TMI Blog2019 (6) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... (in short the Act ), dated 31/08/2018, for the AY 2014-15. 2. Brief facts of the case are, assessee firm, engaged in the business of software development services and filed its return of income for the AY 2014-15, by declaring an income of ₹ 11,82,640/- on 28th November, 2014. Subsequently, the case was selected for scrutiny under CASS and a notice u/s 143(2) of the Act was issued to the assessee. As per the information in Form 3CEB of the Audit report, the assessee had entered into international transactions, during the FY 2013-14, with its Associated Enterprises amounting to ₹ 41,52,68,595/-. 2.1 As per Form No. 3CEB report/TP document, the international transactions reflected are as under: AE Nature of transaction Amount (Rs.) Value Labs Inc. USA Provision of software development service 7,51,20,966 Value Labs FZ LLC Dubai -do 1,88,612,374 Value Labs Globa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO observed that the margin of the assessee is higher than the average margin of the comparables and thus, the price received by the assessee is beyond the ALP, therefore, in view of the provisions of section 92(3), no adjustment is proposed. 2.6 As regards interest on delayed trade receivables, the TPO observed from Notes to Audited financial statements for the year that an amount of ₹ 6,09,86,754/- of trade receivables are outstanding from related parties. Therefore, the TPO asked the assessee to furnish the details of outstanding receivables like date on which invoice is raised, amount, date of actual receipt, amount received, credit period allowed, amount outstanding etc. Further, Assessee company was asked to explain why interest should not be levied on outstanding receivables as it is an International Transaction u/s 92B of IT Act. In response to the same assessee furnished party wise break up of 'outstanding receivables' from Associated Enterprises. 2.7 The TPO rejected the arguments of assessee that receivables is not a separate International transaction as clause (c) to Explanation 92 B inserted by finance Act 2012 with retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No interest can be charged on receivables when the Principle transaction is at Arm's Length In this connection, we would like to submit that the assessee has applied TNMM method as most appropriate method (MAM) to benchmark the transaction entered during the year under consideration. At this juncture, it is very pertinent to note that TNMM takes into consideration the net margin level of entity as MAM. The net margin takes care about all such cost like notional interest on receivables i.e., interest income if any forgone by the assessee on account of late payment received from the associated enterprise. Therefore, once the TNMM was accepted as MAM and principle transaction was said to be Arm's Length. Then no such adjustment was required to be made on receivables. In support of the same, reliance is placed on the decision of Hon'ble ITAT, Ahmedabad in the case of Bisazza India (P.) Ltd Vs. DCIT (97 taxmann.com 432). No interest has been charged for the receivables from AE and Non AE's The AO /TPO ought to have appreciated the fact that the assessee is following a policy of not charging int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. Margin of the comparables (as per TP study in page 197 of paper book 8.17% G Margin of the comparables (As per TP SCN Page 222-223 of paper book 36.87% The margin of companies (comparables selected by TPO) considered above are as mentioned in TP Show cause notice dated 25.10.2017, wherein the margin of comparables selected by TPO are at 35.44% in Page 223 of paper book (considering depreciation in operating cost). After issue of SCN, the TPO in Page 5 of TP order, accepted the assessee contention to compute the operating margin of assessee and comparables before depreciation is as under: S NO NAME OF COMPANY OP/OC (in %) [After Depreciation) OP/OC (in %) (before depreciation) 1 SQS INDIA BFSI LTD 22.25 26.60 2 TATA ELXSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No interest can be charged on receivables when the assessee is not paying any interest on trade payables or advances from customers. In this connection, we would like to submit that, when assessee is not paying any interest on outstanding payables; it is not justified to charge interest on the outstanding receivables. In this regard, reliance is placed on the Honble Hyderabad ITAT tribunal ruling in case of Hackett Group India Limited, ITA No. 2039/Hyd/2017 No interest can be charged on receivables when the assessee has received amounts within a reasonable period of time. Without prejudice to the above submissions, we would like to submit that though an adjustment is warranted, a credit period as per the RBI guidelines issued in respect of the realization from foreign proceedings are to be considered. Further, the receivables of the assessee were not due for more than 180 days from the date of sale and even Section 10A of the Act itself allows 180 days as reasonable period of credit. In support of the same reliance is placed on the decision of Hon ble ITAT Hyderabad in the case of GSS Infotech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,46,45,00,000 73,36,00,000 60 PERSISTENT SYSTEMS LTD 1,18,51,17,000 30,28,17,000 93 INFOBEANS TECHNOLOGIES LTD 33,01,56,390 2,90,04,976 32 ICRA TECHNO ANALYTICS LTD 28,56,46,000 10,09,85,000 129 THIRDWARE SOLUTIONS LTD 2,06,75,74,000 21,78,66,000 38 Average comparables debtors days 72 Value Labs Technologies 41,59,87,946 7,25,85,953 In view of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amended to bring in the nature of financing by way of allowing the AEs to retain the trade receivables beyond reasonable period. In our view, the outstanding trade receivables beyond reasonable period will come under international transactions as per Amended Section 92B. Accordingly, the assessee as well as TPO have to determine what is the reasonable period of outstanding which they can allow to the AEs. It may be as per the bilateral agreement or trade practice in the industry or historical average collection period of the assessee or reference can be drawn from statutory limits fixed by the legislature in the similar enactment. 13.2 Therefore, we direct the TPO to determine the industry average or average of collection period adopted by the comparable companies selected for the TP study and calculate average collection period of the assessee during this assessment year. Further, we notice that TPO has selected only 9 transactions which have crossed one month to determine the adjustment of TP whereas assessee has transacted total 31 transactions during this year. TPO has to calculate the average collection period for this year. Whether the average collection pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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