ADP PRIVATE LIMITED,HYDERABAD V. DCIT., CIRCLE 1(1), HYDERABAD

ITA 975/HYD/2024

AI Insights

ADP Private Limited appealed against the Final Assessment Order which included adjustments for non-deduction of TDS on payments made to ADP, Australia for managerial services and TP adjustments for notional interest on overdue receivables from AE. The Tribunal found that the payments made to ADP-Australia for business support services did not fall under the definition of 'Fees for Technical Services' (FTS) and thus were not taxable in India. The Tribunal also addressed the issue of notional interest on overdue receivables, agreeing that such receivables should be benchmarked with third-party transactions and interest should be computed using LIBOR plus 200 basis points.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717012 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2020-2021
• Appeal Filed On: 27-09-2024
• Other Referred Cases: CIT vs. Roca Bathroom Products P. Ltd., Guy Carpenter & Co. Ltd., De Beers India Minerals (P.) Ltd., Sun Microsystems India (P.) Ltd., US Technology Resources (P.) Ltd., Bio-Rad Laboratories (Singapore) Pte. Ltd., Aecom Technical Services Inc., Dr. Reddy's Laboratories Ltd., Sandvik Australia Pty. Ltd., Visteon Corporation, Magotteaux International SA, Microchip Technology (India) (P.) Ltd., Bechtel India Pvt. Ltd., Kusum Healthcare Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: SRIRAM SESHADRI
• Keywords: Transfer pricing; International transaction; Business expenditure; TDS; Advance ruling; Notional interest; Permanent establishment; Non-deduction of tax

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH: HYDERABAD BEFORE SHRI MANJUNATHA G, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA.No.975/Hyd./2024 Assessment Year 2020-2021 ADP Private Limited, Nanakramguda Village, Serilingampally Mandal, Ranga Reddy District. Telangana. PIN–500 008. PAN AANCA8983A vs. The Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad – 500 004. Telangana. (Appellant) (Respondent) For Assessee : CA, Sriram Seshadri For Revenue : MS. U Mini Chandran, CIT-DR Date of Hearing : 22.07.2025 Date of Pronouncement : 22.08.2025 ORDER PER MANJUNATHA, G. This appeal has been filed by the assessee against the Final Assessment Order Dated 31.07.2024 of the Assessing Officer passed u/sec.143(3) r.w.s.144C(13) r.w.s.144B of the Income Tax Act, 1961, in pursuance to the Directions dated 26.06.2024 of the learned Disputes Resolution Panel-1, [in short “DRP”], Bengaluru, passed Printed from counselvise.com 2 ITA.No.975/Hyd./2024 u/sec.144C(5) of the Income Tax Act, 1961 [in short “the Act”], relating to the assessment year 2020-2021. 2. Briefly stated facts of the case are that, the appellant-company viz., ADP Private Limited is engaged in the business of providing computer software development and information technology enabled support services [in short “ITeS”] to its associated enterprises and is compensated on a cost-plus basis for these services. The appellant-company had filed it’s return of income for the assessment year 2020-2021 on 29.01.2021 declaring total income of Rs.279,44,48,670/-. The case of the appellant- company was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer [in short “TPO”] for determining the Arm's Length Price [in short “ALP”] of international transactions of the appellant-company with it’s Associated Enterprises [in short “AE”]. The TPO vide it’s order u/sec.92CA(3) of the Income Tax Act, 1961, dated 25.04.2023 made certain Transfer Pricing [in short “TP”] adjustments and the Assessing Officer has completed the Printed from counselvise.com 3 ITA.No.975/Hyd./2024 assessment making the certain adjustments to the income of the appellant-company vide Draft Assessment Order u/sec.144C(1) of the Income Tax Act, 1961 dated 28.09.2023. 3. The appellant-company has filed objections against the Draft Assessment Order before the DRP which were disposed of by the DRP vide Directions u/sec.144C(5) of the Income Tax Act, 1961 dated 26.06.2024 partly in favour of the appellant-company, thereby, resulting in deletion of TP margin adjustment. The Assessing Officer passed Final Assessment Order incorporating the Directions of the DRP vide order passed u/sec.143(3) r.w.s.144C(13) r.w.s.144B of the Income Tax Act, 1961, Dated 31.07.2024 wherein the Assessing Officer has made additions towards disallowance u/sec.40(a)(i) of the Income Tax Act, 1961 for non-deduction of tax at source towards payments made to ADP, Australia for rendering managerial services and TP adjustment towards notional interest on over-due receivables from AE. Further, the Assessing Officer also denied TDS credit to the extent of Rs.4,40,115/- and Printed from counselvise.com 4 ITA.No.975/Hyd./2024 charged interest u/sec.234A and 234C of the Income Tax Act, 1961. [ 4. Aggrieved by the Final Assessment Order, the appellant-company is now, in appeal before the Tribunal. 