KORE.AI SOFTWARE INDIA PRIVATE LIMITED,HYDERABAD vs. ITO, WARD- 2(1),, HYDERABAD

PER MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER:

This appeal is filed by M/s.KORE.AI Software India Private Limited (“the assessee”) is directed against the final assessment order passed by the Learned Assessing Officer (“Ld. AO”) under section 143(3) read with sections 144C(13) and 144B of the Income-tax Act, 1961 (“the Act”) pursuant to the directions of the Learned Dispute Resolution Panel (“Ld. DRP”) for Assessment Year 2022-23 dated 14.11.2025.

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1) Ground No. 1: The Assessment Order passed by the Ld. AO pursuant to the directions of the Hon. DRP under section 143(3) r.w.s. 144C r.w.s. 144B of the Incometax Act, 1961 (the Act) proposing an addition of INR 1,40,24,907 is erroneous and bad in law and in facts. 2) Ground No. 2: The Ld. AO, the Ld. TPO and the Hon. DRP have erred on facts and in law in computing an upward Transfer Pricing (TP) adjustment of INR 1,40,24,907 with regard to the Arms Length Price of the international transactions undertaken by the Appellant by disregarding the methodology adopted by the Appellant in its Transfer Pricing documentation maintained in accordance with section 92D of the Act read with Rule 10D of the Incometax Rules, 1962 (the Rules) and the detailed arguments/elaborate submissions made by the Appellant during the course of the assessment proceedings before the Ld. TPO and the Hon. DRP. 3) Ground No. 3: The Ld. AO erred in recharacterising trade receivables as unsecured loans, and the Hon. DRP erred in confirming such recharacterisation, in absence of any material demonstrating an intention to advance funds OR confer a financing benefit to the associated enterprise. 4) Ground No. 4: The Ld. AO erred in making an adjustment towards notional interest on outstanding trade receivables, and the Hon. DRP erred in upholding the same, by treating such receivables as a separate international transaction, without appreciating that the same is intrinsically linked to the primary transaction and already subsumed in the pricing / working capital analysis. 5) Ground No. 5: The Ld. AO, the Ld. TPO and the Hon. DRP have erred in fact and in law by making an adjustment on account of interest on outstanding receivables without considering that the Appellant has already treated finance cost as an operating expense and has recovered the appropriate markup on the same. 6) Ground No. 6: The Ld. AO, the Ld. TPO and the Hon. DRP have erred in fact and in law by making an adhoc interest adjustment despite the Assessee being a debtfree company, leading to an unwarranted and legally unsustainable transfer pricing addition. 7) Ground No. 7: The Ld. AO has erred on facts and in law by initiating penalty proceedings u/s 270A of the Act mechanically citing underreporting and misreporting without appreciating the fact that

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the Appellants case does not qualify under any reasons prescribed by Section 270A for levy of such penalty. 8) Ground No. 8: The Appellant craves leave to add, alter, amend and/OR withdraw any of the above grounds of appeal and to submit such statements, additional explanation, documents and papers as may be considered necessary either at OR before the hearing of this appeal as per law.

business of providing software development services (“SDS”), IT professional

services and marketing support services. The assessee filed its return of income for Assessment Year 2022-23 on 18.11.2022 declaring total income of ₹20,75,49,600/-

. The case of the assessee was selected for regular scrutiny under CASS and

accordingly notice under section 143(2) of the Act dated 01.06.2023 was issued by

the Ld. AO. During the course of assessment proceedings, the Ld. AO noticed that

the assessee had entered into international transactions with its Associated

Enterprises (“AEs”). Accordingly, the matter was referred to the Learned Transfer

Pricing Officer (“Ld. TPO”) under section 92CA(1) of the Act for determination of

the Arm’s Length Price (“ALP”) of the international transactions. The Ld. TPO,

vide order passed under section 92CA(3) of the Act dated 30.12.2024, proposed transfer pricing adjustments aggregating to ₹9,89,60,020/-, comprising adjustment of ₹7,58,65,280/- in respect of IT / SDS segment and adjustment of ₹2,30,94,740/-

on account of interest on trade receivables from AEs. Based on the order of the Ld.

TPO, the Ld. AO passed a draft assessment order under section 144C(1) of the Act

on 23.01.2025 incorporating the aforesaid transfer pricing adjustments.

