EXXONMOBIL SERVICES & TECHNOLOGY PRIVATE LIMITED ,BANGALORE V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2)(1), BENGALURU

ITTPA 1610/BANG/2024

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The case involves ExxonMobil Services & Technology Private Limited appealing against the assessment order for the assessment year 2020-21, which included transfer pricing adjustments and disallowance of deductions under section 80G of the Income Tax Act. The primary issues contested were the interest rate applied on overdue receivables from associated enterprises and the treatment of costs related to employee stock option plans (ESOPs). The Tribunal found that the interest rate of LIBOR+450 basis points was not justified and reduced it to LIBOR+200 basis points. Additionally, the Tribunal allowed the deduction under section 80G for CSR expenditures, reversing the lower authorities' decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 824462 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2020-2021
• Appeal Filed On: 23-08-2024
• Other Referred Cases: Accenture Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KETAN VED; NOT INCLUDING
• Keywords: Additional evidence; Transfer pricing; International transaction; Notional interest; Charitable institution
• Section: 143(3); 37; 92B; 80G

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER IT(TP)A No.1610/Bang/2024 Assessment year: 2020-21 ExxonMobil Services & Technology Private Limited, 5th Floor, Crescent-1, Prestige Shantiniketan Building, Whitefield Main Road, Bangalore – 560 048. PAN: AADCE 9608C Vs. The Deputy Commissioner of Income Tax, Circle 2(2)(1), Bengaluru. APPELLANT RESPONDENT Appellant by : Shri Ketan Ved, CA Respondent by : Dr. Divya K J, CIT(DR)(ITAT), Bengaluru. Date of hearing : 18.11.2025 Date of Pronouncement : 31.12.2025 O R D E R Per Prashant Maharishi, Vice President 1. This appeal is filed by ExxonMobil Services & Technology Private Limited (the assessee/appellant) for the assessment year 2020-21 against the assessment order passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 [the Act] dated 25.6.2024 by Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 2 of 15 Assessment Unit of the Income Tax Department [ld. AO] wherein the returned income of the assessee of ₹ 1,988,064,640 was assessed at ₹ 1,994,002,308/–. 2. The assessee has raised the following grounds of appeal :- “GROUNDS RELATING TO TRANSFER PRICING: 1. That on the facts and circumstances of the case, the Ld. Assessing Officer (\"the Ld. AO\")/ learned Transfer Pricing Officer (\"the Ld. TPO\")/ Hon'ble Dispute Resolution Panel (\"DRP\") erred in making transfer pricing adjustment of INR 2,37,093 towards interest on overdue receivables, without appreciating the submissions filed during the assessment proceedings. Interest on delayed receivables amounting to Rs. 2,37,093 1.1. Without prejudice to the above, the Learned AO/ the Learned TPO/ Hon'ble DRP grossly erred in determining an adjustment of INR 2,37,093 with respect to interest on delayed receivables u/s 92CA of the Act thereby: a) Erred in considering delayed trade receivables as \"interest free loans\" advanced to the Associated Enterprises (\"AEs\") for the period of delay, and thereby erred in imputing an interest on the same during the year. b) Erred in treating realization of trade receivables as a separate international transaction, whereas, it is only the realization of the service proceeds, incidental to the primary transaction of provision of services. Further, learned AO/ learned TPO/ Hon'ble DRP grossly erred in not considering that the delay in receivables does not fall within the purview of capital financing as stated under Sec. 92B of the Act. c) Erred in not appreciating the fact that the Act provides for taxing only real income whether received or accrued under the normal provisions. Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 3 of 15 d) Erred in not appreciating the fact that transfer pricing adjustment cannot be made on a hypothetical and notional basis unless there is material on record that there has been under charging of real income. e) Erred in imputing notional interest on delayed trade receivables without giving cognizance to the fact that the receivables are arising out of the primary international transactions, which were already tested and concluded to be at arm's length. f) Erred in not appreciating that receivables does not mean de hors that all receivables of the Appellant are to be characterized as an international transaction and there has to be a proper inquiry by the learned TPO by analyzing the statistics over a period of time to discern a pattern which would indicate that that vis-a-vis the receivables for the services provided to the AE, the arrangement reflects an international transaction intended to benefit the AE in some way. g) Erred in not appreciating the fact that the working capital impact/ adjustment subsumed any excess credit period and hence no separate adjustment ought to be made for the same. h) Erred in adopting