TMI Blog2023 (4) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... ew Delhi, dated 29.03.2021 passed u/s143(3) for the Assessment Year 2017-18 pursuant to direction of Dispute Resolution Panel(in short the DRP ) u/s 144(13) of the Act. 2. The grounds of appeal read as under:- 1. That on the facts and circumstances of the case and in law, the order passed by the Ld. AO under Section 143(3) read with section 144C(13) read with section 144B of the Act is bad in law and liable to be quashed to the extent it confirms the additions/disallowances made in the assessment order. 2. That the Ld. AO/Ld.TPO/ Ld. DRP erred in enhancing the income of the Appellant by INR 78,42,899/- considering debit balance of receivables from Associated Enterprise ( AE ) as a separate international transaction that do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ( the Act ) In doing so, the Ld. AO/Ld. TPO/ Ld. DRP have grossly erred in: 2.1. re-characterizing overdue receivable amount as a deemed loan and treating it as a separate international transaction; 2.2. not appreciating that working capital adjustment appropriately takes into account the arm's length determination of outstanding receivable. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the return of income and this position was also brought to the notice to the Ld. AO; 4.2. INR 90,92,490 disallowed under section 36(1) (va) of the Act, relating to employees' contribution to provident fund which was duly paid before the extended due date prescribed vide notification number WSU/9(1)2013/Settlement of Claims/26308 dated 12 January 2017. 5. That the Ld. AO has erred in charging interest under section 234B and 234C of the Act. Even otherwise, the interest charged is excessive. 6. That the Ld. AO also erred in proposing to initiate penalty proceedings under section 270A of the Act mechanically on the additions made. 3. At the outset, the Ld. Counsel for the assessee contended that he will be pressing only ground no.2.2 of the above, which is relating to Transfer pricing adjustment with respect to arm s length price determination of outstanding receivables. Hence, other grounds are dismissed as not pressed. 4. Brief facts of the case are that Kronos Solutions India Private Limited Company, incorporated on 5th December 2006, as a subsidiary of Kronos Inc. It is classified as non-govt company and is registered at Registrar of Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by Appellant to its AEs. The Appellant's contentions before the Hon'ble ITAT are as follows: The Appellant humbly submits that the arm's length price determination for the said consequential receivables is subsumed within the arm's length price determination of the principal international transaction itself and therefore no separate arm's length price determination is required once the principal international transactions are tested. In this regard, it is submitted that the Ld. DRP has provided working capital adjustment in its directions (refer page 23 of appeal set for Ld. DRP's direction of AY 2017-18 and page 155 156 of paperbook for La. DRP's direction of AY 2016-17). The Appellant submits that working capital adjustment takes into account the impact of outstanding receivables on the profitability. Since working capital adjustment is provided by the Ld. DR itself, no separate adjustment is warranted on account of outstanding receivables. In this regard, the Hon'ble Tribunal's kind attention is drawn to the order passed by the Ld. TPO to give effect to the directions passed by the Ld. DR wherein it is amply evident tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vables on the working capital and thereby on its pricing/profitability vis-@-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012)345 ITR 241 (Delhi). (Emphasis supplied) Further, Hon'ble Delhi ITAT, in case of GE India Business Services Pvt Ltd ITA 283/Del/20221 also placed reliance on the Delhi High Court Judgement in case of Kusum Healthcare (Supra) has held the following: 10. The Grounds of appeal No. 5 to 5.4 are in respect of working capital adjustment. The Ld. AR submitted that allowing working capital adjustment which has been already allowed by the Hon'ble DRP demonstrates that differential impact of working capital of the assessee vis-avis its comparable has already been factored in the price/profitability of assessee which is in line with Arm's Length principle when compared to comparable companies. Therefore, any further adjustment to the income of the assessee on the pretext of outstanding receivables is unwarranted to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r while benchmarking international transaction qua IT and ITES segments have been held to be at arm's length, then there is no need to impute the interest on outstanding receivables from associated enterprises (AF). 10. So in view of what has been discussed above, we are of the considered view that addition made by TPO/DRP on account of interest on outstanding receivable from AE is not sustainable, hence, order to be deleted. [Emphasis Supplied) In addition, the Appellant would further like to rely upon the recent ruling of Hon'ble Delhi ITAT in the case of Bharti Airtel Services Limited [ITA 161/Del/2017), wherein the Hon'ble Bench has placed reliance on the Delhi High Court Judgement in case of Kusum Healthcare (Supra) and has ruled that since working capital adjustment is already factored in the profitability, separate adjustment on account of receivables is not warranted. The relevant extract from the order has been reproduced below: 9.....The decision of the honourable Delhi High Court in ITA number 765/2016 dated 24th appeal 2017 in case of Kusum healthcare private limited (supra), para number eight clearly shows that assessee has underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 11.05.2017. 9. Upon careful consideration, we note that we are under the jurisdiction of Hon ble Delhi High Court. The ITAT in several recent decisions has found that the decision of Hon ble Delhi High Court in the case of Pr. CIT vs Kusum Health Care (P.) Ltd. [2018] 99 taxmann.com 431 (Del.) continuous to be a binding precedent. We may gainfully refer to the decision of Delhi ITAT, in the case of Orange Business Services India Solutions Pvt Ltd ITA 252/Del/2022] which also placed reliance on the Delhi High Court Judgement in the case of Kusum Healthcare (Supra) has held the following: 19. In view of the aforesaid sequence of events, it would be noted that the decision of Hon'ble Delhi High Court in the case of Kusum Healthcare is still the binding precedent on the issue of interest on outstanding receivables. Needless to mention that the law laid down by the Hon'ble High Court in the case of Kusum Healthcare was followed by the ITAT in case of Global Logic India Lid. for the assessment year 2010-11 (ITA No. 1104/Del/2015), A. Y. 2012-13 (ITA No.1115/Del/2017), A. Y. 2013-14 /ITA No. 7621/Del/2017), A. Y. 2015-16 /ITA No. 8726/Del/20191 and A. Y. 2016-17 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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