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ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 5 admittedly fell within the arm’s length range of the comparable companies and

therefore no adjustment was made in respect of the IT/SDS segment. The Ld. AR further submitted that the assessee is a 100% captive service provider rendering

services exclusively to its AEs on a cost-plus basis. He submitted that while charging

its service fee from the AEs, the assessee had already factored the finance cost

incurred by it in its operating cost base and thereafter applied the agreed mark-up. It was further submitted that the PLI of 16.01% computed by the Ld. TPO had been

worked out without considering the finance cost. According to the assessee, if the

finance cost is considered, the PLI would work out to 15.76%, which would still fall

within the arm’s length range determined by the Ld. TPO. The Ld. AR therefore submitted that since the finance cost had already been recovered from the AEs

through the cost-plus remuneration model, any further adjustment on account of

interest on trade receivables would amount to duplication of adjustment.

Accordingly, it was contended that no separate transfer pricing adjustment was

warranted in respect of outstanding trade receivables from AEs.

relied upon the orders of the Ld. TPO, the Ld. DRP and the final assessment order passed by the Ld. AO. The Ld. DR further submitted that after insertion of

Explanation (i)(c) to section 92B of the Act by the Finance Act, 2012 with

retrospective effect from 01.04.2002, outstanding trade receivables constitute a

separate international transaction requiring independent benchmarking. He submitted that the assessee had allowed its AEs an extended credit period beyond

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 6 the permissible period and thereby extended a financing benefit to its AEs.

Therefore, the Ld. TPO was justified in determining the arm’s length compensation for such financing transaction. It was further submitted that the acceptance of the

IT/SDS transaction at arm’s length does not automatically establish that the delayed receivables transaction is also at arm’s length. Accordingly, the Ld. DR prayed for

upholding the adjustment sustained by the Ld. DRP. 7. We have heard the rival submissions and perused the material available on

record. The solitary issue arising for our consideration is whether the Ld. TPO / Ld. AO was justified in making a transfer pricing adjustment of ₹1,40,24,907/- on

account of interest on outstanding trade receivables from the AEs of the assessee. The contention of the assessee is that it is a 100% captive service provider operating

on a cost-plus model and while determining the consideration charged to its AEs, it had already factored the finance cost in its cost base. It is further contended that even after considering the finance cost, the PLI of the assessee remains within the arm’s length range of the comparable companies and therefore no separate adjustment on

account of delayed receivables is warranted. We are unable to accept the aforesaid contention of the assessee. At the outset, Explanation (i)(c) to section 92B of the Act, inserted by the Finance Act, 2012 with retrospective effect from 01.04.2002,

specifically provides that any receivable or debt arising during the course of business constitutes an international transaction. Therefore, outstanding trade receivables

from AEs are required to be regarded as a separate international transaction capable of independent benchmarking. Once receivables remain outstanding beyond the

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 7 normal credit period and result in a benefit being extended to the AEs, such

transaction acquires the character of a financing arrangement and becomes liable to be benchmarked independently for determining its arm’s length price. Therefore,

merely because the underlying IT/SDS transaction has been accepted at arm’s length

does not automatically lead to the conclusion that the transaction relating to delayed

realization of receivables is also at arm’s length. The principal argument of the assessee is that the finance cost already stands embedded in the cost-plus

remuneration charged to the AEs and therefore no separate adjustment is required.

We find ourselves unable to agree with this contention. The transfer pricing analysis

undertaken for IT/SDS determines whether the remuneration earned for rendering such services is at arm’s length. However, delayed realization of trade receivables

represents a distinct economic benefit conferred upon the AEs by permitting them

to utilize funds beyond the agreed credit period without compensation. Such

financing benefit is separate and distinct from the underlying service transaction.

Consequently, both transactions are required to be independently benchmarked.

Merely because finance costs may form part of the operating costs considered while

determining the service fee does not establish that compensation for the extended credit period has been specifically recovered from the AEs. The assessee has not

brought any material on record demonstrating that the pricing mechanism

specifically compensates it for delays in realization of receivables beyond the agreed

credit period. We also find that the assessee’s reliance upon its PLI being within the arm’s length range is misplaced. The acceptance of the operating margin merely

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 8 establishes that the international transaction relating to provision of IT/SDS satisfies

the arm’s length standard. It does not establish that the separate international transaction of delayed receivables is also at arm’s length. In the present case, the

Ld. TPO accepted the IT/SDS transaction at arm’s length and consequently did not propose any primary adjustment in that segment. However, upon noticing delays in

realization of trade receivables from AEs, the Ld. TPO independently benchmarked such receivables and determined the arm’s length compensation thereon. The

assessee has not produced any evidence before us to demonstrate that independent parties under comparable circumstances would permit similar delays without

charging any compensation. Further, the assessee has not challenged either the existence of delayed receivables or the computation mechanism adopted by the Ld.

