EXXONMOBIL SERVICES & TECHNOLOGY PRIVATE LIMITED ,BANGALORE V. DCIT, CIRCLE-2(1)(1), BENGALURU

ITTPA 2202/BANG/2024

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The case involves ExxonMobil Services and Technology Pvt. Ltd., the appellant, contesting the transfer pricing adjustments made by the Deputy Commissioner of Income Tax, the respondent. The primary issues revolved around the selection of comparables for benchmarking international transactions, the application of working capital adjustments, and the imposition of notional interest on delayed receivables. The Tribunal examined the functional comparability of selected companies, the appropriateness of financial data used for adjustments, and the legal basis for the adjustments made under sections 43B and 234A of the Income Tax Act.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840551 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Appeal Filed On: 19-11-2024
• Other Referred Cases: Morgan Stanley Advantage Services Private Limited vs. ACIT, Dialogic Networks India Private Limited vs. ACIT, Schneider Electric IT Business India Private Limited vs. ACIT, Capita India Pvt. Ltd. vs. ACIT, Marlabs Innovation Pvt. Ltd. vs. ACIT, TE Connectivity Services India Pvt. Ltd. vs. ACIT, United Spirits Ltd. vs. DCIT, SAP India (P.) Ltd. vs. Dy. CIT, Areca Trust vs. CIT, Ariba Technologies India (P.) Ltd. vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: DIVYA K.J
• Assessee Lawyers: KETAN VED
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; International transaction; Rule of consistency; Notional interest; Working capital adjustments
• Section: 143(3); 43B; 92B; 10B; 92E

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(TP)A No.2202/Bang/2024 Assessment Year: 2021-22 ExxonMobil Services and Technology Pvt. Ltd., 5th Floor Crescent – 1, Prestige Shantiniketan Building, Whitefield Main Road, Bengaluru – 560 048. PAN – AADCE 9608 C Vs. The Dy. Commissioner of Income Tax, Circle – 2(1)(1), Bengaluru. APPELLANT RESPONDENT Assessee by : Shri Ketan Ved, AR Revenue by : Dr. Divya K.J, CIT (DR) Date of hearing : 11.02.2026 Date of Pronouncement : 24.02.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The present appeal has been instituted by the assessee against the order of the AO/TPO u/s 143(3) r.w.s 144C(13) r.w.s 144B of the Act. dated 19.09.2024 for the AY 2021-22 2. The assessee in the memo of appeal has raised various grounds and sub-grounds related to TP and corporate tax matters, which we for the sake of brevity and convenience are not inclined to reproduce here. 3. At the outset, we note that Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 2 of 36 . 4. The ground Nos. 2 to 15 and Ground No. 17 are interconnected and pertain to fresh economic analysis conducted by the TPO and inclusion and exclusion of certain comparables by the TPO and by the learned DRP for computing the ALP of the international transactions carried out by the assessee with its AE. 5. The brief facts of the case in hand are that the assessee, a private limited company, is engaged in the business of providing back-office support services to its AEs on cost-plus basis. The assessee has divided its transactions in 2 segments mainly: (a) BPO Services (b) Technical Support Services (‘TSS’) which is not in dispute. 6. The assessee benchmarked its transaction under BPO segment by adopting TNNM as most appropriate method and further PLI as OP/OC which was arrived at 18.51%. The assessee for the comparability analysis under BPO segment selected 17 comparables with a median of 9.58% and 35th & 65th Percentile being 7.26% and 11.59% respectively. However, the TPO during the assessment proceedings accepted 03 comparables out of 17 comparables selected by the assessee. The assessee’s comparables accepted by the TPO are detailed as under: 1. Sundaram Business Services Limited 2. CES Limited 3. Tech Mahindra Business Services Limited 7. Thereafter, the TPO applied own filters and selected 13 additional comparable companies inclusive of 3 assessee’s comparables. The final TPO’s comparables are detailed as under: 1. Sundaram Business Services Limited 2. CES Limited Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 3 of 36 . 3. Tech Mahindra Business Services Limited 4. I Services India Private Limited 5. Anderson Business Solutions Private Limited 6. Suprawin Technologies Limited 7. E Care India Private Limited 8. Ultramarine (Segmental) 9. Vitae International Accounting Services Private Limited 10. Inteq BPO Services Private Limited 11. Savitriya Technologies Private Limited 12. Datamatics Business Solutions Limited 13. TTEC India Customer Solutions Private Limited 7.1 The average PLI/margin of the comparable companies selected by the TPO was computed at 21.84% with respect to BPO Segment. Accordingly, an upward TP adjustment was made by the TPO for Rs. 12,36,16,032/- only. 8. The aggrieved assessee preferred to file objections before the learned DRP. 9. Before the Ld. DRP, the assessee objected to the inclusion of Datamatics Business Solutions Limited as a comparable. It was submitted that the said company is not functionally comparable to the assessee, which is engaged in providing routine captive ITES services to its associated enterprise. The assessee further submitted that in its own case for Assessment Year 2017-18, the co-ordinate bench of the Tribunal had examined the functional profile of Datamatics Business Solutions Limited and had directed its exclusion from the final set of comparables. It was contended that there is no material change either in the functional profile of the assessee or in that of the said company during the year under consideration. Therefore, following the principle of Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 4 of 36 . consistency and judicial discipline, the Ld. DRP ought to have directed exclusion of the said comparable. 9.1 Further, the assessee before the Ld. DRP submitted that Datamatics Business Solutions Limited is not comparable to the assessee. It was stated that the said company is engaged in ITeS and Business Process Management (BPM) services. These services include high-end KPO activities and business intelligence solutions. Such services require higher skill, specialised knowledge and domain expertise. On the other hand, the assessee is engaged only in routine BPO services provided to its associated enterprise. The assessee does not provide any high-end or knowledge-based services. 9.2 It was also submitted that the annual report of Datamatics Business Solutions Limited does not clearly explain what exact activities are carried out under its BPM segment. Further, the annual report does not provide proper segment-wise break-up of its different business activities. Therefore, it is not possible to determine the margin of comparable services separately. 9.3 The assessee further before the Ld. DRP submitted that the said comparable has abnormal fluctuation in its margins. It is a well- established principle in transfer pricing that comparables should be selected only if they provide a reliable benchmark. If a company has abnormal margins due to extraordinary events, one-time transactions, or other exceptional circumstances, its results may not reflect the correct arm’s length position. Therefore, such companies should not be included in the final set of comparables. 9.4 The assessee relied on judicial precedents in support of its contention. Reliance was placed on the decision of the Mumbai Bench of the Tribunal in the case of Morgan Stanley Advantage Services Private Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 5 of 36 . Limited (ITA No. 6523/Mum/2014) and Dialogic Networks India Private Limited (ITA No. 7872/Mum/2012), wherein it was held that activities of Datamatics, being similar to a KPO, cannot be compared with a routine ITES provider. Accordingly, the assessee requested the Ld. DRP to direct exclusion of Datamatics Business Solutions Limited from the final list of comparables. 9.5 Further, before the Ld. DRP, the assessee submitted that Micro Land Limited is functionally comparable to the assessee. It was submitted that the said comparable is engaged in providing IT infrastructure management services and IT enabled services. The annual report of the company clearly shows that it operates in segments similar to those of the assessee. 