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

ITA 6757/DEL/2015

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8179 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 23-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Keywords: Related party transaction; Transfer pricing; International transaction; Question of law; Initiation of penalty proceedings; Notional interest
• Section: 271(1)(c); 143(3); 92D; 92B; 201; 144C; 48; 13; 92CA; 92

Judgement Text

, -2, IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI , !#$%&'()*+,* BEFORE MS. SUSHMA CHOWLA, VP & SHRI PRASHANT MAHARI SHI, AM - / ITA NO.6757/DEL/2015 . ( ( /ASSESSMENT YEAR 2011-12 M/S MOTHERSON SUMI INFOTECH& DESIGNS LTD., F-7, BLOCK-B-1, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI-110044. PAN-AACCM3199B .......... /0 /APPELLANT VS THE DCIT, CIRCLE-17(1), NEW DELHI. . #1/0 / RESPONDENT /023* / APPELLANT BY : MS. SHRUTI KHIMTA, ADV. #1/023* / RESPONDENT BY : MS. NIDHI SHARMA, SR.DR 2%+ / DATE OF HEARING : 12.03.2020 45 2%+ / DATE OF PRONOUNCEMENT: 06.07.2020 *$ / ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF DCIT, CIRCLE- 17(1), NEW DELHI DATED 28.10.2015 RELATING TO ASSES SMENT YEAR 2011-12 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF T HE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW: 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSES SING OFFICER ('LD. AO') PURSUANT TO THE DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP') IS BAD IN LAW AND VOID AB-INITIO. 2. THE LD. AO / LEARNED TRANSFER PRICING OFFICER (L D. TPO') (FOLLOWING THE DIRECTIONS OF THE LD. DRP, HAVE ERRED ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 3,46,60,211/-. 2.1. THE LD. TPO ERRED ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE AND IN LAW IN FRAMING THE ORDER U/S 92CA OF TH E INCOME TAX ACT, 1961 ('THE ACT') ON FINDINGS WHICH ARE ERRONEO US IN LAW, CONTRARY TO THE FACTS AND BASED ON MERE CONJECTURES AND SURM ISES. 2.2. THE LD. TPO FAILED TO APPRECIATE THE SUBMISSIO NS MADE/ CONTENTIONS RAISED BY THE APPELLANT AND FURTHER ERR ED IN MAKING SEVERAL ALLEGATIONS, OBSERVATIONS, ASSERTIONS AND I NFERENCES IN THE ORDER, WHICH WERE BOTH FACTUALLY INCORRECT AS WELL AS LEGALLY UNTENABLE. 3. THE LD. AO (FOLLOWING THE DIRECTIONS OF THE LD. DRP), ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 3,17,63,342/- TO THE INCOME OF THE APPELLANT PROPOSED BY THE LD. TPO BY HOLDING THAT ITS INTERNATIONAL TRANSACTIONS PERTAINING TO' PROVISION OF SOFTWARE DEVELOPMENT SERVICES DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO, THE LD. DRP AND THE LD. AO HAS GRO SSLY ERRED IN AGREEING WITH AND UPHOLDING THE LD. TPO'S ACTION OF: 3.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS S ET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRESENT CASE ; 3.2. DISREGARDING THE ARM'S LENGTH PRICE (,ALP') AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTAT ION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RUL E 10D OF THE INCOME-TAX RULES, 1962 ('RULES') AS WELL AS FRESH S EARCH; AND IN PARTICULAR MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 3.3. REJECTING COMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION/UPDATED MARK-UP COMPUTATIONS A ND CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF ADDITIONAL / REVISED FILTERS, OR DISREGARDING APPEL LANT'S FILTERS IN DETERMINING THE ALP FOR THE INTERNATIONAL TRANSACTI ONS; 3 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 3.4. DISREGARDING MULTIPLE YEAR/ PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR [I.E. FINANCIAL YEAR ('FY') 2010-11] DATA FOR COMPARABLE COMPANIES SHOULD BE USED; 3.5. INCLUDING COMPANIES HAVING HIGH MARK-UPS / VOL ATILE OPERATING PROFIT MARK-UPS IN THE FINAL COMPARABLES' SET FOR B ENCHMARKING A LOW RISK UNIT SUCH AS THE APPELLANT; 3.6. INCLUDING CERTAIN COMPANIES IN THE FINAL SET O F COMPARABLES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUN CTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; 3.7. RESORTING TO ARBITRARY REJECTION OF LOW-PROFI T/ LOSS MAKING COMPANIES AND COMPANIES WITH DIMINISHED REVENUES BA SED ON ERRONEOUS AND INCONSISTENT REASONS: 3.8. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/FRIV OLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED; 3.9. BY COMMITTING A NUMBER OF FACTUAL /COMPUTATIO NAL ERRORS IN SELECTION/ REJECTION OF PROPOSED COMPARABLES AND/ O R IN THE OPERATING PROFIT MARK-UPS OF THE COMPARABLES; 3.10. IGNORING THE BUSINESS/ COMMERCIAL REALITY THA T THE APPELLANT UNDERTAKES LIMITED BUSINESS RISKS AS AGAINST COMPAR ABLE COMPANIES THAT ARE FULL-FLEDGED RISK TAKING ENTREPRENEURS, AN D BY NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT; 3.11. BY MAKING THE ADDITION TO THE ENTIRE VALUE O F TRANSACTIONS ENTERED INTO BY THE APPELLANT IN ITS EXPORT SEGMENT AND NOT ONLY TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INT O BY THE APPELLANT (I.E. PROPORTIONATE ADJUSTMENT) AND IGNORING ESTABL ISHED JURISPRUDENCE IN THIS REGARD; 3.12. DISREGARDING THE ANALYSIS AND DOCUMENTATION S UBMITTED BY THE APPELLANT TO BENCHMARK THE INTERNATIONAL TRANSACTIO N PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY USING INTERNAL COMPARABLE UNCONTROLLED PRICE AS THE MOST APPROPRIA TE METHOD TO DETERMINE THE ARM'S LENGTH PRICE; 3.13. DISREGARDING THE ANALYSIS AND DOCUMENTATION S UBMITTED BY THE APPELLANT TO BENCHMARK THE INTERNATIONAL TRANSACTIO N PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY USING INTERNAL TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPR IATE METHOD TO DETERMINE THE ARM'S LENGTH PRICE; 4 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 3.14. DISREGARDING THE FACT THAT INTERNAL COMPARABL E ANALYSIS IS PREFERABLE OVER EXTERNAL COMPARABLE ANALYSIS; AND 3.15. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 4. THE LD. AO/LD. TPO ERRED IN FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 28,96,869/- BY TREAT ING THE RECEIVABLES OUTSTANDING BEYOND 30 DAYS FROM ASSOCIATED ENTERPRI SES AS DEEMED LOAN AND CHARGING NOTIONAL INTEREST; 5. THE LD. DRP ERRED IN DISREGARDING THE DETAILED A RGUMENTS/ SUBMISSIONS PUT FORTH BY THE APPELLANT DURING THE C OURSE OF THE DRP 1 ASSESSMENT PROCEEDINGS WHILE PASSING ITS DIRECTION SECTION 144C OF THE ACT; 6. THE LD. AO HAS GROSSLY ERRED BY PROPOSING TO COM PUTE INTEREST UNDER SECTION 234A, 234B, 234C AND 234D OF THE ACT; 7. THE LD. AO HAS GROSSLY ERRED IN INITIATING PENAL TY UNDER SECTION 271(1)(C) OF THE ACT MECHANICALLY AND WITHOUT RECOR DING ANY SATISFACTION FOR ITS INITIATION. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF INTERNATIONAL TRANSAC TION OF RENDERING SOFTWARE DEVELOPMENT SERVICES TO THE AES AMOUNTING TO RS.3,4 6,60,211/-. 4. BRIEFLY IN THE FACTS OF THE CASE, THE ASSESSEE W AS ENGAGED IN PROVIDING CUSTOMIZED SOFTWARE DEVELOPMENT SERVICES TO THE CUS TOMER OF ITS ASSOCIATED ENTERPRISES (IN SHORT AE). THE ASSESSEE WAS COMPENS ATED AT COST PLUS MARKUP OF 10% FOR RENDERING THE SAID SOFTWARE DEVELOPMENT SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD UNDERTAKEN FE W INTERNATIONAL TRANSACTIONS WITH ITS AE, WHICH WERE REPORTED IN IT S TP STUDY REPORT. THE ASSESSEE HAD SELECTED TNMM METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS, WITH OP/TC AS PROFIT LEVEL INDICATOR (IN SHORT PLI) AT 10.01%. THE ASSESSEE SELECTED 16 COMPANIES AS FUNCTIONALLY COMP ARABLE, WHOSE MEAN 5 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 MARGINS WORKED TO 13.08%. THE ASSESSEE THUS IN THE TP STUDY REPORT POINTED OUT THAT ITS INTERNATIONAL TRANSACTION WERE AT ARM S LENGTH PRICE. THE ASSESSING OFFICER MADE REFERENCE UNDER SECTION 92 CA(1) OF TH E ACT TO THE TPO TO BENCHMARK ARMS LENGTH PRICE OF THE INTERNATIONAL T RANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO IT S AE. THE TPO NOTED CERTAIN DEFECTS IN THE TRANSFER PRICING STUDY REPOR T AND ALSO THE APPLICATION OF AVERAGE MARGIN OF THREE YEARS BY THE ASSESSEE AND P ROPOSED THAT ONLY DATA FOR CONTEMPORANEOUS PERIOD HAD TO BE APPLIED. HE ALSO R EVISED THE FILTERS TO BE APPLIED AND SHOW CAUSED ASSESSEE WITH A FRESH LIST