OSI Systems Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-16(2), Hyderabad

ITA 2228/Hyd/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3246 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 09-11-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: AJIT TOLANI
• Keywords: Business income; Transfer pricing; International transaction; Working capital adjustments; Notional interest; Set aside
• Section: 143(3); 92B; 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND D.S. SUNDER SINGH, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCE) ITA NO. 2228 /HYD/201 7 ASSESSMENT YEAR: 20 13 - 14 OSI SYSTE MS PVT. LTD., HYDERABAD. PAN AAAC O 4438M VS. DY . COMMISSIONER OF INCOME - TAX, CIRCLE 1 6 ( 2 ), HYDERABAD. (APP ELLANT ) (RESPONDENT ) ASSESSEE BY : S H RI AJIT TOLANI & SHRI DARPAN KIRPALANI REVENUE BY : S HRI YVST SAI DATE OF HEARING : 0 9 - 11 - 20 20 DATE OF PRONOUNCEMENT : 18 - 11 - 20 20 ORDER PER D.S. SUNDER SI NGH, A.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER PASSED U/S 143(3) RWS 92CA(3) RWS 144C(5) OF THE IT ACT, 1961, DATED 26/10/2017. 2. ALL THE GROUNDS RAISED IN THIS APPEAL ARE RELATED TO CHARGING OF INTEREST ON OUTSTANDING RECEIVABLES. 3. THE TPO FOU ND THAT THE TAXPAYER HA D OUTSTANDING RECEIVABLES OF RS. 59,17,71,560/ - AS AT THE END OF THE YEAR. THE TPO ASKED THE ASSESSEE TO SUBMIT THE DETAILS AND PROPOSED TO CHARGE NOTIONAL INTEREST @ 14.5% AS APPLICABLE ON DEPOSITS RATES OF STATE BANK O F 2 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. INDIA ( IN SHORT SBI) FOR ADJUSTMENT. T HE ASSESSEE OBJECTED THE PROPOSED ADJUSTMENT STATING THAT RECEIVABLES WERE RELATE D TO INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AND ARE NOT IN THE NATURE OF ANY ADVANCE/LOANS AS MENTIONED IN THE INCOME TAX A CT ( IN SHORT ACT) . IT WAS FURTHER STATED THAT THE COMPANY IS FULLY FUNDED ENTITY AND THE SALES AND RECEIVABLES ARE RUNNING ACCOUNTS. THE ASSESSEE FURTHER SUBMITTED BEFORE THE TPO THAT IT DOES NOT BEAR THE WORKING CAPITAL RISK, WHICH REQUIRE CHARGING OF N OTIONAL INTEREST. THE TAXPAYER RELIED ON THE CASES OF PEGASYSTEMS WORLDWIDE INDIA PVT.LTD. FOR AY 2009 - 10, ITA NO.1758 & 1936/HYD/2014, EVONIK DEGUSSA INDIA P.LTD., ITA NO. 7653/MUM/2011, AND INDO AMERICAN JEWELLERY LTD., ITA NO. 5872/MUM/2009. 