TAKE SOLUTIONS LTD.,CHENNAI V. ITO, CORPORATE WARD-6(1), CHENNAI

ITTPA 24/CHNY/2024

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Take Solutions Ltd., an IT and consultancy services company, appealed against the final order of assessment for the Assessment Year 2020-21, which included significant transfer pricing adjustments. The adjustments were related to management consultancy services, corporate guarantees, and trade receivables. The Tribunal found that the TPO and the Dispute Resolution Panel (DRP) had not adequately considered the assessee's arguments and documentation, particularly regarding the benchmarking of segmental financials and the specific circumstances of the corporate guarantees and trade receivables. The Tribunal's decision emphasized the need for a detailed examination of these aspects and directed a re-evaluation by the TPO.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838555 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 16-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 21-06-2024
• Other Referred Cases: Imerys Ceramics India Pvt. Ltd. v. DCIT, Temenos India (P.) Ltd. v. Dy. CIT, Bechtel India Pvt. Ltd. v. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARV SREENIVASAN
• Assessee Lawyers: K. PRASANNA; C.A
• Keywords: Opportunity of being heard; Transfer pricing; International transaction; Notional interest
• Section: 143(3); 92B; 92C

Judgement Text

"आयकर अपीलीय अिधकरण, ‘डी’ Ɋायपीठ, चेɄई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI ŵी एबी टी. वकŎ, Ɋाियक सद˟ एवं सुŵी पदमावती यस, लेखा सद˟ क े समƗ BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND MS. PADMAVATHY.S, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.24/Chny/2024 िनधाŊरण वषŊ /Assessment Year: 2020-21 Take Solutions Ltd., No.56, Old No.116, 4th Floor Ragas Building, Dr. Radhakrishnan Salai, Mylapore, Chennai – 600 004. PAN: AABCT 3684M Vs. The Income Tax Officer, Corporate Ward-6(1), Chennai. (अपीलाथȸ/Appellant) (Ĥ×यथȸ/Respondent) अपीलाथŎ की ओर से/ Appellant by : Mr. K. Prasanna, C.A ŮȑथŎ की ओर से /Respondent by : Mr. ARV Sreenivasan, CIT सुनवाई की तारीख/Date of Hearing : 12.01.2026 घोषणा की तारीख /Date of Pronouncement : 16.02.2026 आदेश / O R D E R PER PADMAVATHY.S, A.M: This appeal by the assessee is against the final order of the assessment passed by Assessment Unit (in short \"AO\") passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short \"the Act\") dated 24.05.2024 for Assessment Year (AY) 2020-21. The assessee raised the following grounds of appeal: “1. The Assessment Order under Section 143(3) r.w.s.144C(13) and 1448 of the Income tax Act, 1961 ('the Act') passed by the Assessment Unit, Income Tax Department ('Learned AO' or 'Ld. AO) to the extent prejudicial to the Appellant is erroneous, bad in law, and contrary to the facts and circumstances of the case. 2. Timelines for passing the order Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 2 -: 2.1 The Assessment Order passed under Section 143(3) r.w.s.144C(13) and 144B of the Act by the Ld. AO is bad in law as the said order is not passed in accordance with the timelines prescribed under Section 153 of the Act and consequentially, the Assessment order ought to be quashed. 3. Transfer Pricing Adjustment in respect of Corporate Guarantee Fee 3.1 The Ld. AD and Dispute Resolution Panel ('DRP) has have grossly erred in law and facts in characterizing \"Corporate Guarantee\" given by the appellant to its subsidiary company in the nature of a shareholder's activity as an international transaction. 3.2 The Ld. AO and DRP has have grossly erred in law and facts by not considering that provision of such guarantee does not involve any cost to the appellant thereby does not have any bearing on the profits, income, losses or assets of the appellant and hence does not fall within the definition of \"international transaction\" as defined under Section 92B of the Act. 3.3 The Ld. AO and DRP has have grossly erred in law and facts by not considering the fact that there is no service element involved and hence does not warrant any charge in providing such guarantee to its subsidiary company. 3.4 The Ld. AO and DRP grossly erred in facts by not considering that the Assessee had already transferred its holding in the said subsidiary to a third party and no default / liability arose on the Assessee pursuant to such transfer. 3.5 The Ld. AO and DRP grossly erred in law and on facts by adopting bank guarantee rates for the purpose of benchmarking the guarantee commission thereby violating the provisions of Section 92C of the Act. 3.6 Without prejudice to the above, the Ld. AO and DRP erred in law by not considering the rate of 0.50% for the purpose of determining guarantee commission as upheld by various judicial precedents. 3.7 Without prejudice to the above, the Ld. AO and DRP failed to apply the Arm's Length Price ('ALP') of guarantee charges as 1% as held by the jurisdictional ITAT in the Assessee's own case for the earlier years. 4. Transfer Pricing Adjustment in respect of Management Consultancy Service Income Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 3 -: 4.1 The Ld. AO and DRP has grossly erred in law and on facts by rejecting the segmental analysis and computed the ALP on an entity level basis without assigning any valid reason for the same. 4.2 The Ld. AO and DRP has erred in law and on facts by not following the principles of consistency despite the fact that the tax authorities, for the earlier years, have consistently accepted & adopted the segmental financials for the purpose of computing the Profit Level Indicator ('PLI'). 4.3 The Ld. AO and DRP has grossly erred in rejecting a few comparables selected by the Assessee without proper reasoning and also erred in invoking the provisions of Section 92C(3) of the Act for carrying out an additional search of comparables for the determination of ALP. 4.4 The Ld. AO and DRP adopted certain comparable companies without appreciating the functional differences between the Appellant's business and the business of such additional comparables. 5. Transfer Pricing Adjustment in respect of Trade Receivables 5.1 The Ld. AO and DRP has erred in law and on facts by characterizing the trade receivables as a separate international transaction and thereafter treating the same as an interest-free loan. 5.2 The Ld. AO and DRP has erred in law in not understanding the fact that the Transactional Net Margin Method (TNMM') already takes care of the notional interest costs wherever it would be applied and no separate adjustment is required to be made for belated realization. 5.3 The Ld. AO and DRP had adopted 6 months LIBOR in respect of outstanding more than 30 days as an arm's length rate without following the methodology prescribed under Section 92C of the Act. 5.4 The Ld. AO and DRP erred in law and on facts by not considering the credit period in case of trade receivables from unrelated parties and computed interest on outstanding receivables from related parties, at 6 months LIBOR rate plus 350 basis points, without any basis. 6. The Appellant craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of appeal at any time before, or at the time of, hearing of the appeal.” Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 4 -: 2. The assessee is a company engaged in the business of information technology and consultancy services in the area of life sciences and supply chain management. The assessee is also engaged in the sale of computer hardware and accessories. The filed a return of income for AY 2020-21 on 15.02.2021 declaring a total income of Rs. 2,48,84,680/-. The case was selected for scrutiny and the statutory notices were duly serviced on the assessee. The A.O made a reference to the Transfer Pricing Officer (TPO) to determine the Arms Length Price (ALP) of the international transaction the assessee is having with its AE. The TPO proposed the following TP adjustment: i. Management consultant services – Rs.5,88,50,000/-; ii. Corporate guarantee – Rs. 12,03,33,800/-; iii. Trade receivables – Rs. 44,39,858/-. 3. The A.O passed the draft assessment order incorporating the TP adjustment. Aggrieved, the assessee further objections before the Disputes Resolution Panel (I short \"DRP\"), who rejected the objections of the assessee. The assessee is in appeal before the Tribunal against the final order of assessment passed by the A.O pursuant to the directions of the DRP. MANAGEMENT CONSULTANT SERVICES: 4. During the year under consideration, the assessee has rendered management and consultancy services to the tune of Rs. 6,94,87,077/-. The assessee has chosen Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) and operating profit by operating cost (OP/OC) is taken as the Profit Level Indicator (PLI). The assessee for the purpose of transfer pricing study has computed the PLI at 91.46% as per the below calculation: Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 5 -: 5. The assessee in the TP study report has chosen the following 11 comparables: 6. Since the margin of the assessee is more than the medium margin of the comparables, the assessee concluded that the international transaction towards Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 6 -: management consultancy services is at arm's length. The TPO rejected the comparables chosen by the assessee and also rejected the computation of PLI at segment level by the assessee. The TPO held that the computation of PLI at segmental level is without any basis and accordingly proceeded to arrive at the PLI at entity level as under: 7. The TPO arrived at the following final list of comparables: Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 7 -: 8. The TPO arrived at the TP adjustment by holding that: “The above submission of the assessee has been duly considered. The position of this office on the issue of determining ALP at entity level is furnished below. The assessee has not provided valid reasons for computing ALP at segmental level and also not provided justification for adopting segmental financials and arriving at separate PLI of each segment. On analyzing the financials, it is found that the Operating Profit on Operating Cost (OP/OC) computed at entity level comes to -25.50% whereas the assessee's computation of OPOC at segmental level comes to 91.46%. From this it is clearly evident that to mitigate the loss arising at entity level, the assessee has computed PLI at segment level. As the assessee has not given any valid submission alongwith supporting documentation, the Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 8 -: objection raised by the assessee on this issue is not accepted and the ALP is computed at entity level as detailed below. Since the margin of the assessee company do not fall within range of the comparable companies, an upward adjustment of Rs. 5,88,50,000/- is being proposed for Assessment Year 2020-21.” 9. We have heard the parties, and perused the material available on record. We notice that the assessee in response to the show cause notice regarding the determination of ALP at entity level as proposed by the TPO has made the following submissions: “2. Computation of ALP at the entity level, ignoring the segment workings At the outset, We are unable to understand why the ALP was computed on an entity-level basis as compared to the segment level provided by the company in the transfer pricing study. The SCN does not describe the reasons for adopting the entity-level margins as against the segmental margins adopted in the transfer pricing study. The SCN merely states that PLI of the assessee is recomputed as under (para 1.3 of the SCN). AT this juncture, we would like to point out that the Assessee and the transfer pricing officer in the past years have consistently adopted the segmental financials for the purpose of computing the PLI and if the same approach is adopted, the margin of the assessee is way higher than the PLI of the comparables companies. Hence, no adjustment is warranted as mentioned in the SCN.” Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 9 -: 10. We further notice from the observation of the DRP that the computation of ALP at segment level is not accepted for the reason that the assessee has not provided proper justification for computing the PLI separately for the management consultancy services at segment level where the PLI at segment level at 91.46% as compared to the PLI at entity level -25.50%. Accordingly, the DRP held that to mitigate the loss arising at entity level the assessee has computed the PLI at segment level without proper documentation and therefore the objections of the assessee is rejected. The argument of the assessee is that the revenue and the cost w.r.t. management consultancy services is identifiable and the same has not been verified by the lower authorities before rejecting. It is also submitted that the revenue from software services from AE has come down during the year under consideration and therefore the assessee has separated the management consultancy charges which was consolidated with software services. In this regard we notice that the TPO/DRP have rejected the bench marking merely for the reason that there is no justification for segment level bench marking. We further notice that the TPO/DRP did not examine the bench marking done by the assessee and has also not recorded any adverse finding. In our considered view entity level bench marking is carried out only when the segments are functionally integrated and it is not an automatic excise. Further, if the assessee is able to classify transaction with AEs under different segments if the assessee is able to establish the benefits derived from the specific transaction separately then we are of the view that benchmarking cannot be rejected. We notice that the Hyderabad Bench of the Tribunal in the case of Imerys Ceramics India Pvt. Ltd. v. DCIT [2024] 162 taxmann.com 864 (Hyd-Trib.), considered a similar issued where it has been held that: Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 10 -: “24. However, on a perusal of record, we find that the ledger copies and segmental financials at gross level were submitted before the Revenue authorities in support of the contention of the assessee that it did not involve any value addition activity and merely, they were selling goods as they were purchased in the same. Since it is a verifiable fact, we restore the issue to the file of the learned Assessing Officer/learned TPO to verify whether the assessee is not making any value addition to the goods purchased from the AEs before they are sold and if segmental financials are available, to the extent of such sales without making any value addition, to accept the RPM as the MAM. Grounds are answered accordingly.” 11. Considering that the TPO/DRP have not examined the bench marking at segment level to see whether the assessee has derived identifiable benefits based on which the bench marking is done by the assessee we are remitting the impugned issue back to the TPO for fresh consideration. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. COPORATE GUARANTEE: 12. During the year under consideration, the assessee has provided corporate guarantee to third party banks to facilitate Take Solutions Globals Pte. Ltd., Singapore which is a subsidiary to avail financing facilities from the banks in Singapore. The assessee has not charged any corporate guarantee fee, the TPO considered the bank guarantee rates by banks in India to arrive at the rate of 2.55% to make an adjustment of Rs. 12,03,33,800/-. 13. We have heard the parties, and perused the material available on record. It is noticed that the assessee in the TP study has not carried out any benchmarking towards the international transaction of providing corporate guarantee to its AE. It is a settled position that corporate guarantee is an international transaction and the ALP has to be determined for the benefit Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 11 -: derived by the AE from the guarantee given by the assessee. The TPO has considered the guarantee rates of banks in India while arriving at the TP adjustment. However, in our considered view the various aspects with respect to corporate guarantee such as the currency, the period, the nature of guarantee, etc. need to be analyzed for the purpose of arriving at the ALP. The Ld.AR during the course of hearing submitted that the guarantee in the given case is given in SGD and therefore the rates adopted by the TPO based on the guarantee rates of the banks in India is not correct. Considering that the assessee has not benchmarked the transactions and that the TPO has adopted the rates applicable to banks in India, we are of the view that the ALP of the impugned transactions has to be examined denovo. Accordingly, we remit the issue back to the TPO to determine the ALP with proper benchmarking by calling for the required details and decided in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. INTEREST ON RECEIVABLES: 14. The TPO noticed that the assessee for the year under consideration has an outstanding trade receivables amounting to Rs. 12,55,07,848/- from its AE. The TPO issued a show cause notice as to why this outstanding trade receivable should not be benchmarked separately treating it as a interest free loan granted by the assessee to its AE. The assessee in response submitted that the delay in collections due to Covid pandemic and otherwise the collections are made regularly in the normal course of business. The assessee accordingly prayed that no adjustment be done towards trade receivables. The TPO however did not accept the submissions of the assessee and made an adjustment by applying six months LIBOR + 350 BPS at 5.818% amounting Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 12 -: to Rs. 44,39,858/-. The TPO while doing so has given credit of 30 days to the assessee. 15. The Ld. AR submitted that the assessee is a debt free company and the assessee has not charged any interest on receivables from third party. The Ld. AR in this regard drew our attention to the financial statements of the assessee to submit that the assessee does not have any loans on which interest is paid (page 29 of paper book). Accordingly, the Ld. AR submitted that making an adjustment towards interest receivable is not tenable in assessee's case. 16. We have heard the parties, and perused the material available on record. It is a settled position that interest on receivable is an international transaction and is to be bench marked separately. From the perusal of the findings of TPO we notice that while charging the interest, the TPO has not considered the fact that the assessee is a debt free entity. During the course of hearing our attention was drawn to the financial statement of the assessee to submit that the assessee is a debt free company. The issue of TP adjustment on account of interest on overdue receivables from AE is covered by the decision of this Tribunal in the case of Temenos India (P.) Ltd. v. Dy. CIT [ITTPA No.32/CHNY/2024,dated 3-12-2024] wherein it was held as follows: \"15. From the above order of the Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., concerning AY 2013-14, we find that ITAT has taken note of the judgments of the Hon'ble Delhi High Court, Hon'ble Supreme Court concerning AY 2010-11 and also co-ordinate bench order of the Tribunal for assessment year 2012-13. After taking note of above judicial pronouncements, the ITAT had deviated from its earlier order for AY 2012-13 and followed the judgment of Hon'ble Delhi High Court and Hon'ble Supreme Court concerning AY 2010-11. The Delhi Bench of the Tribunal in Bechtel India Pvt. Ltd., for the assessment year 2013-14 had categorically held that there need not be any transfer pricing adjustment for imputing interest cost for the outstanding trade receivables from AEs when the assessee in the said case is a debt free company. Therefore, the DRP's reliance on the order of Delhi Bench of the Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 13 -: Tribunal in Bechtel India Pvt. Ltd., concerning assessment year 2012-13 (which according to us has not laid down a correct proposition of law) is legally not tenable. In light of the above, we delete the transfer pricing adjustment imputing interest income on the outstanding trade receivables. In the result, the Ground No.2 (f) is allowed.\" 17. Since the assessee is a debt free company and the assessee does not incur any significant interest cost, the TP adjustment of notional interest on overdue receivable is not warranted. In light of the factual matrix of the present case, and in consonance with the judicial precedents of this Tribunal, we are of the considered view that the transfer pricing adjustment on account of notional interest pertaining to overdue receivables is unwarranted. Accordingly, we direct the Transfer Pricing Officer (TPO) to delete the said adjustment. 18. The TPO is directed to recompute the ALP in accordance with our directions given in this order. 19. In result the appeal of the assessee is allowed for statistical purposes. Order pronounced on 16th day of February, 2026 at Chennai. Sd/- Sd/- (एबी टी. वकŎ) (ABY. T. Varkey) ᭠याियक सद᭭य / Judicial Member (पदमावती यस) (Padmavathy.S) लेखा सदèय /Accountant Member चेÛनई/Chennai, Ǒदनांक/Dated: 16th February, 2026. EDN, Sr. P.S Printed from counselvise.com IT(TP)A No.24/Chny/2024 Take Solutions Ltd. :- 14 -: आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकर आयुƅ/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF Printed from counselvise.com "