TEKTRONIX (INDIA) PRIVATE LIMITED ,BANGALORE V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BANGALORE

ITTPA 1593/BANG/2024

AI Insights

The case involves Tektronix (India) Pvt. Ltd., which appealed against the final assessment order for the assessment year 2020-21, challenging the transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and incorporated by the AO. The primary contention was the incorrect consideration of a rectified giving-effect order by the AO, which led to an erroneous addition on account of transfer pricing adjustments in the SWD segment. Additionally, the appeal addressed the adjustments made in the trading/marketing segment and the interest on outstanding receivables from Associated Enterprises (AEs). The Tribunal found merit in the assessee's arguments regarding the incorrect application of transfer pricing principles and the miscalculation of interest on delayed receivables, leading to partial relief for the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24835 (ITAT-BANGALORE)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Other Referred Cases: Li & Fung India Pvt. Ltd. vs. DCIT, JDSU India Pvt. Ltd. vs. DCIT, Bechtel India Pvt Ltd vs. DCIT, AMD India Pvt Ltd vs. DCIT, Hewlett Packard India Software Operations Private Limited vs. DCIT, Aurionpro Solutions Ltd. vs. CIT, Kusum Healthcare vs. CIT, Temenos India Pvt. Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NANDINI DAS
• Assessee Lawyers: SHARATH RAO; VAIDEHI G; DHIRAJ R
• Keywords: Set aside; Business income; Opportunity of being heard; Transfer pricing; International transaction; Retrospective amendment; Question of law; Depreciation; Cost of acquisition; Rule of consistency; TDS; Rectification of order; Notional interest; Ineligible deduction
• Section: 143(3); 32; 22; 13; 37; 92; 37(1); 92B; 10B; 80G; 20

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.1593/Bang/2024 Assessment Year: 2020-21 Tektronix (India) Pvt. Ltd., Survey No.16, Salarpuria Permia, Bellandur S.O, Kadubeesanahalli, Bangalore – 560 103. PAN – AAACT 7289 F Vs. The Dy. Commissioner of Income Tax, Circle - 7(1)(1), Bangalore. . APPELLANT RESPONDENT Assessee by : Shri Sharath Rao, Smt. Vaidehi G & Shri Dhiraj R - CAs Revenue by : Ms. Nandini Das, CIT (DR) Date of hearing : 17.12.2024 Date of Pronouncement : 04.03.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the Assessment order dated 23/07/2024 in ITA No. ITBA/AST/S/143(3)/2024-25/ 1066952612(1) for the assessment year 2020-21. 2. The assessee, in the memo of appeal, has raised as many as 29 grounds of appeal. The issues raised by the assessee in grounds Nos. 1 and 2 are interconnected, challenging the legality of the final assessment passed by the AO under Section 143(3) read with Section 144C(13) of IT(TP)A No.1593/Bang/2024 Page 2 of 27 . the Act. The assessee has not pressed ground Nos.1 and 2, hence they are dismissed as not pressed. 5. The next issue raised by the assessee through ground No. 3 is that the AO erred in not considering the rectified giving-effect order issued by the TPO and thereby made an error in making an addition on account of TP adjustment in the SWD segment. 6. The facts, in brief, are that the assessee is a private company and engaged in the business of software development services as well as the trading and marketing of test and measurement equipment. During the year, the assessee entered into several international transactions with its AE in the SWD segment and the trading/marketing segment. The assessee computed the operating margin of both segments as OP/OC and OP/OR at 17% and 9.38%, respectively. 7. Further, by applying the TNMM as the most appropriate method, the assessee claimed the international transactions to be at ALP. However, the TPO rejected the assessee's TP study and made the following adjustments: 1. SWD Segment Rs. 6,43,87,045/- 2. Trading segment Rs. 6,68,26,605/- 3. Interest on receivable Rs. 1,92,61,607/- 8. Accordingly, the AO framed the draft assessment order under Section 144C(1) of the Act on September 23, 2023, incorporating the TP adjustment proposed by the TPO, as well as other additions/disallowances made by him (the AO) on corporate issues. Against this, the assessee filed an objection before the learned DRP. IT(TP)A No.1593/Bang/2024 Page 3 of 27 . 9. The learned DRP disposed of the objection filed by the assessee vide order dated June 10, 2024, granting partial relief to the assessee. 10. In pursuance of the learned DRP's directions, the TPO passed a giving-effect order dated July 10, 2024. Against this, the assessee filed a rectification application, following which the TPO passed a rectification order dated July 12, 2024, rectifying the mistake. As a result, in compliance with the DRP's directions, the TPO deleted the entire adjustment in the SWD segment. 11. However, while passing the final assessment order dated July 23, 2024, the AO only considered the original giving-effect order dated July 10, 2024, and failed to take into account the rectification order dated July 12, 2024, issued by the TPO. 12. Being aggrieved by the AO’s action of making an addition on account of TP adjustment in the SWD segment without considering the rectified giving-effect order issued by the TPO, the assessee has filed the present appeal before us. 13. The learned AR before us submitted that the AO should be directed to consider the rectified giving-effect order dated July 12, 2024, and delete the entire adjustment in the SWD segment. 14. On the other hand, the learned DR vehemently supported the order of the authorities below. IT(TP)A No.1593/Bang/2024 Page 4 of 27 . 15. We have heard the rival contentions of both parties and perused the material on record. After considering the submissions and examining the records, we find that the AO erred in making an addition on account of TP adjustment in the SWD segment without considering the rectification order dated July 12, 2024, issued by the TPO. 15.1 It is observed that the learned DRP had already granted partial relief to the assessee, and in compliance with its directions, the TPO initially issued a giving-effect order on July 10, 2024. However, upon the assessee's rectification application, the TPO passed a subsequent rectification order on July 12, 2024, deleting the entire TP adjustment in the SWD segment. Despite this, while passing the final assessment order on July 23, 2024, the AO considered only the original order dated July 10, 2024, and ignored the rectification order by the TPO dated 12-07- 2024. 15.2 We find merit in the assessee's claim and direct the AO to consider the rectified giving-effect order dated July 12, 2024, and thereby delete the entire adjustment in the SWD segment. Hence, the ground of appeal of the assessee is hereby allowed. 16. The issue raised by the assessee through ground Nos. 4 to 12 of its appeal pertains to the addition on account of TP adjustment in the trading/distribution of the test and measurement equipment segment. 16.1 The relevant facts are that, in the trading/distribution/marketing segment, the assessee reported an operating revenue of ₹63,80,90,666/-, which included revenue from the following sources: IT(TP)A No.1593/Bang/2024 Page 5 of 27 . 1. Revenue from direct sales by assessee Rs. 35,47,80,375/- 2. Commission on sales AE through Assessee Rs. 15,77,45,601/- 3. Receipt of maintenance and support services Rs. 12,55,64,690/- Total Rs. 63,80,90,666/- 16.1 After claiming operating expenses such as the cost of goods purchased, opening and closing stock, employee costs, depreciation, and other operating expenses, the assessee reported an operating profit of ₹5,98,29,929/- only. Accordingly, the assessee worked out the PLI as OP/OR at 9.38% and claimed that the margin was at ALP under the TNMM. 16.2 However, the TPO observed that the assessee was dealing in test and measurement equipment produced by its AEs. The assessee was responsible for approaching customers, facilitating sales, and providing after-sales services such as warranty, maintenance, and support. In certain cases, customers required invoices in foreign currency, and in such instances, the sales invoices were issued directly by the AEs to the customers. The assessee received a 20% commission on the sales price for such transactions. 16.3 The TPO concluded that the functions performed by the assessee were identical, whether for direct sales or sales through AEs. Therefore, the TPO considered sales made through AEs as sales made by the assessee itself. Accordingly, the TPO recomputed the assessee’s operating revenue by taking the gross value of sales made through AEs, as detailed below: 1. Revenue from direct sales by assessee Rs. 35,47,80,375/- 2. Revenue from sales made through AE Rs. 78,87,58,478/- 3. Receipt of maintenance and support services Rs. 12,55,64,690/- Total Rs. 126,91,03,543/- IT(TP)A No.1593/Bang/2024 Page 6 of 27 . 16.4 Similarly, the TPO also increased the value of the purchase cost by an amount equivalent to 80% of the commission sales. Consequently, the operating profit remained unchanged at ₹5,98,29,929/-, as computed by the assessee. However, due to the revised revenue computation, the PLI (OP/OR) was recalculated at 4.71% instead of the 9.38% originally computed by the assessee. 16.5 Furthermore, the TPO rejected the assessee's selection of comparable companies and instead selected a new set of seven comparable companies (listed on page 85 of the TPO order). The weighted average margin of these comparables was computed at 9.98%. Based on this, the TPO proposed a TP adjustment of ₹6,68,26,605/- under the trading/marketing segment. 17. The aggrieved assessee preferred to file an objection before the learned DRP. However, the learned DRP rejected the objection raised by the assessee and upheld the adjustment made by the TPO. 18. Being aggrieved by the direction of the learned DRP and consequent assessment order the assessee is in appeal before us. 19. The learned AR before us filed paper book running from pages 1 to 2110 and case law compilation running from pages 1 to 178 and submitted that the assessee is engaged in the distribution of Tektronix products in India and has been consistently characterized as a normal- risk distributor in TP studies. In certain cases, due to commercial exigencies, the AEs sell directly to customers, while the assessee facilitates discussions, providing market insights and ensuring smooth IT(TP)A No.1593/Bang/2024 Page 7 of 27 . transactions. For these services, the assessee earns a 20% commission on sales made by AEs, without assuming any inventory or credit risk. The TPO initially sought to segregate and benchmark the trading and indent commission segments separately but later accepted the assessee’s aggregation approach. However, the TPO erred in recomputing the PLI margin by artificially inflating the operating revenue, thereby distorting the assessee’s actual profit margin. 