TaxTMI 
TaxTMI 
2026 (9) TMI 756
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.... the assessee on 31 December 2022, declaring a total income of Rs.95,60,96,740, was assessed at Rs.103,28,49,374 after making a transfer pricing adjustment of Rs.7,67,52,834 on account of interest on overdue trade receivables. 2. The Assessee has raised the following grounds of appeal: 1. That on the facts and circumstances of the case and in law, the Impugned Order of the Ld. AO dated December 29, 2025, in so far as it is prejudicial to the Appellant, is without jurisdiction, violative of principles of natural justice, erroneous in facts and law, unsustainable and hence is liable to be quashed as such. I. TP ADJUSTMENT 2. The Ld. TPO, Ld. AO and the Ld. Panel (together referred to as the 'Lower Authorities....
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....out undertaking a benchmarking analysis based on similar uncontrolled transactions and without adopting any of the prescribed methods under the Act and the related rules. 7. Without prejudice, the lower authorities erred in arbitrarily adopting London Interbank Offered Rate ("LIBOR") plus 450 basis point rates at 5.37% to benchmark the interest on overdue receivables, without appreciating that the same is without any proper basis. On a without prejudice basis, should the Hon'ble Tribunal continue to treat overdue receivables as an international transaction, the rate adopted ought to be LIBOR plus 300 basis points or lesser. II. MISCELLANEOUS GROUNDS 8. On the facts and in the circumstances of the case and in l....
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....r, who proposed an upward adjustment of Rs.42,94,26,571, comprising transaction adjustments of Rs.24,96,40,000 and Rs.5,77,80,000 in respect of software development services and ITES, respectively, and a further adjustment of Rs.12,20,06,571 towards interest on overdue receivables from associated enterprises. 4. Consequently, a draft assessment order was passed on 28 February 2025. Assessee filed objections before the Dispute Resolution Panel, which issued directions, pursuant to which the Transfer Pricing Officer passed the order giving effect on 16 December 2025. In that order, the international transactions relating to software development services and ITES were held to be at arm's length. Accordingly, the only issue remaining for our....
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....cing Officer arbitrarily adopted LIBOR plus 450 basis points, resulting in an interest rate of 5.37%, for benchmarking the interest. If any adjustment is nevertheless made, he submitted that it should be restricted to LIBOR plus 200 basis points. In support, he relied on several judicial precedents in which coordinate benches have held LIBOR plus 200 basis points to be an appropriate benchmark for interest on overdue receivables. 7. The learned departmental representative strongly supported the orders of the lower authorities and submitted that overdue receivables constitute a separate international transaction under the Income Tax Act and, therefore, require independent benchmarking. She further submitted that there is no infirmity in t....
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....ware development and ITES segments. In paragraph 10, he held that the assessee had not established that working capital differences between it and the comparable companies affected profitability. We fail to see how the burden could be placed on the assessee when the learned TPO, rejected the TPSR of the assessee, selected his own comparable set, himself selected the comparables and had access to the relevant database and annual accounts of those companies. The learned TPO relied only on a general observation that the assessee had not shown whether the comparable companies financed their working capital through own funds or borrowings, whether any cost was incurred on such working capital, and how such cost affected their margins. On that ba....
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....iate adjustments are required under rule 10B of the Income Tax Rules. Although the learned TPO referred to these provisions, he declined to apply them while determining the arm's length price of the ITES and software development segments. The learned DRP also did not adjudicate this ground on its merits and instead decided the issue on the basis of judicial precedents that have no direct relevance to the grant of working capital adjustment to the assessee. 12. It is also undisputed that, after the directions of the learned DRP, the margins of the ITES and software development segments were held to be at arm's length in the assessee's case. However, we fail to understand how the arm's length price could have been determined by the learned....