Doosan Power Systems India Private Limited, Gurgaon V. DCIT Corporate Circle 1(1), CHENNAI

ITTPA 5/CHNY/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0968 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 11 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 10-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 28-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S BHARATH; R ANITA
• Assessee Lawyers: S SRIDHAR
• Keywords: Transfer pricing; Rectification of order; International transaction; Retrospective amendment; Notional interest; TDS; Set aside
• Section: 43B; 143(3); 92B; 234B; 13; 92CA

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , . , & BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ IT(TP)A.NO.5/CHNY/2018 ( / ASSESSMENT YEAR: 2011-12) M/S. DOOSAN POWER SYSTEMS INDIA P.LTD. 16 TH FLOOR, DLF SQUARE, JACARANDA MARG, DLF PHASE II, GURGAON-122 002. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-I(1), CHENNAI. PAN: AAACI 6830M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, CA /RESPONDENT BY : MR.S.BHARATH, CIT & MS.R.ANITA, JCIT /DATE OF HEARING : 22.12.2020 /DATE OF PRONOUNCEMENT : 10.03.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFF ICER U/S.143(3) R.W.S.144C (13) OF THE ACT IN PURSUANT TO THE DIRECTIONS OF DRP-2, BENGALURU DATED 27.12.2017 IS SUED UNDER SECTION 144C(5) OF THE ACT AND PERTAINS TO ASSESSM ENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 2 IT(TP)A NO. 5/CHNY/2018 1. THE LEARNED ASSISTANT COMMISSIONER OF INCOME TA X (OSD), CORPORATE RANGE - I, CHENNAI ERRED ON THE FACTS AN D IN LAW IN PASSING THE IMPUGNED ASSESSMENT ORDER PURSUANT TO THE DIRECTION S OF THE HONBLE INCOME-LAX APPELLATE TRIBUNAL AND HONBLE DISPUTE RESOLUTION PANEL CONFIRMING THE ADJUSTMENT OF INR 31,864,765 AND COM PUTING HE TOTAL INCOME OF THE APPELLANT FOR ASSESSMENT YEAR 2011-12 AL INR 29,88,63,333 AS AGAINST THE RETURNED INCOME OF INR 266,998,568. GROUNDS IN RELATION TO TRANSFER PRICING TECHNICAL SUPPORT SERVICES SEGMENT 2. THE AO INADVERTENTLY ERRED ON THE FACTS AND IN L AW, IN COMPUTING THE ADJUSTMENT OF INR 17,417,268 IN RELATION TO THE INT ERNATIONAL TRANSACTION OF PROVISION OF ENGINEERING DESIGN, DRAWING AND CONSUL TANCY SERVICES IN THE IMPUGNED ASSESSMENT ORDER PASSED PURSUANT TO THE DI RECTIONS OF THE DISPUTE RESOLUTION PANEL DATED 27 DECEMBER 2017. WI THOUT APPRCCIATING HE FACT THAT THE SAID ADJUSTMENT WAS DELETED BY THE LD. TRANSFER PRICING OFFICER (LD. TPO). 3. THE LD. ASSESSING OFFICER AND TPO, AND HONBLE DRP ERRED ON THE FACTS AND IN LAW IN PASSING THE ASSESSMENT ORDER PU RSUANT TO THE DIRECTIONS OF THE DRP MAKING ALT ADJUSTMENT OF INR 4,241,096 BY CONSIDERING. THE OUTSTANDING RECEIVABLES FROM AES A S A SEPARATE INTERNATIONAL TRANSACTION AND ACCORDINGLY DETERMI NING THE ARMS LENGTH PRICE OF THE IMPUGNED INTERNATIONAL TRANSACTION. 4. THE LD. AO, LD TPO AND HONBLE DRP ERRED ON FACT S AND IN LAW IN ERRONEOUSLY RE-CHARACTERIZING THE OUTSTANDING RECEI VABLES FROM AE OF THE APPELLANT AS UNSECURED LOAN AND COMPUTING NOTIONAL ,NLCRESL ON ALLEGED DELAYS IN REALIZATION OF PAYMENT FROM THE AES AGAIN ST THE INVOICES RAISED FOR PROVISION OF ENGINEERING DESIGN, DRAWING AND CO NSULTANCY SERVICES. 5. THE ID. AO, LD. IPO AND HONBLE DRP, WITHOUT PRE JUDICE, ERRED ON FADS AND IN LAW IN ARBITRARILY APPLYING INTEREST II THE RATE OF 12.625 PERCENT BEING THE AVERAGE PRIME LENDING RATE (PLR) OF BANK OF IND IA FOR FY 2010-11 OF THE OUTSTANDING RECEIVABLES FROM THE AES WITHOUT AP PRECIATING LIE FACT THAT THE TRANSACTIONS GIVING RISE TO THE RECEIVABLES WER E DENOMINATED IN FOREIGN CURRENCY AND THEREFORE, AN INTERNATIONAL LIBOR BASE D RATE SHOULD BE CONSIDERED FOR THE PURPOSE OF IMPUTING INTEREST. 3 IT(TP)A NO. 5/CHNY/2018 6. THE LD. AO, LD TPO AND THE HONBLE DRP. ERRED ON FADS AND IN LAW IN IGNORING THE FACT THAT THE MARGIN EARNED BY THE APP ELLANT FROM THE INTERNATIONAL TRANSACTIONS IS HIGHER THAN THE ARMS LENGTH MARGIN EARNED BY THE COMPARABLE COMPANIES AND IT ALREADY SUBSUMED / FACTORED-IN THE IMPACT OF RETURN ON OUTSTANDING RECEIVABLES. GROUNDS IN RELATION IN CORPORATE TAX ADJUSTMENT: 7. THE LD AO AND HONBLE DRP ERRED ON THE FACTS AND IN LAW IN DISALLOWING EMPLOYEES CONTRIBUTION TO PROVIDENT FUND (PF) AMOU NTING TO INR 5,768,966. 7.1 THE LD. AO AND HONBLE DRP ERRED IN DISALLOWING INR 876S,966 UNDER SECTION 36(L)(VA) OF THE INCOME-TAX ACT (THE ACT) ON ACCOUNT OF DELAYED REMITTANCE OF THE EMPLOYEES CONTRIBUTION TO PF 7.2 THE LD. AO AND HONBLE DRP FAILED TO APPRECIATE THAT THE APPELLANT HAD MADE THE REQUISITE REMITTANCE BEFORE THE DUE DA TE OF FILING OF RETURN OF INCOME FOR AY 2011-12 I.E., 30 NOVEMBER 2011. 7.3 THE LD. AO FAILED TO APPRECIATE DIE EXISTING JU RISPRUDENCE WHICH HAD HELD THAT EMPLOYEES CONTRIBUTION TO PR ARE ALSO COV ERED UNDER SECTION 438 OF THE ACT AND THAT THE DELAYED EMPLOYEES CONTRIBU TION TO BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF TAXABLE INCOME FOR THE YEAR UNDER CONSIDERATION IF THEY ARE PAID BEFORE THE DUE DATE OF FILING THE ROI. 7.4 FURTHER, THE LD. AO AND HONBLE DRP FAILED TO A PPRECIATE THE RULINGS OF THE HONBLE SUPREME COURT (SC) IN THE CASE OF CIT V. ALOM EXTRUSION LTD 319 IR 306, CIT VS. VINAY CEMENTS LTD 213 CTR 268 ( SC) AND OTHER JUDGMENTS WHEREIN IT WAS HELD THAT EMPLOYEES CONTRI BUTION TO PF EMPLOYEES STATE INSURANCE CAN BE CLAIMED AS ALL AL LOWABLE DEDUCTION UNDER SECTION 36(1)(VA) READ WITH SECTION 43B OF THE ACT IF THE SAID PAYMENTS ARE MADE ON OR BEFORE THE DUE DATE FOR FIL ING THE ROI FOR THE SUBJECT ASSESSMENT YEAR . 8. THE ID. AO AND HONBLE DRP ERRED ON FACTS AND IN LAW BY NOT GIVING THE CREDIT FOR TAX DEDUCTED AT SOURCE (TDS) AND ADVANC E TAX. 8.1 THE LD. AO AND HONBLE DRP ERRED IT NOT GIVING CREDIT FOR TDS AMOUNTING TO INR 21,616,883 AND ADVANCE TAX AMOUNTI NG TO INR 1,190,000. 4 IT(TP)A NO. 5/CHNY/2018 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE AO ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234C OF THE ACT. 3. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, A REFERENCE U/S. 92CA(1) OF THE ACT WAS MADE TO TRANSFER PRICING OFFICER TO DE TERMINE ALP OF INTERNATIONAL TRANSACTIONS WITH ITS AES. DURING TRANSFER PRICING ASSESSMENT PROCEEDINGS, THE TPO MADE UPWARD ADJUSTM ENT OF ` 1,75,55,986/- TO THE EDS SEGMENT AND ` 42,41,096/- AS INTEREST ON AE RECEIVABLES. BASED ON THE TPO ORDER DATED 29.01.2015, ASSESSING OFFICER HAS PASSED DRAFT ASS ESSMENT ORDER U/S. 143(3) R.W.S 92CA OF THE ACT ON 30.03.2 015 AND PROPOSED FOLLOWING TRANSFER PRICING ADJUSTMENTS. T HE ASSESSING OFFICER HAS ALSO PROPOSED ADDITIONS TOWARDS CORPORA TE TAX ISSUES LIKE DISALLOWANCE U/S.14A OF THE ACT, DISALL OWANCE U/S. 36(1)(VA) AND DISALLOWANCE U/S.40(A)(IA) OF THE AC T. THE DETAILS OF ADJUSTMENTS PROPOSED BY THE ASSESSING OFFICER IN DRAFT ASSESSMENT ORDER IS AS FOLLOWS:- S.NO. NATURE OF ADJUSTMENT AMOUNT IN ` 1. TP ADJUSTMENT INTEREST ON AE RECEIVABLES 4,421,096 5 IT(TP)A NO. 5/CHNY/2018 EDS SEGMENT 17,555,986 2. DISALLOWANCE U/S.14A 6,257 3 DISALLOWANCE U/S.36(1)(VA) 8,768,966 4. DISALLOWANCE U/S.40(A)(IA) 1,431,178 4. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPA NY INCORPORATED IN THE YEAR 2006 IS A WHOLLY OWNED SUB SIDIARY OF DHICL. IT IS ENGAGED IN THE BUSINESS OF PROVIDING E NGINEERING DESIGN AND RELATED SERVICES TO ITS OVERSEAS GROUP COMPANIES. THE ASSESSEE HAS BEEN ESTABLISHED AS A SOFTWARE TEC HNOLOGY PARK (STP) IN INDIA. UNDER THE PROJECT SEGMENT, T HE COMPANY IS ENGAGED IN THE BUSINESS OF BUILDING, INSTALLATIO N AND MAINTAIN ENGINEERING PLANTS WITH SPECIALIZATION IN THERMAL A ND COAL POWER PLANTS. UNDER THE ENGINEERING DESIGN SERVICES ( EDS ) SEGMENT, COMPANY IS ENGAGED IN RENDERING ENGINEERIN G DESIGN, DRAWINGS AND CONSULTANCY SERVICES IN RELATION TO PO WER PROJECTS EXECUTED BY ITS AES. 5. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ON 28.03.2013 ADMITTING TOT AL INCOME OF ` 26,69,98,568/-. THE ASSESSEE HAS FILED AUDITORS RE PORT IN 6 IT(TP)A NO. 5/CHNY/2018 FORM 3CEB RELATED TO INTERNATIONAL TRANSACTIONS, A S PER WHICH DURING THE YEAR UNDER CONSIDERATION, IT HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AES:- S. NO. NAME OF THE AE NATURE OF TRANSACTION AMOUNT ` METHOD ADOPTED 1 DOOSAN HEAVY INDUSTRIES AND CONSTRUCTION CO. LIMITED, KOREA, DOOSAN POWER SYSTEMS LTD, UK, DOOSAN POWER SYSTEMS AMERICA LTD, US, DOOSAN ENGINEERING &SERVICE LLC USA ENGINEERING SERVICES RENDERED FOR OVERSEAS PROJECTS 281,130,900 TNMM 2. DOOSAN HEAVY INDUSTRIES AND CONSTRUCTION CO. LIMITED, REPUBLIC OF KOREA, DOOSAN ENGINEERING & SERVICE LLC USA RECOVERY OF TRAVELLING AND OTHER EXPENSES 