an ad-hoc interest rate being the average six- month LIBOR + 450 basis points, which arrived at 6.818%, without providing any benchmarking analysis/ exercise in accordance with any of the methods prescribed under the Income- tax rules, 1962 (\"the Rules\"). Treatment of cost connected to Employee Stock Option Plans 1.2. The Learned AO/ the Learned TPO/ Hon'ble DRP grossly erred in treating the costs connected to stock options, issued by the AE under the Employee Stock Option Plan (\"ESOP\") to the Appellant's employees, as operating cost for the purpose of margin computation of the Appellant from a transfer pricing perspective and thereby: a) Erred in not appreciating that under the ESOP plan, the employees of the Appellant may be eligible to receive employee stock options in accordance with the terms and conditions as specified in those plans and these plans are assessed, managed, Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 4 of 15 and administered by the AE whereas the Appellant does not have any control over the terms and conditions of the plan. b) Erred in not appreciating the based on the group policy, the AE does not recharge to the Appellant any compensation costs upon vesting of shares to the employees and hence the Appellant did not incur any expense towards issue of ESOPs. c) Erred in not appreciating that the cost of such an arrangement between the employees of the Appellant and its AE should not be construed as the cost of the Appellant and accordingly its expenses cannot be artificially inflated by including the ESOP amount in the operating cost base. d) Erred in relying on the safe harbor rules laid out in Rule 10TA(j) of the Rules without appreciating the fact that the Appellant did not opt for the safe harbor rules for the year under consideration. GROUNDS RELATING TO CORPORATE TAX ADJUSTMENT: 2. Disallowance of deduction under section 80G of the Act amounting to Rs. 44,17,993/- 2.1 The learned AO/ the Hon'ble DRP erred in law and on facts by disallowing deduction of Rs. 44,17,993 claimed under section 806 of the Act, holding that the contributions towards Corporate Social Responsibility ('CSR') were not eligible for deduction under section 80G of the Act. 2.2 The learned AO/ Hon'ble DRP failed to appreciate the fact that the Company had already disallowed CSR expenditure under section 37 of the Act and consequently, the deduction claimed was in accordance with the provisions of section 806 of the Act. 2.3 The learned AO/Hon'ble DRP failed to appreciate the fact that the disallowance under section 37 of the Act does not restrict the deduction under section 80G of the Act. 2.4 The learned AO/ Hon'ble DRP erred in law by disregarding the fact that the payments made towards CSR expenditure are eligible payments specified under section 80G of the Act. Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 5 of 15 2.5 The learned AO/ Hon'ble DRP failed to appreciate that the issue with respect to allowability of deduction BOG of the Act towards CSR expenditure is grossly covered in favour of the Assessee by the jurisdictional ITAT. 2.6 The learned AO/ Hon'ble DRP erred in law and on facts in concluding that the amount grouped under CSR contributions has not been paid on a voluntary basis and hence the same is not eligible to be claimed as deduction under section 80G of the Act. 2.7 The learned AO/ Hon'ble UP erred in holding that deduction under section 80G of the Act (pursuant to CSR expenditure) would not meet the intention of the legislation, though such intention of the legislation as perceived by the learned AO/ Hon'ble DRP has not been demonstrated by the provisions contained in section 80G of the Act. 2.8 The learned AO/Hon'ble DRP failed to take cognizance of the submissions filed by the appellant and erred in disallowing the deduction under section 80G of the Act. 3. Levy of interest under section 234A of the Act — Rs. 47,472/- The learned AO has erred in computing interest under section 234A of the Act which is consequential to the above grounds of appeal. 4. Levy of interest under section 234C of the Act — Rs. 2,63,581/- The learned AO has erred in computing interest under section 234C of the Act without appreciating the fact that the same is to be computed on the tax due on the returned income. The Appellant craves leave to add, alter, rescind and modify the grounds hereinabove or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds, which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” 3. The only issue in this appeal in the transfer pricing adjustment is with respect to the interest on overdue receivable amounting to Rs. Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 6 of 15 2,37,093/– determined as arm's-length price [ALP] considering the overdue receivable from associated enterprises as a separate international transaction and adopting LIBOR +450 basis point as the benchmark interest rate. The second issue involved is the treatment of cost connected to the employee stock option plans wherein such cost was considered as an operating cost for the purpose of margin computation of the assessee for the transfer pricing adjustments. The corporate ground relating to the disallowance of deduction under section 80 G of the Act amounting to ₹ 4,417,993/– which was not allowed by the learned assessing officer considering that these are the contribution towards the corporate social responsibility which were not eligible for deduction under section 80 G of the Act. 4. The brief facts of the case show that the assessee company is engaged in the provision of business support services and technical support centre services to its group of companies. As the assessee has entered into international transaction of ITeS segment, the reference was made to the learned transfer pricing officer for determination of the arm's- length price who has suggested an adjustment of ₹ 248,315,773 for the ITeS segment which was considered by the learned dispute resolution panel and direction was passed and the resultant order giving effect was also passed on 6th January 2024 wherein the ITeS segment adjustment was reduced to Rs. Nil. 5. However it was also found that that assessee has outstanding receivable from its associated enterprises which are not benchmarked though they Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 7 of 15 are outstanding for more than the normal credit period. The learned assessing officer/transfer pricing officer questioned the assessee, the assessee did not benchmark the same as a separate international transaction. The learned TPO separately benchmarked the same and computed the interest at the rate of LIBOR +450 basis points and calculated the interest at Rs.2,37,82,796/–. The same was challenged before the learned dispute resolution panel and after that the relief was given by the DRP and the final adjustment was made after the direction of the dispute resolution panel in order giving effect of only Rs.2,37,093/–. Therefore the only transfer pricing adjustment which is in contest before us is this only. 6. The learned authorised representative vehemently submitted that assessee does not want to contest the other grounds but if the interest is taken at LIBOR+200 and basis points, he does not have any dispute further. It was further stated that this is supported by the several judicial precedents that LIBOR+200 basis point is the correct rate of interest which should have been taken by the learned TPO. 7. The learned CIT DR submitted that there is no infirmity in the above rate taken by the learned transfer pricing officer and confirmed by the learned dispute resolution panel. 8. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We have also gone through the order of the learned transfer pricing officer at paragraph No. 11 wherein there is no justification given by him that why he has taken Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 8 of 15 LIBOR +450 basis points as the interest rate for computation of the interest on overdue receivable. When the issue reached before the learned dispute resolution panel, wherein the ground of objection No. 11 was decided. The learned dispute resolution panel was also provided the additional evidences, the remand report was also called for and thereafter the original addition was sustained to the extent of Rs.2,37,093/–. Thus there is no justification for taking LIBOR +450 basis points by the learned transfer pricing officer as well as confirming the same by the learned dispute resolution panel. Further the request of the learned authorised representative is also supported by the several judicial precedents. We find that if there is no justification for putting LIBOR + 450 basis points, same cannot be sustained. Further we find that the judicial precedents cited before us have clearly held that LIBOR +200 basis points are the appropriate rate of interest in case of interest on overdue receivable from associated enterprises, looking to the smallness of the amount, to put it afresh for benchmarking would be cumbersome, we do not find any reason not to accede to the request of the assessee. Accordingly we direct the learned transfer pricing officer to compute the interest on the outstanding overdue receivable from associated enterprises by applying LIBOR+200 basis points. Accordingly ground No. ground No. 1.1 of the appeal is partly allowed. No other issues are pressed before us on this aspect. 9. The second issue related to the treatment of cost connected to the employee stock option plans. During the course of transfer pricing assessment the learned transfer pricing officer issued a show cause Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 9 of 15 notice on 24 April 2023 wherein assessee was asked to submit details of various expenses and its accounting in the financial statement. One of such expenses included was employee stock option plan expenses. The assessee has submitted that specific employees of the assessee are covered under the share based incentive plan of US company. The grant of ESOP to the selected employees is in accordance with the Exxonmobil global policies. Further, such grant of ESOP is extended to qualifying employees of its subsidiaries all over the world and the assessee is not an exception to it. Under the plan, employees of the assessee are eligible to receive employee stock option plan in accordance with the terms and condition as specified in those plans. The plans are assessed, managed and administered by the US company whose options, shares are granted to the employees across the globe including the assessee company. It does not have any control over the terms and conditions of the scheme nor can decide on the eligibility of employees who can avail the above scheme. Based on the group policy, US entity does not recharge to the assessee the compensation cost upon vesting of shares to the employees. Therefore the assessee did not incur any expenses towards issue of ESOP expenses pertaining to US company to the employees of the assessee company. Assessee also stated the non-inclusion of employee stock option plan in cost base that the cost of such an arrangement between the employees of the assessee and the group should not be construed as a cost of the assessee. It was stated that assessee did not incur any such cost and therefore the cost base of the assessee cannot be artificially inflated by including the Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 10 of 15 above cost in the operating cost base. The assessee relied upon the several judicial precedents. 10. The learned transfer pricing officer noted that in the application of the transactional net margin method in case of a taxpayer the determination of a proper markup is very important. He stated that for that particular purpose arriving at an appropriate cost base is also relevant. Therefore he stated that the cost of incentive plan, employee stock option plan etc. granted by the associated enterprises to the employees of the assessee is the cost that is incurred as an incentive to the employees of the taxpayer and instead of the taxpayer bearing the cost it is borne by the associated enterprises as it issued the shares. The award of such stock is to give incentives to the employees of the assessee company and to retain them in employment as valuable employees and forms part of the salary. Therefore this cost is required to be treated as salary and thereby part of operating cost. He categorically computed that. According to the submission of the assessee the above cost is quantified at ₹ 62,297,492/– in respect of employees of the assessee. The ld. TPO referred to the decision of the Hon’ble Supreme Court of Israel to support its contentions. He further stated that in all the advance pricing agreement the taxpayers in India have agreed to this position also. Accordingly he increased the cost base of the assessee by ₹ 62,297,492 towards the ESOP cost in respect of employees of the assessee. Thus the profit level indicator of the assessee was determined accordingly. Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 11 of 15 11. The assessee challenged the above computation of the profit level indicator as per ground of objection No. 10 before the learned dispute resolution panel. The learned dispute resolution panel held that the arm's-length price has been violated by the assessee by not including the ESOP cost as part of its operating cost for working out the arm's- length price of the consideration received against the rendering of software consulting services. It was further held that the shares offered under the ESOP may be that of the associated enterprises but the obligation to incur the above cost squarely lies with the assessee. It is not a notional cost but has been actually incurred by the assessee. It was further stated that the apparent reason for not booking this cost by the assessee is that it is beneficial to the associated enterprises in the given model of remunerating the assessee by the assessee enterprises as per the contractual terms. It was further stated that assessee is remunerated on cost plus margin. Therefore if the above cost is not included in the total cost incurred by the assessee, naturally the associated enterprises would be remitting lesser margins to the assessee. Therefore the action of the learned transfer pricing officer was upheld. 12. The assessee contested that the above issue is squarely covered in favour of the assessee by the decision of the coordinate Bench in case of Accenture Ltd. wherein such cost cannot be included in the cost base of the assessee. Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 12 of 15 13. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. In this case we find that there is no transfer pricing adjustment made by the learned transfer pricing officer pursuant to the direction of the learned dispute resolution panel with respect to the ITeS segment. As there is no adjustment, there is no requirement of computation of the cost base of the assessee with respect to the ITeS segment. In view of the above facts this ground becomes infructuous and therefore same is dismissed. 