Value Labs Technologies , Ranga Reddy V. Asst. Commissioner of Income Tax, Circle-8(1), Hyderabad

ITA 1921/Hyd/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1625 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 07-05-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 18-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Depreciation; Transfer pricing; International transaction; Retrospective amendment; Notional interest; TDS
• Section: 271(1)(c); 143(3); 92B

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1921 /HYD/201 8 ASSESSMENT YEAR: 20 1 4 - 15 VALUE LA BS TECHNOLOGIES, RANGA REDDY . PAN A A IFV6716G VS. ASST. COMMISSIONER OF INCOME - TAX , CIRCLE 8 ( 1 ), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SHRI Y.V.S.T. SAI DATE OF HEARING : 0 7 - 0 5 - 201 9 DATE OF PRONOUNCEMENT : 12 - 0 6 - 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) , DATED 31 / 08 /2018, FOR THE AY 2014 - 15 . 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE FIRM , ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES AN D FILED ITS RETURN OF INCOME FOR THE AY 2014 - 15, BY DECLARING AN INCOME OF RS. 11,82,640/ - ON 28 TH NOVEMBER, 2014. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND A NOTICE U/S 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE. AS PER THE INFORMA TION IN FORM 3CEB OF THE AUDIT REPORT, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS, DURING THE FY 2013 - 14, WITH ITS ASSOCIATED ENTERPRISES AMOUNTING TO RS. 41,52,68,595/ - . 2.1 AS PER FORM NO. 3CEB REPORT/TP DOCUMENT, THE INTERNATIONAL TRANSA CTIONS REFLECTED ARE AS UNDER: 2 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY AE NATURE OF TRANSACTION AMOUNT (RS.) VALUE LABS INC. USA PROVISION OF SOFTWARE DEVELOPMENT SERVICE 7,51,20,966 VALUE LABS FZ LLC DUBAI - DO 1,88,612,374 VALUE LABS GLOBAL SOLUTIONS PTE LD., SINGAPORE - DO - 11,00,12,028 VALUE LABS SDN. BHD MALAYSIA - DO - 4,15,23,227 THE FOLLOWING INTERNATIONAL TRANSACTION WAS REPORTED IN FORM NO. 3CEB OR TP DOCUMENTATION: RECEIVABLES RS. 6,09,86,754/ - ACCORDINGLY, THE AO REFERRED THE MATTER TO TPO WITH THE PRIOR APPROVAL OF THE PR. CIT 2, HYDERABAD, TO DETERMINE THE ARMS LENGTH PRICE. 2.2 THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALYSIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION MAM PLI MARGIN OF ASSESSEE MARGIN OF COMPARABLES SOFTWARE DEVELOPMENT SERVICES TNMM OP/OC 31.75% 8.17% 2.3 THE TPO OBSERVED THAT THE ASSESSEE HAS DISCUSSED IN BRIEF THE SEARCH PROCEDURE ADOPTED BY IT IN SEARCH FOR COMPARABLES IN TP DOCUMENTATION. THE ASSESSEE HAS USED PROWESS AND CAPITALINE PLUS DATA BASE IN SEARCH FOR COMPARABLE COMPANIES. AFTER APPLYING CERTA IN FILTERS, THE ASSESSEE HAS SHORT - LISTED 17 COMPARABLES TO BENCHMARK THE SOFTWARE DEVELOPMENT SERVICES TRANSACTION WITH ARITHMETIC MEAN PLI (OP/OC) COMPUTED AT 8.17% AS AGAINST THE PLI OF THE ASSESSEE AT 31.75%. ACCORDINGLY, IT WAS STATED THAT THE SOFTWARE DEVELOPMENT SERVICE TRANSACTIONS ARE AT ARMS LENGTH. 