GROUND IS CONSEQUENTIAL IN NATURE. IN LIGHT OF THE ABOVE, THE APPEAL MAY KINDLY BE DISMISSE D BY THE HON'BLE ITAT. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT THE TPO HAS MADE THE INDEPENDENT TP ANALYSIS AND FOUND THAT THE TAX PAYERS MARGINS ARE WITHIN +/ - 3% VARIATION OF THE COMPARABLE COMPANIES AND HAS NOT MADE ANY WORKING CAPITAL ADJUSTMENT. HOWEVER, NOTICED THAT ASSESSEE HAS HUGE OUTSTANDING IN RECEIVABLES AND MADE ADJUSTMENT ON INTEREST RECEIVABLE ON SUCH OUTSTANDINGS. WE NOTICED THAT TPO HAS ALLOWED THE CREDIT PERIOD AT 90 DAYS AS PER AGREEMENT AND WHEREVER ASSESSEE ALLOWED THE CREDIT PERIOD BEYOND 90 DAYS, HE MADE THE ADJUSTMENT. IN OUR VIEW, TPO HAS MADE THE ADJUSTMENT WHE REVER ASSESSEE HAS ALLOWED THE CREDIT PERIOD BEYOND 90 DAYS AND FAILED TO ACKNOWLEDGE THAT ASSESSEE HAS RECEIVED CERTAIN PAYMENT WITHIN 90 DAYS ALSO. WE ARE IN AGREEMENT WITH LD. AR THAT WE NEED TO CONSIDER THE OVERALL AVERAGE CREDIT PERIOD FOR THE AY OR SHOULD BE COMPARED WITH THE INDUSTRY AVERAGE. TPO HAS APPLIED 90 DAYS PERIOD SELECTIVELY. IN OUR VIEW, WE NEED TO CALCULATE THE AVERAGE PERIOD OF COLLECTION FOR THE PERIOD AND IN CASE ANY DEVIATION NOTICED THAT THE PERIOD ALLOWED BEYOND R EASONABLE PERIO D SHOULD ALONE BE CONS IDERED FOR MAKING ADJUSTMENT. 9 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. 9.1 IN THE GIVEN CASE, LD. AR ALSO DISPUTED THE FACT THAT NO SUCH PERIOD WAS AGREED BETWEEN THE PARTIES THAT THE CREDIT PERIOD WAS FIXED AT 90 DAYS. THEREFORE, IN OUR VIEW, TPO SHOULD CALCULATE THE AVERAGE OF COLLECTION FOR THE YEAR UNDER CONSIDERATION OF ALL THE TRANSACTIONS CARRIED ON BY THE ASSESSEE. IN CASE, IT IS FOUND THAT SUCH COLLECTION PERIOD IS BEYOND 90 DAYS, HE CAN DO THE ADJUSTMENT ONLY TO THE EXTENT IT CROSSED 90 DAYS. TPO CANNOT CALCULATE THE COLLECTION PERIOD SELECTIVELY FOR THOSE WHICH ARE BEYOND 90 DAYS. THEREFORE, WE R EMIT THIS ISSUE BACK TO THE TPO TO CALCULATE THE AVERAGE COLLECTION PERIOD FOR THIS AY AND DETERMINE THE ADJUSTMENT AS PER THE ABOVE DIRECTIONS. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 10. AS REGARDS GROUND NO. 7 WITH REGARD TO COMPUTATION OF INTEREST LIABILITY U/S 234B AND 234C OF THE ACT, CHARGING INTEREST UNDER THESE SECTIONS ARE MANDATORY IN NATURE, THEREFORE, THE AO IS DIRECTED ACCORDINGLY. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY , 201 9. SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 31 ST JANUARY , 2 01 9. KV 10 ITA NO. 1746 /HYD/201 7 NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD.HYD. COPY TO: - 1) NETCRACKER TECHNOLOGY SOLUTIONS (INDIA) PVT. LTD., PLOT NO. 5 & 43, HITECH CITY, MADHAPUR, HYDERABAD 500 081. 2) AC IT , CIRCLE 1 6 (1), INCOME TAX TOWERS, MASAB TANK, HYD 500 004. 3) DRP - 1 , BENGALURU 4) PR. CIT 4, BENGALURE 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE