2020 (7) TMI 821 - AT - Income Tax

Appellate Tribunal directs review of outstanding receivables in international transaction

M/s. iQor India Services Pvt. Ltd., Versus. DCIT, Circle-12 (2), New Delhi

M/s. iQor India Services Pvt. Ltd., Versus. DCIT, Circle-12 (2), New Delhi - TMI Issues:1. Treatment of outstanding receivables as an international transaction and adjustment of notional interest.2. Classification of outstanding receivables as a separate international transaction.3. Working capital adjustment under Rule 10B(e)(iii) of the Income Tax Rules, 1962.4. Re-characterization of outstanding receivables as an unsecured loan.5. Consideration of the period of collection of receivables under FEMA.Issue 1:The Appellate Tribunal considered the appeal against the order of the Learned CIT(A) regarding the treatment of outstanding receivables as an international transaction and the adjustment of notional interest. The Tribunal found that the Transfer Pricing Officer treated the receivables as an unsecured loan, applying an arm's-length interest rate. The CIT(A) directed the application of LIBOR rate + 300 bps on the outstanding loan. The Tribunal allowed the appeal partially for statistical purposes, emphasizing the need for further examination by the Assessing Officer/Transfer Pricing Officer.Issue 2:The Tribunal discussed the classification of outstanding receivables as a separate international transaction. The appellant argued that the working capital adjustment made under Rule 10B(e)(iii) of the Income Tax Rules, 1962, subsumed any effect of outstanding receivables. The Tribunal noted that the effect of the working capital adjustment was not considered by the lower authorities. Consequently, the Tribunal decided to restore the issue to the Assessing Officer/Transfer Pricing Officer for proper examination, ensuring the appellant's right to be heard.Issue 3:Regarding the working capital adjustment under Rule 10B(e)(iii) of the Income Tax Rules, 1962, the appellant contended that this adjustment took care of the differences in receivables outstanding period vis-a-vis comparable companies. The Tribunal acknowledged the submission but highlighted that the working capital adjustment's impact was not evaluated by the lower authorities. Therefore, the Tribunal directed the issue to be reconsidered by the Assessing Officer/Transfer Pricing Officer to determine if the adjustment for delayed receivables was subsumed in the working capital adjustment.Issue 4:The re-characterization of outstanding receivables as an unsecured loan advanced by the appellant to its associated enterprise was raised as an issue. The Tribunal did not delve into this matter extensively as the parties agreed to restore the case to the Assessing Officer/Transfer Pricing Officer for further examination. Consequently, this issue was considered infructuous and dismissed.Issue 5:The consideration of the period of collection of receivables under FEMA was also part of the appeal. However, this issue was not specifically addressed by the Tribunal in the judgment provided. It seems that this aspect was not a focal point of the decision, and no detailed analysis or ruling was provided concerning this issue.In conclusion, the Appellate Tribunal partially allowed the appellant's appeal for statistical purposes, directing the Assessing Officer/Transfer Pricing Officer to re-examine the impact of outstanding receivables and working capital adjustment on the international transaction of provision of information technology enabled services. The Tribunal emphasized the appellant's right to a fair hearing and further evaluation of the relevant factors to determine the arm's length nature of the transaction.