3.1 THE T PO WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE IN VIEW OF INTRODUCTION OF CLAUSE C TO EXPLANATION TO SECTION 92B CLARIFYING THAT ALL THE TRANSACTIONS OF CAPITAL FINANCING IN CLUDING LONG TERM AND SHORT TERM BORROWINGS AND RECEIVABLES O R A NY DEBT ARISING DURING THE COURSE OF BUSINESS W.E.F 01/04/2002 BY FINANCE ACT 2012 . THUS, THE TPO HELD THAT IMPUTATION OF INTEREST ON RECEIVABLES AS INTERNATIONAL TRANSACTION AND ACCORDINGLY, REJECTED THE CONTENTIONS OF THE AS SESSEE AND SUGGESTED ADJUS T MENT FOR OF RS. 6,54,11,154/ - U/S 92CA(3) OF THE IT ACT. 3.2 ACCORDINGLY, THE AO ISSUED DRAFT ASSESSMENT ORDER PROPOSING TO MAKE THE ADJUSTMENT U/S 92CA(3) OF THE ACT TO THE EXTENT OF RS. 6,54,11,154/ - , AS SUGGESTED BY THE TPO AND IN RESPONSE TO WHICH, T HE 3 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. ASSESSEE FILED OBJECTIONS BEFORE THE LD. D ISPUTE R ESOLUTION P ANEL(DRP) . 3.3 THE L D. DRP UPHELD THE ADJUSTMENT PROPOSED BY THE TPO ON THE GROUND THAT INTEREST ON RECEIVABLES WOULD CONSTITUTE SEPARATE I NTERNATIONAL TRANSACTIONS. THE DRP OBSERVED THAT TH E LD. TPO CHARGED T HE INTEREST TILL THE DATE OF PASSING THE ORDER, WHICH WA S NOT PROPER, AND DIRECTED THE A SSESSING OFFICER(AO) TO CHARGE THE INTER EST TILL THE END OF THE F INANCIAL Y EAR(FY) RELEVANT TO A SSESSME N T YEAR(A Y ) . THE LD. DRP FU RTHER DIRECTED THE A O TO RESTRICT THE ADJUSTMENT FOR DELAY IN PAYMENT TILL THE END OF FY AND ALSO TO CONSIDER THE INVOICE RAISED IN THE EARLIER FY ALSO, IN RESPECT OF WHICH PAYMENTS WERE RECEIVED DURING THE FY RELEVANT TO THE IMP U GNED AY AND COMPUTE THE ALP . 3.4 THE ASSESSE E ALSO RAISED OBJECTIONS WITH REGARD TO NETTING OF OUTSTANDING PAYABLES OF RS. 13,08,87,984/ - AGAINST THE OUTSTANDING RECEIVABLES FROM ITS AE. THE DRP NOTED THAT THE ASSESSEE WAS TO FURNISH THE D ETAILS OF SUCH P A YABLES ALONG WITH TERMS AN D CONDITIONS OF AG R EEMENT. SINCE THE ASSESSEE FAILED TO FURNISH ANY SUCH INFORMATION, THE DRP REJECTED THE CONTENTION OF THE ASSESSEE WITH REGARD TO NETTING OF OUTSTANDING PAYABLES AGAINST OUTSTANDING RECEIVABLES. 3.5 ACCORDINGL Y , THE AO PASSED FINAL ASSE SSMENT ORDER AND M A DE THE ADJUSTMENT OF RS. 3,44,83,411/ - U/S 92CA(3) OF THE ACT, AGAINST WHICH, THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. 4 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. 4. BEFORE US, THE LD. AR OF THE ASSESSEE ARGUED THAT ASSESSEE HAS ADOPTED TNMM AS M O ST APPROPRIATE METHOD AND THE MARGIN OF THE A SSESSE E WAS MORE THAN THE COMPARABLE COMPANIES , THEREFORE, ARGUED THAT INTEREST ON RECEIVABLES SUBSUMED IN THE WORKING CAPITAL ADJUSTMENTS, THUS, NO SEPARATE ADJUSTMENT IS REQUIRED ON ACCOUNT OF INTEREST ON REC E IVABLES. THE ASSESSEE FURTHER SUBMITTED THAT AGAINST THE MARGINS RANGING FROM 0.84% TO 17.85% OF COMPAR ABLE COMPANIES , THE ASSESSEES MARGIN WAS 5.63% AND 22% AS PER THE DETAILS GIVEN BELOW: PARTICULARS MFG SDS ITES TRADING TOTAL SALES OPERATING COST P R OFIT A B C= A - B 327311992 268295716 5901627 6 218910676 177932133 40978543 68836166 52536734 16299432 