OF COMPARABLES OF 18 COMPANIES, WHOSE MEAN MARGIN WORKED OUT TO 22.32%. ADMITTEDLY THERE WAS NO DISPUTE ON FAR ANALYSIS AND THE PLI TO BE ADOPTE D. THE TPO IN THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT ALSO PROPOS ED AN ADJUSTMENT ON ACCOUNT OF INTEREST ON RECEIVABLES FROM AE. THE TP O THUS PROPOSED AN UPWARD ADJUSTMENT OF RS. 05,01,36,985/-. THE ASSESSING OFF ICER IN THE DRAFT ASSESSMENT ORDER SHOW CAUSED THE ASSESSEE AS TO THE UPWARD ADJUSTMENT TO BE MADE IN ITS HAND. THE ASSESSEE FILED OBJECTION BEFO RE THE DRP, WHICH IN TURN DIRECTED EXCLUSION OF TWO CONCERNS I.E. INFOSYS LTD . AND EZEST SOLUTIONS LTD. AND INCLUSION OF THINK SOFT GLOBAL SERVICES LTD. TH E DRP ALSO DIRECTED THAT WORKING CAPITAL ADJUSTMENT IS TO BE ALLOWED. THE DR P DIRECTED APPLICATION OF LIBOR RATES INSTEAD OF SBI PLR LENDING RATES FOR TH E ADJUSTMENT TO BE MADE ON ACCOUNT OF INTEREST ON RECEIVABLE. CONSEQUENT TO TH E DIRECTIONS OF DRP, THE AO/TPO DREW UP FINAL LIST OF COMPARABLE TOTALING 17 , WHOSE MEAN MARGINS WORKED TO 19.04% AND MADE UPWARD ADJUSTMENT OF RS.3 ,46,60,211/-. THE 6 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 AO/TPO ALSO REWORKED THE ADJUSTMENT TO BE MADE ON A CCOUNT OF INTEREST ON RECEIVABLES. THE ASSESSING OFFICER PASSED THE CONS EQUENT ORDER MAKING UPWARD ADJUSTMENT OF RS. 3,46,60,211/- AGAINST WHIC H THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE GROUND OF APPEAL NOS. 1 AND 2 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. THE ISSUE RAISED IN GROUN D OF APPEAL NO. 3 IS AGAINST THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS AE TOTA LING RS. 3,17,63,342/- . BY WAY OF GROUND OF APPEAL NO. 4, THE ASSESSEE IS AGGR IEVED BY THE ADJUSTMENT OF RS. 28,96,869/- MADE ON ACCOUNT OF INTEREST DUE ON RECEIVABLE FROM AE. THE GROUND OF APPEAL NO. 5 RAISED BY THE ASSESSEE IS GE NERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. THE GROUND OF APPEAL NO. 6 RAISED BY THE ASSESSEE AGAINST CHARGING OF INTEREST UNDER SECTION 234A, 23 4B AND 234D OF THE ACT, AS PER LEARNED AR FOR THE ASSESSEE IS CONSEQUENTIAL. H ENCE THE SAME IS DISMISSED. THE GROUND OF APPEAL NO. 7 RAISED BY THE ASSESSEE A GAINST THE INITIATION OF PENALTY PROCEEDINGS IS PREMATURE AND THE SAME IS DI SMISSED. 6. NOW COMING TO THE ISSUE OF ADJUSTMENT OF INTERNA TIONAL TRANSACTION OF PROVISIONS OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS AE. THE LEARNED AR FOR THE ASSESSEE BROUGHT TO OUR NOTICE T HAT IN CASE OUT OF THE TOTAL LIST OF COMPARABLE FINALLY SELECTED BY THE AO/TPO, FEW CONCERNS ARE EXCLUDED THEN THE MARGINS SHOWN BY THE ASSESSEE WOULD BE WIT HIN RANGE AND NO 7 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING ISSUE REL ATED TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES NEED TO BE MADE IN THE HANDS O F THE ASSESSEE. 7. WE SHALL DEAL WITH THE ARGUMENTS OF THE LEARNED AR AND LEARNED DR FOR THE REVENUE IN RESPECT OF THE EACH OF THE COMPARABL ES IN THE PARAS DEALING WITH THE SAME. 8. THE ASSESSEE IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS AE. FOR BENCHMARKING AFORESAID INTERNATIONAL T RANSACTION, TRANSACTIONAL NET MARGIN METHOD (IN SHORT TNMM) IS APPLIED. THE LIST OF FINALLY SELECTED COMPARABLES BY THE AO/DRP/TPO IS AS UNDER:- S.NO. COMPANY NAME OP/TC 1. ACROPETAL TECHNOLOGIES LIMITED (SEG) 36.69% 2. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 0.16% 3. CELSTREAM TECHNOLGIES PVT.LTD. 16.27% 4. E - INFOCHIPS LIMITED 56.44% 5. EVOKE TECHNOLGOIES PVT.LTD. 8.11% 6. CG VAK SOFTWARE AND EXPORTS LTD. (SEGMENT - IT) - 4.63% 7. LARSEN & TOUBRO INFOTECH LTD. 18.40% 8. LGS GLOBAL LIMITED (LANCO GLOBAL SOLUTIONS LTD.) 13.75% 9. MINDTREE LIMITED (SEG0 10.74% 10. PERSISTENT SYSTEMS & SOLUTIONS LIMITED (MERGED) 22.12% 11. PERSISTENT SYSTEMS LIMITED 23.08% 12. R S SOFTWARE (INDIA) LIMITED 16.20% 13. SASKEN COMMUNICATION TECHNOLOGIES LIMITED 24.36% 14. TATA ELSI LIMITED (SEG) 13.00% 15. THIRDWARE SOLUTIONS LTD. (SEG) 14.64% 16. WIPRO TECHNOLGY SERVICES LTD. 54.42% 17. THINKSOFT GLOBAL SERVICES LTD. 0.02% MEAN 19.04% 9. THE FIRST CONCERN WHICH THE ASSESSEE WANTS TO BE EXCLUDED IS M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG). THE LEARNED AR FOR THE ASSESSEE POINTED 8 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 OUT THAT THE SAID CONCERN FAILS EMPLOYEE COST/SALE FILTER. THE CASE OF THE ASSESSEE WAS THAT THE SAID CONCERN WAS PROVIDING TH E SERVICES ONSITE. OUR ATTENTION WAS BROUGHT TO THE NOTE AT PAGE 48 OF THE PAPER BOOK WHEREIN THE EXPENDITURE ON ONSITE DEVELOPMENT INCURRED ON TECHN ICAL SUB-CONTRACTOR WAS DEBITED. THE LEARNED AR FURTHER STATED THAT THE SAI D TECHNICAL SUB-CONTRACTORS CANNOT BE THE EMPLOYEES OF THE CONCERN. HE PLACED R ELIANCE ON THE DECISION OF DELHI TRIBUNAL IN BECHTEL INDIA (P.) LTD. VS. DCIT [2019] 101 TAXMANN.COM 385 (DELHI-TRIB). HE ALSO PLACED RELIANCE ON THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS VS. CIT [2015] 377 ITR 533 (DELHI) 2015. 10. THE LEARNED DR FOR THE REVENUE FROM THE PROFILE OF THE ASSESSEE IN THE TP STUDY REPORT PLACED AT PAGES 36 & 37 OF THE PAPERBO OK POINTED OUT THAT THE ASSESSEE WAS PROVIDING ARRAY OF SERVICES, WHICH INC LUDED SOFTWARE DEVELOPMENT SERVICES AND INFRA MANAGEMENT SERVICES. HE FURTHER STATED THAT THE ASSESSEE WAS DELIVERING END TO END SOLUTIONS. THE ASSESSEE W AS PROVIDING VARIETY OF SERVICES AND THERE WAS WHOLE RANGE OF SERVICES. HIS CONTENTION WAS THAT WHILE APPLYING TNMM METHOD EXACT MATCHING CONCERNS WOULD NOT BE AVAILABLE AND TPO SELECTED COMPANIES KEEPING IN MIND COMPARABILIT Y MARGIN OF 75%. AS FAR AS M/S. ACROPETAL TECHNOLOGIES LIMITED (SUPRA) WAS CONCERNED, HE REFERRED TO THE OBSERVATIONS OF THE TPO FOR ASSESSMENT YEAR 201 1-12 AT PAGES 41-42 OF THE TPOS ORDER. 11. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE V IEW THAT WHERE TNMM METHOD IS APPLIED, IT TAKES CARE OF CERTAIN MARGINA L DIFFERENCES BETWEEN THE 9 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 FUNCTIONING OF THE TESTED PARTY AND THE FINALLY SEL ECTED COMPARABLES. HOWEVER, IF THE MODULE OF WORKING IS DIFFERENT, THEN SUCH A CON CERN CANNOT BE HELD TO BE FUNCTIONALLY COMPARABLE AND CANNOT BE SELECTED IN T HE FINAL LIST OF COMPARABLES. THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS VS. CIT (SUPRA) WHILE ADJUDICATING SIMILAR ISSUE OF APPLICATION OF TNMM M ETHOD AND WHETHER FUNCTIONALITY BEING SAME WAS SUFFICIENT HELD THAT T HE COMPARABLE TRANSACTION/ENTITIES MUST BE SELECTED ON THE BASIS OF SIMILARITY WITH THE CONTROL TRANSACTION/ENTITY. THE COMPARABILITY OF CONTROLLED AND UNCONTROLLED TRANSACTIONS HAD TO BE JUDGED INTER ALIA , WITH REFERENCE TO COMPARABILITY FACTORS AS INDICATED UNDER RULE 10B(2) OF I.T. RULES. THE R ELEVANT FINDINGS OF THE HONBLE DELHI HIGH COURT IN RAMPGREEN SOLUTIONS VS. CIT (SUPRA) IN PARAS 42 TO 44 OF JUDGEMENT READS AS UNDER:- 42. BEFORE CONCLUDING, THERE IS YET ANOTHER ASPECT OF THE MATTER THAT NEEDS CONSIDERATION. THE TRIBUNAL PROCEEDED ON THE BASIS THAT WHILE APPLYING TNMM METHOD, BROAD FUNCTIONALITY IS SUFFICIENT AND IT IS NOT NECESSARY THAT FURTHER EFFORT BE TAKEN TO FIND A COMPARABLE ENTITY RENDERING SERVICES OF SIMILAR CHARACTERISTICS AS THE TESTED ENTITY. THE D RP HELD THAT TNMM ALLOWS FLEXIBILITY AND TOLERANCE IN SELECTION OF CO MPARABLES, AS FUNCTIONAL DISSIMILARITIES ARE SUBSUMED AT NET MARGIN LEVELS, AS COMPARED TO RESALE PRICE METHOD OR COMPARABLE UNCONTROLLED PRICE METHO D AND, THEREFORE, THE FUNCTIONAL DISSIMILARITIES POINTED OUT BY THE ASSES SEE DID NOT WARRANT REJECTION OF ECLERX AND VISHAL AS COMPARABLES. 43. IN OUR VIEW, THE AFORESAID APPROACH WOULD NOT B E APPOSITE. INSOFAR AS IDENTIFYING COMPARABLE TRANSACTIONS/ENTITIES IS CON CERNED, THE SAME WOULD NOT DIFFER IRRESPECTIVE OF THE TRANSFER PRICING MET HOD ADOPTED. IN OTHER WORDS, THE COMPARABLE TRANSACTIONS/ENTITIES MUST BE SELECTED ON THE BASIS OF SIMILARITY WITH THE CONTROLLED TRANSACTION/ENTIT Y. COMPARABILITY OF CONTROLLED AND UNCONTROLLED TRANSACTIONS HAS TO BE JUDGED, INTER ALIA, WITH REFERENCE TO COMPARABILITY FACTORS AS INDICATED UND ER RULE 10B(2) OF THE INCOME TAX RULES, 1962. COMPARABILITY ANALYSIS BY T NMM METHOD MAY BE LESS SENSITIVE TO CERTAIN DISSIMILARITIES BETWEEN T HE TESTED PARTY AND THE 10 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 COMPARABLES. HOWEVER, THAT CANNOT BE THE CONSIDERAT ION FOR DILUTING THE STANDARDS OF SELECTING COMPARABLE TRANSACTIONS/ENTI TIES. A HIGHER PRODUCT AND FUNCTIONAL SIMILARITY WOULD STRENGTHEN THE EFFI CACY OF THE METHOD IN ASCERTAINING A RELIABLE ALP. THEREFORE, AS FAR AS P OSSIBLE, THE COMPARABLES MUST BE SELECTED KEEPING IN VIEW THE COMPARABILITY FACTORS AS SPECIFIED. WIDE DEVIATIONS IN PLI MUST TRIGGER FURTHER INVESTI GATIONS/ANALYSIS. 44. CONSIDERATION FOR A TRANSACTION WOULD REFLECT T HE FUNCTIONS PERFORMED, THE SIGNIFICANT ACTIVITIES UNDERTAKEN, THE ASSETS O R RESOURCES USED/CONSUMED, THE RISKS ASSUMED. THUS, COMPARISON OF ACTIVITIES UNDERTAKEN/FUNCTIONS PERFORMED IS IMPORTANT FOR DET ERMINING THE COMPARABILITY BETWEEN CONTROLLED AND UNCONTROLLED T RANSACTIONS/ENTITY. IT WOULD NOT BE APPOSITE TO IGNORE FUNCTIONAL DISSIMIL ARITY ONLY FOR THE REASON THAT ITS IMPACT MAY BE REDUCED ON ACCOUNT OF USING ARITHMETICAL MEAN OF THE PLI. THE DRP HAD NOTED THAT ECLERX WAS FUNCTION ALLY DISSIMILAR, BUT IGNORED THE SAME RELYING ON AN ASSUMPTION THAT THE FUNCTIONAL DISSIMILARITY WOULD BE SUBSUMED IN THE PROFIT MARGI N. AS NOTED, THE CONTENT OF SERVICES PROVIDED BY THE ASSESSEE AND TH E ENTITIES IN QUESTION WERE NOT SIMILAR. IN ADDITION, THERE WERE ALSO FUNC TIONAL DISSIMILARITIES BETWEEN THE ASSESSEE AND THE TWO ENTITIES IN QUESTI ON. IN OUR VIEW, THESE COMPARABILITY FACTORS COULD NOT BE IGNORED BY THE T RIBUNAL. WHILE USING TNMM, THE SEARCH FOR COMPARABLES MAY BE BROADENED B Y INCLUDING COMPARABLES OFFERING SERVICES/PRODUCTS WHICH ARE NO T ENTIRELY SIMILAR TO THE CONTROLLED TRANSACTION/ENTITY. HOWEVER, THIS CA N BE DONE ONLY IF (A) THE FUNCTIONS PERFORMED BY THE TESTED PARTY AND THE SEL ECTED COMPARABLE ENTITY ARE SIMILAR INCLUDING THE ASSETS USED AND TH E RISKS ASSUMED; AND (B) THE DIFFERENCE IN SERVICES/PRODUCTS OFFERED HAS NO MATERIAL BEARING ON THE PROFITABILITY. 12. THE HONBLE DELHI HIGH COURT WHILE DECIDING THE CASE OF BPO COMPANY HELD THAT BPO SERVICES DOES NOT NECESSARILY INVOLVE ADVANCED SKILL AND KNOWLEDGE; AND COMPARING IT WITH KPO SERVICES, IT W AS HELD THAT KPO WOULD INVOLVE EMPLOYMENT OF ADVANCED SKILL AND KNOWLEDGE FOR PROVIDING SERVICES. THE HONBLE HIGH COURT IN RAMPGREEN SOLUTIONS VS. CIT ( SUPRA) CATEGORICALLY HELD THAT KPO SERVICE PROVIDER WOULD INDICATE AN I.T.E.S . PROVIDER PROVIDING COMPLETELY DIFFERENT NATURE OF SERVICES THAN ANY BP O SERVICE PROVIDER. IT WAS THUS HELD THAT FUNCTIONALITY OF BPO SERVICE PROVIDE R WOULD BE FUNCTIONALLY 11 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 DIFFERENT FROM KPO SERVICE PROVIDER. THE HONBLE DE LHI HIGH COURT IN RAMPGREEN SOLUTIONS VS. CIT (SUPRA) THUS HELD THAT THE DIFFERENCES COULD NOT BE UNDERMINED BY USING BROAD CLASSIFICATION. 13. THE ASSESSEE BEFORE US IS ENGAGED IN PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS AE WHICH IS PROVIDED OFFSITE; ON TH E OTHER HAND M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG) IS PROVIDING ONSITE SERV ICES AND HAD BOOKED THE EXPENDITURE ON ACCOUNT OF TECHNICAL SUB-CONTRACTORS UNDER THE HEAD ONSITE DEVELOPMENT. IT FAILS THE EMPLOYEE/SALES FILTER AP PLIED FOR BENCHMARKING. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE THE MA RGINS OF M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG) FROM THE FINAL LIST OF C OMPARABLES. 14. NOW COMING TO THE NEXT CONCERN I.E. E-INFOCHIPS LIMITED. THE OBJECTION AGAINST ITS INCLUSION BY THE LEARNED AR FOR THE ASS ESSEE IS THAT THE SAID CONCERN FAILS SERVICES REVENUE FILTER. HE POINTED OUT THAT THE SAID FILTER WAS 75%. REFERRING TO THE ORDER OF THE TPO, THE LEARNED AR F OR THE ASSESSEE POINTED OUT THAT TPO HIMSELF HAD APPLIED THE FILTER OF 75% AND IN CASE CONCERN FAILS THE SAID FILTER, THEN THE SAME HAS TO BE EXCLUDED. THE LEARNED AR FOR THE ASSESSEE REFERRED TO THE ORDER OF TPO AT PAGE 42, PARA 11.3 AND POINTED OUT THAT THE TPO HAD WRONGLY OBSERVED THAT SERVICES FILTER IN CASE O F THE SAID CONCERN WAS 74%. 