9.6 The assessee further submitted that MicroLand Limited satisfies all the quantitative filters applied by the TPO, such as turnover, core function filter, and RPT filters. Therefore, there is no reason to exclude the said company. 9.7 Further, the assessee before the Ld. DRP submitted that for Assessment Years 2017-18 and 2018-19, the TPO had accepted the said comparable company in the final set of comparables of the assessee. It was submitted that there is no material change in the functional profile either of the assessee or the said comparable during the year under consideration. Therefore, following the principle of consistency, the same comparable should also be accepted for the present assessment year. In view of the above, the assessee requested the Ld. DRP to direct the inclusion of Micro Land Limited in the final set of comparables. 9.8 Further, regarding R Systems International Limited, the assessee before the Ld. DRP submitted that the said comparable was rejected by the TPO on the ground that it follows a different financial year. The Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 6 of 36 . assessee submitted that merely because the company follows a different financial year, it cannot be rejected if reliable financial data is available corresponding to the year/ period of the assessee. 9.9 In this regard, the assessee placed reliance on the decision in the case of Schneider Electric IT Business India Private Limited vs. ACIT (133 taxmann.com 215), wherein it was held that the TPO should consider the quarterly results of the comparable company and extrapolate the same to align it with the relevant financial year for comparison purposes. 9.10 The assessee further submitted that R Systems International Limited is functionally similar, as it is engaged in providing IT services as well as Business Process Outsourcing services. The relevant segmental information is available in the public domain. Therefore, its margin can be properly compared with that of the assessee. 9.11 It was also submitted that the said company satisfies all the quantitative filters applied by the TPO. Accordingly, the assessee requested the Ld. DRP to direct the inclusion of M/s R Systems International Limited in the final set of comparables. 9.12 However, the Ld. DRP, after considering the submissions of the assessee with regard to Datamatics Business Solutions Limited, did not accept the objections. The Ld. DRP observed that as per the annual report, the revenue of the said comparable from IT enabled services is 100%. The company is engaged in the business of ITES as well as software development. 9.13 With regard to the plea of the assessee that the company has abnormal fluctuation in profits, the Ld. DRP held that the concept of range, weighted average of three years’ data, and tolerable variation take care of such differences. Therefore, merely because a company has Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 7 of 36 . higher margins or fluctuation in margins, it cannot be excluded if it is otherwise functionally comparable. The Ld. DRP further observed that it is settled law that a good comparable cannot be excluded only on the ground of high turnover or high margins. 10. On the issue of consistency, the Ld. DRP held that merely because a company was included or excluded in earlier or subsequent years, the same cannot be blindly followed. Comparability has to be examined every year based on the facts and financial data of that specific year. 10.1 In support of this view, the Ld. DRP relied on the decision of the Hon’ble ITAT Delhi in the case of Agnity India Technologies Pvt. Ltd. (ITA No. 6485/Del/2012 for AY 2008-09), wherein it was observed that precedents cannot be blindly followed in transfer pricing matters. Accordingly, the Ld. DRP upheld the selection of the said company as a comparable. 10.2 Further, with regard to Micro Land Limited, the Ld. DRP did not accept the plea of the assessee for inclusion of the said company. The Ld. DRP observed that the said company does not appear in the search matrix prepared by the TPO. 10.3 The Ld. DRP noted that the TPO had already rejected the transfer pricing study of the assessee and had conducted a fresh search to identify comparable companies. Therefore, according to the Ld. DRP, the assessee can only object to those companies which were selected by the TPO or wrongly rejected from the TPO’s search matrix. Since Micro Land Limited was not part of the TPO’s search matrix, the Ld. DRP held that examining its functionality at this stage would amount to cherry picking and may lead to an endless exercise of selecting comparables. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 8 of 36 . Accordingly, the Ld. DRP rejected the plea of the assessee for inclusion of M/s Micro Land Limited in the final set of comparables. 10.4 With regard to R Systems International Limited, the Ld. DRP observed that the said company does not satisfy the different financial year filter adopted by the TPO. The Ld. DRP noted that the company follows a different financial year and, therefore, does not meet the criteria applied by the TPO. The Ld. DRP further observed that the assessee has not disputed the fact that the company follows a different financial year. In view of this, the Ld. DRP did not find any merit in the objection raised by the assessee. Accordingly, the Ld. DRP rejected the plea of the assessee for inclusion of R Systems International Limited in the final set of comparables. 11. Aggrieved by the directions of the Ld. DRP and the final assessment order passed pursuant thereto, the assessee has preferred the present appeal before us. 12. The Ld. AR before us submitted that Datamatics Business Solutions Limited should not be selected as a comparable company. It was submitted that the said company is functionally different from the assessee. The company is engaged in providing IT enabled services and Business Process Management services, which include high-end KPO services such as search analytics and other knowledge-based services. 12.1 It was further submitted that no proper segmental details are available in respect of the diversified activities carried out by the said company. In the absence of clear segmental information, the margin of comparable activities cannot be properly determined. 12.2 The Ld. AR also submitted that in the assessee’s own case for Assessment Year 2017-18 in IT(TP)A No. 958/Bang/2022, the Bangalore Bench of the ITAT had directed exclusion of Datamatics Business Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 9 of 36 . Solutions Limited from the list of comparables for the BPO segment. It was submitted that the reasons for exclusion in that year are identical to the reasons raised in the present year. Therefore, following the principle of consistency, the said company should be excluded from the final set of comparables. 12.3 Further, with regard to R Systems International Limited, the Ld. AR submitted that the said company should be included as a comparable. It was submitted that the TPO rejected the said company only on the ground that it follows a different accounting year. 12.4 The Ld. AR submitted that the quarterly results of R Systems are available in the public domain. Therefore, the financial results for the relevant financial year of the assessee, i.e., April to March, can be reasonably extrapolated from the quarterly data. By doing so, the profit margin for the relevant period can be accurately determined and used for comparability analysis. 12.5 In support of this contention, reliance was placed on the decision in Conneqt Business Solutions Ltd. (180 taxmann.com 447) for AY 2021- 22, wherein the Bangalore Bench directed the TPO to include R Systems as a comparable and held that it cannot be rejected solely on the ground that it follows a different accounting year. 12.6 Further reliance was placed on the decision in Goldman Sachs (India) Securities Pvt. Ltd. for AY 2021-22 (177 taxmann.com 28), wherein the inclusion of R Systems in the IT enabled services segment was accepted. 