5. Grounds of appeal Nos.1 and 2 of assessee’s appeal are general in nature and does not require specific adjudication and, therefore, grounds of appeal nos.1 and 2 of assessee’s appeal are dismissed. 6. CA, Sriram Seshadri, Learned Counsel for the Assessee, at the time of hearing, made a statement at Bar that, the assessee does not wish to press ground no.3 challenging the validity of the assessment order passed by the Assessing Officer u/sec.143(3) r.w.s.144C(13) r.w.s.144B in light of provisions of sec.153 of the Income Tax Act, 1961 and also the decision of Hon’ble Madras High Court in the case of CIT vs., Roca Bathroom Products P. Ltd., [2022] 445 ITR 537 (Mad.) and appellant had also filed letter dated 07.08.2025 and withdrawn grounds of appeal Printed from counselvise.com 5 ITA.No.975/Hyd./2024 no.3 relating to limitation. Therefore, the grounds of appeal no.3 of assessee is dismissed as not pressed. 7. The next issue that came-up for consideration from ground no.4 of assessee’s appeal is disallowance u/sec.40(a)(i) of the Act for non-deduction of tax at source towards payment to Automatic Data Processing Limited [in short ”ADP”], Australia for rendering certain services in the nature of marketing support, implementation and administration support. The assessee has not deducted TDS on said payment in terms of sec.195 of the Income Tax Act, 1961 on the ground that, income of ADP, Australia is not taxable in India either under domestic tax law or under India-Australia Tax Treaty. The Assessing Officer disallowed foreign remittances of Rs.63,16,47,709/- to ADP, Australia for business support services without deducting TDS u/sec.195 of the Act on the ground that, the assessee is required to deduct TDS as per sec.195 of the Act on foreign remittances and further, in case, TDS provisions are not applicable, the assessee shall apply and obtain no deduction certificate u/sec.195(2) of the Act from the Printed from counselvise.com 6 ITA.No.975/Hyd./2024 Appropriate Authority. The appellant-company has failed to comply with the provisions of sec.195 of the Act and, therefore, violated the above provisions by not deducting TDS on foreign remittances of Rs.63,16,47,709/-. The Assessing Officer further observed that, the appellant- company is receiving services in India as business support services from ADP, Australia and as per the definition of business support services as per CBIC it is concluded that, the services are rendered in India as per sec.9(1) of the Income Tax Act, 1961 to execute the assessee’s business work and admittedly, the assessee has also claimed as business expenditure during the assessment year. Further, the assessee has made an application before the Authority for Advanced Rulings on 02.06.2015 and requested not to make adjustments. Further, the assessee had withdrawn the application filed before the Authority for Advanced Rulings and this fact has been considered by the learned DRP while adjudicating the issue of disallowance u/sec.40(a)(i) of the Income Tax Act, 1961 for non-deduction of TDS on payment made to ADP, Australia. Therefore, Printed from counselvise.com 7 ITA.No.975/Hyd./2024 taking note of relevant facts, made addition of Rs.63,16,47,709/- towards payment made to ADP, Australia for rendering certain services u/sec.40(a)(i) of the Act for non-deduction of TDS u/sec.195 of the of the Income Tax Act, 1961 and added to the total income of the appellant- company. 