19.1 The ld. AR submits that there is no basis for the TPO to consider AE sales as part of the assessee’s revenue since it does not undertake sales-related functions such as invoicing, collection, or inventory management. 19.2 The learned AR argued that the principle of consistency must be followed, as the assessee has been consistently aggregating its trading and commission segments from Assessment Year (AY) 2012-13 onwards, and PLI margin computed on same methodology, the TPO accepting this approach in previous years, including AY 2019-20. Further the Hon’ble Tribunal, in the assessee’s own case for AY 2011-12, had upheld this aggregation, and the department has not challenged this ruling in the High Court. Given that the business model remains unchanged, the sudden deviation by the TPO in methodology of computation of PLI margin for AY 2020-21 is unjustified. 19.3 Further, the TPO’s reconstruction of segmental financials is impermissible under Rule 10B of the Income Tax Rules. The net profit margin should be computed based on costs incurred by the assessee, not the AE’s sales revenue. The Hon’ble Delhi High Court, in the case of IT(TP)A No.1593/Bang/2024 Page 8 of 27 . Li & Fung India Pvt. Ltd. reported in 40 taxmann.com 300, has categorically ruled that net profit margins must be based on costs incurred by the assessee alone. Similarly, the Delhi ITAT, in the case of JDSU India Pvt. Ltd. reported in (2018) 3 taxmann.com 295, held that bifurcation of financials is unjustified unless there are compelling reasons to disturb the functional integrity of the assessee. 19.4 The learned AR additionally submitted that, the TPO incorrectly presumed that commission earned (20%) and the trading segment's gross margin (49.75%) are significantly different, leading to a flawed adjustment. The correct margin for the distribution segment is 25.96%, which can be verified from detail available in paper book. The assessee’s gross profit margin in the trading segment is already higher than the 35th percentile of comparable companies selected by the TPO, making any further adjustment unwarranted. 19.5 The learned AR further submitted that if the above grounds are decided in favor of the assessee, related grounds on comparables and risk adjustments need not be adjudicated. 20. On the other hand, the learned DR before us vehemently supported the order of the lower authorities. 21. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that for TP study purposes the assessee has aggregated, the trading, commission and after sales services activity under one segment. The assessee to benchmark said segment under IT(TP)A No.1593/Bang/2024 Page 9 of 27 . TNMM has computed PLI as OP/OR and arrived at margin of 9.38%. The assessee while computing the value of OR (operating revenue) has taken Gross sales made by it (assessee), net commission income earned from sales made by the AE and income earned from after sale services activity and accordingly reported the OR at Rs. 63,80,90,666/- only. However, the TPO while computing the value of OR have taken the gross value of sales made by the assessee’s AE instead on commission earned by the assessee which resulted huge increase in the value of OR. Though the TPO in computing the operating cost increased the corresponding amount in relation to sales made by the AEs and thereby the operating profit remained the same as computed by the assessee as well by TPO. However, in computing the PLI as OP/OR the denominator OR increased from Rs. 63,80,90,666/- to Rs. 126,91,03,543/- and thereby PLI margin decreased from 9.38% to 4.71%. 21.2 Thus, the question arise can the TPO include the gross value of sales made by the AEs in the value of operating revenue of the assessee. The assessee in this regard has contended that it acts as a low-risk distributor and merely facilitates sales, earning a 20% commission without assuming inventory or credit risks. Therefore, re- computation of PLI by TPO by artificially inflated operating revenue by including AEs sales was erroneous as it should not be considered part of the assessee’s revenue. Additionally, the learned AR of the assessee pointed out that the same aggregation approach had been accepted in prior assessment years, from AY 2011-12, and the TPO’s deviation from this approach for AY 2020-21 was inconsistent. IT(TP)A No.1593/Bang/2024 Page 10 of 27 . 21.3 We found merit in the assessee’s argument that the sales made by the AE should not be included in the assessee’s revenue since the assessee did not undertake sales-related functions such as invoicing, collection, or inventory management. We further find that the principle of consistency shall be applied as there was no change in facts and nature of the activity carried by the assessee. The TPO had accepted the same aggregation approach in prior years. 21.4 We further note that the TPO for including the AEs sales to the assessee operating revenue has observed that the assessee earning gross profit from its trading activity @ 49.75% whereas from sales made by the AES earing commission @ 20% only. We find that the TPO has wrongly assumed the assessee GP ratio at 49.75% from trading activity. As such the assessee from its trading activity earning GP ratio at 25.96% only which can be verified from following details: 1. Revenue from Direct Sales Rs. 35,47,80,375/- 2. Purchases Rs. 28,90,48,519/- 3. Increase/decrease in inventory Rs. – 2,63,71,550/- 4. Gross Profit (1- 2- 3) Rs. 9,21,03,406/- 5. GP Ratio 25.96% 21.5 Thus, we find the TPO on wrong assumption of facts proceeded to change the assessee’s working of PLI by the changing the value of operating revenue, but the profit earned remained the same. Therefore, in our considered opinion the adjustment made by the TPO on wrong assumption of facts shall not be sustained. IT(TP)A No.1593/Bang/2024 Page 11 of 27 . 