MODEL N INDIA SOFTWARE PRIVATE LIMITED,HYDERABAD vs. ACIT, CIRCLE -5(1), HYDERABAD

आदेश / O R D E R PER MANJUNATHA.G, AM:

This appeal filed by the assessee is directed against final

Assessment Order passed by the AO u/s.143(3) r.w.s.144C(13) of the

Income Tax Act, 1961 dated 14.11.2025, in pursuant to directions of the

Dispute Resolution Panel-1, Bengaluru-1, u/s.144C(5) of the Income Tax

Act, 1961 dated 23.10.2025 and pertains to AY 2022-23.

subsidiary of Model N Inc. (‘Model USA’) and was incorporated as a

captive software support center by its parent ‘Model N USA’. The

assessee is engaged in the business of providing software development

services to maintain and update the software already developed by ‘Model

N USA’ which includes professional services, technical support services,

software maintenance and testing in relation to software services of

‘Model N USA’. The assessee entered into two international transactions

during the previous year relevant to AY 2022-23 including provision of

software development and support services for Rs.148,68,84,815/- and

payment of dividend of Rs.11.50 Crs. The assessee had carried out

transfer pricing analysis by applying Transactional Net Margin Method

(TNMM) as most appropriate method and claimed that, its transaction

with Associated Enterprise (AE) are at Arm’s Length Price (ALP).

11.11.2022 declaring total income of Rs.26,98,77,550/-. The case was

picked up for scrutiny and during the course of assessement proceedings,

a reference was made to TPO u/s.92CA(1) of the Act to determine ALP of

international transactions of the assessee with its AE. The TPO vide its

order dated 27.03.2023 passed u/s.92CA(3) of the Act suggested TP

adjustment of Rs.10,05,17,718/- on provision of software development :: 3 :: service and Rs.2,50,16,668/- for interest on outstanding receivable from

AE. Subsequently, the draft assessement order was passed on

31.01.2025 u/s.143(3) r.w.s.144C(1) of the Act.

objections before the DRP and the DRP vide its directions dated

23.10.2025 issued u/s.144C(5) of the Act, allowed partial relief to the

assessee, where the DRP has excluded certain comparables and also

directed the TPO to adopt LIBOR + 450 bps as the Arm’s Length interest

rate chargeable on delayed trade receivables from AE which was realized

beyond the period of ‘30’ days. In pursuant to the directions of the DRP,

the AO passed final assessement order u/s.143(3) r.w.s.144C(13) of the

Act on 14.11.2025 and determined total income of Rs.28,40,71,851/- by

deleting the transfer pricing adjustment made on account of provision of

software development and support services and revised downward TP

adjustment made on account of interest on outstanding receivables from

AE to Rs.1,41,94,301/-.

appeal before this Tribunal.

of the assessee’s appeal is validity of final assessement order passed by

the AO u/s.143(3) r.w.s.144C of the Act dated 14.11.2025, in terms of

provisions of Sec.153 of the Act. The Ld. Counsel for the assessee at the :: 4 :: time of hearing submitted that the assessee has taken legal ground

challenging limitation in passing the final assessement order in light of

decision of the Hon’ble Madras High Court in the case of M/s.Roca

Bathroom Products Pvt. Ltd., reported in 445 ITR 537 and since, the

issue is pending before the Hon’ble Supreme Court Larger Bench, the

issue may be kept open to be considered at appropriate stage. The

Ld.CIT-DR has not raised any objections and fairly agreed that the issue

is sub-judice before the Hon’ble Supreme Court and therefore, a suitable

order may be passed on this issue. Therefore, Ground No.1 of the

assessee is kept open to be decided at appropriate stage, if need arises.

Grounds filed by the assessee is TP adjustment of Rs.1,41,94,301/- in

respect of delayed trade receivables from AE. The Ld. Counsel for the

assessee at the time of hearing submitted that the TPO erred in making

separate adjustments by imputing notional interest on trade receivables

from AE by adopting SBI short term deposit rate, even though, the

assessee has not charged any interest to AE and non-AE. The Ld.

