Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 9584 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 7 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-07-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB-B
Next Hearing Date
15-06-2020
Assessment Year
2013-2014
Appeal Filed On
22-11-2017
Judgement Text
, , INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES, B, HYDERABAD , !' # $ , %& ' % BEFORE MS. SUSHMA CHOWLA, VP & MR. ANIL CHATURVEDI, AM [THROUGH VIDEO CONFERENCING] . / ITA NO. 1909 /HYD/2017 !' ( ( / ASSESSMENT YEAR-2013-14 M/S VALUELABS, (PREVIOUSLY KNOWN AS VALUELABS), PLOT NO.41, HI-TECH CITY, PHASE-II, MADHAPUR, HYDERABAD. PAN: AAEFV9532G .. )*/ APPELLANT VS. ACIT, CIRCLE-8(1), HYDERABAD ,-)* / RESPONDENT & . / ITA NO. 1910 /HYD/2017 !' ( ( / ASSESSMENT YEAR-2013-14 M/S VALUELABS LLP, PLOT NO.41, HI-TECH CITY, PHASE-II, MADHAPUR, HYDERABAD. PAN: AAKFV2276K .. )*/ APPELLANT VS. ACIT, CIRCLE-8(1), HYDERABAD ,-)* / RESPONDENT )* . / % / APPELLANT BY : SHRI P.MURALI MOHANA RAO, AR ,-)* . / % / RESPONDENT BY : : SHRI Y.V.S.T. SAI, CIT DR '0 . #& / DATE OF HEARING : 15-06-2020 12 . #& / DATE OF PRONOUNCEMENT : 09-07-2020 I.T.A. NOS. 1909 & 1910/HYD/2017 :- 2 -: %3 / ORDER PER MS. SUSHMA CHOWLA, VICE PRESIDENT BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF ASSESSING OFFICER PASSED U/S 143(3) R.W. S 92 CA(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) RELATING TO A SSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL, WHICH READ AS UNDER:- 1. GROUND NO.1 1.1 THAT, THE ORDER OF THE LEARNED TRANSFER PRICING OFFICER ('LD. TPO')/ LEARNED ASSESSING OFFICER ('LD. AO')/ LEARNED DISPU TE RESOLUTION PANEL ('LD. DRP') IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. AO ERRED IN NOT ISSUING DRAFT ASSESSMENT ORDER AS PER PROCEDURE LAID DOWN U/S.144C(1) OF THE ACT BY ISSUI NG THE NOTICE OF DEMAND U/S 156 OF THE ACT & PENALTY NOTICES U/S 271 AA AND 271BA ALONG WITH DRAFT ASSESSMENT ORDER DATED 23.12.2016, WHICH TANTAMOUNT TO PASSING OF FINAL ASSESSMENT ORDER. 3. GROUND NO.3 3.1 THE LD. TPO/ LD. AO/ LD. DRP ERRED IN MAKING TH E ALP ADJUSTMENT U/S. 92C(3) OF THE ACT FOR RS. 1,73,612/ - TOWARDS INTEREST @ 7% ON OUTSTANDING RECEIVABLES FROM AES ON HYPOTHE TICAL AND NOTIONAL BASIS WITHOUT THERE BEING ANY MATERIAL ON RECORD. 3.2 THE LD. TPO/ LD. AO/ LD. DRP ERRED IN NOT FOLLO WING THE PROCEDURE LAID DOWN UNDER THE PROVISIONS OF SECTION 92C OF TH E ACT RELATING TO THE COMPUTATION OF ARMS LENGTH PRICE' . 3.3 THE LD. TPO/ LD. AO/ LD. DRP HAS ERRED IN LAW I N RE- CHARACTERISING THE AMOUNT OF OUTSTANDING RECEIVABLE S DUE FROM ASSOCIATED ENTERPRISE ('AE') AS A LOAN ADVANCED BY THE APPELLANT TO ITS AE, WHICH IS NOT PERMISSIBLE U/S. 145 OF THE ACT. 3.4 THE LD. TPO/ LD. AO/ LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT NO INTEREST HAS B EEN CHARGED BY THE APPELLANT ON THE VALUE OF OUTSTANDING RECEIVABLES D UE FROM AE AS WELL AS NON-AE. I.T.A. NOS. 1909 & 1910/HYD/2017 :- 3 -: 3.5 THE LD. TPO/ LD. AO/ LD. DRP