3 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY 2.4 AS PER THE AUDITED STATEMENT OF ACCOUNTS, THE FINANCIALS OF THE ASSESSEE ARE AS UNDER: DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 41,59,87,946 OPERATING COST 32,37,92,693 OPERATING PROFIT 9,21,95,253 OP/OR (%) 22.16% OP/OC (%) 28.47% 2.5 AS REGARDS SOFTWARE DEVELO PMENT SERVICES, THE TPO OBSERVED THAT THE MARGIN OF THE ASSESSEE IS HIGHER THAN THE AVERAGE MARGIN OF THE COMPARABLES AND THUS, THE PRICE RECEIVED BY THE ASSESSEE IS BEYOND THE ALP, THEREFORE, IN VIEW OF THE PROVISIONS OF SECTION 92(3), NO ADJUSTMENT IS PR OPOSED. 2.6 AS REGARDS INTEREST ON DELAYED TRADE RECEIVABLES, THE TPO OBSERVED FROM NOTES TO AUDITED FINANCIAL STATEMENTS FOR THE YEAR THAT AN AMOUNT OF RS. 6,09,86,754/ - OF TRADE RECEIVABLES ARE OUTSTANDING FROM RELATED P ARTIES. THEREFORE, THE TPO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF OUTSTANDING RECEIVABLES LIKE DATE ON WHICH INVOICE IS RAISED, AMOUNT, DATE OF ACTUAL RECEIPT, AMOUNT RECEIVED, CREDIT PERIOD ALLOWED, AMOUNT OUTSTANDING ETC. FURTHER, ASSESSEE COMPANY WAS ASKED TO EXPLAIN WHY INTERES T SHOULD NOT BE LEVIED ON OUTSTANDING RECEIVABLES AS IT IS AN INTERNATIONAL TRANSACTION U/S 92B OF IT ACT. IN RESPONSE TO THE SAME ASSESSEE FURNISHED PARTY WISE BREAK UP OF 'OUTSTANDING RECEIVABLES' FROM ASSOCIATED ENTERPRISES. 2.7 THE TPO REJECTED THE A R GUMENTS OF ASSESSEE THAT RECEIVABLES IS NOT A SEPARATE INTERNATIONAL TRANSACTION AS CLAUSE (C) TO EXPLANATION 92 B INSERTED BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 1 - 4 - 2002 SPECIFICALLY MENTIONS RECEIVABLES AS INTERNATIONAL TRANSACTION. THE TPO AFTER DISCUSSING THE ISSUE ELABORATELY WITH VARIOUS CASE LAW, CONSIDERED THE SBI TERM DEPOSIT RATES AS APPROPRIATE CUP TO DETERMINE ALP OF OUTSTANDING RECEIVABLES, COMPUTED THE INTEREST ON 4 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY WHOLE AMOUNT OF OUTSTANDING AND DETERMINED THE ARMS LENGTH PRIC E AT RS. 8,47,788/ - AS ADJUSTMENT U/S 92CA AS OUTSTANDING RECEIVABLES. 3. WHEN THE ASSESSEE FILED OBJECTIONS AGAINST THE ORDER OF TPO BEFORE THE DRP, THE DRP REJECTING THE SUBMISSIONS OF THE ASSESSEE, UPHELD THE ADJUSTMENT PROPOSED BY THE TPO BY OBSERVING THAT DEFERRED RECEIVABLES WOULD CONSTITUTE INTERNATIONAL TRANSACTION AND HAS TO BENCHMARKED IN REGARD TO DELAY BEYOND THE REASONABLE CREDIT PERIOD. 