6,606,673 - 3. DOOSAN CORPORATION, SOUTH KOREA EMAIL SERVICES 2,831,260 - 4 DOOSAN CORPORATION, SOUTH KOREA ISM SOFTWARE SERVICES 3,934,936 - 5 DOOSAN POWER SYSTEMS LTD UK REIMBURSEM ENT OF SALARY & OTHER COSTS OF SECONDED EMPLOYEE 16,438,083 - 6 DOOSAN HEAVY INDUSTRIES AND CONSTRUCTION CO. PROJECT MATERIAL 434,396,596 TNMM 7 IT(TP)A NO. 5/CHNY/2018 LIMITED, REPUBLIC OF KOREA, 6. THE ASSESSEE HAS FILED OBJECTIONS AGAINST DRAFT ASSESSMENT ORDER PASSED BY ASSESSING OFFICER BEFO RE DRP-2, BENGALURU, AND CHALLENGED VARIOUS ADJUSTMENTS PROP OSED BY ASSESSING OFFICER, BUT COULD NOT SUCCEED. THE LE ARNED DRP HAS UPHELD ADJUSTMENTS PROPOSED BY THE ASSESSING O FFICER TOWARDS UPWARD ADJUSTMENTS ON EDS SEGMENTS AND INT EREST ON AE RECEIVABLES. THE LEARNED ASSESSING OFFICER HAS PASSED FINAL ASSESSMENT ORDER ON 22.02.2016 IN PURSUANT TO DIRECTIONS OF DRP AND MADE ADDITIONS PROPOSED BY TPO TOWARDS INTERNATIONAL TRANSACTIONS . THE ASSESSEE CARRIED MATTER IN APPEAL BEFORE ITAT., CHENNAI. THE TRIBUNAL VIDE ITS ORDER DATED 14.12.2016 HAS SET ASIDE THE APPEAL TO THE LEARNED DRP FOR FRESH CONSIDERATION. THE DRP-2, BENGALURU VIDE IT S ORDER DATED 27.12.2017, IN CONSEQUENT TO THE DIRECTIONS O F TRIBUNAL HAS PASSED ORDER U/S. 144C(5) OF THE ACT AND CONFI RMED ADDITIONS MADE BY ASSESSING OFFICER TOWARDS UPWARD ADJUSTMENTS ON EDS SEGMENT AND INTEREST IMPUTATION ON AE RECEIVABLES. THE ASSESSING OFFICER IN PURSUANT TO THE 8 IT(TP)A NO. 5/CHNY/2018 DIRECTIONS OF DRP HAS PASSED FINAL ASSESSMENT ORDER WITHOUT GIVING EFFECT TO THE DRP DIRECTION AND SUBSEQUENTLY PASSED RECTIFICATION ORDER U/S.154 ON 24.05.2018 AND DELET ED TP ADJUSTMENT IN RELATION TO EDS SEGMENT. 7. BEING AGGRIEVED BY FINAL ASSESSMENT ORDER, ASSES SEE IS IN APPEAL BEFORE US. 8. GROUND NO.1 OF ASSESSEE APPEAL IS GENERAL IN NAT URE AND DOES NOT REQUIRE SPECIFIC ADJUDICATION AND HENCE, SAME IS REJECTED. 9. THE ASSESSEE HAS NOT PRESSED GROUND NOS.2, 8 AND 9, BECAUSE ASSESSING OFFICER HAS PASSED RECTIFICATIO N ORDER ABD DELETED TP ADJUSTMENT RELATING TO EDS SEGMENT AND ALSO HAS GIVEN EFFECT TO SHORT CREDIT OF TDS AND ADVANCE TAX . CONSEQUENTLY, REWORKED INTEREST U/S. 234B & C OF TH E ACT. THEREFORE, GROUND NO.2, 8 & 9 OF ASSESSEE APPEAL AR E DISMISSED AS NOT PRESSED. 10. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.3, 4 & 6 OF ASSESSEE APPEAL IS INTEREST I MPUTATION ON 9 IT(TP)A NO. 5/CHNY/2018 AE RECEIVABLES. THE LEARNED AR SUBMITTED THAT ASSE SSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN MAKING ADJUSTMENT OF ` 42,41,096/- BY CONSIDERING OUTSTANDING RECEIVABLES FROM AES AS A SEPARATE INTERNATIONAL TRANSACTION AND A CCORDINGLY DETERMINING ALP OF IMPUGNED INTERNATIONAL TRANSACTI ON. THE AR FURTHER SUBMITTED THAT OUTSTANDING RECEIVABLES AS A RESULT OF ITS INTERNATIONAL TRANSACTIONS WITH AES ARE NOT SEPARAT E INTERNATIONAL TRANSACTION AS PER SECTION 92B OF