ERRED IN NOT APPRE CIATING THE FACT THAT THERE IS NO CLAUSE RELATING TO CHARGING OF INT EREST ON DELAYED PAYMENT IN THE MSA AGREEMENT ENTERED WITH AE. 3.6 THE LD. TPO/ LD. AO/ LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE APPELLANT ALS O RECEIVED ADVANCES ON WHICH NO INTEREST WAS PAID BY IT. 3.7 THE LD. TPO/ LD. AO/ LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE OUTSTANDING R ECEIVABLES ARE ACCRUED FROM THE SALE OF SERVICES RENDERED TO THE A E DURING THE NORMAL COURSE OF BUSINESS WHICH IS ALREADY HELD BY HIM TO BE WITHIN ALP AND HENCE IT CANNOT BE EQUATED TO THE TERM 'CAPITAL FIN ANCING' AS INTERPRETED IN SECTION 92B OF THE ACT. 3.8 THE LD. TPO/ LD. AO/ LD. DRP ERRED IN NOT APPRE CIATING THE FACT THAT, THE APPELLANT HAS ADOPTED TNMM METHOD FOR DET ERMINING THE ALP OF ITS TRANSACTIONS AND THE OPERATING MARGIN OF THE APPELLANT IS MUCH HIGHER THAN ITS COMPARABLE, HENCE ANY ADJUSTMENT WI TH REGARD TO ALP AFFECTING THE OPERATING MARGIN WOULD BE UNJUSTIFIAB LE AND AGAINST THE PROVISIONS OF SECTION 92C OF THE ACT. 3.9 THE LD. TPO/ LD. AO/ LD. DRP ERRED IN NOT APPRE CIATING THE FACT THAT NO ALP ADJUSTMENT IS REQUIRED TO BE MADE IN A CASE WHERE AFTER REDUCING THE 'ADJUSTMENT AS A PERCENTAGE OF OPERATI NG COST' STILL THE MARGIN OF THE APPELLANT IS MORE THAN COMPARABLES 3.10 THE LD. TPO/ LD. AO/ LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN ONLY ALLOWING AD-HOC CREDIT PERIOD OF 90 DAYS AN D HAVE FAILED TO APPRECIATE THAT THE RESERVE BANK OF INDIA ALLOWS A PERIOD OF ONE YEAR FOR RECEIPT OF EXPORT CONSIDERATION. 3.11 THE LD. TPO/ LD. AO/ LD. DRP HAS ERRED BOTH IN FACTS AND IN LAW IN NOT APPRECIATING THAT THE OPERATING MARGIN EARNE D BY THE APPELLANT IN RELATION TO THE INTERNATIONAL TRANSACTIONS IS MO RE THAN THE ARM'S LENGTH MARGIN DETERMINED BY THE LD. AO, AND THEREFO RE SEPARATE COMPUTATION OF NOTIONAL INTEREST ON THE VALUE OF OU TSTANDING RECEIVABLES IS NOT WARRANTED. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR WITHD RAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN OR ADD ANY FURTHER GRO UNDS AS MAY BE CONSIDERED NECESSARY AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER BEFORE OR DURING THE APPEAL HEARING. I.T.A. NOS. 1909 & 1910/HYD/2017 :- 4 -: 3. BOTH THESE APPEALS RELATING TO CONNECTED ASSESSEE W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATE D ORDER FOR THE SAKE OF CONVENIENCE. IN ORDER TO ADJUDICATE THE ISSUE RAISED IN THE APPEAL, REFERENCE IS BEING MADE TO THE FACTS AND ISSU E IN ITA NO. 1909/HYD/2017. 4. THE GROUND NO. 1 RAISED BY THE ASSESSEE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. THE GROUND NO . 2 RAISED BY THE ASSESSEE IS NOT PRESSED. HENCE IT IS DISMISSED AS NOT PRESSED. THE ISSUE RAISED IN GROUND OF APPEAL NO. 3 IS AGAINST THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF INTEREST DUE ON OUTSTANDING RECEIVABLE FROM ASSOCIATE ENTERPRISES (IN SHORT AE). 