4. AGGRIEVED BY THE ORDER OF DRP, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THREE GROUNDS. GROUND NO. 1 IS REGARDING THE AO ERRED IN NOT PASSING FINAL ASSESSMENT ORDER WITHIN THE PRESCRIBED TIME LIMIT, WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. GROUND NO. 3 REGARDING INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) RWS 271AA AND 271BA OF T HE ACT. THIS GROUND IS PREMATURE IN NATURE, HENCE, NEED NO ADJUDICATION. 5. AS REGARDS GROUND NO. 2 (2.1 TO 2.20) REGARDING ADDITION RELATING TO ARMS LENGTH PRICE ADJUSTMENT OF RS. 8,47,788/ - TOWARDS INTEREST ON RECEIVABLES FROM AES, THE LD. AR OF THE AS SESSEE FILED WRITTEN SUBMISSIONS, WHICH ARE AS UNDER: IT IS SUBMITTED THAT THE ASSESSEE DOES NOT HAVE ANY BORROWED FUNDS AND HAVE NOT PAID ANY INTEREST COST DURING THE YEAR UNDER CONSIDERATION. IN SUPPORT OF THE SAME YOUR KIND REFERENCE IS INVERTED AT PAGE NO. 140 OF THE PAPER BOOK FILED. HENCE, IT IS SUBMITTED THAT AS THERE BEING NO BORROWED FUNDS, THERE IS NO INTEREST COST TO THE ASSESSEE. AND ALL THE FINANCE COST IS NOTHING BUT THE BANK CHARGES AND INTEREST ON TDS. HENCE, IT WOULD BE UNJUSTIFIED AND AGAINST THE GENERAL BUSINESS PRACTICES TO CHARGE INTEREST ON DELAYED PAYMENTS. IN SUPPORT OF THE SAME RELIANCE IS PLACED ON THE DECI SION OF SUPREME COURT IN THE CASE OF BECHTEL INDIA PVT. LTD FURTHER, WE PLACE RELIANCE ON THE RULING OF CIT VS VEGETABLE PRODUCTS L TD. , 88 ITR 192 (SC), WHEREIN IT WAS HELD THAT, IN CASE OF TWO VIEWS, VIEW FAVOURABLE TO THE ASSESSEE MUST BE FOLLOWED 5 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY NO INTEREST CAN BE CHARGED ON RECEIVABLES WHEN THE PRINCIPLE TRANSACTION IS AT ARM'S LENGTH IN THIS CONNECTION, WE WOULD LIKE TO SUBMIT THAT THE ASSESSEE HAS APPLIED TNMM METHOD AS MOST APPROPRIATE METHOD (MAM) TO BENCHMARK THE TRANSACTION ENTERED DURING THE YEAR UNDER CONSIDERATION. AT THIS JUNCTURE, IT IS VERY PERTINENT TO NOTE THAT TNMM TAKES INTO CONSIDERATION THE NET MARGIN LEVEL OF ENTITY AS MAM. THE NET MARGIN TAKES CARE ABOUT ALL SUCH COST LIKE NOTIONAL INTEREST ON RECEIVABLES I.E., INTEREST INCOM E IF ANY FORGONE BY THE ASSESSEE ON ACCOUNT OF LATE PAYMENT RECEIVED FROM THE ASSOCIATED ENTERPRISE. THEREFORE, ONCE THE TNMM WAS ACCEPTED AS MAM AND PRINCIPLE TRANSACTION WAS SAID TO BE ARM'S LENGTH. THEN NO SUCH ADJUSTMENT WAS REQUIRED TO BE MADE ON RECE IVABLES. IN SUPPORT OF THE SAME, RELIANCE IS PLACED ON THE DECISION OF HON'BLE ITAT, AHMEDABAD IN THE CASE OF BISAZZA INDIA (P.) LTD VS. DCIT (97 TAXMANN.COM 432). NO INTEREST HAS BEEN CHARGED FOR THE RECEIVABLES FROM AE AND NON AE'S THE AO /TPO OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE IS FOLLOWING A POLICY OF NOT CHARGING INTEREST ON RECEIVABLES IRRESPECTIVE OF WHETHER THE SALES ARE MADE TO AE OR NON - AE. THE ASSESSEE HAS BEEN FOLLOWING A POLICY OF NOT CHARGING INTEREST ON DELAYED PAYMENTS , WHETHER THE TRANSACTION IS WITH AE OR THE NON AE TO MAINTAIN A LONG TERM BUSINESS RELATION WITH THE CLIENTS AND TO ENSURE THE SMOOTH REALIZATION OF RECEIVABLES. AS THE PRACTICE OF CHARGING INTEREST ON DELAYED PAYMENTS MAY PUT A BURDEN ON THE CLIENT THERE BY EFFECTING THE REALIZATION OF RECEIVABLES AND FUNCTIONING OF THE BUSINESS. HENCE, NOT CHARGING ANY INTEREST FROM ITS AES BY ASSESSEE IS CONSISTENT WITH THE ARM'S LENGTH PRINCIPLE WHILE APPLYING THE TNMM METHOD FOR DETERMINING ALP IN SUPPORT OF THE SAM E RELIANCE IS PLACED ON THE DECISION OF I. HON'BLE ITAT HYDERABAD IN ONE OF THE ASSESSEE GROUP CASE (VALUE LABS VS. DCIT (ITA NO. 475/HYD / 2017), II. HON'BLE DELHI ITAT IN CASE OF MOTHERSON SUMI INFOTECH & DESIGNS LTD, (91 TAXMANN.COM 443) 6 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY NO ALP ADJ USTMENT IS REQUIRED IF NOTIONAL INTEREST IS FACTORED WE WOULD LIKE TO SUBMIT THAT ALLOWING OF EXTENDED CREDIT PERIOD TO THE ASSOCIATED ENTERPRISES IS OTHERWISE CLOSELY LINKED TO THE DETERMINATION OF SALE PRICE, WHICH IN - TURN IS THE BASIS TO ARRIVE AT THE MARGINS OF THE ASSESSEE. AND IF THE REDUCED MARGIN OF ASSESSEE, AFTER FACTORING IN THE NOTIONAL INTEREST CALCULATED WITH RESPECT TO THE OVERDUE RECEIVABLES FROM ASSOCIATED ENTERPRISES, IS MORE THAN THE AVERAGE MARGIN OF THE COMPARABLES NO FURTHER ADJUSTMEN T IS REQUIRED TO BE MADE. A. OPERATING COST (EXCLUDING DEPRECIATION IN PAGE 6 OF TP ORDER) 23,62,58,270 B. ADJUSTMENT PROPOSED (PAGED 11 OF TP ORDER) RS. 8,47,788 C. ADJUSTMENT AS PERCENTAGE OF OPERATING COST (B*100/A) 03.6% D. MARGIN OF THE TAX PAYER (AS PER TPO NOT CONSIDERING DEPRECIATION AS PART OF OPERATING COST (PAGE 6 OF TP ORDER) 76.07% E. MARGIN (D.) AS REDUCED BY (C.) 75.71% F. MARGIN OF THE COMPARABLES (AS PER TP STUDY IN PAGE 197 OF PAPER BOOK 8.17% G MARGIN OF THE COMPARABLES (AS PER TP SCN PAGE 222 - 223 OF PAPER BOOK 36.87% THE MARGIN OF COMPANIES (COMPARABLES SELECTED BY TPO) CONSIDERED ABOVE ARE AS MENTIONED IN TP SHO W CAUSE NOTICE DATED 25.10.2017, WHEREIN THE MARGIN OF COMPARABLES SELECTED BY TPO ARE AT 35.44% IN PAGE 223 OF PAPER BOOK (CONSIDERING DEPRECIATION IN OPERATING COST). AFTER ISSUE OF SCN, THE TPO IN PAGE 5 OF TP ORDER, ACCEPTED THE ASSESSEE CONTENTION TO COMPUTE THE OPERATING MARGIN OF ASSESSEE AND COMPARABLES BEFORE DEPRECIATION IS AS UNDER: S NO NAME OF COMPANY OP/OC (IN %) [AFTER DEPRECIATION) OP/OC (IN %) (BEFORE DEPRECIATION) 1 SQS INDIA BFSI LTD 22.25 26.60 2 TATA ELXSI LTD (SEG) 22.29 26.96% 3 MINDTREE LTD 21.64 25.71 4 RS SOFTWARE (INDIA) LTD 24.03 26.59 5 TECH MAHINDRA LTD (SEG) 23.83 - 52.07% 6 E - INFOCHIPS LTD 81 89.08 7 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY 7 LARSEN & TOUBRO INFOTECH LTD 24.04 