15. THE LEARNED DR FOR THE REVENUE STRONGLY OBJECTE D TO THE SUBMISSIONS OF THE LEARNED AR AND POINTED OUT THAT THE SAME COME T O 84.93%. HE POINTED OUT THAT 74% IS WRONGLY MENTIONED. THE LEARNED AR IN RE -JOINDER FOR THE ASSESSEE 12 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 IN REJOINDER POINTED OUT THAT THE SERVICE REVENUE F ILTER MAY BE VERIFIED BY THE AO / TPO. 16. THE LIMITED ISSUE RAISED BEFORE US IS WHETHER A CONCERN WHICH FAILS SERVICE REVENUE FILTER APPLIED BY THE TPO, CAN THIS BE EXCLUDED FROM FINAL LIST OF COMPARABLE. WE FIND THAT THE TPO AT PAGE 42 IN PARA 11.3 HAD MENTIONED THE SAME TO BE AT 74% WHEREAS THE LEARNED AR FOR THE AS SESSEE CLAIMS THAT IT IS 75% AND ON THE OTHER HAND THE LEARNED DR FOR THE RE VENUE POINTS OUT THAT THE EMPLOYEE SERVICE REVENUE FILTER COMES TO 84.93%. IN VIEW OF THE DIS-SIMILARITY IN THE FIGURES PROPOSED BY THE AO / TPO, THE LEARNED A R FOR THE ASSESSEE AND LEARNED DR FOR THE REVENUE, WE REMIT THIS ISSUE TO THE FILE OF AO / TPO TO VERIFY THE STAND OF THE ASSESSEE AND IN CASE IT FAILS TO S ERVICE REVENUE FILTER, WHICH IS PROPOSED BY THE TPO HIMSELF THEN THE SAID CONCERN I S TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE. ACCORDINGLY WE HOLD SO. 17. THE NEXT CONCERN WHICH THE ASSESSEE WANTS TO BE EXCLUDED IS PERSISTENT SYSTEMS LIMITED. THE LEARNED AR FOR THE ASSESSEE EL ABORATELY POINTED OUT THAT THE SAID CONCERN WAS FUNCTIONALLY DIS-SIMILAR TO TH E ASSESSEE BY REFERRING TO THE NATURE OF SERVICES PROVIDED BY THE SAID CONCERN AND ALSO STATED THAT THE SEGMENTAL WERE UNAVAILABLE AND EVEN IT OWNED IPFS. THE LEARNED DR FOR THE REVENUE HOWEVER REFERRED TO THE ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE, RELATING TO ASSESSMENT YEAR 2007-08 AND POINTED OUT THAT THE SAID CONCERN WAS HELD TO BE FUNCTIONALLY SIMILAR TO THE ASSESSEE. TH E LEARNED AR FOR THE ASSESSEE 13 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 FAIRLY POINTED OUT THAT THE ISSUE WAS DECIDED AGAIN ST THE ASSESSEE BY THE TRIBUNAL. ACCORDINGLY, WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE AND THE SAID CONCERN I.E. PERSISTENT SYSTEMS LIMITED IS TO BE IN CLUDED IN THE FINAL LIST OF COMPARABLE. 18. THE NEXT CONCERN WHICH THE ASSESSEE WANTS TO BE EXCLUDED WIPRO TECHNOLOGY SERVICES LIMITED. THE LEARNED AR FOR THE ASSESSEE POINTED OUT THAT IT WAS A CONCERN WITH HUGE BRAND VALUE AND ALSO FAI LED RPT FILTER. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT THE CONCERN HAVING SUCH HUGE BRAND VALUE AND OWNING INTANGIBLES CANNOT BE COMPARED WITH THE CONC ERN PROVIDING BPO SERVICES. THE DELHI BENCH OF THE TRIBUNAL IN BECHTE L INDIA (P.) LTD. (SUPRA) HAD EXCLUDED WIPRO TECHNOLOGY SERVICES LIMITED ON THE G ROUND OF HIGH RELATED PARTY TRANSACTION. WE FURTHER FIND THAT THE SAID CO NCERN WAS ALSO ENGAGED IN SALE OF SOFTWARE PRODUCTS. IN THESE FACTS AND CIRCU MSTANCES, WE DIRECT THE EXCLUSION OF WIPRO TECHNOLOGY SERVICES LTD,. 19. THE ASSESSEE IS ALSO AGGRIEVED BY THE INCLUSION OF SASKEN COMMUNICATION TECHNOLOGIES LIMITED. THE CLAIM OF TH E ASSESSEE IS THAT THE SAID CONCERN IS FUNCTIONALLY DIS-SIMILAR AS IT IS D EVELOPING MOBILE ENTERPRISE APPLICATIONS ETC,. IT WAS FURTHER POINTED OUT THAT THE SAID CONCERN WAS RENDERING VARIETY OF SERVICES; HOWEVER, THE SEGMENT AL DETAILS WERE NOT AVAILABLE. 20. THE LEARNED DR FOR THE REVENUE SAID THAT THE AS SESSEE WAS ALSO PROVIDING WHOLE RANGE OF SERVICES AND THE PRODUCT R EVENUE WAS 10%. FURTHER TPO HAD APPLIED FILTER OF 75%. 