TaxTMI 
TaxTMI 
2023 (4) TMI 1153
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....99/- 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. Accordingly, the Ld. AO/ Ld. TPO/ Ld. DR erred in not appreciating that outstanding receivables does not require a separate determination of arm's length standard; 2.3. not appreciating that once the primary transactions are held to be at arm's length price, then the intercompany receivables arising therefrom (being consequential and closely linked to the primary transaction) also conform to the arm's length principle. Accordingly, the Ld. AO/ Ld. TPO/ Ld. DRP have grossly erred in not appreciating the fact that arm's length price determination for outstanding receivables is subsumed within....
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....te 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 Companies Delhi. It is engaged in providing software services/solutions, provision of back-office support services, which involves application support services, technical service and hosting support. In the case of the assessee, through the current assessment year, the TPO made transfer pricing adjustment with respect to software development services rendered by the assessee. In addition, an adjustment on account of delay in collection of receivables has also been made. The summary of transfer pricing adjustments made as under:- S. No. Nature of International transactions ....
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....tment 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 that the principal international transaction of provision of software development services taking into account working capital adjustment has been undertaken on arm's length basis. Thus, the adjustment proposed in draft assessment order with respect to software development services has been deleted (please refer page 172 and 173 of paperbook for order passed by the Ld. TO for giving effect to the Ld. DRP's directions). Consequently, it is submitted that the consequential receivables arising out of principal international transaction of provision of software development services too satisfies arm's length standard and thus separate arm's length determination is not required. In this context, the Appellant places reliance on: * Hon'ble ITAT ruling in the case of Kusum Healthcare Pvt. Ltd (ITA No. 6814/Del/2014) which is also affirmed by the Hon'....
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.... 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 substantiate the contention. The Ld. AR has relied on the decision of Hon'ble High Court in the case of Kusum Healthcare Pvt. Ltd. in ITA No. 6814/Del/2014 wherein it is held as follows:- "11.... With the Appellant 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 By respectfully following the above ratio, we also of the view that, once the impact of receivable on working capital is evaluated and the consequent profitability/pricing is compared vis-a-vis the draft comparables, there is no requirement of any further adjustment. [Emphasis Supplied) * Further, Hon'ble Delhi ITAT....
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....tability, 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 undertaken working capital adjustment for the comparable companies selected in its transfer pricing report which has not been disputed by the learned transfer pricing officer and therefore the differential impact of working capital of the assessee vis-àvis is comparable had already been factored in pricing profitability and therefore the honourable High Court held that adjustment proposed by the learned TPO deleted by the ITAT is proper. In the present case there is no working capital adjustment made by the assessee as well as granted by the learned TPO. The facts in the present case are distinguishable. Further same are the facts in case of Bechtel India where working capital adjustment was already granted." [Emphasis Supplied] * Furthermore, it is noteworthy that in Bechtel India Pvt. Ltd., the Delhi High Court ....
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....t 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 JITA No. 868/Del/2021). Hence, keeping in view, the established position, we hereby deleted the addition made by the Assessing Officer. 10. We find that the ITAT in the above order has duly considered the issue and has found that Kusum Health Care (P) Ltd. rendered by the Hon'ble Delhi High Court still continues to hold the field as precedent. In fact, Hon'ble Delhi High Court in the said case has observed 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 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. There may b....