TaxTMI 
TaxTMI 
2026 (10) TMI 52
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....er of the learned Commissioner of Income-tax ( Appeals ), Hyderabad - 11 is erroneous on law and on facts of the case. 2 The learned Commissioner of Income-tax (Appeals), Hyderabad - 11 ought to have considered that the transfer pricing adjustment for the trade receivables is not applicable since such transfer pricing adjustment is applicable only for ' capital financing ' transactions and not to the transactions emanating from the services rendered in the regular course of business which are ' revenue 'in nature. 3 The learned Commissioner of Income-tax (Appeals), Hyderabad - 11 ought to have considered that the transfer pricing adjustment for the trade receivables is not applicable since the company did not charge any interest from similar trade receivables of non-associated enterprises. 4 The learned Commissioner of Income-tax (Appeals), Hyderabad - 11 erred in directing the Transfer Pricing Officer to adopt LIBOR plus 200 base points, while making transfer pricing adjustment for the trade receivables. 5 The learned Commissioner of Income-tax (Appeals), Hyderabad - 11 ought to have considered that the transfer pricing adjustmen....
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....d the appeal of the assessee. 6. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. The Learned Authorized Representative ("Ld. AR"), referring to Ground No. 5 of the appeal, submitted that the assessee has challenged the transfer pricing adjustment towards interest on outstanding trade receivables. It was submitted that the assessee is a completely debt-free company and has not incurred any interest expenditure on borrowings. Therefore, there is no question of imputing any notional interest on the delay in realization of trade receivables from the AEs. The Ld. AR submitted that in the case of a debt-free company, the delay in realization of receivables does not result in any actual financing cost to the assessee and, therefore, no separate transfer pricing adjustment on account of notional interest is warranted. The Ld. AR further relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of Kore AI Software India Pvt. Ltd. Vs. ITO, ITA No. 51/Hyd/2026 for the A.Y. 2022-23, dated 29.07.2026 wherein, according to the Ld. AR, on identical facts, the Tribunal held that no separate benchmarking of notional interest on outstanding trade....
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.... 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 2010-11. The Hon'ble Supreme Court judgment concerning AY 2010-11 was rendered on 21.07.2017 i.e., after order of ITAT for AY 2012-13. 14. For the subsequent assessment year namely AY 2013-14, (post the judgment of the Hon'ble Supreme Court....
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.... 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 filed by the Revenue against the order of the Hon'ble High Court for assessment year 2010-11 has been rejected by the Hon'ble Supreme Court on 21/07/2017, which is after the order of the Tribunal for AY 2012-13 dated ....
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....rving 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 the record of the case. The assessee's grievance is two-fold. Firstly, when working capital adjustment has been made, then, no separate adjustment is required to be made in respect of....
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.... (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 sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;" 11.7 But bef....
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.... the Chennai Bench, after considering the decision of the Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., which in turn was based upon the principles laid down by the Hon'ble Delhi High Court and affirmed by the Hon'ble Supreme Court, held that where an assessee is a debt-free company and is not incurring any borrowing cost, no separate benchmarking adjustment on account of interest on outstanding trade receivables is warranted. The rationale behind the aforesaid view is that where an assessee is not utilizing borrowed funds and is not incurring any interest cost, the delayed realization of receivables does not result in any additional financing burden upon the assessee. In such circumstances, imputing a notional interest adjustment on trade receivables may not reflect the real economic impact on the assessee. In the present case, the specific contention of the assessee is that it became a debt-free company during August, 2021 and thereafter no interest expenditure was incurred by it. This factual assertion has been made with reference to Note No. 7 of the audited financial statements. However, neither the Ld. TPO nor the Ld. AO had any occasion to exami....