TPO pursuant to the directions of the Ld. DRP. The challenge is confined only to the proposition that no separate adjustment can be made once the service transaction has been accepted at arm’s length. For the reasons discussed hereinabove, we are unable to accept the said proposition. In view of the retrospective amendment made

by the Finance Act, 2012 to section 92B of the Act and considering that trade receivables constitute a separate international transaction requiring independent benchmarking, we hold that the Ld. TPO was justified in determining the arm’s

length compensation on delayed receivables from AEs. Accordingly, we find no infirmity in the directions of the Ld. DRP or in the final assessment order passed by the Ld. AO making an adjustment of ₹1,40,24,907/- on account of interest on trade receivables from AEs. The grounds raised by the assessee are therefore dismissed.

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 9 8. Without prejudice to its primary contention, the Ld. AR raised an alternate

plea with regard to benchmarking of interest on outstanding trade receivables. Inviting our attention to Note No. 7 forming part of the audited financial statements,

the Ld. AR submitted that the assessee became a debt-free company during August,

2021 and thereafter no interest expenditure was incurred or paid by the assessee. It

was submitted that once the assessee becomes a debt-free company, no separate transfer pricing adjustment on account of interest on outstanding receivables is

warranted. In support of the said contention, reliance was placed on the decisions of

the Hon’ble Delhi High Court in the cases of PCIT Vs. Kusum Healthcare Pvt. Ltd.,

398 ITR 66, PCIT Vs. Global Logic India Ltd. [(2024) 166 taxmann.com 171 (Del)] and PCIT Vs. AT&T Communication Services India Pvt. Ltd. [(2025) 171

taxmann.com 688 (Del)]. Reliance was also placed on the decision of the Chennai

Bench of the Tribunal in Temenos India Pvt. Ltd. Vs. DCIT in IT(TP)A No.

32/Chny/2024 for A.Y. 2021-22 dated 03.12.2024. Accordingly, the Ld. AR

submitted that no separate transfer pricing adjustment shall be made in the hands of

the assessee on account of interest on outstanding trade receivables for the period

subsequent to the date on which the assessee became a debt-free company.

on record including the case laws relied upon. We find merit in the alternate

contention raised by the assessee. We have carefully gone through para nos. 13 to

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15 of the order of the Chennai Bench of the Tribunal in the case of Temenos India

Pvt. Ltd. Vs. DCIT (supra), which is to the following effect:

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Tribunal following the decision of the Tribunal in the case of Kusum Healthcare Private Limited (reported in TS-129-ITAT2015(Del)-TP) held that no separate adjustment for interest on receivable was warranted when working capital adjustment was already granted to the assessee. The Learned DRP further noted that Hon’ble Delhi High Court in the assessee own case (ITA No. 379/2016) for assessment year 2010-11 vide order dated 21/07/2016 upheld the order of the Tribunal holding that the assessee is a debt free company and the question of receiving any interest on receivable did not arise. The Learned DRP thereafter noted that the Tribunal in assessment year 2012-13 in order dated 16/05/2017 relying on the decision of the Tribunal in the case of ‘Ameriprise India P Ltd.’, 2015-TII-347-ITAT-Del-TP held that when the export proceeds are realized within the year, but beyond the stipulated period of the agreement, then same will not come within the working capital adjustment and rejected the contention of the assessee that interest on delayed payment of receivable get subsumed in the working capital adjustment allowed to the assessee. The Tribunal in AY 2012-13 held that interest on delayed realization of receivables is a separate international transaction and therefore require benchmarking. The Tribunal applying interest rate of six months LIBOR +400 basis point on receivables, upheld the transfer pricing adjustment of interest on receivables accordingly. In view of the finding of the Tribunal in assessment year 2012-13, the Learned DRP in the year under consideration directed the Learned TPO to compute the adjustment using the interest rate of six month of LIBOR +400 basis point. 11.2 Before us, the Learned Counsel of the assessee has repeated the historical background of the issue in dispute and submitted that special leave petition filed by the Revenue against the order of the Hon’ble High Court for assessment year 2010-11 has been rejected by the Hon’ble Supreme Court on 21/07/2017, which is after the order of the Tribunal for AY 2012-13 dated 16/05/2017 and therefore decision of the Tribunal in assessment year 2012-13 need not be followed. 11.3 The Learned DR, on the other hand, submitted that the Tribunal in assessment year 2012-13 noted the decision of the Hon’ble High Court in assessment year 2010-11 and after taking into consideration the Explanation inserted by way of the Finance Act, 2012 to section 92B with retrospective effect from 01/04/2002, held that any delay in realization of debt arising during the course of the business is liable to be visited with TP adjustment on account of interest income short charged or uncharged. In view of the learned DR, the Learned DRP is justified in following the order of the Tribunal in assessment year 2012-13. 11.4 We have heard rival submission of the parties on the issue in dispute and relevant material on record including the decisions cited by the Learned Counsel of the assessee as well as by the Learned DR. In the instant case, the Learned DRP has noted the decisions of the Tribunal and High Court in the earlier years. In assessment year 2010-