14 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 21. ON HEARING THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT FIRST STEP WHICH HAS TO BE SEEN IS FUNCTIONAL COMPARABILITY. THE CON CERNS ARE PROVIDING VARIETY OF SERVICES AND APPLICATION OF SERVICE FILTER OF 75 % WOULD COME IN THE NEXT RUNG OF COMPARABILITY. M/S SASKEN COMMUNICATION TECHNOLO GIES LIMITED WAS DEVELOPING MOBILE ENTERPRISE APPLICATIONS AND SOLUT IONS ACROSS VARIOUS MOBILE PLATFORMS INCLUDING IOS, ANDROID, BLACKBERRY, RIM A ND SYMBIAM PLATFORM; WHICH ARE CLEARLY MENTIONED IN THE ANNUAL REPORT OF THE SAID CONCERN. THE ASSESSEE ON THE OTHER HAND WAS ONLY PROVIDING SOFTW ARE DEVELOPMENT SERVICES TO ITS AE. HENCE THE CONCERN SASKEN COMMUNICATION T ECHNOLOGIES LIMITED IS NOT FUNCTIONALLY COMPARABLES TO THE ASSESSEE AND SA ME NEEDS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE. ACCORDINGLY, WE HOLD SO. 22. THE LAST CONCERN WHICH THE ASSESSEE WANTS TO EX CLUDE FROM THE LIST OF COMPARABLES IS THIRDWARE SOLUTIONS LIMITED. THE TPO HAD COMPARED THE MARGINS OF THE ASSESSEE WITH SEGMENTAL DETAILS OF T HE SAID CONCERN. THE OBJECTION OF THE LEARNED AR FOR THE ASSESSEE IS THA T THE SAID CONCERN WAS FUNCTIONALLY DIFFERENT AND IT WAS ENGAGED IN VARIOU S ACTIVITIES, WHICH IS CLEAR FROM PAGE 554 OF THE ANNUAL REPORT OF THE SAID CONC ERN. OUR ATTENTION WAS ALSO DRAWN TO PAGE 564 OF THE PAPER BOOK WHICH GAVE QUAN TITATIVE DETAILS. 23. THE LEARNED DR FOR THE REVENUE ON THE OTHER HAN D STRESSED THAT THE SEGMENTAL DETAILS OF THE SAID CONCERN WERE BEING AP PLIED AND HENCE NO MERIT IN THE PLEA OF THE ASSESSEE. 15 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 24. AFTER HEARING BOTH THE LEARNED COUNSELS, WE NOT E THAT THE ASSESSEE IS ENGAGED IN THE PROVISIONS OF SOFTWARE DEVELOPMENT S ERVICES TO ITS AE AND HENCE THE CONCERN ENGAGED IN SIMILAR ACTIVITY SHOUL D BE PICKED UP FOR COMPARABLE. IN CASE, WE LOOK AT THE ANNUAL REPORT O F THE CONCERN I.E. THIRDWARE SOLUTIONS LIMITED, WE FIND THAT IT WAS ENGAGED IN I MPLEMENTATION AND CONSULTING SERVICES OF SOFTWARE AND BUSINESS INTELL IGENCE. IT HAS ALSO DECLARED REVENUE FROM SALE OF LICENSE, SOFTWARE SERVICES, EX PORT FROM SEZ AND STPI. HOWEVER, THE SEGMENTAL DETAILS ARE NOT AVAILABLE AN D THE SAME IS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE. ACCORDI NGLY, WE HOLD SO. THE GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE THUS IS ALLO WED. 25. NOW COMING TO THE ISSUE RAISED VIDE GROUND NO. 4 WHICH IS AGAINST THE ADJUSTMENT MADE ON ACCOUNT OF RECEIVABLES FROM AE. THE CASE OF THE REVENUE IS THAT AS THE ASSESSEE HAS NOT RECEIVED THE AMOUNT DUE FROM THE AES, WITHIN THE STIPULATED PERIOD THEN INTEREST ADJUSTMENT NEED S TO BE MADE ON ACCOUNT OF INTEREST DUE ON RECEIVABLES, AS THIS WAS AN INTERNA TIONAL TRANSACTION. THE CASE OF THE ASSESSEE ON THE OTHER HAND IS THAT ON SUCH O UTSTANDINGS FROM BOTH AE AND NON AES, NO INTEREST IS CHARGED BY THE ASSESSEE AND THIS WAS NOT AN INTERNATIONAL TRANSACTION AND HENCE NO ADJUSTMENT I S TO BE MADE. 26. WE FIND THAT THE NEXT ISSUE RAISED IS AGAINST T HE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF INTEREST DUE ON RECEI VABLES OUTSTANDING. THE SAID ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN M/S. GLOBAL LOGIC INDIA LTD. FOR ASSESS MENT YEAR 2010-11 IN ITA 16 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 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 DECISION OF HONBLE DELHI HIGH COURT IN PR. CIT -V VS KUSUM HEALTH CARE PVT. LTD. IN ITA NO.765/2016, JUDGEMENT DATED 25.04 .2017 AND HELD THAT NO ADJUSTMENT IS TO BE MADE ON ACCOUNT OF NOTIONAL INT EREST ON RECEIVABLES BY RELYING UPON EXPLANATION (I), (A) & (C) OF SECTION 92B BY TREATING THE CONTINUED DEBT BALANCE AS AN INTERNATIONAL TRANSACTION. MORE OVER WHEN THE TAXPAYER IS DEBT FREE COMPANY, THERE IS NO QUESTION OF CHARGING ANY INTEREST ON RECEIVABLES. THIS ISSUE HAS ALSO BEEN DECIDED BY H ONBLE DELHI HIGH COURT IN CASE OF PR. CIT-1 VS M/S. BECHTEL INDIA PVT. LTD. IN ITA 379/2016 (SUPRA) ORDER DATED 21.07.2016. THE RELEVANT FINDINGS OF THE ORD ER OF THE TRIBUNAL 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 CASE C ITED AS PR. CIT-V VS. KUSUM HEALTH CARE PVT. LTD. IN ITA 765/2016 ORDER D ATED 25.04.2017, WHEREIN IT IS HELD THAT THE EXPRESSION ADDED IN EXP LANATION TO SECTION 92B DOES NOT MEAN THAT DE HORS THE CONTEXT, EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY H AVE DEALING WITH FOREIGN AE, WOULD AUTOMATICALLY BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AND DECIDED THE ISSUE IN FAVOUR OF THE TAXPAYER BY RETURNING