SOFTLAYER TECHNOLOGIES INDIA PRIVATE LIMITED,BANGALORE V. .DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BANGALORE

ITTPA 1556/BANG/2024

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The case involves Softlayer Technologies India Pvt. Ltd., which appealed against the order of the Income Tax Department concerning the assessment year 2020-21. The primary issue was the addition of \\u20b92,75,02,571 as notional interest on overdue receivables from associated enterprises (AEs), which the TPO considered as international transactions requiring arm's length pricing under section 92CA of the Income Tax Act. The assessee contested that the interest on overdue receivables should be benchmarked using the same comparables as the main transaction, which had already been assessed. The Tribunal considered precedents and directed a re-evaluation of the interest calculation, including netting off interest on payables to AEs.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 24833 (ITAT-BANGALORE)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 20-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2020-2021
• Other Referred Cases: Jewellmark India (P.) Ltd. v. Income-tax Officer, M/s Headstrong Services India (P.) Ltd. v. Deputy Commissioner of Income-tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SREENIVASA RAO
• Assessee Lawyers: SHARATH RAO
• Keywords: Set aside; Transfer pricing; International transaction; Notional interest; Arm length price
• Section: 92CA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(TP)A No.1556/Bang/2024 Assessment Years : 2020-21 Softlayer Technologies India Pvt. Ltd., No.12, Subramanya Arcade, Bannerghatta Road, Bengaluru – 560 029. PAN – AAVCS 4795 A Vs. The Dy. Commissioner of Income Tax, Circle – 6(1)(1), Bengaluru. The NCLT, Delhi. APPELLANT RESPONDENT Assessee by : Shri Sharath Rao, CA Revenue by : Shri A Sreenivasa Rao, CIT (DR) Date of hearing : 10.10.2024 Date of Pronouncement : 17.12.2024 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by the Income Tax Department dated 25/06/2024 in ITA No.ITBA/AST/S/143(3)/2024-25/1066056472(1) for the assessment year 2020-21. 2. The interconnected issue by the assessee in ground Nos. 2 is that the learned DRP/AO/TPO erred in confirming the addition of IT(TP)A No.1556/Bang/2024 Page 2 of 5 . ₹2,75,02,571 on account of notional interest to be charged on overdue receivables from the AE. 3. During the proceedings, the TPO observed that the assessee had reported receivables from associated enterprises, which appeared to represent interest-free loans disguised as delayed receivables. According to the TPO, such receivables from associated enterprises constitute an international transaction that must be determined at arm's length price under the provisions of section 92CA of the Act. Consequently, the TPO computed the arm's length interest on the outstanding receivables at ₹₹2,75,02,571 and made an upward adjustment to the total income of the assessee. 3.1 The assessee raised objections before the learned DRP but did not succeed. Consequently, the DRP upheld the findings of the TPO. 4. Aggrieved by the order of the ld. DRP/ TPO/AO, the assessee has filed an appeal before us. 5. The learned AR before us submitted a paper book spanning pages 1 to 574 and raised various submissions as appearing in the grounds filed along with the memo of appeal. Among other contentions, the ld. AR submitted that while making any calculations of interest on the amount the receivables from the AE, the same logic/calculation should also be done with respect to the trade payables to the AE’s. The learned AR in support of his contention relied on the order of Bombay Tribunal in the case of Jewellmark India (P.) Ltd. v. Income-tax Officer reported in 92 taxmann.com 469 (Mumbai - Trib.). IT(TP)A No.1556/Bang/2024 Page 3 of 5 . 5.1 The ld. AR also contended that the receivables arose from services rendered by the assessee to the AE. Furthermore, the transaction between the assessee and the AE for these services had already been benchmarked by selecting appropriate comparables. According to the ld. AR, the interest on overdue receivables should also be benchmarked using the same comparables. The learned AR in support of his contention relied on the order of Delhi Tribunal in the case of M/s Headstrong Services India (P.) Ltd. v. Deputy Commissioner of Income-tax reported in 139 taxmann.com 301. 5.2 Without prejudice to the above, the learned AR further submitted that if at all any interest is to be calculated on the outstanding receivables, the same should be limited up to the end of the financial year in dispute. 5.3 Conversely, the learned Department Representative supported the findings of the authorities below. 6. We have considered the rival contentions of both parties and reviewed the materials on record. The 1st controversy arises for our adjudication whether the interest on the outstanding receivables and outstanding payables should be netted of while determining the arm length price. This question has been answered by the Bombay Tribunal in the case of Jewellmark India (P.) Ltd. v. Income-tax Officer reported in 92 taxmann.com 469 (Mumbai - Trib.). The relevant extract of the order is reproduced as under: 8. We find force in the above contention of the Ld. A.R. The matter is to be examined by the AO as a whole and if bench mark of 180 days is to be taken as the credit period without levy of interest then the AO should adopt the same criteria also in relation to the payments payable by the IT(TP)A No.1556/Bang/2024 Page 4 of 5 . assessee to its AEs. Thereafter, the AO should do netting off of the interest payable and receivable and to make adjustments of the resultant amount of interest, if any, found, receivable by the assessee. With the above modified directions, the matter is restored to the file of the AO to examine and verify the facts and adjudicate the same as per the directions given above. 6.1 The 2nd controversy arises whether, the comparables used for determining the main transaction carried out by the assessee pertaining to the outstanding receivables, should also be adopted while determining the arm length price with respect to such outstanding receivables. In this regard, we note that Delhi Tribunal in the case of M/s Headstrong Services India (P.) Ltd. v. Deputy Commissioner of Income-tax reported in 139 taxmann.com 301 has observed as under: 56. The Delhi Tribunal in case of Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79 held that, the working capital adjustment takes into account impact of outstanding receivables and no further adjustment required if the margin of the assessee is higher than working capital adjusted margin of comparable. The Delhi Tribunal in case of Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 considered the decision of coordinate bench in the case of Kusum Healthcare and held that, the allowing working capital adjustment in the international transaction of rendering services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs. Further, the Delhi Tribunal in the case of McKinsey Knowledge Centre (P.) Ltd. v. Dy. CIT [2017] 77 taxmann.com 164 followed their finding in the case of Ameriprise India (supra). 6.2 During the hearing, the learned counsel for the assessee relied on the cited ITAT order and prayed for the similar direction in the case on hand which was not opposed by the ld. Department Representative. Accordingly, in line with the aforementioned decision and in the interest of justice and fair play, we set aside the issue to the file of the TPO for fresh adjudication, applying the principles established in the cited case and adhering to the provisions of law. Before parting, it is necessary to note that the TPO while calculating the interest on the outstanding receivables, if any, should limit the same up to the end of the financial IT(TP)A No.1556/Bang/2024 Page 5 of 5 . year. Hence, the ground of appeal of the assessee is allowed for statistical purposes. 6.3 The other issues raised by the assessee in ground Nos. 1, 3 and 4 are either general, consequential or premature to decide at this stage. Accordingly, we dismiss the same as infructuous. 7. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in court on 17th day of December, 2024 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 17th December, 2024 / 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 "