12.7 The Ld. AR also relied on other judicial precedents such as Capita India Pvt. Ltd. (ITA No. 4954/Mum/2024 for AY 2021-22) and Marlabs Innovation Pvt. Ltd. (IT(TP)A No. 1896/Bang/2017 for AY 2013-14), wherein the Tribunals directed the TPO to extrapolate quarterly results Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 10 of 36 . and compute the margin of the said comparable. Accordingly, it was submitted that R Systems International Limited should be included in the final set of comparables. 12.8 Further, with regard to M/s Micro Land Limited, the assessee submitted that the said company should be included as a comparable. It was submitted that the lower authorities rejected the said company only on the ground that it was not part of the TPO’s search matrix. The assessee submitted that Micro Land Limited is functionally similar, as it is engaged in providing IT infrastructure management services and IT enabled services. It was further submitted that detailed segmental information of the company is available in the public domain. Therefore, its financial results can be properly considered for comparability analysis. The assessee also submitted that the said company satisfies all the quantitative filters applied by the TPO, such as turnover, employee cost, export revenue and RPT filters. 12.9 It was further submitted that for Assessment Year 2020-21, the Hon’ble DRP had directed the TPO to include Micro Land Limited in the final set of comparables, as it satisfied all the filters applied by the TPO. Further, for Assessment Years 2017-18 and 2018-19, the TPO himself had accepted the said company in the final set of comparables of the assessee. Accordingly, the assessee submitted that Micro Land Limited ought to be included in the final set of comparables for the year under consideration. 13. On the other hand, the Ld. DR before us vehemently supported the order of the authorities below. 14. We have considered the rival submissions and perused the materials on record. From the preceding discussion, we note that the issue before us is revolving around the inclusion and the exclusion of the Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 11 of 36 . comparables which have been elaborated in the preceding paragraph. Accordingly, now we proceed to deal individually for each comparable in the following paragraphs. Datamatics Business Solutions Limited 14.1 From the annual report placed on record, it is seen that the said company is engaged in providing IT enabled services and Business Process Management services, which include high-end and knowledge- based services. The assessee, on the other hand, is engaged in rendering routine BPO services on a captive basis. We also notice that in the assessee’s own case for AY 2017-18, the co-ordinate bench in Exxonmobil Services and Technology (P.) Ltd. vs. Deputy Commissioner of Income-tax reported in [2023] 154 taxmann.com 507 (Bangalore - Trib.) [12-07-2023] has directed exclusion of this company from the list of comparables in the BPO segment on similar grounds. The Revenue has not brought on record any material to show that the functional profile of the said company has undergone any material change during the year under consideration. The relevant finding of the order is extracted below: “7.1 Accordingly, we direct the AO to exclude this company M/s. Datamatics Business Solutions Ltd. from the list of comparables as this company is a KPO company and not comparable to assessee company.\" 14.2 Further, no clear segmental details are available to isolate margins of comparable activities. As such we note that Datamatics is engaged in providing business intelligent solutions, B2B sales and marketing solutions, business process transformation and technology solutions. Sale of business solutions further implies that the company is not only providing ITeS but also selling packaged solutions which may include software. In view of the functional differences and absence of Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 12 of 36 . reliable segmental data, we direct the TPO/AO to exclude Datamatics Business Solutions Limited from the final set of comparables. R Systems International Limited 14.3 The TPO rejected this company only on the ground that it follows a different financial year. However, it is not disputed that the company is a listed entity, and its quarterly financial results are available in the public domain. As per Clause 41 of the Listing Agreement with the stock exchanges, listed companies are required to publish their quarterly audited results after review by the auditor. 14.4 Various co-ordinate benches of the Tribunal have held that where quarterly financial data is available, the margins for the relevant financial year can be reasonably computed by using such quarterly results. Therefore, a company cannot be rejected solely on the ground that it follows a different accounting year, if reliable quarterly data is available for proper comparison. In holding so, we place our reliance on the order of Concurr Technologies vs. ACIT reported in (2025) 180 Taxmann.com 447 (Bangalore) for AY 2021-22 wherein it was held as under: The next contention of the assessee is that R Systems International Limited which is part of the comparability study of the assessee as well as the TPO but is excluded for the simple reason that it follows a different accounting year. It is found that the above company is a listed entity wherein according to clause 41 of the listing agreement with the stock exchanges, the quarterly audited results reviewed by the auditor are made public. Therefore, if the data is available in the public domain, and assessee is in a position to reconstruct the financial data for the respective financial year comparable to the assessee's financial year, to the satisfaction of the Assessing Officer/ TPO, the same company should be included. Accordingly, the assessee is directed to substantiate before the Assessing Officer that R Systems International Limited's financials are comparable on such reconstruction. [Para 27] 14.5 In view of the above, we direct the TPO to examine the quarterly results of R Systems International Limited and, if reliable data is available to compute margins for the relevant financial year of the said Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 13 of 36 . company and accordingly, include the said company in the final set of comparables after proper verification. Micro Land Limited 15. The lower authorities rejected this company on the ground that it does not form part of the TPO’s search matrix. It is not in dispute that the TPO rejected the transfer pricing study of the assessee and conducted an independent search for comparables. It is also an admitted position that Micro Land Limited does not form part of the search matrix generated by the TPO. Similarly, the search metrics adopted by the TPO was not challenged by the assessee. 15.1 However, the assessee contended that the search matrix was not made available to it. But, from the records it is evident that the assessee had access to the search process and filters adopted by the TPO. The assessee has also not demonstrated that the search methodology, keywords, or filters adopted by the TPO were inappropriate. 15.2 The assessee further argued that the department used Prowess database whereas the assessee used Capitaline and that Micro Land Limited did not appear in the database of the TPO. In our view, there is no legal requirement that both parties must use the same database. What is relevant is whether the search process is proper and consistently applied. The choice of database, by itself, does not render the search defective. 15.3 The co-ordinate Bangalore Bench of the Tribunal in Concur Technologies (India) (P.) Ltd. vs. ACIT [2025] 180 taxmann.com 447 (Bangalore - Trib.) has clearly held that where a company does not form part of the TPO’s search matrix and the search process is not shown to be defective, inclusion of such company at the instance of the assessee amounts to cherry picking. The Tribunal rejected similar pleas in that Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 14 of 36 . case. The relevant paragraph of the said judgment is reproduced below for the sake of ready reference: “Coming to the comparability analysis in case of ITeS segment the assessee has stated that when Virinchi Ltd and MAA Business Solutions Private Limited should be included. Virinchi Limited was part of the transfer pricing study report prepared by the assessee whereas the MAA Business Solutions Private Limited is an addition comparable produced during assessment proceedings. We find that Virinchi Limited is not part of the TPO search metrics and similarly is the MAA Business Solutions Private Limited was also not found place in the search matrix of the learned transfer pricing officer. As we have already held that if the comparable companies are not finding place in the search matrix of the learned transfer pricing officer where there is no allegation that the search matrix adopted by the learned transfer pricing officer is inappropriate, so far as selection of the keywords, filters, etc., the incorporation of any company stating that it is comparable and therefore it should be included amounts to cherry picking. And therefore, the contention of the assessee for inclusion of the above company as well as suggestion of further inclusion of 11 companies in the market support services segment is rejected.” 15.4 However, the facts of the present case are materially different. It is brought on record that: • For Assessment Year 2020-21, the Ld. DRP directed inclusion of Micro Land Limited in the case of the assessee. • For Assessment Years 2017-18 and 2018-19, the TPO himself accepted Micro Land Limited as a comparable in the final set. 15.5 The Revenue has not brought on record any material to show that there is a change in the functional profile of either the assessee or Micro Land Limited during the year under consideration. In the absence of any material change in facts, the principle of consistency requires that a view already taken in earlier years should not be disturbed. Therefore, though ordinarily a company not forming part of the search matrix may not be permitted to be introduced, the present case stands on a different footing due to consistent acceptance of the same comparable in earlier years in the assessee’s own case. Accordingly, considering the peculiar facts of the case and following the principle of consistency, we direct the Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 15 of 36 . TPO to include M/s Micro Land Limited in the final set of comparables. The TPO/AO shall recompute the arm’s length price after giving effect to the above direction and grant consequential relief to the assessee. Hence, the ground of appeal of the assessee is partly allowed. Ground No. 16 relates to the working capital adjustment. 16. The relevant facts are that during the assessment proceedings, the assessee submitted that it operates as a captive contract service provider. It was stated that the assessee is not insulated from various entrepreneurial risks, as such risks are borne by its associated enterprises. Being a captive service provider, the assessee does not bear market risk, contract risk, service liability risk, credit risk and other business risks which are normally borne by independent companies selected as comparables. 16.1 Therefore, it was submitted that appropriate adjustments should be made to account for the differences between the controlled transactions of the assessee and the uncontrolled transactions of the comparable companies. Such differences in risk profile and working capital levels can affect prices and profitability under open market conditions. 16.2 During the proceedings, the assessee was asked to explain how differences in working capital levels have impacted the profit margins of the comparable companies and to justify the claim for working capital adjustment. 16.3 However, the TPO contended that the assessee was not able to explain such difference. The TPO submitted that the assessee did not submit whether the comparables companies had financed their working capital by their own funds or borrowed funds. The assessee also failed to Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 16 of 36 . demonstrate whether any cost has been incurred on the working capital by the comparable companies. The TPO relied on the Hon’ble Chennai ITAT judicial precedent in the case of Mobis India Limited vs. DCIT reported in TS-235-ITAT-2013(CHNY)-TP wherein the Hon’ble ITAT rejected the claim of working capital adjustment of the taxpayer on the ground that impact of difference in working capital has not been demonstrated by the taxpayer. Hence, no working capital adjustment was allowed to the assessee. 17. Aggrieved assessee filed objections before the Ld. DRP. 18. Before the Ld. DRP, the assessee referred to the decision in the case of Mentor Graphics (Noida) Pvt. Ltd. in ITA No. 1969/Delhi/2006, wherein the Hon’ble Delhi High Court held that, depending on the facts of each case, appropriate adjustments such as working capital, risk and growth adjustments may be required to eliminate differences between controlled and uncontrolled transactions. 18.1 The assessee also relied on the decision of the Hon’ble Pune Bench in the case of Demag Cranes and Components Pvt. Ltd. in ITA No. 120/Pune/2011, wherein it was held that suitable adjustment on account of working capital should be granted while computing the arm’s length operating margin of the comparable companies. 18.2 Further, the assessee referred to the practical examples provided in the OECD’s comparability discussion draft. In paragraphs 43 to 50 of the said note, the OECD has explained the need for and the manner of granting working capital adjustment with illustrative examples. 18.3 The assessee also placed reliance on the revised Guidance Note issued by the Institute of Chartered Accountants of India on working capital adjustment. As per paragraph 7.74 of the said Guidance Note, where an international transaction does not have certain characteristics Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 17 of 36 . that are present in uncontrolled transactions, suitable adjustments should be made to improve comparability. 18.4 The assessee further submitted that several judicial precedents have allowed working capital adjustment, and therefore such adjustment ought to be granted in the present case as well. 18.5 The Ld. DRP observed that Rule 10B of the Rules provides for making reasonably accurate adjustments to uncontrolled transactions to eliminate the material effects of differences on price, cost or profits. The assessee has claimed working capital adjustment on the ground that there are differences in receivables and payables between the assessee and the comparable companies. 18.6 However, the Ld. DRP noted that the assessee was not able to demonstrate, with proper data or supporting material, how such differences in working capital have materially affected the price, cost or profit. The Ld. DRP further observed that the receivables and payables shown in the balance sheet only reflect the position as on the last day of the financial year. Such figures, by themselves, do not establish the actual impact of working capital on profitability during the year. 18.7 The Ld. DRP also observed that working capital requirements depend on several factors such as business cycle, nature of business, economic conditions, funding pattern, cost of capital, market share and business strategy. These factors cannot be fully captured merely from year-end receivables and payables balances. Further, there is no uniform accounting practice to clearly segregate whether receivables and payables relate purely to revenue transactions or include capital items. Therefore, the balances shown in the financial statements may not accurately reflect the working capital employed for operational purposes. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 18 of 36 . It was also observed that the cost attributable to working capital would differ from enterprise to enterprise, depending on the cost of funds and economic conditions in which the enterprise operates. 18.8 In view of these observations, the Ld. DRP held that a reasonably accurate adjustment could not be made in the present case. The assessee had also failed to demonstrate material differences warranting such adjustment. Accordingly, the Ld. DRP upheld the reasoning of the TPO and rejected the claim of the assessee for working capital adjustment. 19. Aggrieved by the order of the AO/TPO and the direction of ld. DRP, the assessee preferred an appeal before us. 20. The Ld. AR before us submitted that working capital adjustment ought to be granted to the assessee. It was contended that both the TPO and the Ld. DRP erred in rejecting the claim for working capital adjustment. 20.1 The Ld. AR submitted that the assessee operates as a captive service provider and there are clear differences in the working capital levels between the assessee and the comparable companies. Such differences directly affect profitability and therefore need to be adjusted to ensure proper comparability. 20.2 In support of this contention, the Ld. AR placed reliance on various judicial precedents of the Bangalore Bench of the Tribunal, wherein it has been consistently held that working capital adjustment should be granted when there are differences in receivables, payables and inventory between the assessee and the comparable companies. Accordingly, it was prayed that appropriate working capital adjustment be directed to be granted while computing the arm’s length margin. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 19 of 36 . 21. On the other hand, the Ld. DR submitted that the claim for working capital adjustment was rightly rejected by the TPO and the ld. DRP, as the assessee failed to provide complete and reliable data of comparable companies. It was contended that working capital adjustment cannot be granted routinely and must be based on verifiable differences in receivables, payables, and inventory. The ld. DR argued that the assessee did not demonstrate that these differences materially impacted profitability. Without proper segmental or financial details of comparables, any adjustment would be arbitrary. Accordingly, the ld. DR supported the TPO’s decision and opposed granting the adjustment. 22. We have considered the rival submissions of both the parties and examined the materials available on record. While benchmarking international transactions under the TNMM, differences in working capital levels between the assessee and the comparable companies are required to be adjusted in terms of Rule 10B(1)(e) of the Income-tax Rules, as such differences materially affect the net profit margins. 22.1 In the present case, the assessee has contended that its working capital position, including trade receivables, trade payables and inventory, is materially different from that of the comparables. However, we find that the authorities below have not carried out a proper working capital analysis based on average balances and comparable data. The rejection of the claim without undertaking a scientific computation is not justified. 22.2 Hence, in the interest of justice and fair-play, we deem it appropriate to restore this issue to the file of the AO/TPO for the limited purpose of granting working capital adjustment in accordance with law. The AO/TPO is directed to compute the working capital adjustment in line with the principles laid down in Agilent Technologies (International) Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 20 of 36 . P. Ltd. vs. ACIT reported in [2025] 172 taxmann.com 858 (Delhi – Trib.), as detailed under: (i) Compute the average of opening and closing balances of inventories, trade receivables and trade payables of both the tested party and the comparables for the relevant year, considering only revenue account items. (ii) Compute the net working capital as a percentage of operating cost/sales (whichever denominator is used in the PLI) for both the assessee and the comparables. (iii) Determine the difference between the working capital ratio of the assessee and that of each comparable. (iv) Multiply such difference by the appropriate interest rate, i.e., SBI Prime Lending Rate as on 30th June of the relevant financial year. (v) Add the resulting adjustment to the profit margin of each comparable as finally determined. (vi) Loans, advances or other financing transactions shall not be considered for this purpose. 22.3 The AO/TPO shall grant due opportunity of being heard to the assessee while carrying out the above exercise. In the present case, the comparables have been selected by the TPO. Therefore, the initial onus lies on the TPO to examine whether there are material differences between the assessee and the comparable companies, including differences in working capital levels. 22.4 While determining the arm’s length price under the TNMM, adjustments are required to be made for differences which materially affect the profit margins. Working capital differences directly impact profitability and therefore must be examined. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 21 of 36 . 22.5 Since the TPO has selected the comparables based on his own search process and filters, he cannot simply deny working capital adjustment without proper analysis. Once the assessee points out differences in working capital, the burden shifts to the TPO to demonstrate, with reasons and data, that such differences do not materially affect the margins. If he fails to do so, he is duty-bound to grant appropriate working capital adjustment. This is because the exercise of determining arm’s length price must be fair, scientific and in accordance with Rule 10B. Accordingly, this issue is set aside to the file of the AO/TPO for fresh determination in accordance with the law and above directions. 23. Ground No. 18 relates to notional interest on trade receivables. 23.1 The relevant facts of the case are that 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 under consideration. In doing so, the learned TPO placed reliance on the provisions of section 92B of the Act, wherein the definition of “international transaction” was retrospectively amended to include capital financing transactions arising in the course of business. 23.2 The learned TPO computed notional interest on the average receivables of the assessee for the captioned AY by applying the SBI PLR applicable for the captioned Assessment year at the rate of 12.27% and, on such basis, determined the total notional interest adjustment at Rs. 11,79,491/- only. 24. Aggrieved assessee filed objections before the Ld. DRP. 25. Before the Ld. DRP, the assessee submitted that it had entered into international transactions of rendering ITES services amounting to Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 22 of 36 . ₹519.52 crores with its AEs. It was submitted that the receivables arising in the books of the assessee are directly linked to these international transactions for the provision of ITES services. 25.1 The assessee further submitted that the weighted average collection period for realising the receivables was only 22.69 days, which is well within the credit period of 30 days allowed by the TPO. Therefore, there is no delay warranting any separate adjustment on account of interest on receivables. 25.2 Without prejudice, the assessee submitted that as on 31 March 2021, it also had trade payables outstanding towards its AEs, on which no interest was charged by the AEs. It was further submitted that the assessee follows a uniform policy of not charging interest on overdue balances, whether from AEs or from third parties. Similarly, no interest was charged on any third-party receivables or payables. 25.3 The assessee also pointed out that the TPO has arbitrarily adopted the SBI PLR rate of 12.27% for Financial Year 2020-21 for computing the interest adjustment, without proper justification. 25.4 Before the Ld. DRP, the assessee submitted the interest on delayed receivables should not be considered a separate international transactions reason being they represent only a consequence of the principal international transaction i.e. sales. The assessee also relied on the judgment of Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. reported in TS-412-HC-2017(Del)-TP wherein the Hon’ble Court held that separate adjustment on the pretext of o/s receivable is unjustified when the comparables are accepted and TP of underlying transaction i.e. sale of goods is also accepted. Similar reliance was also placed by the assessee on various other judicial prudence. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 23 of 36 . 