8. CA, Sriram Seshadri, Learned Counsel for the Assessee submitted that, the appellant-company had entered into a service agreement with one of it’s group entities ADP, Australia for rendering certain services in the nature of marketing support, implementation and administration support. ADP, Australia is incorporated under the Laws of Australia and is a tax resident of Australia engaged in the business of pay roll processing, human resources, administration and related services. The appellant-company is primarily engaged in provision of IT and ITeS to it’s group entities including ADP, Australia, for which, it has compensated based on cost plus mark-up of 14%. Further, the appellant had entered into a separate agreement with the clients in India, for which, ADP, Printed from counselvise.com 8 ITA.No.975/Hyd./2024 Australia played a role of identifying client, market negotiations of terms, holding discussions for understanding the requirement of the clients, managing client relationship and providing implementation support services to the appellant-company etc., Towards these services, the appellant-company had paid Rs.63,16,47,709/- to ADP, Australia. Since the services rendered by ADP, Australia are in the nature of business support services without any element of technology, the payment made by the appellant-company does not fall under the definition of “Fees for Technical Services” [in short “FTS”] as defined u/sec.9(1)(vii) of the Income Tax Act, 1961 and consequently, income of ADP, Australia, is not liable to tax in India. Further, assuming for a moment, payment made by the appellant-company to ADP, Australia falls under the definition of “FTS” as defined u/sec.9(1)(vii), but, the same has to satisfy the definition of ‘Royalty’ under Article-12(3) of India-Australia Treaty in order to be taxable in the hands of ADP, Australia. Since, Article 12(3) of India- Australia Treaty provides for make-available clause and, in Printed from counselvise.com 9 ITA.No.975/Hyd./2024 absence of any condition as to make-available the technology to the appellant-company, the payment made to ADP, Australia, cannot be considered as ‘royalty’ and tax in India. In this regard, he relied upon the following judicial precedents : i. Judgment of Hon’ble Delhi High Court in the case of Guy Carpenter & Co. Ltd., 346 ITR 504. ii. Judgment of Hon’ble Karnataka High Court in the case of De Beers India Minerals (P.) Ltd., 346 ITR 467. iii. Judgment of Hon’ble Karnataka High Court in the case of Sun Microsystems India (P.) Ltd., 369 ITR 63. iv. Judgment of Hon’ble Delhi High Court in the case of US Technology Resources (P.) Ltd., 407 ITR 327. v. Judgment of Hon’ble Delhi High Court in the case of Bio-Rad Laboratories (Singapore) Pte. Ltd., 459 ITR 5. Printed from counselvise.com 10 ITA.No.975/Hyd./2024 vi. Judgment of Hon’ble Delhi High Court in the case of Aecom Technical Services Inc. 174 taxmann.com 1173. vii. Order of ITAT, Hyderabad in the case of Dr. Reddy’s Laboratories Ltd., 184 TTJ 41. viii. Order of ITAT, Pune in the case of Sandvik Australia Pty. Ltd., 141 ITD 598. ix. Order of ITAT, Chennai in the case of Visteon Corporation 167 taxmann.com 484. x. Order of ITAT, Delhi in the case of Magotteaux International SA 141 taxmann.com 8. 9. MS. U. Minichandran, learned CIT-DR for the Revenue, on the other hand, supporting the order of the Assessing Officer and DRP submitted that, the services provided by ADP, Australia, are in the nature of managerial, technical or consultancy services as defined u/sec.9(1)(vii) of the Income Tax Act, 1961, as defined under the definition of “FTS” and, therefore, the assessee ought to have deduct TDS u/sec.195 of the Income Tax Act, 1961 for remittances to ADP, Australia for rendering services. Since the Printed from counselvise.com 11 ITA.No.975/Hyd./2024 appellant-company has failed to deduct TDS u/sec.195 of the Act and also failed to obtain Non-Deduction Certificate as required u/sec.195(2) of the Income Tax Act, 1961, the Assessing Officer has rightly disallowed payment made to ADP, Australia for rendering certain services u/sec.40(a)(i) of the Income Tax Act, 1961. The Learned CIT-DR further submitted that, if we go by the nature of services rendered by ADP, Australia to the appellant-company, they are in the nature of managerial and consultancy services, for which, the question of making available technology does not arise because, in the said services, the element of technology is not involved. However, the related skill and knowledge in providing the services is always made available to the services recipient because, these are services in the nature of consultancy and technical services. Therefore, the argument of the assessee that, unless the make-available clause is satisfied as per the Article-12(3) of India-Australia Treaty, the income of the Australian Tax Resident is not taxable in India and consequently, no disallowance can be made u/sec.40(a)(i) of the Income Tax Act, 1961 for non- Printed from counselvise.com 12 ITA.No.975/Hyd./2024 deduction of TDS u/sec.195 of the Income Tax Act, 1961, is devoid of merit and cannot be accepted. 