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11 the Tribunal in ITA No.1478/Del/2015 placed reliance on the decision of the Tribunal in the case of Kusum Healthcare Private Limited (supra) and held that impact of credit period was duly factored in working capital adjustment allowed while determining the arm’s- length price and, therefore, no separate adjustment for interest on receivables was warranted in the hands of the tested party. The relevant extract of the decision of the Tribunal is reproduced as under: “ 15.1 It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE’s. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments. 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee. Grounds no. 3 of the assessee’s appeal is there by allowed.” 11.5 On appeal by the Revenue, against the above order of the Tribunal, the Hon’ble Delhi High Court (ITA No. 379/2016) in order dated 21/07/2016 dismissed the appeal observing as under: “4. As far as question (B) concerning the adjustment for interst no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned.” 11.6 The assessee brought the decision of the Hon’ble High Court in assessment year 2010-11, before the Tribunal in assessment year 2012- 13 by way of raising ground No. 1.5 of the appeal, however, the Tribunal after considering the amendment brought into Act by way of Finance Act, 2012 and other decisions held that interest on delayed realization of receivable is a separate international transaction, which requires separate benchmarking. The finding of the Tribunal in assessment year 2012-13 is reproduced as under: “17. We have considered the submissions of both the parties and perused the record of the case. The assessee's grievance is two-fold. Firstly, when working capital adjustment has been made, then, no separate adjustment is required to be made in respect of accounts receivables because the same gets subsumed in the working capital adjustment. The second plea of the assessee is that since its funds are entirely debt free, therefore, no adjustment is warranted in regard to late realisation of proceedings from receivables. The assessee's reliance as noted earlier, is on the decisions in its own cases for

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 13

assessment year 2010-11 and 2011-12. The issue has been elaborately considered in the case of Ameriprise India Pvt. Ltd. (supra) and, again, in the case of Mckinsey Knwledge Centre Pvt. Ltd. (supra). In the case of Techbooks India International Pvt. Ltd. vs. DCIT (supra), taking note of the Explanation inserted by the Finance Act, 2012 to Section 92B, it was observed that there remained no doubt that apart from any short-term or long-term borrowing, etc., or even advance payments or deferred payments, 'any other debt arising during the course of business' had also been expressly recognized as an international transaction. In the said decision, the decision of the Hon'ble Bombay High Court in the case of CIT vs. Patni Computer Systems was also considered, wherein Hon'ble Bombay High Court set aside the view taken by the Tribunal in view of amendment to section 92B. The decision in the case of Kusum Healthcare Pvt. Ltd. was duly considered in the case of Ameriprise India Pvt. Ltd. and it was observed from para 20 to 23 as under:-

The ld. AR supported the impugned order by relying on a Tribunal order dated 31.3.2015 passed in Kusum Healthcare Pvt. Ltd. vs. ACIT (ITA No.6814/Del/2014) in which it has been held that no additional imputation of interest on the outstanding receivables is warranted if the pricing/profitability is more than the working capital adjusted margin of the comparables. In the opposition, the ld. DR relied on a later order dated 6.7.2015 passed by the Tribunal in the case of Techbooks International Pvt. Ltd. (supra), in which the transfer pricing adjustment on account of the delayed realization of invoices from AEs has been upheld. The ld. DR contended that the order in the case of Kusum Healthcare Pvt. Ltd. (supra), has been passed without considering the amendment to section 92B carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002, which has been duly taken into account by the Tribunal in its later order in Techbooks International Pvt. Ltd. (supra).

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Explanation.--For the removal of doubts, it is hereby clarified that—

(i) the expression "international transaction" shall include— (a) ............ (b) ...........

(c) capital financing, including any type of long-term or short- term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;” 11.7 But before us the Learned Counsel of the assessee has referred to the decision of the Hon’ble Supreme Court dated 21/07/2017, which is after the decision of the Tribunal in assessment year 2012-13. The Hon’ble Supreme Court has held as under: “Delay condoned. We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, rises, on the facts of this case.

