TaxTMI 
TaxTMI 
2019 (10) TMI 1589
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.... Delhi ("TPO") in his order passed under section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Commissioner of Income Tax (Appeals) ["CIT(A)"] Each of the ground is referred to separately, which may kindly be considered independent of each other. That, on the facts and circumstances of the case and in law: A. GROUND RELATING TO TRANSFER PRICING MATTERS 1. The learned TPO / AO / CIT(A) have erred in making an addition of INR 362,547 to the total income of the Appellant on account of notional interest on inter-company receivables arising from provision of IT support services by the Appellant to its associated enterprises (" AEs") 2. The learned TPO / AO / CIT(A) have erred in not accepting the economic analysis undertaken by the Appellant in accordance with provisions of the Act read with the Income-tax Rules, 1962 ("the Rules") and modifying the same for determination of arm's length price ("ALP") of the intercompany transaction to hold that the same is not at arm's length. 3. The learned TPO / AO / CIT(A) have erred in holding inter-company receivables arising from provision of IT support services to constitute an international transaction ....
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....s. McKinsey Knowledge Centre India Pvt. Ltd., the taxpayer established in February 1999 to provide research and information services to McKinsey for assistance in their projects. During the year under assessment, the taxpayer has referred data analytics, competitor intelligence and admin for costing and domain specific unrelated to a party, which falls under the definition of Information Technology Support Services (ITSS). 3. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AE) as under :- S.No. International Transaction Amount (in Rs.) 1 Provision of research and information services 1,32,49,81,602 2 Provision of Information Technology Support Services 6,61,02,361 3 Provision of Research and Information Services 25,61,93,674 4. Ld. TPO agreeing with the transfer pricing study relied upon by the taxpayer found international transactions qua ITES segment services at arm's length and has drawn no adverse inference. However, ld. TPO disputed the issues as to receivables and calculated the interest in the light of the service agreement, wherein the agreed period of payment of invoice is....
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....a) shows that the issue as to making transfer pricing adjustment on account of outstanding receivables arising out of international transactions qua research and information and ITSS has been squarely dealt with and decided in favour of the assessee, the operative part of which is expected for ready perusal as under:- "5.7 We have heard the rival submission of the parties and perused the relevant material on record. The Tribunal in the case of Pegasystems Worldwide India (P) Ltd Vs ACIT (supra) has held as in case of a debt free company, there is no requirement for making transfer pricing adjustment on account of the interest on outstanding receivables. The relevant finding of the Tribunal is reproduced as under: "17.2. Ld. Counsel submitted that the issue of charging of interest beyond the period was not adjudicated and DRP reduced the rate of interest from 12% LIBOR plus 2.5 points. It was submitted that Assessee was a debt free company, AE takes care of funding, no interest was charged and there is no liability of interest and therefore, notional interest income cannot be brought to tax. Assessee relied on the principles laid down by Co-ordinate Bench at Mumbai in the case ....
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.... otherwise, as rightly held by the Logix Micro Systems Ltd v. ACIT [42 SOT 525] (supra), TPO should have allowed some interest free period for receiving the outstanding service charges. While acknowledging the order of the ITAT, TPO did not even bother to exclude the reasonable period and levied interest not only from the date of invoice to the date of realization during the year but also for the period beyond 31-03-2010 in later year. We were informed that no such addition was made in the later year on Assessee's receivables. We are of the opinion that both on the facts of the case and principles of law, there is no need for bringing to tax the notional interest on the outstanding receivables. Accordingly, we allow the grounds 7 & 8 of Assessee and direct AO/TPO to delete the said addition made." 5.8 We have verified the balance sheet of the assessee available on page 134 of the paper book along with notes on page 143 of the paper book and we find that the assessee has not borrowed any fund for its business activity and, thus, it being a debt free company, the ratio of the decision of the Tribunal in the case of Pegasystems Worldwide India (P) Ltd Vs ACIT (supra) is squarel....