Tribunal remits order on interest, stresses benchmarking & contractual terms in international transactions.

The Tribunal set aside the DRP's order on interest on receivables, remitting the matter for a fresh decision considering the 90-day credit period and proper benchmarking. The appeal was partly allowed, emphasizing accurate benchmarking and contractual terms' significance in determining the ALP for international transactions involving interest on receivables.

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Issues Involved:
1. Calculation of interest on delayed receivables.
2. Whether interest on receivables is a separate international transaction requiring benchmarking.
3. Correctness of the credit period considered by the DRP.

Issue-wise Detailed Analysis:

1. Calculation of Interest on Delayed Receivables:
The primary issue raised by the assessee pertains to the calculation of interest on delayed receivables. The assessee, engaged in providing IT-enabled services to its Associate Enterprises (AEs), adopted the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with the Operating Profit to Operating Cost ratio as the Profit Level Indicator (PLI). During the Transfer Pricing (TP) proceedings, the Transfer Pricing Officer (TPO) rejected the assessee's comparables and made a TP adjustment of Rs.17,28,28,717, also calculating interest on outstanding receivables at Rs.7,62,860. The Dispute Resolution Panel (DRP) later upheld the adjustment but reduced the credit period from 90 days to 30 days, enhancing the interest to Rs.1,00,78,319.

2. Whether Interest on Receivables is a Separate International Transaction Requiring Benchmarking:
The Tribunal considered whether interest on receivables constitutes a separate international transaction. The TPO treated the outstanding receivables as loans and calculated interest using the Comparable Uncontrolled Price (CUP) method, referencing the RBI Master Circular on External Commercial Borrowing (ECB). The Tribunal referred to the decision in the case of Applied Materials India Pvt. Ltd. and Swiss Re Global Business Solutions India Pvt. Ltd., which held that deferred receivables are an independent international transaction that must be benchmarked separately. The Tribunal affirmed that interest on receivables is rightly considered a separate international transaction by the TPO and DRP.

3. Correctness of the Credit Period Considered by the DRP:
The Tribunal addressed the correctness of the 30-day credit period considered by the DRP. It was noted that the assessee had an original agreement with its AE providing a 90-day credit period, which was not considered by the DRP. The Tribunal cited the case of Barracuda Networks India Pvt. Ltd., emphasizing the need for proper benchmarking and consideration of the actual credit period agreed upon between the assessee and its AE. The Tribunal directed the TPO to reconsider the 90-day credit period while determining the Arm's Length Price (ALP) afresh, after providing the assessee a reasonable opportunity to present relevant details.

Conclusion:
The Tribunal set aside the DRP's order on the issue of interest on receivables and remitted the matter back to the AO/TPO for a fresh decision, considering the 90-day credit period and appropriate benchmarking. The appeal by the assessee was partly allowed. The judgment underscores the importance of accurate benchmarking and consideration of contractual terms in determining the ALP for international transactions involving interest on receivables.

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