The special leave petition is dismissed.” 11.8 In view of the order of the Hon’ble Supreme Court, which is subsequent to the order of the Tribunal in assessment year 2012- 13, we direct the Ld. AO/TPO to delete the transfer pricing adjustment on account of the interest receivables. The ground No. 5 of the appeal of the assessee is accordingly allowed. 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 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

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 15 income on the outstanding trade receivables. In the result, the Ground No.2 (f) is allowed. Since we have deleted the TP adjustment of Rs.3,14,15,287/-, Ground No. 2 and its other sub-grounds are not adjudicated. It is ordered accordingly.

the decision of the Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd.,

which in turn was based upon the principles laid down by the Hon’ble Delhi High

Court and affirmed by the Hon’ble Supreme Court, held that where an assessee is a

debt-free company and is not incurring any borrowing cost, no separate

benchmarking adjustment on account of interest on outstanding trade receivables is

warranted. The rationale behind the aforesaid view is that where an assessee is not

utilizing borrowed funds and is not incurring any interest cost, the delayed

realization of receivables does not result in any additional financing burden upon the

assessee. In such circumstances, imputing a notional interest adjustment on trade

receivables may not reflect the real economic impact on the assessee. tIn the present

case, the specific contention of the assessee is that it became a debt-free company

during August, 2021 and thereafter no interest expenditure was incurred by it. This

factual assertion has been made with reference to Note No. 7 of the audited financial

statements. However, neither the Ld. TPO nor the Ld. AO had any occasion to

examine this claim while determining the arm’s length price of the trade receivables

transaction. Considering the judicial precedents relied upon by the assessee and the

fact that the claim of the assessee regarding its debt-free status requires factual

verification, we deem it appropriate to restore this limited issue to the file of the Ld.

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 16 AO/TPO. Accordingly, we direct the Ld. AO/TPO to verify whether the assessee

had in fact become a debt-free company during August, 2021 and whether no interest-bearing borrowings existed thereafter. If upon verification the claim of the

assessee is found to be correct, then no separate transfer pricing adjustment shall be

made on account of interest on outstanding trade receivables for the period

subsequent to the date on which the assessee became a debt-free company. Accordingly, this alternate contention raised by the assessee is allowed for statistical

purposes.

of the assessee, raised another alternate contention regarding the rate of interest and the credit period adopted by the Ld. TPO for benchmarking the international

transaction relating to outstanding trade receivables. The Ld. AR submitted that the

Ld. TPO has computed the adjustment by applying LIBOR plus 450 basis points and

by allowing a credit period of only 30 days. It was submitted that the said approach

is excessive and not in accordance with the settled judicial precedents. The Ld. AR

contended that, if at all any adjustment is required to be made, the same should be

computed by applying LIBOR plus 200 basis points and by allowing a credit period of 90 days. Accordingly, it was prayed that suitable directions may be issued to the

Ld. AO/TPO in this regard.

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 17 14. We have heard the rival submissions and perused the material available on

record. So far as the rate of interest is concerned, we find that an identical issue had

come up for consideration before this Tribunal in the case of HARSCO India

Private Ltd. v/s DCIT in ITA No. 1041/Hyd/2024 dated 06/03/2025,

wherein at para nos. 6 to 10 of the order this Tribunal has held as

under :

“6. It is pertinent to note that, not following the decisions of the Tribunal in assessee’s own case amounts to judicial indiscipline on the part of the DRP. However, since the issue has now come up before the Tribunal, therefore, we will discuss the merits of this issue. The basic question before us is, whether for benchmarking the outstanding receivables from AEs, the comparable interest rate should be PLR rate/SBI short term rate or LIBOR rate/LIBOR+ mark up. This issue was considered by the Chennai Special Bench of this Tribunal in case of Shiva Industries & Holdings Ltd. v. Assistant Commissioner of Income-tax reported in 46 SOT 112/11 Taxmann.com 404 (SB) and held in para 11 as under: “11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0 per cent optional convertible preferential shares. Thus, it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1-4-2005 to 31-3-2006 is 4.42 per cent and the assessee has charged interest at 6 per cent which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 18 of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted.” 7. Thus, a transaction of loan to the AEs in foreign currency is considered as international transaction between the assessee and its AEs, then the transaction would have to be looked upon by applying the commercial principles in regard to the international transactions. Therefore, the domestic prime lending rate or domestic deposit rate would have no applicability on international transaction, but the international rate being London Interbank Offered Rate (LIBOR) or similar rate i.e. Euro Interbank Offered Rate (EURIBOR) would govern the international transactions of lending by the assessee to the AEs. This issue also came up for consideration before the Hon'ble Delhi High Court in the case of CIT vs. Cotton Naturals (I) Private Ltd, reported in 276 CTR 445 (Del.) and the Hon'ble Delhi High Court has held in para 35 to 40 as under: “35. The LIBOR rate plus markup or the interest rate prevailing in the United States at that time, i.e. 2003 have not been examined and are not the basis on which the TPO made the adjustment and compute the interest rate for the transaction under consideration. It claimed that the LIBOR rates in the year 2002 varied between 1.447 % to 3.006 % and in the year 2003 between 1.201% to 1.487%. Rates in the year 2004 were again marginal, with the highest at 3.100% and the lowest at 1.340%. The LIBOR rate of 5.224% quoted in the TPO's order, it is pointed out, was the rate received on the investment made during the assessment year in question by the assessed. Thus, it was argued that the present case is of a long-term loan granted to the AE and the rate of interest charged was much higher than the then prevailing LIBOR interest rate. There is no finding of the TPO, the DRP or the Assessing Officer questioning the long-term transaction as such. 36. Under sub-rule (4) to Rule 10B, the data used for comparability of the uncontrolled transaction should be the data relating to the financial year in which the international transaction has been entered into. The proviso permits consideration of data, not more than two years prior to the financial year, if such data reveals facts which would have influenced determination of transfer price in relation to the transaction being compared. The transaction in question was entered into in the year 2002-03 when the loans were granted to the AE. This was the financial year of the international transaction. Payment of interest is also an international transaction but would have reference to the year in which the loan was granted in case of a long term loan. However, in such situations, question may arise whether the case would fall under the second exception mentioned in the case of E.K.L. Appliances (supra), when an AE has the right to recall and ask for repayment of loan. These aspects have not been considered and

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 19 applied by the TPO, DRP and the Assessing Officer. Neither has this ground been argued before us on behalf the Revenue. We, therefore, would not proceed to examine the said aspect and leave the question open. Similarly, we have not expressed any opinion on the issue or question of "thin capitalization" which does not arise for consideration in the present case. 37. We observe that whatever the Revenue argues and submits in the case of outbound loans or for that matter what we have observed would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs. The parameters cannot be different for outbound and inbound loans. A similar reasoning applies to both inbound and outbound loans. Revenue has erroneously argued that different parameters would apply for inbound and outbound loans, which is not acceptable. 38. The DRP referred to the PLR rates fixed in India. It is evident that the PLR rates were not the basis for fixing the arm's length price. Both TPO and the DRP have referred to the PLR rates only by way of analogy so as to state the prevailing interest rates in India, but while applying CUP method for comparability, they had applied LIBOR rates prevailing and had applied a mark-up of 700 points on account of low credit rating of the subsidiary AE and the cost of transaction. 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:— "The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 20 rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender's State or that in the borrower's is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt.B1. II 725 (1994), re. 1 § AStG). A differentiation between debt-claims or debts in national currency and those in foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt-claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no 'special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to 'eliminate hypothetically' the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money." 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India,

