TaxTMI 
TaxTMI 
2026 (9) TMI 1301
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.... The assessee is a capital service provider engaged in the business of providing software design development and support services to its AE namely Freshworks, USA. For the assessment year 2022 23, the return of income was filed on 23.11.2022 declaring total income of Rs.280,23,13,076/-. The return was selected for scrutiny and notice u/s.143(2) of the Act was issued on 01.06.2023. Thereafter, notice u/s.142(1) of the Act was issued on various dates. During the course of assessment proceedings, it was noticed that assessee had undertaken international transactions with its AE. To determine the Arms' Length Price of the International transaction, the case was referred to the TPO. The assessee in its TP study had adopted TNMM method as the most appropriate method and factored the impact of difference in credit period. According to the assessee, aggregation of the trade receivable with the software development services was on account of closely linked transaction which the assessee company had with its AE (namely software development services). The TPO disregarded the TP study of the assessee. The TPO vide his order dated 27.01.2025 passed u/s.92CA of the Act, held that the outstand....
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....that the Appellant is a debt free entity and does not have any working capital contingencies and the Appellant has Chennai not incurred any costs in relation to working capital requirements. Disregard of the Agreed 60-Day Credit Period 5 The learned AO/TPO/DRP has erred in law and on facts in not appreciating that, as per the inter-company agreement, a 60-day credit period had been mutually agreed between the appellant and its Associated Enterprise, and therefore the non-consideration of such agreed credit period is unjustified No interest recovered by AEs: 6 The learned AO/TPO/DRP has erred in law and on facts in not appreciating that the AEs of the Appellant have not charged any interest on overdue trade payables by the Appellant. Netting of outstanding receivables against payables from AEs 7 Without prejudice to above, the learned AO/TPO/DRP ought to have computed interest on outstanding receivables only after netting off interest on outstanding payables to AEs/ advances from AEs All the above grounds may be considered independent and without prejudice of each other. 6. The Ld.AR referring to Ground No.4, submitte....
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.... of the Tribunal in the case of Temenos India Pvt Ltd., vs. DCIT in IT(TP)A No.32/CHNY/2024 (order dated 03.12.2024). The order of the Chennai Bench of the Tribunal has relied on various judicial pronouncements and decided the case in favour of the assessee by deleting the notional interest on outstanding receivables when the assessee in said case was a debt free company. The relevant finding of the order of the Chennai Bench of the Tribunal in the case of Temenos India Pvt. Ltd., (supra) reads as follows:- 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 categorically held that inclusion in the Explanation to Section 92B of the Act by the Finance Act, 2012 in regard to expression 'receivables' does not mean that de hors the context every item of 'receivables' appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterized as an international transaction. The Hon'ble High Court held that there may be delay in collection of monies for supplies made, even beyond the agreed period, due to a variety of factors which wil....
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....ench 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 concerning Bechtel India Pvt. Ltd., was confirmed by the Hon'ble Delhi High Court in ITA No.379/2016 (judgment dated 21.07.2016). The Delhi High Court judgment was confirmed by the Hon'ble Supreme Court in CC No. 4956/2017 (judgment dated 21.07.2017). The Supreme Court dismissed the Revenue's SLP and upheld the Hon'ble Delhi High Court judgment. The Tribunal in the case of Bechtel India Pvt. Ltd., concerning assessment year 2012-13 (relied on by the DRP) had not taken note of the Delhi High Court concerning AY 20....
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.... 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 months LIBOR +400 basis point on receivables, upheld the transfer pricing adjustment of interest on receivables accordingly. In view of the finding of the Tribunal in assessment year 2012-13, the Learned DRP in the year under consideration directed the Learned TPO to compute the adjustment using the interest rate of six month of LIBOR +400 basis point. 11.2 Before us, the Learned Counsel of the assessee has repeated the historical background of the issue in dispute and submitted that special leave petition f....
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....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 interest 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 2010-11, before the Tribunal in assessment year 2012-13 by way of raising ground No. 1.5 of the appeal, however, the Tribunal after considering the amendment brought into Act by way of Finance Act, 2012 and other decisions held that interest on delayed realization of receivable is a separate international transaction, which requires separate benchmarking. The finding of the Tribunal in assessment year 2012-13 is reproduced as under: "17. We have considered the submissions of both the parties and perused....
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....on 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 meaning to the expression 'international transaction' in an inclusive manner. Sub-clause (c) of clause (i) of this Explanation, which is relevant for our purpose, provides as under:- Explanation.--For the removal of doubts, it is hereby clarified that- (i) the expression "international transaction" shall include- (a) ............ (b) ........... (c) capital financing, including any type of long-term or short term borrowing, lending or guarantee, purchase or sa....