21.6 Based on above discussion, we upheld the assessee’s computation methodology and held that the TPO’s adjustments were not justified. The revenue recognition approach adopted by the assessee was deemed consistent with prior years and aligned with legal precedents. Once the assessee PLI margin is accepted, there no TP adjustment required to be made as the margin of the assessee is better than the margin of the comparables selected by the TPO. Accordingly, the main ground appeal of the assessee is allowed, whereas other grounds relating to the issue for selection of comparable and other adjustment such Risk and working capital in computation of margin become infructuous. Hence the ground of appeal of the assessee is allowed. 22. The issue raised by the assessee in Grounds Nos. 13 to 18 of its appeal pertains to the action of the learned DRP/TPO/AO in benchmarking the interest on outstanding receivables. 22.1 During the proceedings, the TPO has noticed that the assessee has outstanding receivable from its AEs for long time. The TPO opined that the delay in payment of receivables from the AEs constitutes an International Transaction under section 92B of the Act, which explicitly includes such deferred payments under the ambit of transfer pricing provisions, thereby warranting an Arm’s Length Price (ALP) determination. 22.2 The TPO rejected the assessee contention that the receivables transaction should not be separately benchmarked as it was part of an overall business arrangement with the AE. As such the TPO noted that aggregation of transactions is permissible only when the underlying IT(TP)A No.1593/Bang/2024 Page 12 of 27 . transactions are continuous, closely interlinked, and have a direct bearing on pricing. The burden of proving such linkage rests with the assessee, which, in this case, failed to provide substantial evidence to justify aggregation. Hence, the TPO proceeded with a transaction-by- transaction approach for benchmarking the delayed receivables. 22.3 The TPO also rejected the assessee claim regarding the delay in receivables was compensated through set-offs in other transactions. The TPO held that, as per OECD guidelines, a set-off does not inherently imply that both transactions are at Arm’s Length. The assessee failed to demonstrate with evidence that the delay was indeed adjusted through a corresponding benefit in any other transaction. The TPO observed that the set-off transactions must be independently benchmarked, which the taxpayer did not do. Hence, the TPO rejected the set-off argument and treated the delayed receivables as a separate International Transaction requiring an ALP determination. 22.4 Further, the TPO observed that the assessee was asked to provide invoice details such as the date of issue, invoice amount, and date of receipt of payment. However, the assessee failed to respond. As a result, the TPO, by considering the opening and closing balances of receivables from AEs, computed the average receivables. After allowing a credit period of 30 days, the TPO calculated interest on the averaged receivables at 6-month LIBOR + 450 basis points. Accordingly, the TPO determined a final adjustment of ₹1,92,61,607/- only. 23. Being aggrieved the assessee preferred to file objection before the learned DRP. IT(TP)A No.1593/Bang/2024 Page 13 of 27 . 24. The assessee before the learned DRP submitted that the outstanding receivable from the AE does not fall under the purview of international transactions as stated under the provision of section 92B of the Act. Therefore, making TP adjustment on delayed outstanding receivable by considering the same as separate transaction is unjustified. The assessee also submitted that the TPO’s attempt to charge notional interest on outstanding receivables is unjustified, as the Income Tax Act does not tax hypothetical income. No income has been earned or accrued due to the delayed payment, and therefore, section 92 does not apply. The definition of international transaction requires an actual exchange of goods or services between associated enterprises, which a continuing debit balance does not satisfy. 24.1 The learned DRP after considering the facts in totality rejected the objection raised by the assessee. The learned DRP found that by explanation inserted to section 92B of the Act through the Finance Act 2012, the transaction of deferred payment or receivable or any other debt arising during the course of business was included to the definition of international transaction. Accordingly, the assessee required to charge interest on the extended period of credit as per ALP. 24.2 The learned DRP to support their view referred the decision of Delhi ITAT in case of Bechtel India Pvt Ltd in ITA No. 6530/Del/2017 wherein the Tribunal considering the amended provision of section 92B of the Act and judicial pronouncement held that non-charging or under charging of interest on extended credit period allowed to the AE on trade IT(TP)A No.1593/Bang/2024 Page 14 of 27 . receivable is international transaction on which ALP is required to be determined. 24.3 The learned DRP also referred the decision of Hon’ble Karnataka High Court in case of DCIT vs. AMD India Pvt Ltd in ITA No. 274/2018 and Hon’ble Bombay High Court in case of Technimont Pvt Ltd. in ITA No. 487/Mum/2017 where it was held that allowing the extend credit period beyond the agreed/normal time would constitute independent international transaction. 