25.5 The assessee further referred to the RBI guidelines on realisation and repatriation of export proceeds, issued vide Master Circular No. 14/2014 on Export of Goods and Services. It was submitted that as per the said guidelines, it is obligatory for an exporter to realise and repatriate the full value of export proceeds to India within nine months from the date of export. 25.6 The assessee contended that the amounts received against invoices raised on its AEs were well within the time period prescribed under the RBI regulations. Therefore, even from a regulatory perspective, there was no undue delay in realisation of receivables. Accordingly, it was submitted that no separate adjustment on account of alleged delay in receivables is warranted. 25.7 Further, the assessee contended that the amount of outstanding receivables gets adjusted in the working capital adjustments and hence, addition is not required separately thereon. 26. The Ld. DRP, with regard to contention of the assessee regarding whether the interest on delayed receivables constitutes a separate international transaction, submitted that the amendment inserted by way of Explanation to sec. 92B of the Act, the term ‘internation transaction’ would specifically include within its ambit “deferred payment or receivable or any other debt arising during course of business…” and hence, non-charging or under-charging of interest on excess period of credit allowed to the AE for the realization of invoices would amount to an international transaction. The Ld. DRP further relied on plethora of judicial precedents in this regard. 26.1 Further, on the plea of the assessee that it has not charged any interest from either AEs or non-AEs and therefore no interest should be imputed on AE transactions, the Ld. DRP did not accept the contention. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 24 of 36 . 26.2 The Ld. DRP observed that the assessee failed to submit complete details regarding the AE transactions, such as the terms of service, agreed credit period, payment terms, and relevant agreements or supporting documents. In the absence of such materials, the Ld. DRP held that the claim of the assessee cannot be accepted. Accordingly, the Ld. DRP rejected the plea of the assessee in this regard. 27. Aggrieved by the order of the AO/TPO and the direction of ld. DRP, the assessee preferred an appeal before us. 28. The Ld. AR before us submitted that trade receivables should not be treated as a separate international transaction and no interest should be imputed on the same. It was submitted that the TPO has wrongly treated the outstanding trade receivables as if they were unsecured loans advanced to the AEs and accordingly computed interest on such receivables amounting to ₹11,94,991.00 only. 28.1 The assessee further submitted that the TPO has computed interest by adopting the SBI PLR rate. It was submitted that all invoices during the relevant assessment year were raised in foreign currency. Therefore, if any adjustment is warranted, the rate applicable to foreign currency denominated transactions, i.e., LIBOR, should be applied and not the domestic SBI PLR rate. 28.2 The assessee also submitted that the working capital adjustment granted in the ITES segment already takes into account the impact of receivables and payables. Therefore, any alleged excess credit period stands subsumed in the working capital adjustment. Hence, no separate adjustment for interest on delayed receivables is required. 28.3 In this regard, reliance was placed on the decision of the Hon’ble Bangalore Bench in the case of TE Connectivity Services India Pvt. Ltd. (177 taxmann.com 792), wherein it was held that if working capital Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 25 of 36 . adjustment has been granted, interest on delayed receivables would stand subsumed in the arm’s length price of the ITES segment. 28.4 Without prejudice, the assessee submitted that if at all interest is to be computed, the same should be done by applying LIBOR plus 200 basis points, as held in several judicial precedents. Accordingly, the assessee requested the Bench to direct the TPO to recompute the interest on trade receivables by applying LIBOR plus 200 basis points. 29. On the other hand, the Ld. DR submitted that outstanding receivables constitute a separate international transaction under section 92B and that delay beyond the agreed credit period amounts to extension of credit to AEs. It was argued that an independent party would charge interest for such delay. The ld. DR contended that working capital adjustment does not cover excessive credit period allowed to AEs. Regarding the rate, it was submitted that SBI PLR is appropriate since the assessee is an Indian entity deploying funds from India. Accordingly, the DR supported the TPO’s action and prayed that the adjustment be sustained. 30. 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 SBI PLR rate. The assessee has contended that the rate adopted by the TPO is not correct, as the invoices were raised in foreign currency. 30.1 It is an undisputed fact that the receivables arise from services rendered to AEs and the invoices were denominated in foreign currency. In such cases, the interest rate applicable to foreign currency transactions should be applied. The adoption of domestic SBI PLR rate is not justified. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 26 of 36 . 30.2 The Tribunal in several cases has consistently held that where the underlying transaction is in foreign currency, the appropriate benchmark rate is LIBOR plus a reasonable basis point spread. 30.3 Accordingly, we direct the TPO to recompute the interest on delayed receivables, if any, by adopting LIBOR plus 200 basis points. Interest shall be computed only for the actual period of delay beyond the agreed credit period. The TPO shall grant reasonable opportunity to the assessee while recomputing the adjustment. 30.4 Further, we note that working capital adjustment is computed on the basis of opening and closing balances of receivables and payables. However, delayed realisation of receivables has to be examined on a transaction-to-transaction basis. 30.5 If an invoice is raised during the year and the amount is realised within the same financial year, but beyond the agreed credit period, such delay may not be fully reflected in the working capital adjustment. This is because working capital adjustment is calculated with reference to the balances as on the first and last day of the financial year, and not with reference to each individual invoice. 30.6 Therefore, to that limited extent, the contention of the assessee that all delays in receivables automatically get subsumed in the working capital adjustment cannot be fully accepted. Hence, the ground of the assessee’s appeal is allowed in part in the above terms. 31. Ground No. 19 related to disallowance u/s 43B of the Act 31.1 The relevant facts are that the assessee filed its return of income for the relevant Assessment Year on 14 November 2022, declaring a total income of ₹2,14,22,96,636 and claiming a refund of ₹1,02,98,180.00 only. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 27 of 36 . 31.2 The Central Processing Centre (CPC) issued a communication dated 29 September 2022 proposing an adjustment of ₹1,47,20,237 on account of an alleged inconsistency in the amount payable to employees as bonus or commission for services rendered, as claimed in the return of income and as reported in the tax audit report. 31.3 The assessee filed a response to the said communication and disagreed with the proposed adjustment. It was clarified that the said amount had been duly disclosed in the tax audit report under Clause 26(i)(A)(a) at serial number 1 and was also correctly reported in the return of income under Schedule OI, Clause 10(c). It was submitted that there was no difference between the return of income and the tax audit report. 31.4 However, without considering the response filed by the assessee, the CPC issued an intimation under section 143(1) of the Act making an adjustment of ₹1,47,20,237 on account of alleged difference in disclosure under section 43B of the Act. As a result, the deduction claimed in the return of income was disallowed, even though the amount had been paid during the year and properly disclosed in the tax audit report. 