27.22 8 CIGNITI TECHNOLOGIES LTD 27.64 32.80 9 INFOSYS LTD 36.36 41.10 10 PERSISTENT SYSTEMS LTD 36.06 45.84 11 INFOBEANS TECHNOLOGIES LTD 42.08 48.25 12 ICRA TECHNO ANALYTICS LTD 48.93 62.83 13 THIRDWARE SOLUTIONS LTD 50.51 53.51 AVERAGE PLI 35.44 36.87 DETAILED COMPUTATIONS ARE ENCLOSED IN PAGE 226 - 238 OF PAPER BOOK. AS CAN BE SEEN FROM THE ABOVE TABLE, EVEN AFTER FACTOR ING IN THE NOTIONAL INTEREST CALCULATED WITH RESPECT TO THE OVERDUE RECEIVABLES FROM ASSOCIATED ENTERPRISES, THE MARGIN OF ASSESSEE IS MORE THAN AVERAGE MARGIN OF THE COMPARABLES AND HENCE, NO FURTHER ADDITION IS TO BE CALLED FOR U / S 92CA(3) OF THE ACT FOR THE RECEIVABLES. IN SUPPORT, RELIANCE IS PLACED ON THE RULING OF MUMBAI ITAT IN CASE OF AGILISYS IT SERVICES INDIA (P.) LTD. VS ITO, (76 TAXMANN.COM 134) NO INTEREST CAN BE CHARGED ON RECEIVABLES WHEN THE ASSESSEE IS NOT PAYING ANY INTEREST ON TRADE PA YABLES OR ADVANCES FROM CUSTOMERS. IN THIS CONNECTION, WE WOULD LIKE TO SUBMIT THAT, WHEN ASSESSEE IS NOT PAYING ANY INTEREST ON OUTSTANDING PAYABLES; IT IS NOT JUSTIFIED TO CHARGE INTEREST ON THE OUTSTANDING RECEIVABLES. IN THIS REGARD, RELIANCE IS PLAC ED ON THE HONBLE HYDERABAD ITAT TRIBUNAL RULING IN CASE OF HACKETT GROUP INDIA LIMITED, ITA NO. 2039/HYD/2017 NO INTEREST CAN BE CHARGED ON RECEIVABLES WHEN THE ASSESSEE HAS RECEIVED AMOUNTS WITHIN A REASONABLE PERIOD OF TIME . WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, WE WOULD LIKE TO SUBMIT THAT THOUGH AN ADJUSTMENT IS WARRANTED, A CREDIT PERIOD AS PER THE RBI GUIDELINES ISSUED IN RESPECT OF THE REALIZATION FROM FOREIGN PROCEEDINGS ARE TO BE CONSIDERED. FURTHER, THE RECEIVABLES OF THE ASSESSEE WERE NOT DUE FOR MORE THAN 180 DAYS FROM THE DATE OF SALE AND EVEN SECTION 10 A OF THE ACT ITSELF ALLOWS 180 DAYS AS REASONABLE PERIOD OF CREDIT. IN SUPPORT OF THE SAME RELIANCE IS PLACED ON THE DECISION OF HON BLE ITAT HYDE RABAD IN THE CASE OF GSS INFOTECH LIMITED VS. DCIT (ITA NO. 602/HYD/2017) 8 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY NO INTEREST CAN BE CHARGED ON RECEIVABLES WHEN DEBTOR DAYS OF THE ASSESSEE COMPANY ARE LESS THAN THAT OF THE COMPARABLE COMPANIES WITHOUT PREJUDICE TO ALL THE ABOVE SUBMISSIONS, WE WOULD LIKE SUBMIT THAT WHEN THE AVERAGE COLLECTION PERIOD OF THE ASSESSEE I.E., 64 DAYS IS LESS THAN INDUSTRIAL AVERAGE IN WHICH ASSESSEE IS OPERATING OF 72 DAYS. DETAILS OF DEBTOR DAYS COMPUTATION IS AS UNDER: VALUE LABS TECHNOLOGIES ITA 1921/HYD/20 18 AY 2014 - 15 S.NO. NAME OF THE COMPARABLE COMPANY SALES AVERAGE DEBTORS DEBTOR DAYS 1 SQS INDIA BFSI LTD 2,00,60,78,494 38,74,81,785 71 TATA ELXSI LTD (SEG) 6,82,70,22,000 1,55,57,74,000 83 MINDTREE LTD 3,04,34,00,000 60,04,00,000 72 RS SOFTWARE (INDIA) LTD 3,51,88,20,000 46,35,84,000 48 TECH MAHINDRA LTD (SEG) 17,01,39,00,000 3,92,78,00,000 84 E - INFOCHIPS LTD 2,05,61,12,437 56,80,83,101, 101 LARSEN & TOUBRO INFOTECH LTD 45,48,03,71,882 8,49,58,16,258 68 CIGNITI TECHNOLOGIES LTD 55,62,98,162 9,32,97,879 61 INFOSYS LTD 4,46,45,00,000 73,36,00,000 60 PERSISTENT SYSTEMS LTD 1,18,51,17,000 30,28,17,000 93 INFOBEANS TECHNOLOGIES LTD 33,01,56,390 2,90,04,976 32 ICRA TECHNO ANALYTICS LTD 28,56,46,000 10,09,85,000 129 THIRDWARE SOLUTIONS LTD 2,06,75,74,000 21,78,66,000 38 AVERAGE COMPARABLES DEBTORS DAYS 72 VALUE LABS TECHNOLOGIES 41,59,87,946 7,25,85,953 IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THERE IS NO NEED TO CHARGE INTEREST ON RECEIVABLES AS THE AVERAGE COLLECTION PERIOD OF THE ASSESSEE IS LESS THAN THAT OF THE COMPARABLE AVERAGE. ACCORDING LY, SAME IS SAID TO BE AT ARM'S LENGTH AND NO ADJUSTMENT ON THE SAME IS REQUIRED. 9 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY IN SUPPORT OF THE ABOVE, RELIANCE IS PLACED ON THE DECISION OF HON'BLE HYDERABAD ITAT IN THE CASE OF HACKETT GROUP INDIA LIMITED (ITA NO. 2039/HYD/2017). INTEREST IS TO BE CHARGED USING LIBOR WE WOULD LIKE TO SUBMIT THAT LIBOR RATE SHOULD BE CONSIDERED IN CASES WHERE THE EXPORT TURNOVER WAS BROUGHT IN FOREIGN EXCHANGE AFTER EXPIRY OF REASONABLE CREDIT PERIOD. IN SUPPORT OF THE SAME RELIANCE IS PLACED ON THE DECISION OF HON BLE IT AT HYDERABAD IN THE CASE OF GSS INFOTECH LIMITED VS. DCIT (ITA NO. 602/HYD/2017) IN VIEW OF THE ABOVE EXPLANATIONS AND CLARIFICATIONS, IT IS HUMBLY PRAYED BEFORE YOUR GOOD SELVES TO DELETE THE ADJUSTMENTS MADE IN THE TRANSFER PRICING FOR THE YE AR UNDER CONSIDERATION. 6. THE LD. DR, ON THE OTHER HAND, BESIDES RELYING ON THE ORDERS OF REVENUE AUTHORITIES, RELIED ON THE FOLLOWING CASE LAW: 1. MCKIN SEY KNOWLEDGE CENTRE INDIA (P) LTD., 96 TAXMANN.COM 237 2. KINSEY KNOWLEDGE CENTRE INDIA LTD., 102 TAXMANN.COM 439 3. BECHTEL INDIA (P) LTD., 85 TAXMANN.COM 121 4. TECHBOOKS INTERNATIONAL (P) LTD., 63 TAXMANN.COM 114 5. M/S SCANCAFE DIGITAL SOLUTIONS PVT. LTD., IT(TP) A NO. 502/BANG/2015, DATED 12/04/2017 7. CONSIDERED THE RIVAL SUBMI SSIONS AND PERUSED THE MATERIAL ON RECORD. IN ASSESSEES OWN CASE FOR AY 2013 - 14 IN ITA NO. 1919/HYD/2017, VIDE ORDER DATED 05/04/2019, ON SIMILAR ISSUE, THE COORDINATE BENCH OBSERVED AS UNDER: 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE CONSIDERED THE CASE LAW, RELIED ON BY ASSESSEE AND NOTICED THAT THESE DECISIONS ARE RELATING TO ASSESSMENT YEARS INVOLVING PRIOR TO AMENDMENTS MADE IN FINANCE ACT, 2012 IN SECTIO N 92B. THESE RATIOS ARE RELEVANT FOR THOSE ASSESSMENT YEARS PRIOR TO AMENDMENT. COMING TO THE CASE ON HAND, THIS IS FOR AY. 2013 - 14 THE YEAR IN WHICH THE AMENDMENT COME INTO FORCE. THEREFORE, THIS IS APPLICABLE FROM AY. 2013 - 14 ONWARDS. 