Counsel for the assessee further submitted that once the assessee margin

is considered at arm’s length after working capital adjustment, then

interest cost, if any, on receivables is sub-summed in the working capital

and thus, there is no question of separate adjustment in respect of

notional interest on delayed trade receivables from AE. Therefore, he :: 5 :: submitted that the TPO/DRP erred in making TP adjustment of

Rs.1,41,94,301/- on trade receivables from AE.

precedents submitted that the TPO has adopted SBI short term deposit

rate after allowing ‘30’ days credit period and the TPO has taken opening

and closing balance of receivables as per the financial statement. The

DRP had considered the average trade receivables worked out by the AO

and allowed ‘30’ days credit period and applied LIBOR + 450 bps for

computing interest on trade receivables without making any case for

adopting LIBOR + 450 bps, because, the assessee is a no risk entity

works on cost plus mark-up basis to its AE. Further, the issue involved is

already settled by the ITAT Hyderabad Bench in number of cases

including in the case of Entain Software Development Services (India)

Pvt. Ltd. v. DCIT in ITA No.762/Hyd/2024, where the Tribunal by

following various judicial precedents directed the AO to adopt LIBOR +

200 bps after allowing ‘60’ days credit period. Therefore, he submitted

that the additions made by the AO towards notional interest on trade

receivables should be deleted or in the alternative, a direction may be

given to the TPO to compute interest by adopting LIBOR + 200 bps after

providing ‘60’ days credit period.

TPO/DRP submitted that the assessee has not furnished any independent

comparable cases including any evidences to prove no interest has been :: 6 :: charged to non-AEs. Further, after amendment of definition of

‘international transactions’ trade receivables from AE is post at

international transactions and whether the assessee charges interest to

non-AE is not relevant to consider the TP adjustment. Further, the

assessee had also not provided any details in respect of the argument

that once margin is accepted after working capital adjustment, no

separate TP adjustment is required in respect of trade receivables.

Therefore, he submitted that the arguments of the Ld. Counsel for the

assessee should be rejected.

LIBOR + 450 bps after considering the risk associated with the

transaction of the assessee and therefore, she submitted that the order of

the DRP should be upheld.

record and had gone through orders of the authorities below. The AO

computed interest on trade receivables from AE for delayed realization of

receivables by adopting SBI short term deposit rate. The DRP has

adopted LIBOR + 450 bps by considering certain judicial precedents, risk

associated with transaction with the assessee and AE. The Ld. Counsel

for the assessee argued that the issue in light of decision of the ITAT

Hyderabad Bench, in the case of Entain Software Development Services

(India) Pvt. Ltd. (supra). We find that, the coordinate Bench of the Tribunal on identical issue of interest charged on delayed trade

receivables from AE and after considering relevant facts and also by

following certain judicial precedents directed the AO to apply LIBOR + 200

bps after providing ‘60’ days credit period for the purpose of imputing

notional interest on delayed receivables from AE. The relevant findings of

the Tribunal are as under:

“17.3 As far as the allowability of credit period is concerned, we found that the Ld. TPO has allowed credit period of only one month. In our considered view, the justice would be met by allowing a credit period of 60 days. Accordingly, we direct the Ld. AO/TPO to allow the credit period of 60 days for the purpose of benchmarking of interest on trade receivables. “

of ITAT Hyderabad in the case of Entain Software Development Services

(India) Pvt. Ltd. (supra), we direct the AO/TPO to compute interest on

trade receivables from AE by applying LIBOR + 200 bps and after

providing ‘60’ days credit period from the date of invoices. In so far as, :: 8 :: other arguments taken by the Ld. Counsel for the assessee including the

arguments not charging interest to non-AE and also on the issue of sub-

summing cost of interest in working capital adjustment, in our considered

view, in the absence of details any working capital adjustment, the

arguments of the assessee can’t be accepted and thus, rejected.

Sd/- Sd/- (िवजय पाल राव) (मंजूनाथा. जी) (VIJAY PAL RAO) (MANJUNATHA.G) उपा�� /VICE-PRESIDENT लेखा सद�/ACCOUNTANT MEMBER

Hyderabad, dated 24.06.2026. TLN

आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to:

िनधा�रती/The 1 : M/s.Model N India Software Pvt. Ltd., Unit No.1001, 10th Floor, Building No.12D, Sundew Assessee Properties Ltd. IT/ITES SEZ, Mindspace, Madhapur B.O., Shaikpet, Hyderabad-500 081. राज�/ The Revenue 2 : The ACIT, Circle-5(1), Hyderabad. 3 The Principal Commissioner of Income Tax, Hyderabad. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT Hyderabad. 4 गाड�फ़ाईल / Guard file 5

आदेशानुसार / BY ORDER

TUMMALACHARLA Digitally signed by TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.06.24 12:41:49 +05'30' Sr. Private Secretary ITAT, Hyderabad