5. BRIEFLY IN THE FACTS RELATING TO THE ISSUE THE ASSESS EE IS A PARTNERSHIP FIRM AND IN OPERATION SINCE YEAR 1998. IT IS ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVIC ES TO ITS AES AND OTHER CUSTOMERS. THE ASSESSING OFFICER MADE REF ERENCE UNDER SECTION 92CA(1) OF THE ACT TO THE TPO TO DETERMINE THE A RMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE TPO MADE ADJUSTMENT TO THE TUNE OF RS. 13.45 CRORES (APPROX.) IN HIS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT. AN OTHER TRANSACTION NOTED BY THE ASSESSEE WERE RECEIVABLE FROM THE AES. THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD. IN REPLY, TH E ASSESSEE POINTED OUT THAT THE OUTSTANDING RECEIVABLE WERE CONSEQ UENT TO THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVE LOPMENT I.T.A. NOS. 1909 & 1910/HYD/2017 :- 5 -: SERVICES AND WERE NOT IN THE NATURE OF ANY ADVANCE / LOAN. THE ASSESSEE ALSO POINTED OUT THAT THE WORKING CAPITAL ADJU STMENT DULY CONSIDERED THE IMPACT OF OUTSTANDING RECEIVABLES. THE TPO WAS OF THE VIEW THAT WITH RETROSPECTIVE INTRODUCTION OF EXPLANATION UNDER SECTION 92B OF THE ACT, RECEIVABLE FORM PART OF INTERNA TIONAL TRANSACTION. HE ALSO REJECTED THE PLEA OF THE ASSESSEE VIZ A VIZ WORKING CAPITAL ADJUSTMENT COMPUTATION AND NO FURTHER ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLE. THE TPO WAS OF THE VIEW THAT INTEREST IS TO BE CHARGED @ 14.45% ON THE OUTSTANDING R ECEIVABLES, RECEIVED BEYOND THE DUE DATE. THE TPO PROPOSED UPWAR D ADJUSTMENT OF RS. 3,55,713/- ON THIS GROUND. THE AO PASSED DRA FT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEF ORE THE DRP WHO GAVE CERTAIN DIRECTIONS; BASED ON WHICH TPO RE-COMPU TED THE ALP AND DETERMINED NO ADJUSTMENT TO BE MADE ON ACCOUNT OF P ROVISION OF SOFTWARE DEVELOPMENT SERVICES. THE ADJUSTMENT RELATING INTEREST ON RECEIVABLE WAS DETERMINED AS RS.1,76,612/-. THE AO PASSED FINAL ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE IS IN APP EAL BEFORE US. 6. THE LEARNED AR FOR THE ASSESSEE POINTED OUT THAT THAT THERE WERE TWO LIMBS TO HIS ARGUMENTS. HE FURTHER POINTED OU T THAT THE MARGIN OF THE PARTNERSHIP FIRM WERE HIGHER THAN THAT OF THE COMPARABLES AND NO TRANSFER PRICING ADJUSTMENT WAS MA DE IN THE SEGMENT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO THE AES. HE FURTHER POINTED OUT THE OPERATING MARGINS WERE FACTORED IN THE HIGHER I.T.A. NOS. 1909 & 1910/HYD/2017 :- 6 -: MARGINS OF THE ASSESSEE. HE ALSO POINTED OUT THAT WORKI NG CAPITAL ADJUSTMENT WAS ALLOWED TO THE ASSESSEE. COMING TO THE UP WARD ADJUSTMENT MADE ON ACCOUNT OF INTEREST ON RECEIVABLES, HE FURTHER STATED AS AGAINST AES PERIOD OF 72 DAYS, IN THE CASE OF COMPARABLE IT WAS 90 DAYS. HE THUS STATED THAT THERE WAS NO MERIT IN MA KING THE AFORESAID ADJUSTMENT. HE ALSO POINTED OUT THAT WHILE APP LYING THE TRANSFER PRICING PROVISIONS, AN APPLE IS TO BE COMPAR ED TO AN APPLE AND WHERE THE COMPARABLE WERE RECEIVING THE OUTSTANDIN G AFTER A PERIOD OF 90 TO 120 DAYS, THE DELAY IN RECEIVING THE OUTSTANDING BY THE ASSESSEE WAS LESSER AND HENCE NO ADJUSTMENT IS TO B E MADE IN THE HANDS OF THE ASSESSEE. HE ALSO POINTED OUT THAT TH E ASSESSEE WAS FOLLOWING CONSISTENT METHOD OF ACCOUNTING FROM YEAR TO YEAR. HE RELIED ON VARIOUS DECISIONS IN THIS REGARD. 