13.1 AS THE DEFI NITION OF SECTION 92B IS AMENDED TO BRING IN THE NATURE OF FINANCING BY WAY OF ALLOWING THE AES TO RETAIN THE 10 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY TRADE RECEIVABLES BEYOND REASONABLE PERIOD. IN OUR VIEW, THE OUTSTANDING TRADE RECEIVABLES BEYOND REASONABLE PERIOD WILL COME UNDER INTERNATIONAL TRANSACTIONS AS PER AMENDED SECTION 92B. ACCORDINGLY, THE ASSESSEE AS WELL AS TPO HAVE TO DETERMINE WHAT IS THE REASONABLE PERIOD OF OUTSTANDING WHICH THEY CAN ALLOW TO THE AES. IT MAY BE AS PER THE BILATERAL AGREEMENT OR TRADE PRACTICE IN THE INDUSTRY OR HISTORICAL AVERAGE COLLECTION PERIOD OF THE ASSESSEE OR REFERENCE CAN BE DRAWN FROM STATUTORY LIMITS FIXED BY THE LEGISLATURE IN THE SIMILAR ENACTMENT. 13.2 THEREFORE, WE DIRECT THE TPO TO DETERMINE THE INDUSTRY AVERAGE OR AVERAGE OF COLLECTION PERIOD ADOPTED BY THE COMPARABLE COMPANIES SELECTED FOR THE TP STUDY AND CALCULATE AVERAGE COLLECTION PERIOD OF THE ASSESSEE DURING THIS ASSESSMENT YEAR. FURTHER, WE NOTICE THAT TPO HAS SELECTED ONLY 9 TRANSACTIONS WHICH HAVE CROSSED ONE MONTH TO DETERMINE THE A DJUSTMENT OF TP WHEREAS ASSESSEE HAS TRANSACTED TOTAL 31 TRANSACTIONS DURING THIS YEAR. TPO HAS TO CALCULATE THE AVERAGE COLLECTION PERIOD FOR THIS YEAR. WHETHER THE AVERAGE COLLECTION PERIOD IS WITHIN INDUSTRIAL AVERAGE OR NOT HAS TO BE DETERMINED. SIN CE WE DO NOT KNOW THE INDUSTRY AVERAGE, WE REMIT THIS ISSUE BACK TO THE FILE OF TPO TO DETERMINE THE INDUSTRIAL AVERAGE AS DIRECTED ABOVE I.E. CALCULATE THE AVERAGE COLLECTION PERIOD OF THE COMPARABLE COMPANIES SELECTED FOR THE TP STUDY AND AVERAGE COLLEC TION PERIOD OF THE ASSESSEE FOR THE WHOLE YEAR. THE COLLECTION DURING THE YEAR WHICH ARE WITHIN THE INDUSTRY AVERAGE SHOULD BE ALLOWED AND ONLY THE COLLECTION PERIOD BEYOND INDUSTRIAL AVERAGE ALONE SHOULD BE CHARGED WITH THE INTEREST BASED ON THE RATE OF LIBOR SINCE IT IS INTERNATIONAL TRANSACTION. 7. 1 IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEE HAS SUBMITTED THE INDUSTRY AVERAGE AND AVERAGE COLLECTION PERIOD OF THE ASSESSEE. WE DIRECT THE AO/TPO TO VERIFY THE SUBMISSIONS OF THE ASSESSEE AND IF THE AVER AGE COLLECTION PERIOD IS LESS THAN THE INDUSTRY AVERAGE, THERE IS NO NEED TO MAKE ANY TP ADJUSTMENT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE , 201 9. SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 12 TH JUNE , 2 01 9. 11 ITA NO. 1921 /HYD/201 8 VALUE LABS TECHNOLOGIES, RANGA REDDY KV COPY TO: - 1) M/S VALUE LABS TECHNOLOGIES, C/O P. MURALI & CO., CAS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82 2) AC IT, CIRCLE 8 ( 1 ), HYD 3) DRP - 1 , BENGALURU 4) PR. CIT 2 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE