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TMI Blog2019 (6) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Global Solutions Pte Ld., Singapore -do- 11,00,12,028 Value Labs Sdn. Bhd Malaysia -do- 4,15,23,227 The following international transaction was reported in Form No. 3CEB or TP documentation: Receivables Rs. 6,09,86,754/- Accordingly, the AO referred the matter to TPO with the prior approval of the Pr. CIT - 2, Hyderabad, to determine the Arm's Length Price. 2.2 The assessee has carried out the economic analysis and has summarized it as under: Nature of international transaction MAM PLI Margin of assessee Margin of comparables Software development services TNMM OP/OC 31.75% 8.17% 2.3 The TPO observed that the assessee has discussed in brief the search procedure adopted by it in search for comparables in TP documentation. The assessee has used Prowess and Capitaline Plus data base in search for comparable companies. After applying certain filters, the assessee has short-listed 17 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal transaction and has to benchmarked in regard to delay beyond the reasonable credit period. 4. Aggrieved by the order of DRP, the assessee is in appeal before us raising three grounds. Ground No. 1 is regarding the AO erred in not passing final assessment order within the prescribed time limit, was not pressed, therefore, the same is dismissed as not pressed. Ground No. 3 regarding initiating penalty proceedings u/s 271(1)(c) rws 271AA and 271BA of the Act. This ground is premature in nature, hence, need no adjudication. 5. As regards ground No. 2 (2.1 to 2.20) regarding addition relating to Arm's length Price adjustment of Rs. 8,47,788/- towards interest on receivables from AEs, the ld. AR of the assessee filed written submissions, which are as under: "It is submitted that the assessee does not have any borrowed funds and have not paid any interest cost during the year under consideration. In support of the same your kind reference is inverted at page no. 140 of the paper book filed. Hence, it is submitted that as there being no borrowed funds, there is no interest cost to the assessee. And all the finance cost is nothing but the bank charges and Interest on TDS. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi ITAT in case of Motherson Sumi Infotech & Designs Ltd, (91 Taxmann.com 443) * No ALP adjustment is required if notional interest is factored We would like to submit that allowing of extended credit period to the associated enterprises is otherwise closely linked to the determination of sale price, which in-turn is the basis to arrive at the margins of the assessee. And if the reduced margin of assessee, after factoring in the notional interest calculated with respect to the overdue receivables from associated enterprises, is more than the average margin of the comparables no further adjustment is required to be made. a. Operating Cost (excluding depreciation in page 6 of TP order) 23,62,58,270 b. Adjustment proposed (paged 11 of TP order) Rs. 8,47,788 c. Adjustment as percentage of operating cost (b*100/a) 03.6% d. Margin of the tax payer (as per TPO not considering depreciation as part of operating cost - (page 6 of TP order) 76.07% e. Margin (d.) as reduced by (c.) 75.71% 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidelines 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 Limited Vs. DCIT (ITA No. 602/Hyd/2017) * No interest can be charged on receivables when debtor days of the assessee company are less than that of the comparable companies Without prejudice to all the above submissions, we would like submit that when the average collection period of the assessee i.e., 64 days is less than industrial average in which assessee is operating of 72 days. Details of debtor days computation is as under: Value Labs Technologies ITA 1921/Hyd/2018 AY 2014-15 S.No. Name of the comparable company Sales Average Debtors Debtor days 1 SQS INDIA BFSI LTD 2,00,60,78,494 38,74,81,785 71 TATA ELXSI LTD (Seg) 6,82,70,22,000 1,55,57,74,000 83 MINDTREE LTD 3,04,34,00,000 60,04,00,000 72 RS SOFTWARE (INDIA) LTD 3,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, the coordinate bench observed as under: "13. Considered the rival submissions and perused the material on record. We have considered the case law, relied on by assessee and noticed that these decisions are relating to assessment years involving prior to amendments made in Finance Act, 2012 in Section 92B. these ratios are relevant for those assessment years prior to amendment. Coming to the case on hand, this is for AY. 2013-14 the year in which the amendment come into force. Therefore, this is applicable from AY. 2013-14 onwards. 13.1 As the definition of Section 92B is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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