M/s. Motherson Sumi Infotech & Designs Ltd., New Delhi V. DCIT, New Delhi

ITA 6331/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3262 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Question of law; Notional interest
• Section: 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUN AL DELHI BENCHES I-2 : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA.NO.6331/DEL./2016 ASSESSMENT YEAR 2012-2013 M/S. MOTHERSON SUMI INFOTECH & DESIGNS LIMITED, F-7, BLOCK B-1, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI 110 044. PAN AACCM3199B. VS. THE DCIT, CIRCLE-17(1), CENTRAL REVENUE BUILDING, I.P. ESTATE, NEW DELHI. PIN 110 002. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI ANUBHAV RASTOGI, ADVOCATE FOR REVENUE : SHRI SANJAY KUMAR YADAV, D.R. DATE OF HEARING : 22.02.2018 DATE OF PRONOUNCEMENT : 26.02.2018 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ASSESSMENT ORDER DATED 07 TH OCTOBER, 2016, FOR THE A.Y. 2012-2013 UNDER SECTION 143(3)/144C(1) OF THE I.T. ACT, 1961, PASSED BY DCIT, CIRCLE-17(1), NEW DELHI, ON THE FOLLOWING GROUNDS : 1. THE LEARNED ASSESSING OFFICER (LD. AO)/ LEARNED TRA NSFER PRICING OFFICER (LD. TPO) (FOLLOWING THE DIRECTIO NS OF THE 2 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. LEARNED DISPUTE RESOLUTION PANEL (LD. DRP)), HAVE E RRED ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPE LLANT BY RS.22,40,719/-. 1.1. THE LD. TPO ERRED ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW IN FRAMING THE ORDER U/S 92CA OF THE INCOME TAX ACT, 1961 (THE ACT) ON FINDINGS WHICH A RE ERRONEOUS IN LAW, CONTRARY TO THE FACTS AND BASED ON MERE CONJECTURES AND SURMISES. 1.2. THE LD. TPO FAILED TO APPRECIATE THE SUBMISSIONS MA DE/ CONTENTIONS RAISED BY THE APPELLANT AND FURTHER ERR ED IN MAKING SEVERAL ALLEGATIONS, OBSERVATIONS, ASSERTION S AND INFERENCES IN THE ORDER, WHICH WERE BOTH FACTUA LLY INCORRECT AS WELL AS LEGALLY UNTENABLE. 2. THE LD. AO/LD. TPO (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED BOTH ON FACTS AND IN LAW IN ENHANCING THE INC OME OF THE APPELLANT BY RS.22,40,719/- BY TREATING THE REC EIVABLES OUTSTANDING BEYOND 30 DAYS FROM ASSOCIATED ENTERPRISE S AS DEEMED LOAN AND CHARGING NOTIONAL INTEREST. 3. THE LD. AO/LD. TPO (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED IN DISREGARDING THE DETAILED ARGUMENTS/ SUBMIS SIONS PUT FORTH BY THE APPELLANT DURING THE COURSE OF THE DRP/ ASSESSMENT PROCEEDINGS WHILE PASSING ITS DIRECTION UNDER SECTION 144C OF THE ACT. 3 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT DRAFT A SSESSMENT ORDER PREPARED BY A.O. UNDER SECTION 144C(1) OF THE I.T. ACT PROPOSING VARIATIONS IN THE INCOME RETURNED FOR ASS ESSMENT YEAR UNDER APPEAL CONSTITUTES THE BASIS FOR UNDERTA KING PROCEEDINGS BY THE DRP IN RESPECT OF THE ASSESSEE-C OMPANY. THE DRAFT ORDER WAS FORWARDED TO THE ASSESSEE-COMPA NY ON 04 TH MARCH, 2016, INDICATING THE VARIATIONS PROPOSED TO BE MADE BY THE ASSESSING OFFICER UNDER SECTIONS !44C(1)/143(3) IN RESPECT OF ITS RETURNED INCOME. THE DRP PROCEEDED TO ISSUE DIRECTIONS AS PER SECTION 144C(5) OF THE ACT, AFTER CONSIDERIN G THE DRAFT ORDER, OBJECTIONS FILED BY THE ASSESSEE-COMPANY REL ATING TO THE DRAFT ORDER, EVIDENCE COLLECTED BY OR EVIDENCE CAUS ED TO BE COLLECTED AND RESULT OF ENQUIRY MADE AS PER LAW REL ATING TO ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE WAS A JO INT VENTURE BETWEEN THE 'SAMVARDHANA MOTHERSON GROUP, INDIA AND SUMITOMO WIRING SYSTEMS LIMITED (SWS) JAPAN, WHIC H HAVE BEEN INCORPORATED IN THE YEAR 2000 UNDER THE LAWS O F INDIA AS A 100% EXPORT ORIENTED UNIT (EOU), THE COMPANY WAS ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT AND ENGINE ERING DESIGN 4 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. SERVICES TO ITS CUSTOMERS. THE COMPANY WAS ALSO ENG AGED IN TRADING OF INFORMATION TECHNOLOGY PRODUCTS. THE ASS ESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8 .57 CRORES FOR ASSESSMENT YEAR UNDER APPEAL. DURING THE RELEVANT A SSESSMENT YEAR, ASSESSEE UNDERTOOK THE INTERNATIONAL TRANSACT IONS WITH ITS A.ES WHICH WERE DULY REPORTED IN THE ACCOUNTAN TS REPORT FILED WITH THE RETURN OF INCOME, DETAILS OF WHICH A RE NOTED IN THE IMPUGNED ORDER. THE TPO ACCEPTED ALL INTERNATIONAL TRANSACTIONS TO BE AT ARMS LENGTH EXCEPT THE PAYME NT OF INTEREST ON LOAN. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE TPO DIRECTED THE ASSESSEE TO SUBMIT INFORMATION PERTAIN ING TO RECEIVABLES, SERVICES RENDERED AND SALE OF I.T. PRO DUCTS. THE ASSESSEE SUBMITTED DETAILS CALLED UPON BY TPO. THE TPO ARRIVED AT THE CONCLUSION THAT ASSESSEE WAS NOT CORRECT IN NOT CHARGING THE INTEREST ON RECEIVABLES FROM ITS A.ES. HENCE, HE COMPUTED THE INTEREST ON OUTSTANDING RECEIVABLES BEYOND 30 D AYS TREATING THEM AS DEEMED LOAN. THE ASSESSEE FILED THE OBJECTI ONS BEFORE DRP CHALLENGING THE ENHANCEMENT TO THE INCOME BY RS.22,40,719. THE ASSESSEE REFERRED TO THE SUBMISSI ONS FILED ON 5 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. RECORD IN ORDER TO CONVINCE THE TPO THAT THE AVERAG E OUTSTANDING DAYS FOR RECOVERING SALES DUE WAS 57 DA YS IN THE CASE OF THE A.ES WHEREAS, FROM THE NON-A.ES, IT WAS 66 DAYS. THE REASON EXPLAINED BY ASSESSEE FOR NON-CHARGING O F INTEREST FROM THE A.ES AS WELL AS NON-A.ES ON INTEREST RECEI VABLES WAS THAT IT BEING THE PREDOMINANTLY INVOLVED IN THE PRO VISION OF SERVICES TO ITS A.ES AS WELL AS THIRD PARTIES, AS A MATTER OF NORM, DID NOT CHARGE INTEREST ON OUTSTANDING RECEIVABLES EVEN BEYOND THE CREDIT FREE PERIOD FROM BOTH THE CATEGORIES OF PARTIES. RELIANCE WAS PLACED ON THE DECISION OF M/S. INDO AM ERICAN JEWELLERY LTD., REPORTED IN 223 TAXMAN 8 (BOM.) (HC ) IN WHICH IT WAS HELD THAT WHERE AN ASSESSEE WAS NOT CHARGING INTEREST ON THE OUTSTANDING RECOVERABLE FROM THE A.ES AS WEL L AS NON- A.ES, THERE WAS NO NEED TO COMPUTE THE NOTIONAL INT EREST IN THE CASE OF THE