10. We have heard both the parties, perused the material on record and the orders of the authorities below. The appellant-company had entered into a service agreement with one of it’s group entities, Automatic Data Processing Limited, Australia [in short “ADP Australia”], Dated 01.04.2014, pursuant to which, the appellant- company receives certain services in the nature of marketing support, implementation and administration support. The appellant-company had made payment towards the support services to ADP Australia without deducting taxes at source, as the provisions of Section 195 of the Act, which provides for an obligation to deduct taxes on payment of any sum to a non-resident or foreign company only where the sum is chargeable to tax under the provisions of the Act read with the applicable tax treaty. The appellant-company did not deduct taxes u/sec.195 of the Income Tax Act, 1961 on the ground that, the said receipt was not taxable in India in the hands of ADP-Australia. The Printed from counselvise.com 13 ITA.No.975/Hyd./2024 Assessing Officer disallowed payment made to ADP- Australia for not withholding taxes under section 40(a)(i) of the Act on the ground that, payment made to ADP-Australia is in the nature of Fees for Technical Services [in short “FTS”] as defined u/sec. 9(1)(vii) of the Act. The Assessing Officer further observed that, assessee itself has made application before the 'Authority for Advance Rulings' for seeking clarification on applicability of TDS provisions in terms of sec.195 of the Act on payments made to ADP- Australia and the same has been subsequently withdrawn by the appellant-company without assigning any reasons. The Assessing Officer further noted that, if at all payment made to ADP-Australia does not come under FTS and provisions of sec.195 of the Act, then, the appellant- company would have applied for non-deduction Certificate in terms of sec.195(2) of the Income Tax Act, 1961. Since, the payment made to ADP-Australia are in the nature of FTS as defined u/sec.9(1)(vii) of the Act and further, the appellant-company has made payment without deducting tax at source as required u/sec.195 of the Act, the Printed from counselvise.com 14 ITA.No.975/Hyd./2024 Assessing Officer disallowed the entire payment u/sec.40(a)(i) of the Income Tax Act, 1961. 11. We have given our thoughtful consideration to the reasons given by the Assessing Officer to disallow payment made to ADP-Australia for rendering business support services in terms of agreement dated 01.04.2014 and in light of various arguments of the Counsel for the Assessee, but, we ourselves do not subscribe to the reasons given by the learned Assessing Officer and the DRP for the simple reason that, in order to invoke provisions of sec.40(a)(i) of the Act to any payment made to a non-resident without deducting tax at source u/sec.195, first of all, one needs to understand, whether such payment is a simple payment for business support services falls under the category of ‘business profits’ or the payment made to technical services which falls under the definition of “FTS” as defined u/sec.9(1)(vii) of the Act. The term “FTS” has been defined u/sec.9(1)(vii) and as per the said provisions, fees for technical services means, “any consideration, [including any lump sum consideration] for the rendering of any Printed from counselvise.com 15 ITA.No.975/Hyd./2024 managerial, technical or consultancy services\" [including the provision of services of technical or other personnel], but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the Head “Salaries”. The term “FTS” includes managerial, technical and consultancy services. If any amount paid by a resident to a non-resident falls under the definition of “FTS” as defined u/sec.9(1)(vii) of the Act, then, said payment comes under the purview of ‘Income received’ or ‘Deemed to be received’ in India or ‘Income accrued’ or ‘deemed to be accrued in India of a non- resident’. If payment made by a resident to a non-resident does not come under the definition of “FTS” as per sec.9(1)(vii) of the Act and further it is a business profit, then, said payments come under the provisions of sec.9(1)(i) of the Act, which means, said payment is taxable in India only in a case where the non-resident provides services having Permanent Establishment [in short “PE”] in India. Therefore, it is necessary for us to examine the payment Printed from counselvise.com 16 ITA.No.975/Hyd./2024 made by the appellant-company to ADP-Australia for receiving business support services in terms of agreement between the parties and in light of provisions of sec.9(1)(vii) read with Tax Treaty between India and Australia. 12. Section 90(2) of the Income Tax Act, 1961 provides – “Where the Government has entered into Tax Treaty with any other Country, the provisions of the Act or the Tax Treaty whichever is beneficial to the taxpayer would apply.” Since, ADP-Australia is a tax resident of Australia, the appellant has entitled to avail benefits of India-Australia Treaty. As per India-Australia Treaty [DTAA], Article-7 deals with ‘business profits’. As per Article-7 of the India-Australia Treaty, a non-resident enterprise, can be taxed in India only if such an enterprise carries on business through the PE in India. In the present case, ADP-Australia is a tax resident of Australia and carries on it’s business operations outside India and does not have PE in India. The Assessing Officer has not brought anything on record to suggest that, ADP- Australia has a PE in India and hence, payment made to ADP-Australia falls under Article-7 of India-Australia Treaty Printed from counselvise.com 17 ITA.No.975/Hyd./2024 and as per Article-7, it cannot be taxed in India, in absence of PE in India. 13. Having said so, let us come back to Article-12(3) of India-Australia Tax Treaty which deals with the term ‘Royalty’. As per Article-12(3) of India-Australia Treaty which deals with taxability of FTS, defined the term ‘Royalties’ means payments or credits, whether periodical or not, and however described or computed, to the extent to which they are made as consideration for, for the rendering of any services [including those of technical or other personnel], which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design etc. In order to tax a particular receipt as ‘Royalty’ under the India-Australia Treaty by applying Clause-(g) of Article-12(3), such service should make available to the recipient, technical knowledge, experience, skill, know-how or processes which enables the recipient to apply the technology contained therein. The ‘make available’ clause has been interpreted by various Courts and Tribunals. The Hon’ble Delhi High Court in the Printed from counselvise.com 18 ITA.No.975/Hyd./2024 case of Guy Carpenter & Co. Ltd., 346 ITR 504 (Del.) and Hon’ble High Court of Karnataka in the case of De Beers India Minerals (P) Ltd., 346 ITR 467 (Kar.), held that, “mere rendering of technical services is not sufficient and that the service provider must transmit technical knowledge, skill, etc., in such a way that, the recipient is enabled to apply the technology independently in future without recourse or assistance of the service provider”. In other words, as per the ratio laid down by the various Courts and Tribunals, in order to treat any particular receipt as ‘Royalty’ within the ambit of Article-12(3) of India-Australia Treaty, it is not only rendering services, but, the service provider must transmit technical knowledge, skill, etc., to the recipient of services to enable it to apply the technology independently in future without the help of the service provider. In the present case, from the nature of service described in the support services agreement, it would be evident that there was no technical knowledge, expertise, skill, knowhow or processes made available to the appellant-company by ADP-Australia. It may also relevant to note that, these services are provided by Printed from counselvise.com 19 ITA.No.975/Hyd./2024 ADP-Australia year-after-year on a continuous basis, which shows that, the appellant-company cannot perform these services on its own without recourse to ADP-Australia. Further, we note that, the Revenue has not demonstrated how ADP-Australia had made available technical knowledge or know-how to the appellant-company. 14. In this connection, it is relevant to refer to the decision of ITAT, Pune Benches, Pune in the case of Sandvik Australia Pty. Ltd. reported in 141 ITD 598 wherein it was held that, “unless and until the services are not made available, the same cannot be taxable in India under the ambit of Article 12(3)(g) of the India-Australia Treaty”. Therefore, we are of the considered view that, support services fee paid by the appellant-company to ADP-Australia is neither taxable under the provisions of the of the Income Tax Act nor under the provisions of the India-Australia Treaty. Although, the Assessing Officer and the learned CIT(A) did not brought on record any evidence to prove that, the said services fall within the ambit of FTS as defined u/sec.9(1)(vii) of the Income Tax Act, 1961, but, disallowed Printed from counselvise.com 20 ITA.No.975/Hyd./2024 the said payments for non-deduction of TDS u/sec.195 of the of the Income Tax Act, 1961 only on the ground that, if at all the assessee claims that, the said payment does not fall under the purview of FTS, then, the assessee would have apply for ‘No-Deduction-Certificate’ u/sec.195(2) of the Income Tax Act, 1961. In our considered view, the learned Assessing Officer and the learned CIT(A) are completely erred in interpreting the provisions of sec.195(2) of the Act in a manner that, in each and every case, where the payment is made by a resident to a non-resident, it is required to go for obtaining No-Deduction-Certificate because, as per the provisions of sec.195(2) of the Act, the payer of sum to a non-resident is required to obtain No- Deduction-Certificate only in a case where the such payment to a non-resident is chargeable to tax under the provisions of the Income Tax Act, 1961 read with applicable Tax Treaty. Therefore, we of the considered view that, the Assessing Officer and the learned CIT(A) are erred in disallowing the amount paid by the appellant-company to ADP-Australia for receiving business support services Printed from counselvise.com 21 ITA.No.975/Hyd./2024 u/sec.40(a)(i) of the Income Tax Act, 1961, for not withholding tax at source u/sec.195 of the Income Tax Act, 1961. 15. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, payment made by the appellant- company to ADP-Australia in terms of business support services agreement for receiving business services cannot be treated as FTS as per sec.9(1)(vii) of the Income Tax Act, 1961. Even assuming for a moment, the said payment falls under the definition of “FTS”, still the said payment cannot be taxed in view of application of provisions of sec.90(2) of the Income Tax Act, 1961 because, ADP-Australia is a tax resident of Australia and have the benefit of provisions of the Income Tax Act or Treaty, whichever is beneficial to the taxpayer. Since the Article-12(3) of India-Australia Tax Treaty covers payment within the ambit of ‘Royalty’ only in cases where such payment comes with make-available clause and in the present case, there is no evidence with the Assessing Officer to allege that, payment made by the Printed from counselvise.com 22 ITA.No.975/Hyd./2024 appellant-company for rendering services make-available technology or skill etc., to the appellant-company, in our considered view, the said payment cannot be disallowed u/sec.40(a)(i) of the Income Tax Act, 1961 for non-deduction of TDS u/sec.195 of the Income Tax Act, 1961. The Assessing Officer without appreciating the relevant facts, has simply disallowed the payment made to ADP-Australia u/sec.40(a)(i) of the Income Tax Act, 1961 and the learned DRP without appreciating the relevant facts, has simply sustained the additions made by the Assessing Officer. Thus, we direct the Assessing Officer to delete the addition made towards payment of business support services to ADP-Australia u/sec.40(a)(i) of the Income Tax Act, 1961. 16. The next issue that came-up for consideration from ground nos.5 to 13 of assessee’s appeal is upward adjustment towards notional interest on overdue receivables from AE. The TPO proposed an upward adjustment relating to interest on outstanding receivables amounting to Rs.7,21,921/- on trade receivables from AE on the ground that, receivable from AEs are beyond the credit period Printed from counselvise.com 23 ITA.No.975/Hyd./2024 allowed, for which, appropriate compensation ought to have been received by the appellant-company. Therefore, computed notional interest by applying SBI-PLR rate and imputed interest of Rs.7,21,921/-. The learned DRP upheld the order of the TPO. 17. CA, Sriram Seshadri, Learned Counsel for the Assessee submitted that, the appellant has not charged interest on receivable from third party. Further, there are receivable from third party at the end of the year which is more than the amount receivable from AE. Since the appellant-company is not charging any interest from third party receivables, it has not charged interest from AE also. In this regard, he relied upon the decision of Hon’ble Bombay High Court in the case of Indo-American Jewellery Limited 44 taxmann.com 310. Learned Counsel for the Assessee further submits that, while computing interest on overdue receivables, the TPO has computed the interest on only receivable from AE, but, ignored the overdue payables to the AE. If netting is allowed on overdue receivables to overdue payables, then, there is no question of imputing Printed from counselvise.com 24 ITA.No.975/Hyd./2024 interest on overdue receivables. In this regard, he relied upon the decision of ITAT, Hyderabad in the case of Microchip Technology (India) (P.) Ltd., 168 taxmann.com 38. Learned Counsel for the Assessee further submits that, the appellant company is a debt free company and does not pay any interest on borrowings. Therefore, imputing interest on overdue receivables is not warranted when the appellant- company has carried-out an entity level TNMM to calculate ALP of international transactions, particularly, when the working capital adjustment have already been made by the appellant-company. In this regard, he relied upon the decisions of Hon’ble Delhi High Court in the case of Bechtel India Pvt. Ltd., 66 taxmann.com 6 and Kusum Healthcare Pvt. Lted., 398 ITR 66 (Del.). Learned Counsel for the Assessee, in the alternative, submitted that, if at all, interest needs to be computed on overdue receivables, then, LIBOR plus appropriate basis points should be adopted as against SBI PLR rate adopted by the TPO. 18. MS. U. Minichandran, learned CIT-DR for the Revenue, on the other hand, supporting the order of the Printed from counselvise.com 25 ITA.No.975/Hyd./2024 TPO and DRP submitted that, the outstanding receivable from AE in international transactions and the same needs to be benchmarked with third party comparables. Therefore, the argument of the Learned Counsel for the Assessee that, it has not charged any interest on overdue receivables from third party and consequently, the question of imputing interest on overdue receivable from AE is factually incorrect. Further, the question of netting of overdue receivable against the overdue payables arise only if such payables and receivables are from very same AE. In the present case, the assessee could not file relevant details to explain the fact with regard to the receivables and payables from same AE. Therefore, the argument of the assessee cannot be accepted. Finally, the argument of the assessee that, it is a debt free company, also, does not make any difference when it comes to benchmarking international transactions. The TPO and DRP after considering the relevant facts, has rightly benchmarked interest on overdue receivable from AE by applying SBI-PLR rate and thus, the order of the Assessing Officer should be upheld. Printed from counselvise.com 26 ITA.No.975/Hyd./2024 19. We have heard both the parties, perused the material on record and the orders of the authorities below. It is well established principle of law by the decisions of various Courts/Tribunals that, outstanding receivable from AE is an international transaction, particularly, after the amendment to sec.92B, the definition of “International” by the Finance Act, 2012. Once receivables from AE is in international, the same needs to be benchmarked with third party comparables. To this extent, we cannot appreciate the arguments of the assessee. Further, the Counsel for the Assessee submits that, the appellant-company has receivables from third party in excess of receivable from AE and not charged any interest on third party receivables. Therefore, imputing interest on AE is incorrect. Once again we cannot appreciate the arguments of the Counsel for the Assessee for the simple reason that, whether or not, the assessee charges interest on third party receivables, receivables from AE should be benchmarked with reference to the third party transactions because, it is an international transactions as per the definition provided Printed from counselvise.com 27 ITA.No.975/Hyd./2024 u/sec.92B of the Income Tax Act, 1961. Therefore, in our considered view, the arguments of the Counsel for the Assessee that, it has not charged interest on third party receivables and consequently, the question of imputing interest on receivable from AE is incorrect and is also devoid of merit and cannot be accepted. The Counsel for the Assessee had also made an alternative argument that, if at all interest needs to be impugned on overdue receivable from AEs, then, overdue payable to the AE should be adjusted and only on net overdue receivable from AE should be considered. In our considered view, the proposition canvassed by the Learned Counsel for the Assessee is acceptable, provided, the appellant-company provides relevant details of overdue receivable from AE and overdue payable to the AE. Further, in our considered view, the concept of netting of overdue receivable against overdue payables comes into operation only in a case where the appellant is having overdue receivable and overdue payable from a single AE or very same AE. Since the appellant has failed to file relevant details and only refers to the financial Printed from counselvise.com 28 ITA.No.975/Hyd./2024 data provided in annual statements, in our considered view, the argument of the Counsel for the Assessee cannot be accepted. Thus, we reject the proposition canvased by the Learned Counsel for the Assessee in light of certain judicial precedents including decision of ITAT, Hyderabad in the case of Microchip Technology (India) (P.) Ltd., (supra). 20. The Learned Counsel for the Assessee had also canvased one more proposition in light of certain judicial precedents including decision of Hon’ble Delhi High Court in the case of Bechtel India Pvt. Ltd., (supra) and argued that, since the appellant-company is a debt free company and has not incurred any significant interest cost and as such, the question of imputing interest on overdue receivable from AE does not arise. We once again cannot appreciate the argument of the Counsel for the Assessee that, once any transactions falls under the definition of “International transactions” the same needs to be benchmarked with reference to third party transactions. Whether the appellant is a debt free company and incurs any interest cost does not change the legal position or the nature of transactions. In Printed from counselvise.com 29 ITA.No.975/Hyd./2024 the present case, it is undisputedly clear that, overdue receivable from AE is an international transactions and the same needs to be benchmarked. Therefore, in our considered view, the proposition canvassed by the Learned Counsel for the Assessee does not hold good and thus, rejected. Finally, Learned Counsel for the Assessee has made an alternative argument and submitted that, since the assessee has benchmarked international transactions by aggregating all transactions at entity level by adopting TNMM, the question of benchmarking overdue receivable separately is incorrect. We once again unable to accept the arguments of the Learned Counsel for the Assessee for the simple reason that, aggregation approach for benchmarking international transactions comes into play only in a case where the number of international transactions are closely interlinked or interconnected with each other. In the present case, the assessee has failed to prove with relevant evidence the interconnections between the receivables and other international transactions. Therefore, in our considered view, the proposition canvassed by the assessee in light of Printed from counselvise.com 30 ITA.No.975/Hyd./2024 certain judicial precedents including the decision of Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd., (supra), cannot be accepted. 21. In so far as the rate of interest, in our considered view, since the receivables from AE is denominated in foreign currency and also receivable from outside India, the internationally accepted rate of interest is appropriate for benchmarking interest on receivables on overdue receivables from AE. Since LIBOR is the internationally accepted rate of interest for benchmarking, in our considered view, LIBOR plus 200 basis points should be adopted for imputing interest on overdue receivables. Therefore, we direct the Assessing Officer to compute interest on overdue receivables by applying LIBOR plus 200 basis points instead of SBI-PLR rate. Accordingly, these grounds of appeal nos.5 to 13 of the assessee are partly allowed. 22. In the result, appeal of the Assessee is partly allowed. Printed from counselvise.com 31 ITA.No.975/Hyd./2024 Order pronounced in the open Court on 22.08.2025. Sd/- Sd/- [RAVISH SOOD] [MANJUNATHA G] JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 22nd August, 2025 VBP Copy to 1. ADP Private Limited, One West Building, Survey No.88/AA and 88/E, Nanakramguda Village, Serilingampally Mandal, Ranga Reddy District. Telangana. PIN – 500 008. 2. The Deputy Commissioner of Income Tax, Circle-1(1), IT Towers, AC Guards, Masab Tank, Hyderabad – 500 004. Telangana. 3. The Disputes Resolution Panel-1, Kendriya Sadan, 4th Floor, C-Wing, BENGALURU – 560 034. Karnataka. 4. The Pr. CIT, Hyderabad. 5. The DR ITAT “A” Bench, Hyderabad. 6. Guard File. //By Order// //True Copy// Printed from counselvise.com "