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 21 interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply.” 8. The Hon'ble High Court has answered the question whether the interest rate prevailing in India should be applied for the lender who is an Indian Company/Assessee or the lending rate prevailing in the US, the place of the AE should be applied. The Hon'ble High Court has held that the interest rate should be the market determined rate applied to the currency concerned in which the loan has to be repaid. The interest rate should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of resident of either party. Once the loan or credit is given in foreign currency and also to be repaid in same currency, the interest applicable to loan granted and to be returned in Indian rupee would not be the relevant comparable. The Hon'ble High Court has held that the PLR rate would not be applicable and should not be applied for determining the interest rate in such cases where loan to be repaid in foreign currency. This issue was again considered by the Hon'ble Bombay High Court in the case of CIT vs. Tata Autocomp Systems Ltd reported in (2015) 56 Taxmann.com 206 (Bom.) and the Hon'ble Bombay High Court has upheld the decision of the Tribunal directing the Assessing Officer to benchmark the interest at the prevailing EURIBOR rate instead of rupee loan rate to be computed at Arms’ Length on the loan advanced to the AE. The relevant findings of the Hon'ble High Court in para 7 & 8 are as under: “7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 22 decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law.” 9. We further note that, the Pune Benche of the Tribunal in the case of DCIT vs. iGATE Global Solutions Ltd reported in (2019) 109 Taxmann.com 48 (Pune) has again discussed this issue elaborately in Para 4 to 10 as under: “4. We have heard both the sides and gone through the relevant material on record. It is observed from the order passed by the TPO that the assessee advanced loans to its two AEs, one in the USA and the other in Germany. Insofar as loan to Symphoni Interactive LLC, an Associated Enterprise in the USA is concerned, the assessee charged interest @ 6%. The ld. CIT(A) has recorded that the assessee also paid interest to another AE in the USA, namely, iGATE Corporation, USA at 5.9% on its External Commercial Borrowings (ECB). He further recorded in para 57 of the impugned order that the TPO accepted this transaction and made no transfer pricing adjustment on this score, thereby, he also impliedly accepting this transaction at ALP. The viewpoint of the ld. CIT(A) on this point is not fully correct. We have noted above that the TPO worked out the transfer pricing adjustment by considering the loans advanced by the assessee to both of its AEs, including Symphoni Interactive LLC, USA. Be that as it may, it is seen that the ld. CIT(A) also impliedly accepted the interest earned by the assessee from Symphoni Interactive LLC, USA, at 6% as at ALP, against which the Department has no grudge as the assail is only to the application of EURIBOR of 4.42%, which relates to the loan advanced by the assessee to Mascot GmbH, Germany. As such, we are confining ourselves only to international transaction of receipt of interest from Mascot GmbH, Germany. As against the assessee charging interest at the rate of 1.50% from Mascot GmbH, Germany, the TPO determined the arm's length rate of interest at 14%, which the ld. CIT(A) reduced to 4.42% by treating it as the average EURIBOR rate for the year under consideration. 5. There are two facets of the dispute raised by the Revenue on this issue. The first is that the rate of interest should be considered with reference to the prime lending rate prevalent in India and the second is that the reduction in rate to 4.42% by the ld. CIT(A) is not justified.

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 23 6. As against the TPO's point of view that since the assessee in India advanced loan to its AE in Germany, which if not given, would have fetched interest @14% in India, the ld. CIT(A) has held that interest rate prevalent in the country in which the loan is received, should be considered for determining the ALP of transaction of interest received. We find that there is almost judicial consensus ad idem at the higher appellate forums on the question of which country, that is the borrower or the lender, should be considered for determining the arm's length rate of interest on loans advanced to the AEs. The Hon'ble Bombay High Court in CIT v.Tata Autocomp Systems Ltd . [2015] 56 taxmann.com 206/230 Taxman 649/374 ITR 516 has held that the ALP in case of loan advanced to AEs should be determined on the basis of rate of interest charged in the country where loan is received. The Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 has also held that the currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. rate of interest. The Hon'ble Bombay High Court in CIT v. The Great Eastern Shipping Co. Ltd. [2018] 301 CTR 642 has reiterated that the arm's length rate of interest is to be considered with reference to the country in which the loan is received and not from where it is paid. In view of these precedents, it is palpable that the viewpoint of the AO in considering the rate of interest prevalent in India, being, the lender country, as determinative of the ALP of rate of interest charged by the assessee, is not correct. To this extent, we uphold, in principle, the view canvassed by the ld. CIT(A) that the rate of interest prevalent in Germany, being, the country in which the loan was consumed, is determinative of the arm's length rate of interest charged by the assessee-lender. 7. Now we espouse the second facet of the dispute relating to the determination of the arm's length rate of interest. It is seen that the ld. CIT(A) has held that average EURIBOR for the A.Y. 2007- 08 should be considered as a benchmark. In determining the average EURIBOR at 4.42%, he relied on an order passed by the Tribunal in which the average LIBOR was considered at 4.42%. In other words, the ld. CIT(A) considered EURIBOR as a comparable uncontrolled transaction for the purpose of benchmarking the rate of interest charged by the assessee. 8. At this juncture, we consider it expedient to clarify that EURIBOR (Euro Inter-bank Offered Rate) is not a rate of interest, in itself, at which loans are advanced by banks in Euros to borrowers. EURIBOR is a reference rate which is calculated from the average interest rate at which Euro Zone Banks offer lending on inter-bank market. While calculating EURIBOR, 15% of the lowest and 15% of the highest interest rates collected by a panel of European banks are eliminated and the remaining 70% form

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 24 the basis for its calculation. In such circumstances, EURIBOR, being, not an average rate at which the loans are advanced by European banks to borrowers, cannot per se be characterized as a comparable uncontrolled rate of interest at which loans are advanced in Germany. 9. On lines of EURIBOR, there is LIBOR (London Inter-bank Offered Rate), another rate which is applied on behalf of British Bankers Association. Similar to EURIBOR, LIBOR is also a rate at which major global banks lend to one another in the international inter-bank market on short-term basis. In calculation of LIBOR, 25% of lowest and 25% of the highest values are eliminated and the remaining 50% are considered for determining LIBOR. Therefore, LIBOR, as such, can also not be construed as a comparable uncontrolled transaction. The Hon'ble Bombay High Court in CIT v. Aurionpro Solutions Ltd. [2017] 99 CCH 70 approved the action of the Tribunal in considering LIBOR +2% as the arm's length rate as against the TPO applying LIBOR plus 3%. Drawing an analogy from this position, we hold that EURIBOR+2% should be considered as arm's length rate of interest for determining the ALP of the international transaction of interest received by the assessee from Mascot Systems GmbH, Germany. 10. Before parting with this issue, we would like to clarify that the ld. CIT(A) has considered 4.42% as EURIBOR applicable for the assessment year under consideration by relying on an order of the Tribunal, in which the average LIBOR was considered at this level. Equality of LIBOR and EURIBOR could not be substantiated from any material on record. In the given circumstances, we set aside the impugned order and remit the matter to the file of the AO for considering EURIBOR +2% as arm's length rate of interest to be applied on loan advanced by the assessee to Mascot Systems GmbH, Germany. In case EURIBOR +2% turns out to be lower than 4.42% as directed to be applied by the ld. CIT(A) on the understanding of the same being EURIBOR simplicitor, then the addition should be restricted with reference to 4.42% rate of interest, as the assessee is not in appeal on this issue. In the otherwise scenario, the relief allowed by the ld. CIT(A) will be restricted pro tanto.” 10. Therefore, we find force in the assessee’s case to adopt LIBOR rate for benchmarking the transactions of outstanding receivables from the AEs. Accordingly, the Assessing Officer/TPO is directed to adopt the LIBOR + 200 basis as comparable rate for benchmarking the transaction of outstanding receivables from AEs after allowing a credit period of 60 days as a normal credit period without any interest.”

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 25 15. On perusal of above, we found that this Tribunal has adopted LIBOR rate for

benchmarking the transactions of outstanding receivables from the AEs. Therefore, respectfully following the decision of this Tribunal in the case of HARSCO India

Private Ltd. v/s DCIT (supra), we hold that, the justice will be served by applying

LIBOR + 200 basis points on trade receivables in the case of the assessee.

Therefore, we direct the Ld. AO/TPO to apply LIBOR + 200 basis points for benchmarking of interest on trade receivables.

credit period of only 30 days. However, considering the nature of the software development industry and the prevailing commercial practices in the IT/SDS sector,

this Tribunal in several cases has consistently taken a view that a credit period of 60

days constitutes a reasonable period for realization of receivables. Accordingly,

following the consistent view adopted by this Tribunal in transfer pricing matters

relating to IT/SDS, we hold that a credit period of 60 days should be allowed for the

purpose of computing any adjustment on account of delayed trade receivables. We

therefore direct the Ld. AO/TPO to recompute the adjustment, if any, on account of interest on outstanding trade receivables by allowing a credit period of 60 days from

the date of invoice; and applying the rate of LIBOR plus 200 basis points for the

period of delay beyond the allowable credit period. The Ld. AO/TPO shall

recompute the adjustment accordingly after providing adequate opportunity of being heard to the assessee.

ITA No.51/Hyd/2026 Kore A1 Software India Pvt. Ltd. 26

purposes.

Order pronounced in the open Court on 29th July, 2026.

Sd/- Sd/- RAVISH SOOD MADHUSUDAN SAWDIA JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad Dated: 29th July, 2026 TLN Copy to:

KORE.AI SOFTWARE INDIA PRIVATE LIMITED, 3RD FLOOR, A WING, AUROBINDO GALAXY PLOT NO.1, PART OF 1 SY.NO.83/1, TSIIC, RAIDURG, SHAIKPET, HYDERABAD-500081, TELANGANA ITO, WARD- 2(1), SY.NO.6(P) OF KONDAPUR, SY.37(P) OF KOTHAGUDA, 2 OPP. BOTANICAL GARDENS, SERLINGAMPALLY (M), R.R.DISTRICT, HYDERABAD, HYDERABAD-500084, TELANGANA 3 THE PCIT / CIT, HYDERABAD 4 THE D.R., ITAT, HYDERABAD BENCH 5 GUARD FILE