191732383 180932235 10800148 806791217 679696818 127094399 OP/OC% OP/OR% D= C/B% E= C/A% 22.00 23.03 31.02 5.63 18.70 15.75 COMPARA - BLE MARGIN OP/OC% OP/OR% F G (0.8 4 ) 15.69 17.85 2.24 4.1 THE ASSESSEE F URTHER SUBMITTED THAT THE EXCESS PROFIT EARNED BY THE ASSESSEE WAS RS. 8,77,55,919/ - , WHICH TAKES CARE OF OF THE ADJUSTMENTS THAT ARE REQUIRED TO BE MADE TO DETERMINE AL P IN 5 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. IMPUTING THE INTEREST AND, THUS , ARGUED THAT NO SEPARATE ADJUSTMENT IS REQUIRED TO BE MADE ON ACCOUNT OF IMP UTATION OF INTEREST ON RECEIVABLES. THE ASSESSEE FURTHER ARGUED THAT TRANSACTION IS NOT COVE RED IN THE DEFINITION OF INTERNATIONAL TRANSACTIO N AS DEFINED U/S 92B OF THE AC T , SINCE , THE SAM E WAS ON ACCOUNT OF INTERNATIONAL TRANSACTION S AND NOT A SEPARATE TRANSACTION OF FINANCING . ACCORDINGLY, THE LD.A.R SUBMITTED THAT THERE IS NO CASE FOR MAKING ADJUSTMENT AND REQUESTED TO SET ASIDE THE ORDERS OF L OWER AUTHORITIES AND ALLOW THE APP E AL OF THE ASSESSEE. 4. 2. ALTERNATIVELY, THE LD. AR ALSO SUBMITTED THAT AO/TPO IMP UTED THE INTEREST @ 14.5%, WHICH IS AT SBI FIXED DEPOSIT RATES/LENDING RATES AND ALLOWED THE CREDIT PERIOD OF 30 DAYS. HE, THEREFORE, REQUE S TED TO CHANGE THE INTEREST AS P E R LIBOR RATE , SINCE , THE ASSESSEE HAS RECEIVABLES IN FOREIGN EXCHANGE AND ALLOW CREDIT PERIOD OF 120 DAYS AGAINST 30 DAYS A LLOWED BY THE ASSESSEE. THE LD. AR FURTHER ARGUED THAT OUTSTANDING PAYABLES REQUIRED TO BE NETTED AG A INST OUTSTANDING RECEIVABLES FO R COMPUTING THE INTEREST . 5. PER CONTRA, THE LD. DR SUBMITTED THAT CAPITAL FINANCING IS SEPARATE INTERNATIONAL TRANSACTION AND WITH THE INTRODUCTION OF CLARIFICATORY AMENDMENT TO EXPLANATION TO SECTION 92B, RECEIVABLES ARISING DURING TH E COURSE OF BUSINE S S ARE REQUIRED TO BE INCLUDED IN THE INTERNATIONAL TRANSACTION. IN THE INSTANT CASE, THERE WAS A SUBSTANTIAL DELAY OF 353 DAYS IN REALIZING THE DEBTS, T HEREFORE ARGUED THAT AS PER SECTION 92B, INTEREST ON RECEIVA BLES IS REQUIRED TO BE 6 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. IN C LUDED FOR THE PUR P OSE OF IMPUTATION INTEREST ON RECEI VABLES AND ADJUSTMENT IS REQUIRED TO BE MADE. HE FURTHER ARGUED THAT INTEREST ON RECEIVABLES CANNOT BE CLUBBED WITH THE SOFTWARE DEVELOPMENT SERVICES O R ANY OTHER ACTIVITY OF THE ASSESSEE SUCH AS SALE O R PURCHASE . LD. D R RELIED ON THE DECISION O F THE TECHBOOKS INTERNATIONAL PVT. LTD., ITA NO. 6102/DEL/2016 DATED 06/07/2020 AND BT E - SERVE (INDIA) PVT.LTD., ITA NO. 6690/DEL/2016, DATED 19/06/2018 AND ARGUED THAT THE DRP HAS RIGHTLY UPHELD THE ORDER OF TPO AND NO INTERFEREN C E IS CALLED FOR. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN THE INSTANT CASE, THERE WERE RECEIVABLES OUTSTANDING AS AT THE END OF THE YEAR TO THE EXTENT OF RS. 59,17,71,560/ - AND THE DELAY WAS A ROUND 3 53 DAYS AS SUBMIT T ED BY THE LD. DR. THOUGH, T HE ASSESSEE IS HAVING HUGE MARGIN AND THE SALE PRICE IS AT ARMS LENGTH, SUBSEQUENT TO THE INTRODUCTION OF CLAUSE C TO EXPLANATION OF SECTION 92B, RECEIVABLES CONSTITU TE SEPARATE INTERNATIONAL TRANSACTION. T HE ISSUE , WHETHER THE DEBTS ARISIN G OUT OF TRADING TRANSACTIONS CONSTITUTE ADVANCE S OR NOT WAS CONSIDERED BY THE LD. DRP IN IT S ORDER IN DETAIL IN PAGE NOS. 5 & 6 OF THE DRP ORDER PLACING RELIANCE ON THE DECISION OF COORD INATE BENCH OF ITA T, BANGALORE IN L OGIX MICROSYSTE MS LTD . FURTHER, AS PER THE AMENDMENT MADE TO EXPLANATION TO SECTION 92B, IT IS CLEARLY CLARIFIED THAT ANY TYPE OF ADVANCE, PAYMENT OR DEFAULT PAYMENTS OR RECEIVABLES OR ANY DEBIT ARISING DURING THE COURSE OF BUSINESS CONSTITUTE INTERNATION A L TRANSACTIONS. F O R THE SAKE OF CLARITY 7 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. AND CONVENIENCE, WE EXTRACT CLAUSE (C) OF EXPLANATION TO SECTION 9 2B, WHICH AS UNDER: (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG - TERM OR SHORT - TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKET A BLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURI NG THE COURSE OF BUSINESS . 6.1 FROM THE PLAI N READING OF CLAUSE (C) OF EXPLANATION TO SECTION 92B, IT IS CLEAR THAT ANY DEB T ARISING DURING T H E COURSE OF BUSIN E SS CONSTITUTE INTERNATIONAL TRANSACTION. NO SEPARATE TREATMENT WAS GIVEN FOR THE TRADING TRANSACTIONS. SIMILARLY, THE CONTENTION OF THE LD.AR IF THE INTERNATIO NAL TRANSACTION AT ALP , NO SEPARATE ADJUSTMENT IS REQUIRED TO BE MADE ON ACCOUNT OF OUTST A NDIN G DEFERRED RECEIVABLES HAS NO BASIS AND THE SAME WAS NOT SPECIFICALLY EXCLUDED IN THE MEANING OF INTERNATIONAL TRANSACTION . THEREFORE, EVEN THOUGH TRADING TRANSACTIONS ARE AT ALP, WITH THE INTRODUCTION OF AMENDMENT TO EXPLANATION TO SECTION 92B, WE ARE OF THE CONSIDERED OPINION T H AT INTEREST IS REQUIRED TO BE IMPUTED ON OUTSTANDING RECEIVABLES IF THE SAME ARE REALIZED BEYOND THE AGREED PERIOD AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THE LD. DRP REJECTED THE CONTENTION OF THE ASSESSEE WITH REGARD T O DE FE RRED RECEI VA BLES IN IT S ORDER IN PAGE NO.3 &4 PLACING RELIANCE ON THE DECISION OF COORDINATE BENCH OF ITAT IN BECHTEL INDIA PVT L TD IN ITA NO. 6530/DEL/2016, DATED 16/05/2017. 8 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. 6 . 