×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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12-06-2019, Value Labs Technologies, Section 92(3), 10A, Tribunal Hyderabad
This appeal of the assessee is directed against the order passed u/s 143(3) rws 92CA(3) & 144C(13) of the Income-tax Act, 1961 (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 Rs. 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 Rs. 41,52,68,595/-.
2.1 As per Form No. 3CEB report/TP document, the international transactions reflected are as under:
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.
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 comparables to benchmark the software development services transaction with arithmetic mean PLI (OP/OC) computed at 8.17% as against the PLI of the assessee at 31.75%. Accordingly, it was stated that the software development service transactions are at arm’s length.
2.4 As per the audited statement of accounts, the financials of the assessee are as under:
2.5 As regards software development services, 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 Rs. 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 retrospective effect from 1-4- 2002 specifically mentions receivables as International transaction.
The TPO after discussing the issue elaborately with various case law, considered the SBI term deposit rates as appropriate CUP to determine ALP of ‘outstanding receivables, computed the interest on whole amount of outstanding and determined the arm’s length price at Rs. 8,47,788/- as adjustment u/s 92CA as outstanding receivables.
3. When the assessee filed objections against the order of TPO before the DRP, the DRP rejecting the submissions of the assessee,upheld the adjustment proposed by the TPO by observing that deferred receivables would constitute international 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, it would be unjustified and against the general business practices to charge interest on delayed payments. In support of the same reliance is placed on the decision of Supreme Court in the case of Bechtel India Pvt. Ltd
Further, we place reliance on the ruling of CIT vs Vegetable Products Ltd., 88 ITR 192 (SC), wherein it was held that, in case of two views, view favourable to the assessee must be followed