ESI SOFTWARE (INDIA) PRIVATE LIMITED,BENGALURU vs. INCOME TAX OFFICER, BENGALURU

ITTPA 727/BANG/2026Status: DisposedITAT Bangalore07 September 2026AY 2022-239 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that no adjustment on account of notional interest on delayed receivables is warranted. The Tribunal noted that it is an undisputed fact that the assessee is a debt-free company, and the Revenue has not brought any material on record to show that the assessee has incurred any interest cost or passed on any benefit to the AE. Mere delay in realization of receivables, without demonstrating any impact on profitability or existence of a financing arrangement, cannot justify a TP adjustment. The Tribunal respectfully followed the binding decisions of the Hon'ble Delhi High Court in Inductis India (P.) Ltd. (as affirmed by the Hon'ble Supreme Court) and the Bangalore ITAT in Wipro GE Healthcare Private Limited and Infosys BPM Limited. Accordingly, the addition made by the TPO was directed to be deleted. The ground raised by the assessee was allowed. The ground relating to initiation of penalty proceedings under section 270A was dismissed as consequential and infructuous.

What were the facts?

The assessee, ESI Software (India) Private Limited, filed its return of income for Assessment Year 2022-23. The Assessing Officer (AO), pursuant to directions from the Dispute Resolution Panel (DRP), passed an order under section 143(3) r.w.s. 144C(13). During transfer pricing (TP) proceedings, the Transfer Pricing Officer (TPO) treated delayed realization of trade receivables from associated enterprises (AEs) as unsecured loans and computed notional interest on the outstanding amount. The TPO applied LIBOR + 450 Basis Points (5.37%) after allowing a 60-day credit period, resulting in an upward adjustment of Rs. 1,20,30,873/-. The assessee objected to this before the DRP, arguing that delayed receivables are a consequence of the principal transaction and that working capital adjustments should subsume this. The DRP rejected these contentions, relying on an explanation to section 92B and judicial precedents, and upheld the TPO's action.

What were the issues?

1. Whether the delay in realization of trade receivables from AEs constitutes a separate international transaction requiring imputation of interest, under Section 92B of the Income Tax Act, 1961? Assessee's arguments: - The delay in receivables is a consequence of the principal international transaction (sales) and not a separate transaction. - If a working capital adjustment has been made, no separate adjustment for interest on delayed receivables is warranted as it is subsumed. - The TPO erred in computing interest using LIBOR + 450 Basis Points, which is excessive. - As a debt-free company, no interest cost is incurred, making notional interest imputation artificial and contrary to the arm's length principle. Revenue's arguments: - Relied on the DRP's findings and judicial precedents, including the explanation to Section 92B, which includes deferred payments or receivables in the definition of international transactions. - Argued that working capital adjustment and interest on delayed receivables operate in different fields and that the latter needs separate benchmarking when receivables exceed the agreed credit period.

Which sections of the Income-tax Act were involved?

Section 92B,Section 143(3),Section 144C(13),Section 144C(5),Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Respondent: Smt Divya K.J, CIT-DR

PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal has been instituted by the Assessee against the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 144C(13) of the Act, in pursuant to the directions of the Learned Dispute Resolution Panel (Hereinafter

ITTPA 727/BANG/2026 ESI SOF

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 92B

All 1,158 judgments and leading authorities on Section 92B →

Recent GST High Court judgments

Search GST case law →