OUTSTANDING RECEIVABLES FROM THE A.ES. THE ASSESSEE ALSO CONTENDED THAT FOLLOWING CONSIDERATIONS SHOULD NOT BE IGNORED : 6 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. (A) BUSINESS AND COMMERCIAL CONSIDERATIONS. (B) LONG TERM BUSINESS RELATIONSHIPS PREDICATE WAIV ER OF THIS RIGHT. (C) INTEREST INCOME IS ONLY ASSOCIATED WITH LOANS A ND NOT SERVICES. (D) QUESTION OF INTEREST ON EXCESS CREDIT PERIOD AR ISES ONLY WHEN THERE IS A STANDARD CREDIT PERIOD FOR THE SERVICES SOLD AT THE SAME PRICE AND THE CREDIT PERI OD ALLOWED TO THE AES IS SUBSTANTIALLY MORE THAN THE CREDIT PERIOD ALLOWED TO INDEPENDENT ENTERPRISES. (E) IF THE A IS A DEBT FREE COMPANY AND THERE WAS NO INTEREST BURDEN ON THE A THEN IT CANNOT BE SAFELY PRESUMED THAT THE BORROWED FUNDS WERE UTILIZED TO PASS ON THEIR BENEFITS TO THE AES. (F) THE AES WERE FINANCIALLY WEAK IN SUPPORT OF WHI CH THE A FILED THE ACCOUNTS OF THE AES VIDE PAGE NOS 183 TO 250, NAMELY M/S VACUFORN (FTY) LIMITED, SMR AUTOMOTIVE MIRRORS TECHNOLOGY HUNGARY BT, M/S SMR AUTOMOTIVE MIRRORS STUTGARET HMBH, SMR AUTOMOTIVE SERVICES GMBH, MSSL. GLOBAL RSA MODULE ENGINEERING LIMITED AND MSID, USA & OECD GUIDELINES PARA 109. PER CONTRA THE TPO WHILE REJECTING THE ABOVE CONTENTIONS OF THE A 7 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. PLACED RELIANCE ON THE FOLLOWING JUDGMENTS WHICH MAINLY PERTAINED TO THE THEORY OF FORM OVER SUBSTANCE. THE PAGES 169 TO 172 OF THE SAME PAPER BOOK CONTAIN THE DETAILS :- 1. SWADESHI COTTON MILLS LTD. VS., CIT 63 ITR 57 (SC). 2. MADHAVJI DHARMASHINGH MFG CO. (P) LTD. VS. CIT 78 ITR 62 (SC). 3. JK COTTON MFRS LTD. VS., CIT 101 ITR 221. 4. MCDOWELL & CO. LTD VS CTO 154 ITR 148 (S). 5. OECD GUIDELINES. 3. THE DRP REJECTED THE CONTENTIONS OF THE ASSESSE E REGARDING TREATMENT OF TRANSACTIONS ON ACCOUNT OF OUTSTANDING RECEIVABLES BECAUSE OF THE RETROSPECTIVE AMENDMENT OF SECTION 92B(1) OF THE I.T. ACT, 1961 COVERED ALL SUCH TRANS ACTIONS I.E., INTERNATIONAL TRANSACTIONS. IT WAS ALSO NOTED THA T THE TABLE PREPARED EXHAUSTIVELY BY THE TPO AS APPARENT FROM T HE ORDER LUCIDLY DEPICTED THE NAMES OF THE ENTITIES, THEIR C OUNTRIES OF LOCATION WITH WHICH THE ASSESSEE TRANSACTED INTERNA TIONALLY, THE DATE AND NUMBER OF INVOICE WITH AMOUNTS AND THEIR C URRENCY 8 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. DENOMINATION WITH THEIR CONVERSION RATES, NUMBER OF OUTSTANDING DAYS AND ACTUAL DATE OF COLLECTION AND COLLECTION OF INTEREST @ AVERAGE MONTHLY LIBOR PLUS 300 BPS ASSUM ING 30 DAYS TO BE THE ALLOWABLE CREDIT FACILITY WITHOUT IN TEREST. THE TABLE PREPARED BY THE TPO WAS FOUND CORRECT. IT IS ALSO N OTED THAT THERE WAS A DELAY IN RECOVERY OF OUTSTANDING DEBTS BY THE ASSESSEE, UNDOUBTEDLY ON WHICH NO INTEREST WAS CHAR GED BY THE ASSESSEE. THE TPO APPLIED INTEREST @ LIBOR + 300 BP S ON ALL THE DELAYS IN RECOVERIES BEYOND 30 DAYS. IT WAS ALS O NOTED THAT IN THE PROCESS OF BELATED REPAYMENT OF THE OUTSTAND ING RECEIVABLES, THE ASSESSEE WAS INDISPUTABLY EXPOSED TO EXCHANGE RISKS. BESIDES THE ASSESSEE DID NOT HAVE ANY SECURI TY AGAINST SUCH OUTSTANDING RECEIVABLES. THE AMOUNT WAS LEFT T O REMAIN WITH THE A.ES WITHOUT ANY GUARANTEES. ON BALANCE TH E ASSESSEE SACRIFICED THE OPPORTUNITY COST OF THE OUTSTANDING AMOUNTS OF MONEY SO LYING WITH ITS A.ES. THE ASSESSEE DID NOT FURNISH ANY DETAILS OF COMPARABLE GROUP AFFILIATES WHO HAD ENTE RED INTO THE TRANSACTION WITH INDEPENDENT THIRD PARTIES OR OF IN DEPENDENT THIRD PARTIES WHO HAD ENTERED INTO SIMILAR TRANSACTIONS WITH 9 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. THIRD PARTIES IN THIS FASHION. THE ORDER OF TPO IN CHARGING NOTIONAL INTEREST WAS ACCORDINGLY UPHELD AND THIS G ROUND OF OBJECTION OF ASSESSEE WERE DISMISSED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE H AS SUBMITTED THAT TPO TREATED THE RECEIVABLES OUTSTAND ING BEYOND 30 DAYS AS A LOAN. THE TPO COMPUTED INTEREST ON LOA N @ OF ONE MONTH LIBOR PLUS 300 BPS PER ANNUM FOR MAKING THE A DDITION. THE ASSESSEE FILED DETAILED SUBMISSIONS WHICH HAVE NOT BEEN APPRECIATED. THE ASSESSEE PROVIDES SOFTWARE SOLUTIO NS AND DESIGN SERVICES TO ITS CUSTOMERS BOTH IN THE DOMEST IC AND INTERNATIONAL MARKETS. CUSTOMERS OF THE ASSESSEE CO NSISTS OF BOTH GROUP COMPANIES AS WELL AS INDEPENDENT THIRD P ARTIES. FURTHER, THE ASSESSEE IS ENGAGED IN PROVISION OF MA INTENANCE AND SUPPORT SERVICES, UPGRADATION AND DEVELOPMENT O F SOFTWARE. THE MAJORITY OF THE ASSESSEES OPERATING INCOME CON SISTS OF RECEIPT OF SERVICE CHARGES FROM GROUP COMPANIES AND INDEPENDENT THIRD PARTIES. THE ASSESSEE RAISED THE INVOICE/DEBIT 10 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. NOTES AFTER RENDERING THE SERVICES TO THE CUSTOMERS AND PAYMENTS ARE RECEIVED ONLY AFTER THE SATISFACTION O F THE CUSTOMER, AS PER THEIR SPECIFICATION. THE ASSESSEE IS OFTEN ENGAGED IN RE-WORK OF THE SERVICES AFTER RECEIVING THE FEEDBACK FROM THE CUSTOMER AND ONLY AFTER THE CUSTOMERS ARE FULLY SATISFIED WITH THE SERVICES, PAYMENT IS MADE. THUS, OUTSTANDING DEBT IS PART AND PARCEL OF ASSESSEES BUSINESS AND AN EARLY PAYMENT FROM ANY CUSTOMER IS COMMERCIALLY NOT FEASI BLE. THE INTEREST ON RECEIVABLE IS NOT AN INTERNATIONAL TRAN SACTION AS THE INTEREST PROPOSED TO BE CHARGED, IF ANY, IS ALREADY BUILT IN SALE PRICE AND THUS, NO INTEREST NEEDS TO BE COMPUTED ON THE OUTSTANDING RECEIVABLE FROM THE A.ES. HE HAS RELIED UPON THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF M/S. K USUM HEALTHCARE PVT. LTD., VS. ACIT IN ITA.NO.6814/DEL./ 2014 IN WHICH IN PARA-17 OF ITS ORDER, THE TRIBUNAL HELD AS UNDER : 17. FROM THE ABOVE ANALYSIS, IT IS CLEAR THAT ASSESSEE HAD EARNED SIGNIFICANTLY HIGHER MARGIN THA N THE COMPARABLE COMPANIES (WHICH HAVE BEEN ACCEPTED BY T HE 11 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. TPO) WHICH MORE THAN COMPENSATES FOR THE CREDIT PER IOD EXTENDED TO THE AES. THUS, THE APPROACH BY THE ASSE SSEE OF AGGREGATING THE INTERNATIONAL TRANSACTIONS PERTAINI NG TO SALE OF GOODS TO AE AND RECEIVABLES ARISING FROM SUCH TRANSACTIONS WHICH IS UNDOUBTEDLY INEXTRICABLE CONN ECTED IS IN ACCORDANCE WITH ESTABLISHED TP PRINCIPLES AS WEL L AS RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL FLIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDI A (P.) LTD. {SUPRA). FOR THE AFORESAID REASONS, WE ALLOW T HE APPEAL OF THE ASSESSEE. IT ORDERED ACCORDINGLY. IN THIS CASE, ASSESSEE HAD UNDERTAKEN A WORKING CAP ITAL ADJUSTMENT FOR THE COMPARABLE COMPANIES SELECTED IN THE T.P. REPORT. 4.1. HE HAS SUBMITTED THAT THE SAID DECISION HAS B EEN CONFIRMED BY THE HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF PR. CIT VS. KUSUM HEALTHCARE PVT. LTD., IN ITA.NO.765 OF 2016 DATED 25 TH APRIL, 2017, IN WHICH IN PARAS 8 TO 12 THE HONBLE DELHI HIGH COURT HELD AS UNDER : 12 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. 8. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE ITAT. BY THE IMPUGNED ORDER DATED 31 TH MARCH 2015, THE ITAT SET ASIDE THE ASSESSMENT ORDER. THE ITAT NOTED THAT THE ASSESSEE HAD UNDERTAKEN WORKING CAPITAL ADJUSTMENT FOR THE COMPARABLE COMPANIES SELECTED IN ITS TRANSFER PRICI NG REPORT. IT WAS FURTHER NOTED THAT THE DIFFERENTIAL IMPACT OF WORKING CAPITAL OF THE ASSESSEE VIS-A-VIS ITS COMPARABLES HAD ALREADY BEEN FACTORED IN THE PRICING/PROFITABILITY WHICH WAS MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN OF THE COMPARABLES AND, THEREFORE, ANY FURTHER ADJUSTMENT TO THE MARG INS OF THE ASSESSEE ON THE PRETEXT OF OUTSTANDING RECEIVABLES IS UNWARRANTED AND WHOLLY UNJUSTIFIED. 9. MR. RAGHVENDRA SINGH, LEARNED COUNSEL APPEARING FOR THE REVENUE SUBMITTED THAT THE ITAT OVERLOOKED THE FACT THAT THE EXPRESSION INTERNATIONAL TRANSACTION AS DEFINED IN EXPLANATION (I)(C) TO SECTION 92B OF THE ACT INCLUDED PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS, AND THEREFORE, THE OUTSTANDING RECEIVABLES COULD BY THEMSELVES CONSTITUTE AN INTERNATIONAL TRANSACTION. HE FURTHER REFERRED TO T HE OCED TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS. PARAS 3.48 & 3.49 UNDER CHAPTER III PARA A.6.1 OF THE SAID 13 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. GUIDELINES TITLED DIFFERENT TYPES OF COMPARABILITY ADJUSTMENTS SPOKE OF THE NEED TO ELIMINATE DIFFERENCES THAT MAY ARISE FROM DIFFERENT ACCOUNTIN G PRACTICES BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTIONS. IN PARTICULAR, IT WAS NOTED UNDER PAR A 3.49 THAT A SIGNIFICANTLY DIFFERENT LEVEL OF RELAT IVE WORKING CAPITAL BETWEEN THE CONTROLLED AND UNCONTROLLED PARTIES MAY RESULT IN FURTHER INVESTIGATION OF THE COMPARABILITY CHARACTERISTICS OF THE POTENTIAL COMPARABLE. MR. SINGH SUBMITTED THAT THE ITAT ERRED IN DISAGREEING WITH THE TPO, WHO HAD CHARACTERISED THE OUTSTANDING RECEIVABLES AS AN INTERNATIONAL TRANSACTION BY ITSELF WHICH REQUIRED BENCHMARKING. 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUBMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION 'RECEIVABL ES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF 'RECEIVABLES' APPEARING IN THE ACCOUNTS OF AN ENTIT Y, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEYOND 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 WORKING CAPITAL OF TH E 14 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIOD OF TIME TO D ISCERN A PATTERN WHICH WOULD INDICATE THAT VIS-A-VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATI ON TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUS TIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEY OND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION B Y ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED I N THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITA L AND THEREBY ON ITS PRICING/PROFITABILITY VIS-A-VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERISED THE TRANSACTION. THIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIANCES LTD. (2012) 345 JTR 241 (DELHI). 12. CONSEQUENTLY, THE COURT IS UNABLE TO FIND ANY E RROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBSTANTIAL QUESTION OF LAW FOR DETERMINATION. THE APPEAL IS, ACCORDINGLY, DISMISSED. 15 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. 4.2. HE HAS SUBMITTED THAT FACTS OF THE CASE OF AS SESSEE ARE SIMILAR WITH THE DECISION IN THE CASE OF KUSUM HEALTHCARE PVT. LTD., THEREFORE, THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE RELIED U PON THE ORDER OF THE ITAT, BANGALORE BENCH IN THE CASE OF A CIT VS. M/S. MILLIPORE (INDIA) LTD., I.T.(T.P.) NO.327/BANG./201 5 DATED 07 TH MARCH, 2017 IN WHICH IT WAS HELD THAT EARLY OR LATE REALIZATION OF SALE PROCEEDS WAS ONLY INCIDENTAL TO THE TRANSAC TION OF SALE AND WAS NOT A SEPARATE INTERNATIONAL TRANSACTION AN D THEREFORE, NO ALP ADJUSTMENT WAS PERMISSIBLE IN RESPECT OF THE SAME. LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON T HE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF OAKTON GLOB AL TECHNOLOGY SERVICES CENTRE (INDIA) (P.) LTD., VS. A CIT, CIRCLE- 16(2), HYDERABAD (2016) 76 TAXMANN.COM 119 (HYD. TR IB.) IN WHICH IT WAS HELD AS UNDER : WHERE TPO MADE ADDITION OF INTEREST TO ASSESSEE'S ALP ON GROUND THAT IT HAD ALLOWED EXCESSIVE CREDIT PERIOD TO ITS AE FOR RECEIVING PAYMENT OF SOFTWARE DEVELOPMENT SERVI CES, IN 16 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. VIEW OF FACT THAT ASSESSEE HAD ALLOWED CREDIT PERIO D OF 79 DAYS WHICH WAS MUCH BELOW INDUSTRY AVERAGE OF 112 D AYS, IMPUGNED ADDITION WAS TO BE SET ASIDE. 4.3. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IT HAS COMPUTED AVERAGE DEBTORS COLL ECTION PERIOD DURING ASSESSMENT YEAR UNDER APPEAL FOR COMP ARABLE COMPANIES SELECTED BY THE ASSESSEE FOR DETERMINATIO N OF ALP, DETAILS OF WHICH, ARE REPRODUCED IN THE WRITTEN SUB MISSIONS AND THE AVERAGE COLLECTION PERIOD COMES TO 122 DAYS, WH EREAS, THE AVERAGE COLLECTION PERIOD FOR THE ASSESSEE WAS 68 D AYS DURING ASSESSMENT YEAR UNDER APPEAL. THEREFORE, ADJUSTMENT IN THIS REGARD, WAS WHOLLY UNJUSTIFIED. THE ASSESSEE IS INV OLVED IN PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS A.ES AS WELL AS THIRD PARTIES. THEREFORE, AS A NORM, THE ASSESSE E DOES NOT CHARGE INTEREST ON OUTSTANDING RECEIVABLES EVEN BEY OND THE CREDIT FREE PERIOD FROM BOTH A.ES AND NON-A.ES. LEA RNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO AMERI CAN 17 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. JEWELLERY LTD., (2014) 223 TAXMAN 8 (BOM.) (HC) IN WHICH IT WAS HELD AS UNDER : WHERE THERE WAS COMPLETE UNIFORMITY IN ACT OF ASSE SSEE IN NOT CHARGING INTEREST FROM BOTH ASSOCIATED ENTERPRIS ES AND NON-ASSOCIATED ENTERPRISES DEBTORS FOR DELAY IN REALIZ ATION OF EXPORT PROCEEDS, ASSESSING OFFICER WAS NOT JUSTI FIED IN MAKING ADDITION OF NOTIONAL INTEREST TO ASSESSEES ALP ON AFORESAID GROUND IN COURSE OF TRANSFER PRICING PROC EEDINGS. 4.4. HE HAS SUBMITTED THAT ONLY IN THE CASE OF LOA N, THE AVERAGE LIBOR COULD BE APPLIED. IN SUPPORT OF T HIS CONTENTION, HE HAS RELIED UPON THE ORDER OF THE RAJ ASTHAN HIGH COURT IN THE CASE OF CIT VS. VAIBHAV GEMS LIMI TED (2017) 88 TAXMANN.COM 12 (RAJ.) (H.C.) IN WHICH IT WAS HELD THAT WHERE ASSESSEE EXTENDED LOAN TO ITS A.E, ADJUSTME NT SHOULD BE MADE AT AVERAGE LIBOR RATE EXISTING AT TH AT TIME, I.E., AT 0.79 PERCENT, INSTEAD OF LIBOR + 2 PERCENT . LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT WHOLE ADDITION IS UNJUSTIFIED. 18 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. 4.5. LD. D.R, ON THE OTHER HAND, RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SECTION 92B(1)(C) PROVIDES THAT RECEIVABLES ITSELF IS AN INTERNATIONA L TRANSACTION. HE HAS REFERRED TO PB-118 TO SHOW THAT IN PRECEDING ASSESSMENT YEAR, THE TRADE RECEIVABLES WE RE OF RS.21.90 CRORES AND IN ASSESSMENT YEAR UNDER APPEAL , IT WAS RS.26.88 CRORES. HE HAS, THEREFORE, SUBMITTED THAT RECEIVABLES ARE INCREASING DAY-BY-DAY, THEREFORE, A UTHORITIES BELOW CORRECTLY MADE THE ADJUSTMENT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSES SEE HAS GIVEN SEVERAL REASONS TO EXPLAIN THAT IT BEING A BU SINESS TRANSACTION, COMMERCIAL CONSIDERATION SHOULD HAVE B EEN CONSIDERED BY THE AUTHORITIES BELOW. IT WAS EXPLAIN ED THAT THE LONG TERM BUSINESS RELATION WITH THE CUSTOMER A ND A.E. PREDICATE WAIVER OF THIS RIGHT. THE INTEREST IS ON LY ASSOCIATED WITH THE LOANS AND NOT SERVICES. IT WAS EXPLAINED T HAT PAYMENTS ARE RECEIVED ONLY AFTER SATISFACTION OF TH E CUSTOMER 19 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. AND THEREFORE, THERE WAS DELAY IN RECEIVING THE PAY MENTS. THE ASSESSEE ALSO EXPLAINED BEFORE T.P. AUTHORITIES BELOW THAT AVERAGE OUTSTANDING DAYS FOR RECOVERING SALES DUES WAS 57 DAYS IN THE CASE OF A.ES, WHEREAS, IN THE CASE O F NON-A.E. IT WAS 66 DAYS. IT WAS ALSO EXPLAINED THAT NON-CHAR GING OF INTEREST FROM A.ES. AS WELL AS NON-A.E. ON INTEREST RECEIVABLES WAS THAT IT BEING PRE-DOMINANTLY INVOLV ED IN THE PROVISION OF SERVICES TO ITS A.ES. AS WELL AS THIR D PARTIES. THE CONTENTION OF THE ASSESSEE HAVE NOT BEEN DISPUTED B Y THE AUTHORITIES BELOW. IT MAY ALSO BE NOTED HERE THAT A LL INTERNATIONAL TRANSACTIONS WERE ACCEPTED BY THE TPO TO BE AT ARMS LENGTH, EXCEPT, PAYMENT OF INTEREST ON LOAN. THE AUTHORITIES BELOW HAVE TREATED THE DELAYED PAYMENT BEYOND 30 DAYS AS LOANS. IN FACT, NO LOAN HAVE BEEN EXTEND ED BY THE ASSESSEE. IT WAS THE AMOUNT DUE AGAINST THE A.E S. AS WELL AS NON-A.E. ON WHICH INTEREST HAVE BEEN CHARGED BY CONSIDERING THE DEEMED LOANS. THEREFORE, THE DECISI ON OF ITAT, DELHI BENCH IN THE CASE OF M/S. KUSUM HEALTHC ARE PVT. LTD., (SUPRA), SQUARELY APPLY IN THE CASE OF T HE ASSESSEE, 20 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. SINCE THE ASSESSEE EARNED SIGNIFICANTLY HIGHER MARG IN THAN THE COMPARABLE COMPANIES, WHICH HAVE BEEN ACCEPTED BY THE TPO, THEREFORE, THERE WAS NO JUSTIFICATION TO CHARG E INTEREST ON OUTSTANDINGS. THE DECISION OF HONBLE JURISDICTI ONAL DELHI HIGH COURT IN THE CASE OF PR. CIT VS. KUSUM HEALTHC ARE PVT. LTD.,(SUPRA), SQUARELY APPLY TO THE FACTS AND CIRCU MSTANCES OF THE CASE. THE ASSESSEE ALSO EXPLAINED THAT THERE ARE SIMILAR DELAYS IN COLLECTION OF OUTSTANDING RECEIVA BLES FROM BOTH A.ES AND NON-A.ES WHICH IS DUE TO BUSINESS AND COMMERCIAL REASONS. THEREFORE, THERE IS UNIFORMITY IN ACT OF ASSESSEE IN NOT CHARGING INTEREST FROM A.ES AND NON -A.ES. THEREFORE, THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO AMERICAN JEWELLERY LTD., ( SUPRA), SQUARELY APPLY TO THE FACTS OF THE CASE. 5.1. CONSIDERING THE NATURE OF BUSINESS OF ASSESSE E AND THE FACTS EXPLAINED ABOVE, WE ARE OF THE VIEW T HAT THERE WAS NO JUSTIFICATION FOR THE AUTHORITIES BELOW TO M AKE ADJUSTMENT TO THE INCOME DECLARED BY ASSESSEE. RECE NTLY, 21 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. THE ITAT, I-2 BENCH IN THE CASE OF TERRADATA INDIA PVT. LTD., VS. ACIT IN ITA.NO.7885/DEL./2017 VIDE ORDER DATED 21 ST FEBRUARY, 2018, FOLLOWING THE ORDER IN THE CASE OF SAME ASSESSEE, IN WHICH THE DECISION OF HONBLE JURISDIC TIONAL DELHI HIGH COURT IN THE CASE OF PR. CIT VS. M/S. KU SUM HEALTHCARE PVT. LTD., (SUPRA), HAVE BEEN RELIED UPO N, ALLOWED THE APPEAL OF ASSESSEE ON THE SIMILAR GROUND. IN VI EW OF THE ABOVE DISCUSSION AND IN THE LIGHT OF VARIOUS DECISI ONS ABOVE AND FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ADJUSTMENT TO THE INCOME OF THE ASSESSEE IS WHOLLY UNJUSTIFIED ON ACCOUNT OF INTEREST ON RECEIVABLES. WE, ACCORDINGLY , SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 26 TH FEBRUARY, 2018 VBP/- 22 ITA.NO.6331/DEL./2016 MOTHERSON SUMI INFOTECH & DESIGNS LTD., NEW DELHI. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT I-2 BENCH, DELHI 6. GUARD FILE. // BY ORDER // ASSISTANT REGISTRAR : ITAT DELHI BENCHES : DELHI.