7. THE LEARNED DR FOR THE REVENUE POINTED OUT THAT INTER EST ON RECEIVABLES WAS SEPARATE INTERNATIONAL TRANSACTION. HE POINTED OUT THAT WORKING CAPITAL ADJUSTMENT TAKES CARE OF THE PERIOD WITHIN THE FINANCIAL YEAR, BUT DOES NOT COVER OUTSTANDING. HE ALSO REFERRED TO AN AGREEMENT BETWEEN THE ASSESSEE AND THE AES WHERE TERMS OF PAYMENT ARE PRESCRIBED INTO THE NUMBER OF DAYS WITHIN WHICH PAYMENT IS TO BE MADE. HE WAS OF THE VIEW THAT ANY DELAY BEYOND THE PERIOD GAVE RISE TO ISSUE OF CHARGING OF INTEREST ON SUCH DELAYED RECEIVABLES. HE ALSO POINTED OUT THAT THE EXPLANATION UN DER SECTION I.T.A. NOS. 1909 & 1910/HYD/2017 :- 7 -: 92B OF THE ACT HAS BEEN INSERTED WITH RETROSPECTIVE EF FECT FROM 01.04.2002. 8. THE LEARNED AR FOR THE ASSESSEE IN REJOINDER STATE D THAT UNDER THE TRANSFER PRICING PROVISIONS, COMPARISON HAS TO BE MADE AND WHERE THE PERIOD OF DELAY IN THE CASE OF THE ASSESSEE WAS LOWER THAN THE PERIOD OF DELAY OF THE COMPARABLES, NO ADJUSTMENT MERITS TO BE MADE. HE FURTHER POINTED OUT THAT THE MASTER AGREEMENT H AS NO ROLE TO PLAY WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION OF INTEREST DUE ON RECEIVABLES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAIN ST THE ADJUSTMENT MADE IN THE HANDS OF THE ASSESSEE ON ACCOUN T OF INTEREST DUE ON OUTSTANDING RECEIVABLES BY TREATING THE SAME AS INTERNATIONAL TRANSACTION. MUCH RELIANCE IS PLACED ON THE EXPLANATION INSERTED UNDER SECTION 92B OF THE ACT WITH RETROSPECTIVE EFFECT FRO M 1.4.2002. 10. THE SAID ISSUE STANDS COVERED IN FAVOUR OF THE AS SESSEE BY THE DECISION OF THE TRIBUNAL IN M/S. GLOBAL LOGIC INDIA LTD. FOR ASSESSMENT YEAR 2010-11 IN ITA NO.1104/DEL/2015 AND FOR ASSESSMENT YEAR 2012-13 IN ITA NO.1115/DEL/2017 VIDE ORDER DATED 12.12.2017. THE TRIBUNAL HAS RELIED ON THE DECISIO N OF HONBLE DELHI HIGH COURT IN PR. CIT-V VS KUSUM HEALTH CARE PVT.LTD. I N ITA NO.765/2016, JUDGEMENT DATED 25.04.2017 AND HELD THA T NO I.T.A. NOS. 1909 & 1910/HYD/2017 :- 8 -: ADJUSTMENT IS TO BE MADE ON ACCOUNT OF NOTIONAL INTEREST ON RECEIVABLES BY RELYING UPON EXPLANATION (I), (A) & (C) OF SECTION 92B OF THE ACT BY TREATING THE CONTINUED DEBIT BALANCE AS AN INTER NATIONAL TRANSACTION. MOREOVER WHEN THE TAXPAYER IS DEBT FREE CO MPANY, THERE IS NO QUESTION OF CHARGING ANY INTEREST ON RECEIVABLES . THIS ISSUE HAS ALSO BEEN DECIDED BY HONBLE DELHI HIGH COURT IN CAS E OF PR. CIT-1 VS M/S. BECHTEL INDIA PVT. LTD. IN ITA 379/2016 ORDER DA TED 21.07.2016. THE RELEVANT FINDINGS OF THE ORDER OF TH E TRIBUNAL (SUPRA), ORDER DATED 12.12.2017 ARE IN PARAS 14 TO 18 WHICH READ AS UNDER:- 14. PROVISIONS CONTAINED UNDER EXPLANATION (I), (A) & (C) OF SECTION 92B HAVE BEEN ANALYZED BY HONBLE DELHI HIGH COURT IN C ASE CITED AS PR. CIT-V VS. KUSUM HEALTH CARE PVT. LTD. IN ITA 765/20 16 ORDER DATED 25.04.2017, WHEREIN IT IS HELD THAT THE EXPRESSION ADDED IN EXPLANATION TO SECTION 92B DOES NOT MEAN THAT DE HO RS THE CONTEXT, EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALING WITH FOREIGN AE, WOULD AUTOMATICAL LY BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AND D ECIDED THE ISSUE IN FAVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDI NGS :- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SU BMISSIONS. 