TaxTMI 
TaxTMI 
2026 (9) TMI 606
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....ecord and applicable law and has been completed without adequate inquiries and as such is liable to be quashed. 1.2. The notice issued by the Ld. AO, under Section 143(2) of the Act, dated June 02, 2023, is contrary to the provisions of the Act and the binding circulars issued by the Central Board of Direct Taxes ('CBDT) and accordingly the consequential final assessment order passed by the Ld. AO under Section 143(3) read with Section 144C(13) read with Section 144B of the Act, dated January 09, 2026, is void-ab-initio and is accordingly liable to be quashed 2. Disallowance of expenditure towards ESPP 2.1. The lower authorities erred in making a disallowance under section 37(1) of the Act towards Employee Stock Purchase Plan ("ESPP") expenditure of INR 7,50,08,759. 2.2. The lower authorities erred in contending that the impugned ESPP expenditure of INR 7,50,08,759 does not represent expenditure laid out or expended wholly and exclusively for the purposes of the business of the assessee within the meaning of section 37(1) of the Act, ignoring the documentary evidences submitted and consequently in disallowing the same in entirety. 2.....
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....ds of appeal mentioned supra and all consequential relief thereto. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal." 2. The assessee is a wholly owned subsidiary of Trimble Inc. USA. The assessee primary engaged in the business of software development, application services, internet services, IT enables services etc. to its holding company and its group companies. The assessee filed a return of income for AY 2022-23 on 22.11.2022 declaring total income of Rs. 56,29,17,140/-. The case was selected for scrutiny, and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to compute the Arm's Length Price (ALP) of the international transactions. The TPO proposed an upward adjustment towards interest on receivables amounting to Rs. 32,945/-. The A.O passed the draft assessment order incorporating the TP adjustment and the AO also proposed further corporate tax adjustment amounting to Rs. 9,42,58,263/- Aggrieved, the assessee filed its obj....
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....rnational Pvt Ltd vide ITA No.240 of Delhi of 2015 dated 06.07.2015 and of Hon'ble Bangalore Tribunal in the case of Outsource partners International Pvt Ltd vide ITA No. IT(TP)/35/2020 dated 24.06.2022 wherein it has been held that the contracted credit period takes precedence over any other action and that no interest can be charged qua amounts received during the contracted credit. 5.2 We have noted that the Hon'ble Coordinate Bench of this Tribunal vide ITA No. 736/Chny/2017 in the case of M/s. Integra Software Services P Ltd for Assessment Year: 2012-13 has ruled as under:- "....3.1 The assessee had outstanding receivable from its Associated Enterprises (AE). The Ld.TPO held that excessive outstanding receivables have to comply with Transfer Pricing (TP) provisions. The outstanding beyond comparable period was proposed to be treated as separate transaction of interest free advances as per Sec. 92B(1). The maximum credit period was accepted to be 90 days and outstanding receivables beyond that time period were benchmarked at prime lending rate of 14.4%. The same resulted in to an adjustment of Rs. 57.14 Lacs. 3.2 Before DRP, the assessee submitted tha....
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....factoring the impact of receivables on working capital, no separate adjustment is required on trade receivables. In this context, the ld.AR placed reliance on the following judicial pronouncements:- i) Kusum Healthcare Pvt. Ltd., in ITA 765/2016 (Delhi HC) ii) Doosan Power Systems India Pvt. Ltd., in ITA No.2/CHNY/2020 (Chennai Bench, ITAT) iii) Infac India P. Ltd., in IT(TP)A No.27/CHNY/2018 (Chennai Bench, ITAT) iv) CMA CGM Shared Service Centre (India) Pvt. Ltd., in IT(TP)A No.76/CHNY/2018 (Chennai Bench, ITAT) v) Foxteq Services India in ITA No.174/Mds/2016 (Chennai Bench, ITAT) 9. Lastly, it was contended that the credit period of 30 days given by the TPO is adhoc, arbitrary and completely ignore the credit period as per intercompany agreement of 180 days, the credit period that is given to the comparable companies and various judicial pronouncements allowing credit period of 90 to 120 days. 10. The ld.DR supported the orders of the TPO and the DRP. 11. We have heard rival submissions and perused the material on record. The Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt.Ltd., (supra) had cate....