14. The last ground of appeal relates to the corporate tax adjustment wherein the deduction under section 80 G of the Act of ₹ 4,417,993/– is not allowed to the assessee. The brief facts of the case shows that assessee has incurred the corporate social responsibility expenditure of ₹ 8,835,985. This amount was disallowed by the assessee while computing the profits of the business. However it was found that the assessee has claimed deduction under section 80 G of the Act of ₹ 4,417,993/– in respect of the said CSR expenditure. The assessee was questioned about that and the assessee submitted that the deduction under section 80 G of the Act is allowed according to the scheme of the provision. The company has made a donation to recognised charitable organisation which shall be allowed as a deduction under section 80 G of the Act. The details of the donation made by the assessee company to various charitable foundation and trust during the assessment year are also eligible for deduction under section 80 G of the Act. It was further stated that the deduction under section 80 G of the Act is not related to the computation of income under the head profits and gains Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 13 of 15 of business and profession, but is granted as deduction under chapter VIA of the Act from the gross total income. The assessee further referred to the explanatory memorandum to the Finance (No. 2) Bill, 2014 as well as the Notification issued by the Ministry of Corporate affairs and also relied upon the several judicial precedents. Accordingly it was stated that the assessee should be allowed deduction under section 80 G of the Act. The learned assessing officer stated that the deduction is claimed out of the corporate social responsibility expenditure incurred by the assessee which is not eligible for deduction under section 80 G of the Act and therefore he confirmed the disallowance. 15. Aggrieved with the same the assessee preferred objection before the learned dispute resolution panel according to objection No. 36. The learned dispute resolution panel stated that the provision of section 135 of the Companies Act 2013 that the legislative intent behind CSR provisions are aimed to encourage corporates to contribute to social welfare. Allowing the deduction of the above sum to the assessee under a different provision of the Income Tax Act, is inconsistent to the spirit of Income Tax Act and lacks legal basis. Accordingly the order of the learned assessing officer was confirmed. 16. The learned authorised representative vehemently supported the contention raised before the learned assessing officer and referred to page No. 303 of the appeal set. He referred to the fact that amount of donation was paid of ₹ 8,835,985 to the various institutes. On these Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 14 of 15 donations, deduction under section 80 G of the Act is allowable. It was further stated that none of these donations are prohibited for deduction under section 80 G of the Act. 17. The learned CIT DR vehemently supported the orders of the learned assessing officer and the direction of the learned dispute resolution panel and heavily relied upon the intent of the provision of corporate social responsibility expenditure. 18. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the assessee has made a donation of ₹ 8,835,985 to 5 different trusts. All these trusts are eligible for deduction under section 80 G of the Act. These are part of the CSR expenditure and therefore same are not allowable as a deduction while computing the profits and gains of the business. The assessee itself has disallowed the same and has not claimed it under section 37 of the Act. There is no bar in claiming deduction under section 80 G of the Act of the above sum. Those funds which are barred for deduction under section 80 G of the Act have not been contributed by the assessee in the form of donation. In view of the above facts we find that there is no bar in granting the deduction under section 80 G of the Act to the assessee. Accordingly we reverse the order of the learned lower authorities and direct the learned AO to grant assessee the deduction under section 80 G of the Act on the above sum of donation of ₹ 8,835,985. The several judicial precedents relied upon by the assessee of the coordinate benches also supports the above Printed from counselvise.com IT(TP)A No.1610/Bang/2024 Page 15 of 15 reasoning. In the result ground No. 2 of the appeal of the assessee is allowed. 19. The ground No. 3 and 4 are consequential in nature and therefore the learned assessing officer is directed to compute it in accordance with the law after taking into consideration the due date of filing of the return and the default under section 234C of the Act. 20. In the result appeal of the assessee is partly allowed. Pronounced in the open court on this 31st day of December, 2025. Sd/- Sd/- (SOUNDARARAJAN K.) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 31st December 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "