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TMI Blog2023 (9) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has dismissed this plea of the assessee relying on the decision of Ameriprise India P. Ld. [ 2015 (8) TMI 652 - ITAT DELHI] which as we have noted above, has been held to be not good law by the Hon ble Delhi High Court in its consistent decision in Kusum Health P. Ltd. (supra) and Mckinsey Knowledge Centre P. Ltd. [ 2018 (8) TMI 592 - DELHI HIGH COURT] In the facts and circumstances of the present case, as we have noted above, since the assessee has demonstrated that its profit margin calculated after working capital adjustment are within 5% range as compared to adjusted profits of the comparables, we hold that adjustment made on account of interest on outstanding receivables is unwarranted and unjustified. The same is, therefore, directed to be deleted. X X X X Extracts X X X X X X X X Extracts X X X X ..... t period allowed to outstanding receivables of associate enterprise (AE) amounting to Rs. 40,93,878/-. The grounds raised with respect to the said addition are in Ground No. 1-1.4. 5. The facts relating to the issue are that the assessee is engaged in the business of providing call centre services and business process outsourcing (BPO) services i.e. IT enabled services. During the impugned year, the assessee had international transactions with its Associate Enterprises (AEs) as under: Name of AE Nature of Transactions Value of International Transactions (Rs.) Etech Inc. USA Provision for call business process services centre and outsourcing 7,85,69,615/- Etech Global Services LLC USA Provision for call business process services centre and outsourcing 12,45,73,956/- Etech Global Services LLC USA Reimbursement of charges broad band 1,83,40,275/- 6. From the perusal of the invoices raised by the assessee on its AE the Transfer Pricing Officer( TPO) noted that there was an excess delay beyond the credit period extended by the assessee in relation to payment made by the AE of the sale invoices. In 23 invoices, the TPO noted delay varying between 185 days to 366 days as at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble High Court in Kusum Health care (supra, the ITAT in several decisions had deleted identical adjustments made on account of interest on delayed outstanding receivables. The basis and reasoning leading to the deletion being that the assessees having demonstrated transactions with AE's to be at arms length bench marking the transactions adopting the Transactional Net Margin Method (TNMM), calculating the margins of comparables by making working capital adjustment, the said adjustment takes care of delays in recoveries and payments of outstanding receivables and payables and therefore no further adjustment of interest is warranted on account of excessive credit period of outstanding receivables. Reliance was placed on the following case laws, copies of which were also placed before us. i) Rockwell Automation India P. Ltd. Vs. ACIT, ITA No. 6806/Del/2018 dated 5.5.2022; ii) Ameriprise India P. Ltd. Vs. ACIT, 62 taxmann.com 237 (Delhi-Trib.) iii) Order passed by Delhi High Court in IT APPEAL No. 765 QF 2016 in case of Kusum Health Care (P.) Ltd. vs Principal Commissioner of Income-tax. iv) Order passed by Income Tax Appellate Tribunal in IT Appeal No. 6814 (DELHI) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable with that of the adjusted margins of comparables after working capital adjustment. 12. Our attention was drawn first to the decision of Hon'ble Delhi High Court in the case of ACIT vs. Kusum Healthcare P. Ltd. (2018) 99 taxmann.com 431 (Delhi) holding so at para 10 of its order as under: "10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign associated enterprises would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the services rendered to AE as against the un-adjusted margin of 6.82% and working capital adjustment of 4.78% earned by the comparables. The sole adjustment proposed by the TPO is with regard to the outstanding receivables on the delayed payment beyond 15 days from its AE holding it to be in the nature of un-secured loan and thereby proposing adjustment of Rs. 46,07,661/- for assessment year 2012-13, wherein the Assessing Officer has taken SBI PLR rate of 12.60%; whereas in assessment year 2013-14 the Assessing Officer has made adjustment of Rs. 23,98,532/- by taking average LIBOR rate plus 400 basis point which was arrived at 4.37% treating it to be separate international transaction. It is also an un-disputed fact that before the authorities below the assessee had submitted the working capital adjustment vis-à-vis the comparable companies before the TPO / AO which if factored into then no adjustment on account of receivables form AE is required. This working capital adjustment has not been accepted. Now it is well settled law by the judgement of Hon'ble jurisdictional