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 ACCOUN TS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WO ULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SU PPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF F ACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE BASI S. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL O F THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, T HERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATIS TICS OVER A PERIOD OF TIME TO DISCERN A PATTERN WHICH WOULD IND ICATE THAT VIS- -VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN A E, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION I NTENDED TO BENEFIT THE AE IN SOME WAY. I.T.A. NOS. 1909 & 1910/HYD/2017 :- 9 -: 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AS SESSING OFFICER WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUS TIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 18 0 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF T HE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON I TS PRICING/PROFITABILITY VIS--VIS THAT OF ITS COMPARA BLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING REC EIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERIS ED THE TRANSACTION. THIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DELHI). 12. CONSEQUENTLY, THE COURT IS UNABLE TO FIND ANY E RROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBST ANTIAL QUESTION OF LAW FOR DETERMINATION. THE APPEAL IS, A CCORDINGLY, DISMISSED. 15. SO, IN VIEW OF THE LAW LAID DOWN BY HONBLE HIG H COURT IN PR. CIT-V VS. KUSUM HEALTH CARE PVT. LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF NOTION AL INTEREST ON RECEIVABLES BY RELYING UPON EXPLANATION (I), (A) & (C) OF SECTION 92B BY TREATING THE CONTINUED DEBT BALANCE AS AN INTERNATI ONAL TRANSACTION. MOREOVER WHEN THE TAXPAYER IS DEBT FREE COMPANY, TH ERE IS NO QUESTION OF CHARGING ANY INTEREST OR RECEIVABLES. THIS ISSUE HAS ALSO BEEN DECIDED BY HONBLE DELHI HIGH COURT IN CASE OF PR. CIT-1 VS. M/S. BECHTEL INDIA PVT. LTD. IN ITA 379/2016 ORDER DATED 21.07.2016. 16. FURTHERMORE WHEN WE EXAMINE THE ENTITY LEVEL MA RGIN OF THE TAXPAYER VIS--VIS COMPARABLE COMPANIES, THE TAXPAY ER HAS EARNED HIGHER MARGIN I.E. TAXPAYER EARNED 38.39% OP/OC MAR GIN VIS--VIS MARGIN OF COMPARABLE COMPANIES AT 11.43%. IN SUCH C IRCUMSTANCES, NO SEPARATE ADJUSTMENT ON ACCOUNT OF INTEREST CAN BE M ADE. BECAUSE THE CREDIT PERIOD EXTENDED TO AE CANNOT BE CONSIDERED A S A STANDALONE TRANSACTION WITHOUT CONSIDERING THE MAIN TRANSACTIO N OF THE SALE. 17. FURTHERMORE WHEN THE TAXPAYER IS UNDISPUTEDLY A DEBT FREE COMPANY, AS IT IS NOT THE CASE OF THE LD. TPO THAT BORROWED FUNDS HAVE BEEN APPROPRIATED ENABLING THE AE TO MAKE THE DELAY ED PAYMENT ON RECEIVABLES. SO WHEN OUTSTANDING RECEIVABLES IS NOT A SEPARATE INTERNATIONAL TRANSACTION, THE DELAY IN REALIZATION OF THE SALE PROCEEDS IS INCIDENTAL TO THE TRANSACTION OF SALE AND AS SUC H NO NOTIONAL INTEREST CAN BE LEVIED BY TREATING THE SAME AS UNSECURED LOA N. 18. FURTHERMORE IT IS THE CASE OF THE TAXPAYER THAT WHEN THE TAXPAYER IS NOT CHARGING INTEREST FROM UNRELATED THIRD PARTY / NON AE, IN CASE OF SUCH DELAY, NO ADJUSTMENT ON INTEREST IN CASE OF AE CAN BE MADE AND DREW OUR ATTENTION TOWARDS THE DETAILS OF INVOICES RAISED QUA UNRELATED PARTIES AVAILABLE AT PAGE 183A OF THE PAP ER BOOK WHEREIN DELAY IN REALIZATION OF THE RECEIVABLES IS ALSO UP TO 218 DAYS FOR AY I.T.A. NOS. 1909 & 1910/HYD/2017 :- 10 -: 2010-11 AND UP TO 417 DAYS QUA AY 2012-13 AS PER DE TAIL OF INVOICES RAISED ON UNRELATED PARTIES QUA AY 2012-13, AVAILAB LE AT PAGE 236 OF THE PAPER BOOK. 11. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD NOT AVAILED ANY LOAN FROM AES OR UNRELATED THIRD PARTIES AND WAS NOT INCURRING ANY INTEREST COST. THE AGREEMENT BETWEEN THE ASSESSEE AND ITS AE VIS--VIS TERMS OF PAYMENT WITHIN STIPULATED PER IOD OF 90 DAYS CANNOT FORM BASIS FOR HOLDING THE EXISTENCE OF INTERN ATIONAL TRANSACTION BETWEEN ASSESSEE AND ITS AE, WHERE OUTSTANDI NG IS NOT RECEIVED WITHIN STIPULATED PERIOD. SUCH IS THE PROPO SITION LAID DOWN BY HONBLE DELHI HIGH COURT IN PR. CIT-V VS KUSUM HE ALTH CARE PVT.LTD. (SUPRA) ESPECIALLY WHERE WORKING CAPITAL ADJ USTMENT HAS BEEN ALLOWED TO ASSESSEE. IN ANY CASE, THE CREDIT PER IOD OF 90 DAYS IS LESS THAN CREDIT PERIOD OF 90 TO 120 DAYS OF COMPARABL ES AND NO ADJUSTMENT IS WARRANTED. 12. IN SUCH FACTS AND CIRCUMSTANCES AND FOLLOWING THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN KUSUM HEALTHC ARE LTD. (SUPRA) AND ALSO IN LINE WITH THE FINDINGS OF THE TRIB UNAL IN M/S. GLOBAL LOGIC INDIA LTD.(SUPRA), WE FIND NO MERIT IN M AKING ANY ADJUSTMENT ON ACCOUNT OF INTEREST DUE ON RECEIVABLE FROM ITS AE. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS ALLOWED. I.T.A. NOS. 1909 & 1910/HYD/2017 :- 11 -: 13. THE FACTS AND ISSUES IN ITA NO.1910/HYD/2017 ARE SIMILAR TO FACTS AND ISSUES IN ITA NO.1909/HYD/2017 AND OUR DEC ISION IN ITA NO.1909/HYD/2017 SHALL APPLY MUTAS MUTANDI . 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH JULY, 2020 SD/- SD/- ( ANIL CHATURVEDI ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER VICE PRES IDENT DATED: 09 TH JULY, 2020 *AMIT KUMAR* COPY OF THE ORDER FORWARDED TO : 1. M/S. VALUELABS, PLOT NO.41, HI-TECH CITY, PHASE- II, MADHAPUR, HYDERABAD. 2. THE ACIT, CIRCLE-8(1), HYDERABAD. 3. THE DRP-I, BENGALURU. 4. THE DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 5. THE ADD.CIT(TRANSFER PRICING), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE. / BY ORDER, //TRUE COPY// (DY./ASST. REGISTRAR) ITAT, HYDERABAD
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