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TMI Blog2022 (11) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... rest cost adjusted rate charged by the third-party vendors to the AE and thus no further adjustment, as made by TPO/AO and upheld by the learned DRP, is warranted. Accordingly, we direct the TPO/AO to delete the adjustment on account of outstanding receivables in respect of provision of medical transcription services. The transaction pertaining to provision of IT and IT enabled services was benchmarked by the assessee by adopting TNMM and margin of the assessee was found to be at arm s length vis- -vis working capital adjusted margins of the comparables. From the record, it is evident that the TPO has also, inter-alia, accepted the benchmarking analysis conducted by the assessee in respect of transaction pertaining to provision of IT and IT enabled services. The plea of the assessee is that aforesaid benchmarking has already considered the impact of delayed receivables and thus no further adjustment on account of outstanding receivables is required. Thus, respectfully following the aforesaid decision of Hon ble Delhi High Court in Kusum Healthcare (P) Ltd. [ 2017 (4) TMI 1254 - DELHI HIGH COURT] we find no merit in the adjustment made by the TPO/AO on account of outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rranted on account of delay in realization of trade receivables as: a. Once interest cost adjustment was made on comparable data for provision of Medical Transcription (MT) services, the Assessee's transactions were yet at arm's length. b. Once working capital adjustment was made on comparable date for provision of IT and IT enabled services (IT ITeS), the Assessee's transactions were yet at arm's length. 5. Without prejudice, on the facts and circumstances of the case and in law, the learned TPO / the learned AQ under directions of the Hon'ble DRP erred in adopting average 6 months USD LIBOR + 450 Basis Points ( BPS ) for calculating the interest on outstanding receivables. 3. Ground No. 1, raised in present appeal, was not pressed during the course of hearing. Accordingly, the same is dismissed as not pressed. 4. The issue arising in grounds No. 2 5, raised in assessee s appeal, is pertaining to transfer pricing adjustment on account of outstanding receivables from its associated enterprise ( AE ). 5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in provision of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rithmetic mean of weighted adjusted net cost plus markup of 10.44%, with 35th and 65th percentile range between 7.40% to 9.47% and median of 8.31%. As the assessee has net cost plus margin of 19.62%, accordingly, it claimed the transaction pertaining to provision of IT and IT enabled services to be at ALP. 8. The Assessing Officer ( AO ) made reference to Transfer Pricing Officer ( TPO ) for determination of ALP of the aforesaid international transactions. The TPO vide order dated 20/01/2021 passed under section 92CA(3) of the Act accepted the benchmarking analysis conducted by the assessee in respect of international transaction pertaining to provision of medical transcription services and provision of IT and ITeS. However, the TPO noticed that the assessee has outstanding receivables from its AE which is pending for more than 45 days (i.e. the credit period as per the agreement). Accordingly, assessee was asked to show cause as to why interest be not computed regarding trade receivables due as on 31/03/2017 from AE, which are pending for more than 45 days. In reply, assessee submitted that outstanding receivables represent a consequence of international transactions undertaken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is transaction was benchmarking considering the working capital adjusted margins of the comparable companies and assessee was found to be at arm s length, therefore, impact of delayed receivables has already been factored in, requiring no further adjustment on account of outstanding receivables. 11. On the other hand learned Departmental Representative vehemently relied upon the orders passed by the lower authorities. 12. We have considered the rival submissions and perused the material available on record. In the present case, it is undisputed that international transactions undertaken by the assessee viz. provision of medical transcription services and provision of IT and IT enabled services are at arm s length as per the benchmarking analysis conducted by the assessee. The TPO proposed the impugned adjustment by calculating interest in respect of trade receivables outstanding from the AE. In this regard, the TPO considered 90 days as the credit period beyond which interest was calculated by applying average 6 months USD LIBOR plus 450 basis points. As per the assessee, outstanding receivables are pertaining to provision of medical transcription services and provision of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng has already considered the impact of delayed receivables and thus no further adjustment on account of outstanding receivables is required. In this regard, we find that Hon ble Delhi High Court in PCIT vs Kusum Healthcare (P) Ltd., (2017) 398 ITR 66 (Delhi) observed as under: With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding 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] 209 Taxman 200/345 ITR 241/345 ITR 241(Delhi). 14. Thus, respectfully following the aforesaid decision of Hon ble Delhi High Court in Kusum Healthcare (P) Ltd. (supra), we find no merit in the adjustment made by the TPO/AO on account of outstanding receivables in respect of transaction pertaining to provision of IT and IT enabled services, when margin of assessee was found to be at arm s length vis- -vis working capital adjusted margin of comparables. Accordingly, we direct the TPO/AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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