High Court in the case of Pr. CIT Vs. Kusum Healthcare Private Limited (2017) TII 28 HC (Del.) in ITA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differential impact of working capital of the Assessee vis-à-vis the comparables stands already factored in the pricing/profitability, which herein this appears to have been done and it has been stated that the 7 working capital adjusted margin of the comparables is around 4% whereas assessee's margin is around 9% and thus, no further adjustment is required. Before the Assessing Officer the assessee has up-dated the comparable companies and has filed the working capital adjustment margin which was in response to the show cause notice. From the perusal of the working it is seen that, in assessment year 2012-13 the working capital adjusted on the comparable company was arrived at 4.50% of net profit operating margin as against the net operating margin earned by the assessee at 9.36% and in the assessment year 2013-14, the working capital adjustment of the comparable companies was arrived at 4.02%, whereas the net operating margin earned by the assessee was at 9% which is much higher than adjusted margin earned by the comparable companies. Though we find that in the assessment year 2011-12 the Tribunal has confirmed the said adjustment due to lack of any such computation filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a- 15 of its order that the decision of Hon'ble Delhi High Court in the case of Kusum Health P. Ltd. (supra) was still binding precedent on the issue of interest on outstanding receivables. The relevant portion of the order of the ITAT is as under: "5. At the outset the ld. AR taken up the Ground No. 3 pertaining to interest on outstanding inter-company receivables. 6. The TPO estimated the delay on estimated average of outstanding receivables of 6 months and calculated interest for 182 days @ 4.31% (LIBOR + 400 basic points). The ld. DRP following the order for the A.Y. 2013-14 directed the TPO to make adjustment on net receivables only after netting the payables entry wise. The assessee before us submitted that the receivables and payables are intricately linked to the transactions of import of capital assets components and export of finished goods and provision of services and hence cannot be bench marked separately. It was also argued that the company had more of net payables with its AEs at the end of the year and yearly net closing balances are as under: S. No Name of the AE Relationship with AE Receivable Balance (A) Payable Balance (B) Difference Amount (A-B) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transaction of interest on receivables from AEs. The Delhi Tribunal in the case of McKinsey Knowledge Centre Pvt. Ltd. Vs. DCIT [ITA No. 154/Del/2016] (order dated 15.12.2016) followed their finding in the case of Ameriprise India (supra). 11. In the meanwhile the Hon'ble Delhi High Court vide order dated 25.04.2017 in the case of Kusum Healthcare dismissed the appeal of the revenue against the decision of Hon'ble Tribunal and that (i) The inclusion in the Explanation to Section 92B of the Act of the expression "receivables" does not mean that de hors the context every item of "receivables" appearing in the accounts of an entity which may have dealings with foreign AEs would automatically be characterized as an international transaction and (ii) 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-characterized the transaction. 12. In the appeal filed by the assessee in the case of Mckinsey Knowledge the Hon'ble High Court vide order dated 07.02. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Kusum Healthcare was followed by the Co-ordinate Benches of the ITAT. There is complete uniformity in the act of the assessee in not charging interest from both the AE and Non AE debtors and the delay in realization of the export proceeds in both the cases is same. Reliance is being placed on the decision of Hon'ble Bombay High Court in the case of CIT-9 vs. M/s. Indo American Jewellery Ltd. in ITA (L) No. 1053 of 2012 order dated 08.01.2013. Keeping in view the various judicial pronouncements and the facts of the case that neither interest has been charged nor paid we hereby allow the appeal of the assessee on this ground. 16. In the result the appeal of the assessee is allowed." Therefore, what can be derived from the above is that in view of Hon'ble Delhi High Court decision in the case of Kusum Health P. Ltd. (supra) and subsequent decisions of the ITAT following the decision of the Hon'ble High Court, the position of law on the issue is that where working capital adjustment takes into account the impact of outstanding receivables no further adjustment is required of interest on outstanding receivables of AE's beyond the agreed credit period if the margin o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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