T HE ACT, WHEN PRINCIPAL TRANSACTION GIVING RISE TO RECEIVABLE HAS BEEN ACCEPTED TO BE AT ARMS LENGTH AND CONSEQUENTLY, NO SEPARATE ADJUSTMENT IS WARRANTED ON ACCOUNT OF OUTSTANDI NG RECEIVABLES. THE AR FURTHER SUBMITTED THAT WITHOUT PREJUDICE, EVEN IF IT IS TREATED AS INTERNATIONAL TRANSACTION AND REQUIRES TO BE BENCH MARKED, THEN APPLYING INTEREST @ 12.625 % ON THE BASIS OF PRIMING LENDING RATE OF BANK OF INDIA IS INCORRECT BECAUSE TRANSACTIONS GIVING RISE TO RECEIVABLES WE RE DENOMINATED IN FOREIGN CURRENCY AND THEREFORE, INT ERNATIONAL LIBOR BASED RATE SHOULD BE CONSIDERED FOR IMPUTIN G INTEREST. THE AR RELIED ON THE FOLLOWING CASE LAWS IN SUPPO RT OF HIS CONTENTIONS:- 10 IT(TP)A NO. 5/CHNY/2018 AMADEUS INDIA PVT LTD., ITA 901/2019 (DELHI HIGH CO URT) KUSUM HEALTH CARE PVT LTD., ITA 765/2016 (DELHI HIG H COURT) SOPHOS TECHNOLOGIES PRIVATE LIMITED (FORMERLY KNOWN AS CYBEROAM TECHNOLOGIES P LTD) (TS-1213 ITAT-2OI8(AHD )TP) LOTUS LABS PVT LTD TA NO. 2295/ BANG/ 2016 MIS LOGIX MICRO SYSTEMS LTD VSASST CIT (2010-TIL-50 -ITAT- BANG- TP) DY. CIT V/S MIS.LNDO AMERICAN JEWELLERY LIMITED. IT A NO. 5872/MUM/2009 NIMBUS COMMUNICATIONS LIMITED (ITA NO.2361 (MUM.) O F2007) PATNI COMPUTER SYSTEM LIMITED (ITA NO 426 & 1131/PN /06) NO INTEREST CHARGEABLE ON OUTSTANDING BALANCES: M/S. LOGIX MICRO SYSTEMS LTD VSASSTCIT(2010-TLI-50- ITAT- BANG -TP) NIMBUS COMMUNICATIONS LIMITED ITA NO.2361 (MUM.) OF 2007) PATNI COMPUTER SYSTEM LIMITED (ITA NO 426 & 1131/PN /06) INTERNATIONAL RATE SHOULD BE USED SINCE TRANSACTION DENOMINATED IN FOREIGN CURRENCY: PR. CIT VSTECNIMONTPVT LTD., ITA 56 O120L6 (BOMBAY HIGH COURT) CIT VS. COTTON NATURALS (I) PVT. LTD.. ITA NO. 233/ 2014 DELHI HC PLINTRON GLOBAL TECHNOLOGY SOLUTION VS DCIT. ITA NO . 532/CHNY/2017 SIVA INDUSTRIES & HOLDINGS LTD. VSACIR (ITA NO.148/ MDS/2010 11 IT(TP)A NO. 5/CHNY/2018 SIN VENTURES LIMITED VS. ACIT (ITA NO. 216L/MDS/20L L) BHARTI AIRTEL SERVICES LIMITED. ITA NO. 58L6/DEL/ 2012 KOHINOOR FOODS LTD. VS ACIT,ITA NO. 3688 TO 3891ID EL/2OI2 FOURSOFT LTD. VS DY. CIT(ITA NO. 1495/HYD/20L0) 11. THE LEARNED DR , ON THE OTHER HAND, STRONGLY SU PPORTING ORDER OF THE AUTHORITIES BELOW SUBMITTED THAT AE RECEIVABLES IS SEPARATE INTERNATIONAL TRANSACTION EVEN BEFORE AME NDMENT TO SECTION 92B AND HENCE, ANY OUTSTANDING RECEIVABLES BEYOND SPECIFIED CREDIT PERIOD SHOULD BE BENCHMARKED TO D ETERMINE ALP BETWEEN THE PARTIES AND SAID BENCH MARKING SHO ULD BE ON THE BASIS OF RATE OF INTEREST, IF ANY, PAID BY ASS ESSEE ON ITS BORROWINGS IN INDIAN CURRENCY. THEREFORE, ASSESSIN G OFFICER AS WELL AS DRP WERE RIGHT IN IMPUTING INTEREST ON THE BASIS OF PRIME LENDING RATE OF BANK OF INDIA FOR RELEVANT A SSESSMENT YEAR AND HENCE, THERE IS NO REASON TO INTERFERE W ITH THE FINDINGS OF AUTHORITIES BELOW. IN THIS REGARD, SHE RELIED UPON DECISION OF ITAT., DELHI IN THE CASE OF BHARTI AIRT EL SERVICES LTD.IN ITA NO.161/DEL/2017. 