FOLLOWING FINDINGS :- 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 WOULD AUTO MATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THER E MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEY OND 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 THE ASSESSEE WILL HAVE TO BE STU DIED. IN OTHER WORDS, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE 17 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 STATISTICS OVER A PERIOD OF TIME TO DISCERN A PATTE RN WHICH WOULD INDICATE THAT VIS--VIS THE RECEIVABLES FOR THE SUP PLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANS ACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 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 JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONS TITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSES SEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES ON THE WO RKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS--VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUT STANDING 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 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, ACCORDINGLY, 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 NOTIONAL INTER EST ON RECEIVABLES BY RELYING UPON EXPLANATION (I), (A) & (C) OF SECTION 92B BY TREATING THE CONTINUED DEBT BALANCE AS AN INTERNATIONAL TRANSACT ION. MOREOVER WHEN THE TAXPAYER IS DEBT FREE COMPANY, THERE IS NO QUESTION OF CHARGING ANY INTEREST OR RECEIVABLES. THIS ISSUE HAS ALSO BEEN D ECIDED BY HONBLE DELHI HIGH COURT IN CASE OF PR. CIT-1 VS. M/S. BECHTEL IN DIA 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 TAXPAYER HAS EA RNED HIGHER MARGIN I.E. TAXPAYER EARNED 38.39% OP/OC MARGIN VIS--VIS MARGIN OF COMPARABLE COMPANIES AT 11.43%. IN SUCH CIRCUMSTANCES, NO SEPA RATE ADJUSTMENT ON ACCOUNT OF INTEREST CAN BE MADE. BECAUSE THE CREDIT PERIOD EXTENDED TO AE CANNOT BE CONSIDERED AS A STANDALONE TRANSACTION WI THOUT CONSIDERING THE MAIN TRANSACTION 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 DELAYED PA YMENT ON RECEIVABLES. SO WHEN OUTSTANDING RECEIVABLES IS NOT A SEPARATE INTERNATIONAL TRANSACTION, THE DELAY IN REALIZATION OF THE SALE PROCEEDS IS 18 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 INCIDENTAL TO THE TRANSACTION OF SALE AND AS SUCH N O NOTIONAL INTEREST CAN BE LEVIED BY TREATING THE SAME AS UNSECURED LOAN. 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 QU A UNRELATED PARTIES AVAILABLE AT PAGE 183A OF THE PAPER BOOK WHEREIN DE LAY IN REALIZATION OF THE RECEIVABLES IS ALSO UP TO 218 DAYS FOR AY 2010- 11 AND UP TO 417 DAYS QUA AY 2012-13 AS PER DETAIL OF INVOICES RAISED ON UNRELATED PARTIES QUA AY 2012-13, AVAILABLE AT PAGE 236 OF THE PAPER BOOK . 27. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATIO N HAD NOT AVAIL ANY LOAN FROM AES OR UNRELATED THIRD PARTIES AND WAS NOT INC URRING ANY INTEREST COST. FURTHER, THERE WAS SIMILAR DELAY IN RECEIPT OF RECE IVABLES FROM OTHERS AND THE ASSESSEE WAS NOT CHARGING ANY INTEREST ON DELAY IN RECEIPT OF RECEIVABLES AGAINST SERVICES RENDERED TO UNRELATED THIRD PARTIE S. 28. IN SUCH FACTS AND CIRCUMSTANCES AND FOLLOWING T HE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN KUSUM HEALTHCARE LTD. ( SUPRA) AND ALSO IN LINE WITH THE FINDINGS OF THE TRIBUNAL IN M/S. GLOBAL LO GIC INDIA LTD. (SUPRA), WE FIND NO MERIT IN MAKING ANY ADJUSTMENT ON ACCOUNT O F INTEREST DUE ON RECEIVABLES FROM ITS AE. GROUND OF APPEAL RAISED B Y THE ASSESSEE IN THIS REGARD IS THUS ALLOWED. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 6 TH JULY, 2020. SD/- SD/- (PRASHANT MAHARISHI) (SUSHMA CHOWLA) *+, / ACCOUNTANT MEMBER / VICE PRESIDENT / DATED : 06 TH JULY, 2020 SH / AMIT KUMAR 19 ITA NO.6757/DEL/2015 ASSESSMENT YEAR 2011-12 *$2#.%6'7*'%8 COPY OF THE ORDER IS FORWARDED TO : 1. /0 / THE APPELLANT 2. #1/0 / THE RESPONDENT 3. 9% : ; / THE CIT(A) 4. < 9% / THE PR. CIT 5. 6. '=>#.%. ) ) / DR, ITAT, DELHI >?(@8 GUARD FILE. *$ / BY ORDER , 1'%#.% // TRUE COPY // & AB,C , ) ASSISTANT REGISTRAR, ITAT, DELHI