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.... non-AEs. Further, the loans advanced to AEs have been benchmarked separately. It also emerges that the assessee is a zero-debt entity and do not incur significant interest expenditure. Therefore, to allege that the assessee accommodated its AEs in the guise of receivables would not be a correct proposition. Therefore, this addition is not sustainable. We order so. The corresponding grounds raised by the assessee stand allowed. 13. Before concluding it is to be mentioned that DRP had relied on the Delhi Bench of the ITAT order in the case of Bechtel India Pvt. Ltd., in ITA No.6530/Del/2016, dated 16.05.2017, (Assessment Year 2012-13). This order of the Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., for AY 2012-13, had distinguished the Delhi Bench order in the same assessee's case concerning assessment year 2010-11. The Delhi Bench order in the case of Bechtel India Pvt. Ltd., for assessment year 2010-11 in ITA No.1478/Del/2015 (order dated 21.12.2015) had deleted the interest on delayed receivables citing that assessee was a debt free company and no interest was paid even on delayed payables. The above order of the Tribunal for assessment year 2010-11....
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....arate adjustment for interest on receivable was warranted when working capital adjustment was already granted to the assessee. The Learned DRP further noted that Hon'ble Delhi High Court in the assessee own case (ITA No.379/2016) for assessment year 2010-11 vide order dated 21/07/2016 upheld the order of the Tribunal holding that the assessee is a debt free company and the question of receiving any interest on receivable did not arise. The Learned DRP thereafter noted that the Tribunal in assessment year 2012-13 in order dated 16/05/2017 relying on the decision of the Tribunal in the case of 'Ameriprise India P Ltd.', 2015- TII-347-ITAT-Del-TP held that when the export proceeds are realized within the year, but beyond the stipulated period of the agreement, then same will not come within the working capital adjustment and rejected the contention of the assessee that interest on delayed payment of receivable get subsumed in the working capital adjustment allowed to the assessee. The Tribunal in AY 2012-13 held that interest on delayed realization of receivables is a separate international transaction and therefore require benchmarking. The Tribunal applying interest rate of six mont....
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....t is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE's. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments. 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee. Grounds no. 3 of the assessee's appeal is there by allowed." 11.5 On appeal by the Revenue, against the above order of the Tribunal, the Hon'ble Delhi High Court (ITA No. 379/2016) in order dated 21/07/2016 dismissed the appeal observing as under: "4. As far as question (B) concerning the adjustment for interst no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned." 11.6 The assessee brought the decision of the Hon'ble High Court in assessment year 2....
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....rranted if the pricing/profitability is more than the working capital adjusted margin of the comparables. In the opposition, the ld.DR relied on a later order dated 6.7.2015 passed by the Tribunal in the case of Techbooks International Pvt. Ltd. (supra), in which the transfer pricing adjustment on account of the delayed realization of invoices from AEs has been upheld. The ld. DR contended that the order in the case of Kusum Healthcare Pvt. Ltd. (supra), has been passed without considering the amendment to section 92B carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002, which has been duly taken into account by the Tribunal in its later order in Techbooks International Pvt. Ltd. (supra). 21. After considering the rival submissions and perusing the relevant material on record, it is noticed as highlighted above, that the assessee argued before the TPO that interest on receivables is not an international transaction. At this stage, it would be apposite to note that the Finance Act, 2012 has inserted Explanation to section 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation, which is otherwise also for removal of doubts, gives ....
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.... assessee in the said case is a debt free company. Therefore, the DRP's reliance on the order of Delhi Bench of the Tribunal in Bechtel India Pvt. Ltd., concerning assessment year 2012-13 (which according to us has not laid down a correct proposition of law) is legally not tenable. In light of the above, we delete the transfer pricing adjustment imputing interest income on the outstanding trade receivables. In the result, the Ground No.2 (f) is allowed. Since we have deleted the TP adjustment of Rs. 3,14,15,287/-, Ground No. 2 and its other sub-grounds are not adjudicated. It is ordered accordingly...." 5.4**** 6.0 We are therefore of the considered view that considering the facts the appellant assessee, as well as in respectful compliance to the decisions of Hon'ble High Courts and Coordinate Benches of the Tribunal including this tribunal, there is no merit in the action of the Revenue in making the impugned addition by way of adjustment proposed by the Ld.TPO. Accordingly, we set aside the order of the lower authorities and direct the Ld.AO to delete the addition of Rs. 50,78,859/-. Therefore, all the grounds of appeal raised by the assessee are allowed." 5.....
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....rther, it is apposite to take note of Section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, from perusal of Section 37 (1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expnded and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of Section 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subsc....
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....2.8 has rightly held that incurring of the expenditure by the assessee entitles him for deduction under Section 37(1) of the Act subject to fulfillment of the condition. 11. The deduction of discount on ESOP over the vesting period is in accordance with the accounting in the books of accounts, which has been prepared in accordance with Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of CIT VS. INFOSYS TECHNOLOGIES LTD. is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under Section 201 of the Act for non deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Year in question was 1997-98 to 1999- 2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Sec....