24.4 The ld. DRP regarding the assessee’s contention that the TP adjustment shall be made on real transaction held that the theory of real income does not apply in the contexts of transfer pricing. In holding so the learned DRP referred various case laws. 25. Being aggrieved by the order of the learned DRP/AO/TPO the assessee is in appeal before us. 26. The learned AR for the assessee before us submitted that the trade receivables from its AEs in the SWD segment were agreed to be settled within 42 days as per the contractual terms. The actual credit collection period was averaging 39.15 days whereas as the TPO considered only 30 days of credit period. The learned AR claimed that the assessee has furnished invoice wise details before lower authorities, however the learned DRP wrongly held that invoice-wise details were not provided. The learned AR also highlights the error in the DRP’s assumption of a 30-day credit period instead of 42 days and disputes the use of an inflated interest rate (LIBOR + 450 bps) instead of the IT(TP)A No.1593/Bang/2024 Page 15 of 27 . appropriate benchmark of LIBOR + 200 bps, citing relevant case laws such as Aurionpro Solutions Ltd. reported in 99CCH 0070 (Mum HC) and IHS Global Private Ltd bearing ITA No. 1424/Bang/2024. 26.1 The learned AR further argues that no addition is warranted for notional interest as the working capital adjustment already subsumes the trade receivables and in support reference is made to the Hon’ble Delhi High Court’s ruling in Kusum Healthcare reported in 99 taxmann.com 431 and the ITAT decision in Headstrong Services India (P.) Ltd. reported in 139 taxmann.com 301. 26.2 Further, the learned AR reliance was placed on the order of Chennai Tribunal in case Temenos India Pvt. Ltd. bearing IT(TP)A No. 32/CHNY/2024 which follows ruling of Delhi High Court in Bechtel India Private Ltd. which subsequently confirmed by the Hon’ble Supreme Court in CC No. 4976/2017, argued that trade receivables do not attract interest in a debt-free working capital model. 27. On the other hand, the learned DR before us vehemently supported the order of the lower authorities. 28. We have heard the rival contentions of both the parties and perused the materials available on record. The first question before us arises as to whether or not the outstanding receivables from AEs are an international transaction. This issue is no longer res integra. Hon'ble Bombay High Court took a view in the case of CIT v. Patni Computer Systems [2013] 33 taxmann.com 3/215 Taxman 108 (Bombay), on the amendment to section 92B of the Act by way of Finance Act, 2012 with IT(TP)A No.1593/Bang/2024 Page 16 of 27 . retrospective effect from 01/04/2002 that, the interest on outstanding receivables is an international transaction, and it certainly requires separate benchmarking. 28.1 Now the question arise can the credit period allowed in normal/ordinary course of business shall be considered as separate transaction. In this regard, we find that generally in the business the supplier of services or good allows certain period of credit to recipient which in our considered opinion cannot be considered as separate transaction for the purpose of TP adjustment or benchmarking. However, the extended credit period or credit allowed over and above the agreed period shall considered as separate international transaction required to be benchmarked. In holding so, we referred the Decision of This tribunal in case of AMD India Pvt Ltd vs. DCIT reported in 95 taxmann.com 531 wherein it was held as under: \"10. In our considered opinion, to the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt and therefore, for such credit allowed to AE, it cannot be said that this is an independent international transaction. But when extra credit is allowed beyond the agreed credit period, the same is a subsequent independent event and. interest for such extra credit period cannot be factored in the price agreed. Only because the agreed price without considering extra credit period is in excess of the ALP, it cannot be said and held that for such independent subsequent event of allowing extra credit also, the agreed prices takes care and this is not an independent international transaction requiring separate benchmarking. In transfer pricing analysis, the purpose is not to compare profit of the tested party with that of the comparables but the purpose is to compare the prices charged by the tested, party with the prices charged by the comparables although when TNMM is adopted as MA.M, the process of such price comparison is by comparing profits of tested party with that of the comparables and therefore, if the profit of the tested party is equal or above the profit of comparables, even after taking into account the effect of working capital adjustment and the ALP is less that the price charged by the tested party, it cannot be said that the extra credit allowed is not an independent international transaction and not required to be separately benchmarked. In our considered opinion, the first requirement is this that it has to be first decided that whether it is an independent international transaction or not and if it is found that it is not so, then obviously, no separate benchmarking is IT(TP)A No.1593/Bang/2024 Page 17 of 27 . required but if it is found that it is an independent international transaction then