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES 12 IT(TP)A NO. 5/CHNY/2018 BELOW ALONG WITH CASE LAWS CITED BY BOTH THE PARTIE S. AS REGARDS PRELIMINARY ARGUMENTS OF THE AR FOR THE ASS ESSEE THAT DELAY IN REALIZATION OF RECEIVABLES FROM AE BEYOND CREDIT PERIOD IS NOT A SEPARATE INTERNATIONAL TRANSACTION, WE FIN D THAT THE DEFINITION OF INTERNATIONAL TRANSACTIONS HAS BEEN A MENDED BY INSERTION OF CLAUSE (C) TO EXPLANATION TO SECTION 9 2B BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01 .04.2002, WHERE THE CAPITAL FINANCING INCLUDING ANY TYPE OF LONG-TERM O R SHORT-TERM BORROWING, LENDING OR GUARANTEE; PURCHAS E OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYME NTS OR DEFERRED PAYMENTS OR RECEIVABLES OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS ARE INTERNATIONAL TRANSACTIONS AND HENCE DELAY IN REALIZATION OF RECEIVABLES FROM AE BEYOND CREDIT PERIOD CONSTITUTES A SEPARATE INTERNATIONAL TRANSACTION WITH EFFECT FROM ASSESSMENT YEAR 2013-14 ONWARDS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERI T IN THE ARGUMENTS TAKEN BY THE ASSESSEE THAT DELAY IN REALI ZATION OF AE RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION. W E FURTHER NOTE THAT AFTER THE AMENDMENT TO CLAUSE (C) OF EXPLANATI ON TO SECTION 92B OF THE ACT, REALIZATION OF RECEIVABLES AFTER AB NORMAL DELAY 13 IT(TP)A NO. 5/CHNY/2018 BEYOND CREDIT PERIOD WOULD TANTAMOUNT TO INDIRECT F UNDING TO AE AND MERELY BECAUSE THE ASSESSEE IS ALMOST A DEBT FR EE COMPANY OR THE MARGIN OF THE ASSESSEE IS HIGHER THA N THE COMPARABLES, NO SUCH FUNDS OF THE ASSESSEE SHOULD B E ALLOWED TO BE UTILIZED FOR INDEFINITE PERIOD. WE FURTHER N OTE THAT ONCE DELAY IN REALIZATION OF AE RECEIVABLES CONSTITUTE A N INTERNATIONAL TRANSACTION, WHETHER OR NOT, ASSESSEE CHARGES INTER EST ON RECEIVABLES FROM AE OR NOT, HAS NO RELEVANCE BECAUS E ANY UNDERSTANDING OR ARRANGEMENT BETWEEN THE ASSESSEE A ND ITS AE WHICH IS DETRIMENTAL TO REVENUE AND AGAINST THE PRINCIPLES OF SCHEME OF CHAPTER X OF THE ACT, CANNOT COME TO T HE RESCUE OF THE ASSESSEE. WE FURTHER NOTE THAT MERELY BECAU SE THERE IS NO PROVISION TO CHARGEABILITY OF INTEREST IN THE AG REEMENT BETWEEN THE ASSESSEE AND ITS AE FOR DELAYED REALIZA TION AND MERELY BECAUSE ASSESSEE DOES NOT PAY ANY INTEREST T O THE AE ON THE SECURITY DEPOSIT, THE REVENUE CANNOT BE DEPR IVED ON ITS LEGITIMATE SHARE IN ACCORDANCE WITH THE SCHEME OF C HAPTER X OF THE ACT AND THE PURPOSE BEHIND THE CHAPTER X. THER EFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR I N THE FINDING RECORDED BY THE AO AS WELL AS THE TPO AND THE DRP T O COME TO 14 IT(TP)A NO. 5/CHNY/2018 THE CONCLUSION THAT DELAY IN REALIZATION OF RECEIVA BLES FROM AE BEYOND CREDIT PERIOD TANTAMOUNT TO INDIRECT FUNDING TO AE WHICH CONSTITUTES SEPARATE INTERNATIONAL TRANSACTIONS. 