2 LD. AR RELIED ON THE DECISION OF CCL PRODUCT S INDIA LTD., ITA NO.3 48 O F VIZAG BENCH ORDER DATED 03/04/2019. IN THE SAI D ORDER, THE CIT ( A) HAS GIVEN A FINDING THAT RECEIVABLES WERE RECEIVED IN A REASONABLE PERIOD AND THERE WAS NO DELAY, WHEREAS, NO SUCH FINDING WAS GIVEN IN THE INSTANT CASE BY THE LD . DRP /TPO . AS SUBMITTE D B Y THE LD.DR THE REALIZATION WAS MADE BEYOND 353 DAYS WHICH IS AB N ORMAL UNDER ANY CIRCUMSTANCES. THEREFORE, THE CASE L A W RELIED UPON BY THE ASSESSEE IN THE CASE OF CCL PRO DUCTS INDIA LTD. IS NOT APPLICABLE TO THE CASE OF ASSESSEE. T HE LD. AR ALSO RELIED UPO N THE DECISION OF ITAT, A BENCH , HYDERABAD IN THE CASE OF M/S VALUE LABS TECH N OLO GIES , ITA NO . 1921/HYD/2018 DATED 04/09/2020 WHEREIN, THE HON BLE TRIBUNAL HAS TAKEN A VIEW THAT NO ADJUSTMENT IS REQUIRED IF THE DELAY IS BETWEEN 9 0 AND 120 DAYS. I N T HE INS T ANT CASE, AS SUBMITTED BY THE LD. DR, THE DELAY WAS AROUND 353 DAYS. THEREFORE, THE VALUE LABS CASE IS ALSO NOT HELPFUL TO THE CASE OF THE ASSESSEE. 6. 4 THE LD. DR RELIED ON THE DECISION OF TECHBOOKS INTERNATIONAL PVT. LTD. ( SUPRA), WHEREIN THE IT A T, DELHI CONFIRMED THE DECISION OF DRP IN IMPUTING THE INTEREST ON DELAYED RECEIPTS. SIMILARLY, THE LD. DR RELIED ALSO ON THE DECISION OF BT E - SERVE (INDIA) PVT. LTD. (SUPRA), WHEREIN, THE COORDINATE BENCH OF ITAT, DELHI HELD THAT EV EN THE OUTSTANDING REC EIV A BLES P ARTAKE THE CHARACTER OF CAPITAL FINANCING AND CONSEQUENTLY, OVERDUE OUTSTANDING IS AN INTERNATIONAL TRANSACTION IN ITA NO.565/2015 DATED 30/10/2017 DELHI BENCH IN PARA NO 22 FOR THE 9 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. A.Y . 2011 - 12 . FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRA CT PARA 22 OF THE ORDER OF THE COORDINATE BENCH, AS UNDER: 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE SERVICE AGREEMENT DATED 01ST AUGUST 2009 IS PLACED AT PAGE NO. 294 TO 311 OF PAPER BOOK. THE SERVI CE FEES ARE GOVE RNED BY CLAUSE 4 OF TH E AGREEM ENT. ACCORDING TO CLAUSE NO. 4.9 SUBSEQUENT TO CONFIRMATION OF THE INVOICES IT IS PROVIDED THAT THE PAYING PARTY WILL PAY THE INVOICE AMOUNT TO THE INVOICING PARTY IN ACCORDANCE WITH THE BT GROUP POLICY FOR THE SETTLEMENT OF I NTRA - GROUP TRANSACTION . SCHEDU LE 1 OF THAT AGREEMENT IS WITH RESPECT TO THE SERVICES, SCHEDULE - 2 IS WITH RESPECT TO BTGS TRANSFER PRICING POLICY. ACCORDING TO PARA NO. 3.4 OF THAT POLICY THE SERVICE FEE FOR THE PROVISION AND RECEIPT OF SER VICES ARE CALCUL ATED IN THE ORDER THAT BT, BT LTD AND OPCO RECEIVE AN ARM S LENGTH RETURN FOR THE SERVICES PROVIDED AND RECEIVED. THEREFORE, ACCORDING TO THAT POLICY IT IS EVIDENT THAT THE POLICY OF THE GROUP IS TO CHARGE THE SERVICES AT ARM S LENGTH. IN T HIS BACKGROUND I T NEEDS TO BE EXAMINED THAT WH ETHER A THIRD PARTY IN A GIVEN CIRCUMSTANCES WOULD ALLOW IT S OUTSTANDING TO DRIFT TO SUCH AN EXTENT. THE APPARENT ANSWER TO THIS QUERY WOULD BE EMPHATIC NO. FURTHER ON READING THE TRANSFER PRICING STUDY REPO RT PREPARED BY THE ASSESSEE, IN THE CREDIT AND COLLECTION RISK IT HAS BEEN MENTIONED THAT WHEN AN ENTITY S UPPLIES PRODUCTS OR SERVICES TO A CUSTOMER IN ADVANCE OF CUSTOMER PAYMENT, THE FIRM RUNS THE RISK THAT THE CUSTOMER WILL FAIL TO MAKE PAYMENT. BT E - SE RV PROVIDES SERVICE FOR IN HOUSE CONSUMPTION A ND INVOICES ITS AES. IT BEARS NO CREDIT AND COLLECTION RISK SINCE IT RECEIVED CHARGES FROM ITS AES. THEREFORE IT IS EVIDENT THAT ASSESSEE HAS NOT STATED CREDIT AND COLLECTION RISK IN ITS TP REPORT. LOOKING AT T HE PERIOD OF OUTSTANDING INVOICES IT IS APPARE NT THAT IT IS THE NOT THE CASE OF MERE SALE BUT IT IS A CASE OF SALES AS WELL AS LOAN TO ITS AE IN THE FORM OF OVERDUE OUTSTANDING RECEIVABLES. THE ARGUMENT THAT ASSESSEE IS AN INTEREST FREE ENTITY AND DOES NOT PAY ANY INTEREST AND THEREFORE NO INTEREST SH ALL BE IMPUTED IN THE OUTSTANDING INVOICES IS ALSO DEVOID OF MERIT BECAUSE IT IS NOT A CASE OF ALLOWANCE OF INTEREST EXPENDITURE IN THE HANDS OF THE ASSESSEE BUT AN INTERNATIONAL TRANSACTION TO BE BENCHMARKED AT ARM S LENGTH. IT IS A CASE OF DETERMINATIO N OF ARM S LENGTH PRICE OF A TRANSACTION. UNDO UBTEDLY THE RE CEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF THE BUSINESS IS INCLUDED IN THE DEFINITION OF CAPITAL FINANCING AS AN INTERNATIONAL TRANSAC TION AS PER EXPLANATION 2 TO SECTION 92B OF T HE ACT W.E.F . 01.04.2002 INSERTED BY THE FINANC E ACT 2012. T HEREFORE, EVEN THE OUTSTANDING RECEIVABLE PARTAKE THE CHARACTER OF CAPITAL FINANCING AND CONSEQUENTLY, OVERDUE OUTSTANDING IS AN INTERNATIONAL TRANSAC TION. THE NATURAL COROLLARY WOULD BE OF IMPUT ING INTEREST ON SUCH CAPITAL FINANCING, IF S AME IS NOT CH ARGED AT ARM S LENGTH. THEREFORE, WE REJECT THE CONTENTION OF THE ASSESSEE THAT OUTSTANDING RECEIVABLE IS NOT AN INTERNATIONAL TRANSACTION AND THEREF ORE, HENCE, ACCORDING TO US, INTEREST ON IT RE QUIRES TO BE IMPUTED. NOW THE NEXT QUESTION ARISES IS THAT IF OUTSTANDING RECEIVABLES ARE WITHI N THE 10 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. TERMS OF AGREEMENT OF RENDERING OF SERVI CES THAN IT MAY BE ARGUED THAT INTEREST ON SUCH OUTSTANDING IS ALREADY COVERED IN THE SALE PRICE OF THE GOODS. NATURALLY SUCH IS NOT THE CASE OF THE ASSESSEE BEFORE US AS SOM E OF THE OUTSTANDING ARE FOR MORE TH AN 300 DAYS. DECISION RELIED UPON BY THE LD AR IN THE CASE OF AMERIPRICE AND BECHTEL ARE DISTINGUISHABLE ON THE FACTS AS THEY HAD CREDIT PERIOD AS PER AGREEMENT BUT IN CASE OF ASSESSEE IT IS NOT SO. THE ARGUMENTS THAT MA STER CIRCULAR OF RBI DOES NOT PRESCR IBE ANY CONDITIONS FOR REPATRIATION OF EXPORTS PROCEEDS FOR SEZ, IT CANNOT BE SAID THAT FOR DETERMINING ALP OF EXPORT RECEIVABLE, WHICH BECOMES CAPITAL FINANCING, IF OUTSTANDING IS BEYOND AGREED OR REASONABLE TIME LIMIT, DOES NOT HAVE ANY IMPACT ON THE BEN CHMARKING OF THE SAME, AS THE PURPOSES OF RBI POLICY AND INCOME TAX ACT ARE ON DIFFERENT FOOTINGS. HOWEVER, EVEN IF THE AGREEMENT DOES NOT SPECIFY THE TERM OF THE PAYMENT EVEN THEN ASSESSEE MUST BE GIVEN BENEFIT OF CREDI T PERIOD WHICH IS ACCEPTED BUSINESS PRACTICE IN THE TRADE. BEFORE THE LD TRANSFER PRICING OFFICER AS WELL AS BEFORE THE LD DRP THE ASSESSEE COULD NOT ESTABLISH WHAT IS THE ACCEPTED BUSINESS PRACTICE IN ITS TRADE ABOUT THE CREDIT PERIOD AND WHAT THE GROUP P OLICY IS IN THIS REGARD. THEREFORE, THERE CANNOT BE ANY GRIEVANCE WHERE THE LD TRA NSFER PRICING OFFICER HAS CONSIDERED AS 30 DAYS CREDIT PERIOD. EVEN BEFORE US THIS CREDIT PERIOD WAS NOT CHALLENGED. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD TRANSFER PRICING OFFICER OF CONSIDERING 30 DAYS AS NORMAL CREDIT PERIOD . THE SUBSEQUENT QUESTION ARISES ABOUT THE BENCHMARKING ANALYSIS AND COMPUTING THE ARM S LENGTH PRICE. IN THE PRESENT CASE THE LD ASSESSING OFFICER HAS COMPUTED INTEREST @14. 88% APPLYING THE CUP METHOD USING EX TERNAL CUP. BEFORE US AS WELL AS BEFORE THE LD DRP THE ASSESSEE COULD NOT DEMONSTRATE HOW THE METHOD EMPLOYED BY THE LD TRANSFER PRICING OFFICER USING EXTERNAL CUP IS ERRONEOUS. IN VIEW OF THIS WE DO NOT HAVE ANY HESITAT ION IN CONFIRMING THE TRANSFER PRICI NG ADJUSTMENT MADE BY THE LD. TRANSFER PRICING OFFICER ON OUTSTANDING RECEIVABLE BEYOND 30 DAYS CREDIT PERIOD APPLYING THE INTEREST RATE OF 14.88% P.A. AND COMPUTING THE INTEREST RECEIVABLE AT RS. 31577050/ - . IN THE RESU LT, GROUNDS NOS. 10 TO 12 OF THE GRO UNDS OF THE APPEAL ARE DISMISSED. 6.5 ON SIMIL AR FACTS, THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF INFOR ( INDIA ) PVT. LTD. ITA NO. 1689/HYD/ 2019, ORDER DATED 19/10/2020 HELD THAT WITH THE INTRODUCTION OF EXP L ANATION TO SECTION 92B, INTEREST ON RECEIVABLES CONSTITUTE INTERNATIONAL TRANSACTIO N AND SEPARATE ADJUSTMEN T IS REQUIRED TO BE MADE ON ACCOUNT OF INTEREST ON DELAYED PAYMENTS. THEREFORE WE, HOLD THAT THE LD.DRP/TPO /AO IS 11 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. JUSTIFIED IN IMPUTING THE INTEREST ON DEFERRED RECEIVABLE AS INTERNATIONAL TRANSACTION ACCORDINGLY WE, UPHOLD THE ORDE R OF THE DRP /AO AND DISMISS THE ASSESSEE S APPEAL IN THESE GROUNDS. 6.6 T HE NEXT ISSUE IS RATE OF INTEREST ON R ECEIVABLES. IN THE INSTANT CASE, THE RECEIVABLES REPRESENT T HE TRADE RE CE IPTS AND THE S AME ARE REQUIRED TO BE RE CEIVED IN FOREIGN EXCHANGE. THE TRIBUNAL IN THE CASE OF M/S VALUE LABS TECHNOLOGIES VS. ITO, ITA NO. 1919/HYD/2017 FOR AY 2013 - 14, VI DE ORDER DATED 05/04/2019 HAS HELD THAT IN THE CASE OF EXPORT TURNOVER, WHICH REQUIRED TO BE RECEIVED IN FOR EIGN EX CHANGE, THE INTERNATIONAL TRANSACTION SHALL BE CONSIDERED AT LIBOR + 200 BASIS POINTS RATE AFTER THE EXPIRY OF CREDIT PERIOD. FURTHER, IN THE CASE OF CAMBRI DGE TECHNOLOG Y ENTERPRISES LTD., VS. DCIT, ITA NO. 20 8 / HYD/201 8 FOR AY 2013 - 14, VIDE ORDER DATED 19 / 11 /201 9 , THE TRIBUNAL HELD THAT NOTIONAL INTEREST HAS TO BE CHARGED AT LIBOR + INTEREST RATES AS THE RECEIVABLES ARE IN FOREIGN EXC HANGE. THEREFORE, RESP ECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCHE S OF ITAT IN THE SAID CASES, WE HOLD THAT INTEREST RATE SHOULD BE CHARGED ON RECEIVABLES A T LIBOR + 200 POINTS. ACCORDINGLY, WE DIRECT THE AO/TPO TO CHARGE INTEREST AT LIBOR + 2 00 BASIS POINTS. 6.7 S IMILARLY, IN RESPECT OF CREDIT PERIOD , TPO HAS ALL OWED 30 DAYS AND NO AGREEMENT WAS PLACED BY THE ASSES SEE BE FORE US. HOWEVER, IN THE CASE OF M/S VALUE LABS (SUPRA) , ON WHIC H RELIANCE WAS PLACED BY TH E ASSESSEE, THIS TRIBUNAL HELD THAT INTEREST TO BE CHARGED IN THE 12 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. CASE OF DELAY BETWEEN 9 0 TO 120 DA YS AND IN THE CASE OF INFOR ( INDIA ) PVT LTD , ITAT A LLOWED 90 DAYS. CONSIDER ING THE FACTS AND MERITS OF THE CASE , WE HOLD THAT 120 DAYS IS REASONABLE PERIOD IN THIS CASE, HENCE, WE DIRECT THE AO/TPO TO ALLOW 120 DAYS CREDIT PERIOD AND CHARGE INTEREST OVER A ND ABOV E THE OUTSTANDING PERIOD OF 120 DAYS . 6. 8. AS REGARD S NETTING OF INTEREST, THE LD. COUNSEL ARGUED THAT INTEREST ON PAYABLES IS TO BE NETTED AGAINST TH E OUTSTANDING RECEIVABLES. THIS ISSUE HAS BEEN CONSIDERED BY THE DRP AND IN THE ABSENCE OF DETAIL S, THE ASSESSEES REQUEST FOR ADJUSTMENT WAS REJECTED. NO DETAILS ARE FURNISHED BY THE ASSESSEE EVE N BEFORE US WITH REGARD TO NETTING OF PAYABLES AGAINST RECEI VABLES. WE, THEREFORE, REJECT THE GROUND OF THE ASSESSEE ON THIS ISSUE OF NETTING OUT OF PAYABLES AG AINST THE RECEIVABLES. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER , 20 20 SD/ - SD/ - ( P. MADHAVI DEVI ) (D.S. SUNDER SINGH) JUDICIAL MEMEBR ACCOUNTANT MEMBER HYDERABAD, DATED: 18 TH NOVEMBER , 2020 . KV 13 ITA.NO. 2228 /HYD/201 7 OSI S YSTEMS PVT. LTD., HYDERABAD. COPY TO: 1) OSI SYSTEMS PVT. LTD., 4 TH FLOOR, ORION BLOCK, THE V IT PARK, PLOT NO. 17, SOFTWARE UNITS LAYOUT, MADHAPUR, HYDERABAD 500 081 2) DCIT, CIRCLE 16(2), IT TOW ERS, AC GUARDS, MASAB TA N K, HYDE RABAD 500 0 04 3) DRP 1, BENGALURU 4) PR. CIT 4 , HYDERABAD. 5) THE DEPARTMENTAL RE PRESENTATIVE, I.T.A.T. , HYDERABAD. 6) GUARD FILE.