separate bench making has to be done and TP adjustment is to be made as per law irrespective of whether any TP adjustment is required to be made in respect of main transaction of sale. 11. Hence, we first decide this aspect as to whether this is an independent international transaction or not. In our considered opinion, in respect of agreed credit period which is 30 days in the present case, there is no independent international transaction because the effect of the credit to that extent is factored in the agreed prices. But for extra credit, the effect of the credit to that extent cannot be factored in the agreed prices because it is not even known at the stage as to how extra credit will be allowed and therefore, that is an independent international transaction and hence, separate bench making has to be done and TP adjustment is to be made as per law. This is worth noting that by allowing extra credit in excess of agreed period of 30 days, profit shifting is there because if credit period is more, prices go up which is not done in the present case since, the prices are determined on the basis of 30 days credit period. 28.2 The above finding of the Tribunal was challenged by the Revenue before the Hon’ble jurisdictional High Court in the case of PCIT vs. AMD India Pvt Ltd reported in 98 taxmann.com 512 wherein the revenue’s appeal was dismissed by observing as under: 5. Having heard the learned counsel for the appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs. 28.3 Coming to facts of the case on hand, we find that the TPO while calculating the ALP interest receivable has allowed 30 days of credit period. However, the assessee before us argued that as per the agreement the agreed credit period was of 42 days. We further note that the TPO has computed ALP interest average of opening and closing value of receivable from the AEs shown in financial statement, meaning thereby that the TPO has calculated the amount of interest on aggregate value of receivables which in our opinion is not the correct approach. However, it is pertinent to note TPO has given categorical finding that the assessee was asked to provide invoice details of receivable from AEs, IT(TP)A No.1593/Bang/2024 Page 18 of 27 . but the assessee failed. Hence the TPO in absence of necessary details proceeded to calculate the interest by taking opening and closing value of receivables. The learned AR before us submitted that the invoice details were furnished before the learned DRP but the same was not considered. Therefore, considering the facts and circumstances, we are inclined to set aside the issue to file of the TPO for fresh consideration to the extent of calculation of interest for each and every invoice for extended credit period allowed or credit period allowed over and above the agreed credit period. The assessee is directed to provide the necessary evidence regarding the agreed credit period and also invoice wise details in order to calculate correct amount of interest on the delayed receivables. 28.4 Now, coming to the issue in respect of the rate of interest, the TPO has taken LIBOR + 450 basis points whereas the assessee on strength of case law argued that the rate of interest should be LIBOR + 200 basis point. In this regard we find pertinent to refer the order of this Tribunal in the case of DCIT Vs. Hewlett Packard India Software Operations Private Limited (2022) 149 taxmann.com 280 (Bang. Trib.) where it was held as under: 37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly.\" 28.5 The above finding was further followed by coordinate bench of this Tribunal in the case of M/s IHS Global Pvt Ltd vs. ACIT bearing IT(TP)A No.1593/Bang/2024 Page 19 of 27 . IT(TP) No. 1424/Bang/2024, thereby, respectfully following the view taken by this Tribunal in the aforementioned cases, we hold that the appropriate rate interest shall be LIBOR + 200 Basis point. In view of the above detailed discussion, the ground of appeal raised by the assessee is hereby allowed for statistical purposes. 29. The issue raised by the assessee through ground Nos. 19 to 25 of its appeal pertain to disallowances of CSR expenditure claimed under section 80G of the Act for Rs. 15,00,400/- only. 30. The relevant facts are that the during year under consideration the assessee incurred expenses under Corporate Social Responsibility (CSR) amounting to Rs. 30,00,800/- and the same was disallowed while computing business profit under the Act in accordance with the provision of section 37 of the Act. However, an amount equivalent to 50% of CSR i.e. 15,00,400/- was claimed under section 80G of the Act from gross total income. 31. During the assessment proceedings, the assessee argued that as per the provision of section 37 of the Act, the CSR expenditure is not allowable only for computing the business profit. The deduction under section 80G of the Act is allowed from the gross total income provided that the amount donated/contributed to eligible institution or fund. Therefore, the provision of section 37 of the Act prohibiting deduction from section 37 of the Act cannot be applied in relation to the claim of deduction under section 80G of the Act. The assessee in support of its contention relied on various case laws. IT(TP)A No.1593/Bang/2024 Page 20 of 27 . 