13. HAVING SAID SO, LET US EXAMINE WHAT IS APPROPRI ATE RATE FOR BENCHMARKING INTERNATIONAL TRANSACTIONS FOR DEL AY IN REALIZATION OF AE RECEIVABLES. IN ORDER TO IMPUTE I NTEREST ON RECEIVABLES, THE BENEFIT AND DETRIMENT THAT IT WOUL D BE ENJOYED AND SUFFERED BY THE PARTIES TO THE TRANSACTION REQU IRES CONSIDERATION. THE ASSESSEE HAS ALLOWED CREDIT TO ITS AE WHICH IS A NON-RESIDENT, THEREFORE THE BENEFITS THAT THE AE DERIVES FROM ENJOYING THE LONG CREDIT PERIOD FOR PAYMENT IN RESPECT OF SERVICES RENDERED HAS TO BE MEASURED IN TERMS OF TH E INTEREST THAT WOULD HAVE BEEN INCURRED BY THE AE IN THE COUN TRY OF RESIDENCE. IF WE GO BY THE STANDARDS, THE LIBOR RA TE IS MOST APPROPRIATE RATE OF INTEREST IN THE INTERNATIONAL M ARKET AND WHICH IS ACCEPTED BY MOST OF THE COUNTRIES. THEREFORE, I T WOULD BE MOST APPROPRIATE IF THE LIBOR RATE IS APPLIED AS MO ST APPROPRIATE RATE OF INTEREST FOR IMPUTING INTEREST ON DELAY IN RECEIVABLES FROM AE. IN THIS CASE, THE AO HAS IMPU TED NOTIONAL INTEREST BY ADOPTING PLR AS THE BASE RATE. THEREFO RE, WE ARE OF 15 IT(TP)A NO. 5/CHNY/2018 THE CONSIDERED VIEW THE LIBOR + 300 BASIS POINT RAT E IS MOST APPROPRIATE RATE AND HENCE, DIRECT THE AO/TPO TO AD OPT LIBOR + 300 BASIS POINT FOR IMPUTING INTEREST ON OVERDUE RECEIVABLE. AS REGARDS, THE ARGUMENT OF LD.AR FOR ASSESSEE THAT THE TPO HAS NOT GIVEN ANY CREDIT PERIOD, WE FIND THAT IN AN Y TRADE THERE IS A CREDIT PERIOD FOR PAYMENT TO SERVICES OR GOODS . THEREFORE THE AO IS DIRECTED TO ALLOW NORMAL CREDIT PERIOD AL LOWED BY THE ASSESSEE, IF THERE IS ANY AGREED CREDIT PERIOD BETW EEN ASSESSEE AND AE. IF THERE IS NO AGREED CREDIT PERIO D, THEN THE AO IS DIRECTED TO ALLOW STANDARD CREDIT PERIOD THAT THE INDUSTRY IS ALLOWING IN THIS LINE OF BUSINESS. 14. THIS VIEW IS ALSO FURTHER SUPPORTED BY THE DE CISION OF ITAT., DELHI IN THE CASE OF BHARTI AIRTEL SERVICES LTD.,VS. DCIT IN ITA NO.161/DEL/2017, WHERE EVEN BEFORE AMENDMENT TO DEFINITION OF INTERNATIONAL TRANSACTIONS, IT WAS HE LD THAT AE RECEIVABLES CONSTITUTE A SEPARATE INTERNATIONAL TR ANSACTIONS WHICH REQUIRES TO BE BENCHMARKED. THE BENCH FURTHER HELD THAT IN CASE OF RATE OF INTEREST RATE APPLICABLE TO TRA NSACTIONS GIVING RISE TO RECEIVABLES DENOMINATED IN FOREIGN CURRENCY SHOULD BE 16 IT(TP)A NO. 5/CHNY/2018 APPLIED AND IN SUCH CASE, INTERNATIONAL LIBOR RA TE SHOULD BE CONSIDERED FOR THE PURPOSE OF IMPUTING INTEREST . THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY FOLLOWING RATIO LAID DOWN IN THE CASE LAWS DISCUSSE D HEREIN ABOVE, WE ARE OF THE CONSIDERED VIEW THAT AE RECEIV ABLES BEYOND SPECIFIED CREDIT PERIOD CONSTITUTE SEPARATE INTERNATIONAL TRANSACTIONS AND THE SAME NEEDS TO BE BENCHMARKED A ND HENCE THERE IS NO ERROR IN FINDINGS RECORDED BY AO / DRP TO HOLD THAT IT IS AN INTERNATIONAL TRANSACTION. BUT W HEN IT COMES TO RATE AT WHICH SUCH INTEREST IS TO BE IMPUTED, IT IS A WELL SETTLED PRINCIPLE OF LAW THAT INTERNATIONAL LIBOR RATE IS A N APPROPRIATE RATE FOR IMPUTING INTEREST ON AE TRANSACTIONS, BECA USE TRANSACTIONS GIVING RISE TO RECEIVABLES WERE DENOMI NATED IN FOREIGN CURRENCY AND ACCORDINGLY, WE DIRECT AO TO A PPLY LIBOR+300 BPS FOR IMPUTING INTEREST ON AE RECEIVABL ES. ACCORDINGLY, GROUND TAKEN BY ASSESSEE IS PARTLY ALL OWED. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.7 OF APPEAL IS EMPLOYEES CONTRIBUTION TO PF & ESI. THE ASSESSING OFFICER HAS DISALLOWED EMPLOYEES CO NTRIBUTION 17 IT(TP)A NO. 5/CHNY/2018 TOWARDS PF & ESI ON THE GROUND THAT SAME HAS BEEN R EMITTED BEYOND DUE DATE SPECIFIED UNDER RESPECTIVE ACTS. 16. THE LEARNED AR FOR ASSESSEE AT THE TIME OF HE ARING SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. VINAY CEMENTS LTD. REPORTED IN 313 CTR 268 AND ALSO THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M/S.INDUST RIAL SECURITY INTELLIGENCE INDIA PVT. LTD., IN TCA NO.585 & 586 OF 2015 DATED 24.07.2015. 17. THE LEARNED DR, ON THE OTHER HAND, FAIRLY ACCEP TED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT. FURTHER, AS A MATTER OF F ACT, SHE HAS STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER . 18. HAVING HEARD BOTH SIDES AND CONSIDERED MATERIAL S ON RECORD, WE FIND THAT ISSUE OF BELATED PAYMENT OF EM PLOYEES CONTRIBUTION TO PF & ESI IS ALLOWABLE EXPENDITURE U /S.43B OF THE ACT OR NOT IS NO LONGER RES INTEGRA. THE HONBLE S UPREME COURT 18 IT(TP)A NO. 5/CHNY/2018 IN THE CASE OF M/S.VINAY CEMENTS LTD. (SUPRA) AND A LSO IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. REPORTED IN 319 ITR 306 HAS CONSIDERED IDENTICAL ISSUE AND HELD THAT EMPLOY EES CONTRIBUTION TO PF & ESI IS DEDUCTIBLE, EVEN IF SU CH PAYMENT IS REMITTED BEYOND DUE DATE SPECIFIED UNDER RESPECTIV E ACTS, BUT MADE ON OR BEFORE DUE DATE OF FURNISHING RETURN OF INCOME FILED U/S.139(1) OF THE ACT. THE HONBLE MADRAS HIGH COUR T IN THE CASE OF CIT VS .M/S.INDUSTRIAL SECURITY & INTELLIGE NCE INDIA PVT. LTD., (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE AND HELD THAT BELATED PAYMENT OF EMPLOYEES CONTRIBUTION TO PF & E SI IS DEDUCTIBLE, IF SUCH PAYMENT IS MADE ON OR BEFORE D UE DATE OF FILING RETURN OF INCOME U/S.139(1) OF THE ACT. 19. IN THIS VIEW OF THE MATTER AND BY RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASES DISCUSSED HEREIN ABOVE, WE ARE OF THE CONSIDERED VIEW THAT AS SESSING OFFICER AS WELL AS DRP WERE ERRED IN CONFIRMING D ISALLOWANCES TOWARDS EMPLOYEES CONTRIBUTION TO PF & ESI. HENCE, WE DIRECT THE ASSESSING OFFICER TO DELETE ADDITION MADE TOW ARDS DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF & ESI. 19 IT(TP)A NO. 5/CHNY/2018 20. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) ( G.MANJUNATHA ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 10 TH MARCH, 2021 DS *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .