TaxTMI 
TaxTMI 
2026 (10) TMI 33
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....ce of the international transactions falls within the permissible range. Therefore, the grounds relating to the transfer pricing adjustment, other than the adjustment on account of notional interest on outstanding receivables, no longer survive for adjudication and are accordingly treated as infructuous. 2.1 Thus, the only issue which survives for our consideration on merits is the transfer pricing adjustment made towards notional interest on outstanding receivables from the AEs. The assessee has also raised a ground relating to initiation of penalty proceedings u/s. 270A of the Act, which is consequential in nature. 3. The brief facts of the case on hand are that the assessee is a private limited company which is primarily engaged in providing contract software development (SWD) services to ESI Group, France. For the captioned AY, the assessee filed its return of income offering an income to taxation to the tune of Rs. 10,97,57,910/- only. 3.1 During the TP proceedings, the TPO treated the delay in realization of trade receivables from the AEs as unsecured loans advanced to the AEs and, accordingly, computed notional interest for the period of such delay during the year u....
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.....4 The Ld. DRP further observed that where the receivables remain outstanding beyond the credit period agreed between the parties, such delay constitutes a separate international transaction. Therefore, the interest attributable to the period beyond the agreed credit period has to be separately benchmarked. According to the Ld. DRP, allowing a working capital adjustment in the service transaction does not affect the determination of ALP of interest on receivables outstanding beyond the stipulated credit period. 5.5 In reaching this conclusion, the Ld. DRP relied upon the decision of the Hon'ble Delhi High Court in Bechtel India Pvt. Ltd. (ITA No. 6530/Del/2016 dated 16.05.2017). Accordingly, the Ld. DRP rejected the assessee's plea that the working capital adjustment already takes care of delayed receivables and, therefore, no separate interest adjustment was required. 5.6 The Ld. DRP further upheld the action of the ld. TPO in treating the interest on receivables as an international transaction and in taking LIBOR + 450 Basis Points i.e. 5.37% 6. Aggrieved by the actions of the Ld. DRP and the AO/TPO, the assessee preferred an appeal before us and submitted that t....
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....en submissions dated 04.08.2026 and submitted that the assessee has mainly challenged the treatment of outstanding receivables as a separate international transaction u/s. 92B of the Act. It was further submitted that no specific ground has been raised regarding the assessee being a debt-free company. Therefore, the said plea should not be considered while adjudicating the issue. 9. We have considered the rival submissions of both the parties and perused the materials available on record. The TPO has treated the outstanding trade receivables from AEs as a separate international transaction and computed interest thereon by adopting the LIBOR + 450 Basis Points i.e. 5.37%. The ld. AR before us submitted that the interest on delayed receivables should not be treated as a separate international transaction. It was further contended that the rate adopted by the TPO is not correct and is excessive. 9.1 At the outset, with regard to the contention of the assessee that the interest on delayed receivables should not be treated as a separate international transaction, we find that by virtue of the amendment inserted by way of Explanation to section 92B of the Act, the term "internation....
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....n [2025] 175 taxmann.com 423 (SC) dated 05-05-2025. The relevant para of Hon'ble Delhi HC judgment is reproduced below: "Earlier, in similar circumstances, the issue came up before the Income Tax Appellate Tribunal in the case of Bechtel India (P.) Ltd. V. Dy. CIT [2016] 66 taxmann.com 6 (Delhi - Trib.) and the Tribunal held that the assessee being a debt free company, it would not be justifiable to presume that the borrowed funds have been utilized to pass on the facilities to its Aes and the revenue also had not brought on record that the assessee had been found paying interest to its creditors or suppliers on delayed payments. This view of the Income Tax Appellate Tribunal was upheld by a coordinate bench of this court in appeal titled Pr. CIT v. Bechtel India (P.) Ltd. [IT Appeal No. 379 of 2016, dated 21-7-2016], observing that no substantial question of law arose as the Tribunal had returned a finding of fact to the effect that the assessee was a debt free company and a question of receiving any interest on receivable did not arise. Against the said judgment, Pr. CIT v. Bachtel India (P.) Ltd. CC No.(s) 4956 of 2017 preferred by the revenue was dismissed vide order d....