31.1 However, the AO held that the expenditure incurred by the assessee under CSR as mandated under section 135 of the Companies Act, 2013, does not qualify as a donation eligible for deduction under section 80G of the Act. The AO emphasized that the defining characteristic of a donation is its voluntary nature, whereas CSR expenditure is a statutory obligation imposed on certain companies under the companies Act 2013. Since the law mandates a minimum CSR expenditure of 2% of average net profits over the preceding three years, the AO concluded that such spending lacks the element of voluntariness required for claiming deduction under section 80G of the Act. The AO also noted that if companies were allowed to claim deductions for CSR expenses, it would lead to an unintended consequence where the government indirectly bears the burden of CSR spending through reduced tax collections. Based on this reasoning, the AO disallowed the assessee’s claim of Rs. 15,00,400 (50% of the total CSR expenditure of Rs. 30,00,800) under Section 80G and proposed to add this amount back to the assessee’s total income for the relevant assessment year. 32. The aggrieved assessee preferred to file an objection before the learned DRP. The assessee before the learned DRP made identical submission as made before the AO during the assessment proceeding. 32.1 The learned DRP after considering the facts in totality concurred with view taken by the AO and thereby rejected the objection raised by the assessee. Accordingly, the AO in final assessment order made the addition of Rs. 15,00,400/- to the total income of the assessee. IT(TP)A No.1593/Bang/2024 Page 21 of 27 . 33. Being aggrieved by the direction/ order of learned DRP/AO the assessee is in appeal before us. 34. The learned AR before us submitted that there is no denial for claiming the deduction under section 80G of the Act for the amount of CSR expenditure as the assessee fulfills all the conditions specified under section 80G of the Act. 35. On the other hand, the learned DR before us vehemently supported the order of the lower authorities. 36. We have heard the rival contentions of both the parties and perused the materials available on record. The issue revolves around whether CSR-related donations made to specified funds or charitable institutions, which qualify under section 80G of the Act, can be claimed as deductions despite the mandatory nature of CSR expenditure under section 135 of the Companies Act, 2013, and its disallowance as a business expense under section 37(1) of the Act. 36.1 In this regard we note that section 37(1) pertains solely to the computation of income from business or profession, and its scope is confined to allowing or disallowing expenditures incurred for business purposes. On the other hand, section 80G provides deductions for donations made to specified funds and institutions while computing the total income of the assessee. The disallowance of CSR expenditure under Explanation 2 to Section 37(1) applies only in the context of determining business income and does not preclude an assessee from IT(TP)A No.1593/Bang/2024 Page 22 of 27 . claiming deductions under Chapter VIA (which includes Section 80G) for eligible donations. 36.2 While CSR expenditure is mandatory under section 135 of the Companies Act, 2013, the assessee retains discretion over the recipients of such contributions. When such contributions are made to approved institutions or funds under Section 80G of the Act, they qualify as \"donations\" for the purposes of that section, even if incurred under a statutory obligation. The term \"donation\" under section 80G includes both voluntary contributions and mandatory payments made to specified entities. The mandatory nature of CSR expenditure does not dilute its eligibility for deduction under section 80G of the Act, as the deduction depends on the nature of the recipient and compliance with conditions specified under section 80G of the Act. 36.3 We also note that the coordinate bench of this Tribunal in case of Allegis Services India (P.) Ltd. v. Asstt. CIT bearing ITA No. 1693/Bang/2019 order dated 29-4-2020, involving identical issue has decided as under: '10. Section 135 of Companies Act, 2013 requires companies with CSR obligations, with effect from 1-4-2014. Finance (No.2) Act, 2014 inserted new Explanation 2 to sub-section (1) of section 37, so as to clarify that for purposes of sub-section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporatesocialresponsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 11. This amendment will take effect from 1-4-2015 and will, accordingly, apply to assessment year 2015-16 and subsequent years. 12. Thus, CSR expenditure is to be disallowed by new Explanation 2 to section 37(1), while computing Income under the Head 'Income form Business and Profession'. Further, clarification regarding impact of Explanation 2 to section 37(1) of the Income-tax Act in Explanatory Memorandum to The Finance (No.2) Bill, 2014 is as under: IT(TP)A No.1593/Bang/2024 Page 23 of 27 . \"The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporatesocialresponsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein.\" 13. From the above it is clear that under Income-tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, \"Income from Business and Profession\" to those, who pursue corporatesocialresponsibility projects under following sections. ♦ Section 30 provides deduction on repairs, municipal tax and insurance premiums. ♦ Section 31, provides deduction on repairs and insurance of plant, machinery and furniture. ♦ Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses. ♦ Section 33 allows development rebate on machinery, plants and ships. ♦ ?Section 34 states conditions for depreciation and development rebate. ♦ Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/ research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section. ♦ ?Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. ♦ ?Section 36 provides deduction regarding insurance premium on stock, health of employees, loans or commission for employees, interest on borrowed capital, employer contribution to provident fund, gratuity and payment of security transaction tax. ♦ Income Tax Act, under section 80G, forming part of Chapter VIA, provides for deductions for computing taxable income as under: ♦ Section 80G(2) provides for sums expended by an assessee as donations against which deduction is available. IT(TP)A No.1593/Bang/2024 Page 24 of 27 . (a) Certain donations, give 100% deduction, without any qualifying limit like Prime Minister's National Relief Fund, National Defence Fund, National Illness Assistance Fund etc., specified under section 80G(1)(i). (b) Donations with 50% deduction are also available under section 80G for all those sums that do not fall under section 80G(1)(i). Under section 80G(2) (iiihk) and (iiihl) there are specific exclusion of certain payments, that are part of CSR responsibility, not eligible for deduction u/s 80G. 14. In our view, expenditure incurred under section 30 to 36 are claimed while computing income under the head, 'Income form Business and Profession\", where as monies spent under section 80G are claimed while computing \"Total Taxable income\" in the hands of assessee. The point of claim under these provisions are different. 15. Further, intention of legislature is very clear and unambiguous, since expenditure incurred under sections 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under sections 30 to 36 of the Act, for computing income under the head, \"Income from Business and Profession\". 16. For claiming benefit under section 80G, deductions are considered at the stage of computing \"Total taxable income\". Even if any payments under section 80G forms part of CSR payments(keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, \"Income form Business and Profession\". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing \"Total Taxable Income\" cannot be denied to assessee, subject to fulfilment of necessary conditions therein. 17. We therefore do not agree with arguments advanced by Ld.Sr.DR. 18. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, \"Income from Business and Profession\". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing \"Total taxable income\", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income\". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature. 19. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act.' IT(TP)A No.1593/Bang/2024 Page 25 of 27 . 36.4 In view of the above elaborated discussion and following the finding of coordinate bench in the above-mentioned case we hereby set aside the finding of learned DRP and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed. 37. The issue raised by the assessee through ground No. 26 of its appeal is that the AO wrongly made adjustment of Rs. 3,09,845/- against the long-term capital gain in computation sheet. 38. At the outset, we note that the learned AR before us submitted there was a wrong adjustment made by the AO in computation sheet against the long-term capital gain. We note that the impugned adjustment was made in the computation sheet without affording the opportunity of being heard to the assessee. Hence, we set aside the issue to file of the AO with the direction to provide reasonable opportunity to the assessee to rebut the adjustment and if the assessee rebuttal is found as per law, the impugned adjustment shall be deleted. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes. 39. The issue raised by the assessee vide ground No. 27 is that the AO erred in short granting of TDS credit by Rs. 34,54,418/- only. 40. The learned AR for the assessee before us submitted that an entity having PAN AABCT1733D deducted TDS of 34,54,418/- only. The said entity later on merged with the assessee company. The AO in the computation sheet did not allow the credit of impugned TDS. IT(TP)A No.1593/Bang/2024 Page 26 of 27 . Accordingly, the learned AR pleaded before us to issue direction to the AO to allow the credit of such tax deducted at source as per law. 41. The learned DR has not raised any objection if the issue is set aside to the AO for verification as per the provisions of law. 42. We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us is limited that the AO has not provided the credit of TDS deducted by an entity which merged with the assessee. In the given facts and circumstances, we set aside the issue to the file of the AO with direction to verify the claim of the assessee and allow the credit of TDS as per the law. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes. 43. The issues raised by the assessee through ground Nos. 28 & 29 pertain to levy of interest under section 234C and 234A of the Act. 43.1 At the outset, we note that the issue raised is consequential in nature and does not require any separate adjudication. Hence the same is dismissed as infructuous. 44. In the result the appeal of the assessee is hereby partly allowed for statistical purposes. Order pronounced in court on 4th day of March, 2025 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 4th March, 2025 IT(TP)A No.1593/Bang/2024 Page 27 of 27 . / 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 "