31.5 The assessee thereafter filed a rectification application on 2 December 2022 against the intimation issued under section 143(1) of the Act. The said application is still pending for disposal. 31.6 The assessee further submitted that the adjustment made in the intimation under section 143(1) has been subsumed in the final assessment order passed under section 143(3) read with section 144C(13) read with section 144B of the Act. 31.7 In support of its contention, the assessee placed reliance on decisions of the Bangalore Bench of the Tribunal, wherein it has been Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 28 of 36 . held that issues arising from adjustments made under section 143(1) can be adjudicated in an appeal arising from the final assessment order passed under section 143(3) read with section 144C(13) of the Act. 32. Aggrieved assessee filed objections before the DRP. 33. Before the Ld. DRP, it was submitted that the adjustment made by the CPC under section 143(1) was incorrect, as there was no difference between the amount reported in the return of income and the tax audit report. 33.1 The assessee once again clarified that the amount relating to bonus or commission payable to employees had been properly disclosed in the tax audit report under Clause 26(i)(a) and was also correctly reported in the return of income under the relevant schedule. It was submitted that the deduction was allowable, as the amount had been paid during the year. 33.2 The assessee also submitted that the adjustment made under section 143(1) of the Act had been subsumed in the final assessment order and therefore required proper adjudication. Accordingly, the assessee requested the Ld. DRP to direct deletion of the adjustment. 33.3 However, the Ld. DRP observed that the disallowance in question was made by the CPC under section 143(1) of the Act and not by the Assessing Officer in the draft assessment order. The Ld. DRP noted that this disallowance was neither discussed nor proposed as a variation by the Assessing Officer in the draft order. The Assessing Officer had merely adopted the total income determined as per the intimation under section 143(1) of the Act as the starting point for computing the income in the draft assessment order. 33.4 The Ld. DRP further observed that since the disallowance was determined in a separate proceeding by the CPC, the Assessing Officer Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 29 of 36 . had not issued any show cause notice in respect of the same, as it was not a variation proposed by him. The Ld. DRP held that the proceedings under section 143(1) and the draft assessment proceedings do not automatically merge. Accordingly, the Ld. DRP held that it has jurisdiction only to examine variations proposed by the Assessing Officer in the draft assessment order and not adjustments made independently by the CPC. In this regard, reliance was placed on the decision of the Hon’ble Bangalore ITAT in the case of Areca Trust vs. CIT reported in 172 taxmann.com 81. 34. Aggrieved assessee preferred an appeal before us. 35. The Ld. AR before us reiterated the submissions made before the Ld. DRP. It was submitted that the adjustment made under section 143(1) was incorrect and that there was no difference between the figures reported in the return of income and the tax audit report. The Ld. AR contended that the deduction claimed was properly allowable under section 43B of the Act, as the amount had been paid during the year and duly disclosed. 35.1 It was further submitted that the adjustment made under section 143(1) stood merged with the final assessment order passed under section 143(3) read with section 144C(13) of the Act, and therefore this Tribunal has the jurisdiction to examine the issue. Accordingly, it was prayed that the disallowance be deleted. 35.2 The Ld. DR on the contrary submitted that the adjustment under section 143(1) was valid and made on the basis of apparent discrepancies between the return of income and the tax audit report. It was contended that the CPC is empowered to make prima facie adjustments where inconsistencies are evident from the record. The ld. DR argued that unless the assessee clearly demonstrates that the Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 30 of 36 . deduction under section 43B was correctly claimed and disclosed, the adjustment cannot be disturbed. It was further submitted that such adjustment is permissible within the scope of section 143(1) of the Act. Accordingly, the DR prayed that the disallowance be sustained. 36. We have considered the rival submissions of both the parties and examined the materials available on record. We find merit in the contention of the Ld. AR that though the disallowance originated from processing under section 143(1) of the Act by CPC, the same stands merged with the final assessment order passed under section 143(3) read with section 144C(13) of the Act. The Assessing Officer has adopted the income determined under section 143(1) as the starting point in the draft and final assessment order. Therefore, the adjustment has become part of the final assessed income. 36.1 In this regard, reliance placed on the decision of the Bangalore Bench of the Tribunal in Ariba Technologies India (P.) Ltd. vs. DCIT reported in [2025] 172 taxmann.com 304 (Bangalore - Trib.) is well founded. In the said decision, the Tribunal held that even though the adjustment was originally made by CPC under section 143(1), once the final assessment order is passed and the assessee has brought the issue to the notice of the Assessing Officer/NFAC, the same cannot be ignored. The Tribunal observed that the Assessing Officer ought to take cognizance of such adjustment in order to avoid multiplicity of proceedings. The relevant para is reproduced below for the sake of convenience: “44.3 We also find merit in the contention of the learned AR that though the disallowance originated from processing under section 143(1), the same has been merged with the assessment order passed under section 143(3) of the Act. In this regard, reliance placed on the decision of Ariba Technologies India (P.) Ltd. (supra) is well founded, wherein it was held as under: 25.7 Admittedly the adjustments are made by the CPC under section 143(1) of the Act whereas the assessment is framed by NFAC. However, the NFAC is not unknown to the Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 31 of 36 . adjustment made by the CPC i.e. automated process under section 143(1) of the Act. Therefore, we are of the view that the NFAC should have taken into cognizance of the adjustment made by the CPC in the intimation generated under section 143(1) of the Act especially in the circumstances where the assessee has brought to the notice to the NFAC about such adjustment. By doing so, the multiple proceedings can be avoided which are certainly cumbersome for the assessee. 25.8 As regards the principles laid down by Bangalore Tribunal in the case of Areca Trust (supra), we note that the assessee in the said case has preferred an appeal before the learned CIT(A) against the adjustment made under section 143(1) of the Act which was subsequently withdrawn by the assessee as the case of the assessee was picked up under scrutiny. In this background the Tribunal, has denied accepting the issue raised in the intimation under section 143(1) of the Act. It is because, once the assessee has withdrawn the appeal filed before the learned CIT(A), the issue arises from the intimation under section 143(1) of the Act reached to the finality. However, the facts of the case on hand are different in as much as the assessee has not filed any appeal before the learned CIT(A) under the bona fide belief that the matter may picked up under scrutiny. Furthermore, the assessee has brought to the notice of the NFAC about the adjustment made under section 143(1) of the Act which can be verified from the details available on pages 367 to 371 of the appeal set. 44.4 In view of the above discussion and considering the factual position supported by documentary evidence, we direct the Assessing Officer to delete the disallowance of Rs.30,30,210/- made under section 36(1)(va) of the Act. Accordingly, Ground No. 9 raised by the assessee is allowed.” 36.2 The Tribunal in Ariba Technologies India (P.) Ltd. also distinguished the decision in Areca Trust (supra), by holding that where the assessee had withdrawn the appeal against the intimation passed under section 143(1) of the Act, the issue had attained finality. However, where no such finality has occurred and the issue has been specifically brought to the notice of the authorities during assessment proceedings, the matter can be examined in appeal arising from the final assessment order. 36.3 On merits, the assessee has demonstrated that the amount in question was duly disclosed in the tax audit report and the return of income, and that the payment was made during the year. The disallowance under section 43B of the Act appears to have been made Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 32 of 36 . only on account of an alleged reporting mismatch, without examining the factual position. 36.4 However, we also note that the factual aspects, namely whether the amount was actually paid within the prescribed time under section 43B and whether there was in fact any mismatch between the return of income and the tax audit report, have not been properly verified by the Assessing Officer. 36.5 Since the disallowance appears to have been made on account of an alleged reporting difference without detailed verification, we deem it appropriate to restore this issue to the file of the Assessing Officer. 36.6 The Assessing Officer is directed to verify whether the amount was actually paid within the time prescribed under section 43B; whether the same was properly disclosed in the tax audit report and return of income; and whether any real mismatch exists. If the claim of the assessee is found to be correct, the disallowance shall be deleted. The Assessing Officer shall grant due opportunity of being heard to the assessee before passing a fresh order. Accordingly, this ground is allowed for statistical purposes. 37. The issue raised by the assessee vide Ground No. 20 pertains to levy of interest u/s 234A of the Act 37.1 The relevant facts are that in the final assessment order, the Assessing Officer has levied interest under section 234A of the Act amounting to ₹9,84,716.00 38. Aggrieved assessee preferred an appeal before us. 39. The Ld. AR before us submitted that the assessee was required to furnish a report under section 92E of the Act and therefore the original due date for filing the return of income under section 139(1) was 30 November 2021. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 33 of 36 . 39.1 It was submitted that the said due date was extended by the CBDT to 15 March 2022 vide Circular No. 01/2022 dated 11 January 2022. The assessee filed its return of income on 14 March 2022, which was within the extended due date. 39.2 The Ld. AR further submitted that the CBDT Circular clearly provides that no interest under section 234A of the Act shall be levied where the self-assessment tax payable does not exceed ₹1,00,000.00. In the present case, no self-assessment tax was payable by the assessee. Therefore, it was contended that there was no delay in filing the return and no liability to pay self-assessment tax. Accordingly, levy of interest under section 234A of the Act amounting to ₹9,84,716 in the final assessment order is incorrect and contrary to the CBDT Circular. 40. On the contrary, the Ld. DR before us supported the order of the authorities below. 41. We have considered the rival submissions of both the parties and perused the materials available on record. It is not in dispute that the assessee was required to furnish a report under section 92E of the Act and therefore the original due date for filing the return of income under section 139(1) was 30 November 2021. It is also not in dispute that the CBDT, vide Circular No. 01/2022 dated 11 January 2022, extended the due date for filing the return to 15 March 2022. 41.1 The assessee filed its return of income on 14 March 2022, which is within the extended due date. Therefore, there was no delay in filing the return. 41.2 The said CBDT Circular further clarifies that no interest under section 234A of the Act shall be levied where the self-assessment tax payable does not exceed ₹1,00,000. In the present case, it is an Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 34 of 36 . undisputed fact that no self-assessment tax was payable by the assessee. 41.3 CBDT Circulars issued under section 119 of the Act are binding on the income-tax authorities. The Assessing Officer is required to follow the relaxation granted by the Board. The levy of interest under section 234A is contrary to the specific clarification contained in the CBDT Circular and therefore the same is not sustainable in law. 41.4 In view of the above facts, since the return was filed within the extended due date and no self-assessment tax was payable, levy of interest under section 234A amounting to ₹9,84,716 is not in accordance with law. Accordingly, we direct the Assessing Officer to delete the interest levied under section 234A of the Act. The ground raised by the assessee is allowed. 42. Ground No. 22 relates to Levy of interest u/s 234C 42.1 The relevant facts are that the AO computed interest u/s 234C of the Act on the assessed income rather than that on the returned income. The Ld. AR submitted that the Assessing Officer has wrongly computed interest under section 234C of the Act on the assessed income instead of the returned income. It was contended that interest under section 234C is compensatory in nature and is to be calculated with reference to the returned income and not on the income assessed after making additions. In this regard, the Ld. AR placed reliance on the decision of the Bangalore Bench of the Tribunal in the case of United Spirits Ltd. vs. DCIT [2022] 139 taxmann.com 507 (Bangalore - Trib.), wherein the Tribunal, following the earlier decision in SAP India (P.) Ltd. vs. Dy. CIT [2014] 41 taxmann.com 7, held that interest under section 234C should be computed on the returned income and not on the assessed income. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 35 of 36 . 43. On the other hand, the Ld. DR before us supported the order of the authorities below. 44. We have considered the rival submissions and examined the materials on record. The grievance of the assessee is that interest under section 234C of the Act has been computed on the assessed income instead of the returned income. The issue is no longer res integra. 44.1 The Bangalore Bench of the Tribunal in the case of United Spirits Ltd. vs. DCIT reported in [2022] 139 taxmann.com 507 (Bangalore - Trib.), following the earlier decision in SAP India (P.) Ltd. vs. Dy. CIT [2014] 41 taxmann.com 7, has held that interest under section 234C is to be calculated with reference to the returned income and not on the assessed income. The relevant para of the said judgment is reproduced below for the sake of ready reference: “15. The limited submission of the assessee is that interest u/s 234C of the I.T. Act should be calculated on the return income and not on the assessed income of the assessee. In this context, the learned AR relied on the Bangalore Bench order of the Tribunal in the case of SAP India (P.) Ltd. v. Dy. CIT [2014] 41 taxmann.com 7/150 ITD 348. 15.1 We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of SAP India (P.) Ltd. (supra) had held that interest u/s 234C of the I.T. Act shall apply on the returned income and not on the assessed income. Following the co-ordinate Bench order of the Tribunal, we direct the A.O. to calculated interest u/s 234C of the I.T.Act accordingly. 15.2 In the result, ground 10 is allowed for statistical purposes.” 44.2 Respectfully following the above decisions of the co-ordinate Bench, we direct the Assessing Officer to recompute the interest under section 234C on the basis of the returned income. Accordingly, this ground of appeal is allowed for statistical purposes. Printed from counselvise.com IT(TP)A No.2202/Bang/2024 Page 36 of 36 . 45. In the result, the appeal of assessee is hereby partly allowed. Order pronounced in court on 24th day of February, 2026 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 24th February, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "