GLOBAL ANALYTICS INDIA PRIVATE LIMITED,CHENNAI vs. DCIT, CIRCLE 1(1), CHENNAI

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ITTPA 30/CHNY/2026Status: DisposedITAT Chennai21 July 2026AY 2022-2319 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided that the adjustment made towards notional interest on outstanding receivables from the AEs is not sustainable on facts or in law. The Tribunal found force in the assessee's submissions that outstanding receivables are intrinsically linked to the principal international transaction of rendering IT enabled services. Since the principal transaction was benchmarked and accepted as at Arm's Length, a separate adjustment for receivables would result in duplication unless it constituted an independent financing arrangement. The Tribunal noted the assessee is debt-free and incurred no interest expenditure, citing the Delhi High Court decision in PCIT v. Inductis India Pvt. Ltd. The Tribunal also found merit in the assessee's contention that the TPO arbitrarily adopted a 30-day credit period without analysis and that the DRP's enhancement of interest was without basis. The Tribunal directed the AO/TPO to delete the adjustment made towards notional interest on outstanding receivables and the consequential enhancement by the DRP. The grounds of appeal pressed by the assessee were allowed, and all other grounds were dismissed as not pressed.

What were the facts?

The assessee, Global Analytics India Private Limited, filed its return for AY 2022-23 declaring an income of Rs.9,38,15,050/-. The case was selected for scrutiny due to large international transactions in services compared to revenue, ITES sales, and low profitability. The assessee reported international transactions and used TNMM for benchmarking. The TPO proposed an upward adjustment of Rs.2,98,45,100/- for AE sales in ITES and outstanding receivables. The AO passed a draft assessment order, and the assessee filed objections with the DRP. The DRP upheld the AO's order, except for excluding one comparable company. The AO then passed a final assessment order dated 24.12.2025, making an addition of Rs.2,52,56,538/- based on the TPO's order and DRP's directions.

What were the issues?

1. Whether the final assessment order dated 24.12.2025 is barred by limitation under Section 144C(13) read with Section 153(3) of the Income Tax Act, 1961? The assessee argued it is void ab initio. The revenue's contention is not recorded. 2. Whether the DRP/TPO/AO erred in applying a filter of 75% export sales to total sales for selecting comparable companies? The assessee argued this filter was wrongly applied. The revenue's contention is not recorded. 3. Whether the DRP/TPO/AO erred in treating Rates & Taxes and miscellaneous expenses as non-operating and foreign exchange income as operating while computing margins? The assessee argued this treatment was incorrect. The revenue's contention is not recorded. 4. Whether the TPO erred in rejecting the assessee's benchmarking analysis and conducting a fresh one? The assessee argued the TPO erred. The revenue's contention is not recorded. 5. Whether the DRP/AO/TPO incorrectly included certain companies as comparables despite functional dissimilarity and incorrectly rejected others? The assessee listed specific companies for both inclusion and rejection. The revenue's contention is not recorded. 6. Whether the DRP/TPO erred in treating outstanding receivables as interest-free loans and charging interest, and whether this adjustment is a separate international transaction? The assessee argued outstanding receivables are part of business operations, not a separate loan, and that RBI relaxations due to COVID and actual credit periods were ignored. The DRP also enhanced interest arbitrarily. The revenue's contention is not recorded.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144B,Section 144C(5),Section 92E,Section 92CA(3),Section 153(3),Section 92B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA

Hearing: 18.06.2026Pronounced: 21.07.2026

आयकर अपीलीय अधिकरण, ‘डी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI

श्री जॉजज जॉजज के, उपाध्यक्ष एवं श्री एस.आर.रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No. 30/Chny/2026 ननिाारण वर्ा / Assessment Year : 2022-23 Global Analytics India Private The Deputy Commissioner of Limited, Ascendas IT Park, vs. Income-tax, Circle 1(1) Unit 5, 1st Floor, Pinnacle Building Chennai. International Tech Park, CSIR Road, Taramani Chennai – 600 113. [PAN: AACCC2969F] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/Appellant by : Shri. Vikram Vijayaraghavan, Advocate प्रत्यर्थी की ओर से/Respondent by : Shri. Jayaganesh, CIT सुनवाई की तारीख/Date of Hearing : 18.06.2026 घोर्णा की तारीख/Date of Pronouncement: 21.07.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM :

This appeal is filed by the Assessee against the Final Assessment Order dated 24.12.2025 passed u/s.143(3) r.w.s. 144C(13) r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), by the Assessment Unit, NFAC (in short “AO”) pursuant to directions of the DRP passed u/s.144C(5) of the Act on 12.11.2025 pertaining to Assessment Year (A.Y.) 2022-23.

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2.

The brief facts of the case emanating from the records are that the assessee is a wholly owned subsidiary of M/s.Gain Credit Holdings Inc., USA, incorporated in 2003. The assessee provides software development / analytical services and BPO services to its Associate Enterprises (AEs). The assessee filed its return of income for the AY 2022-23 on 03.11.2022 declaring a total income of Rs.9,38,15,050/-. The return was processed u/s.143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS for the reason that to verify large value of international transactions in services in comparison to revenue from sale of services shown in ITR, sale of services for ITES and low profitability. Accordingly, statutory notices were issued to the assessee. The assessee had reported international transactions in its Form 3CEB in compliance with sec.92E of the Act by adopting TNMM for benchmarking to determine Arms Length Price (ALP) of its international transactions. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the ALP of international transactions with the AEs. Subsequently, the TPO passed an order u/s.92CA(3) of the Act dated 03.01.2025 by proposing upward adjustment of Rs.2,98,45,100/- on AE sales in ITES segments and towards outstanding receivables. Subsequently, the AO passed draft assessment order on 10.02.2025, against which the assessee filed objections before the Dispute Resolution Panel (DRP). The objections of the assessee are considered and after providing opportunity to the assessee, the DRP issued its directions u/s.144C(5) of the Act on 12.11.2025 by upholding the draft assessment order of the AO, except excluding the comparable company selected by the TPO, Inteq BPO Services Private Limited. Later, the AO passed the final assessment order u/s.143(3) r.w.s.144C(13) of the Act dated 24.12.2025 by making an addition of Rs.2,52,56,538/- by considering the TPO’s order pursuant to the directions of the DRP.

3.

Aggrieved by the final assessment order of the AO, the assessee is in appeal before us by raising following grounds of appeal.

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“1. General Grounds: a) The final Assessment Order dated 24th Dec. 2025 u/S 143(3) r.w. S.144C (13) r.w S.144B of the Income Tax Act, 1961 ('the Act') is erroneous and contrary to law, facts and circumstances of the case. b) Transfer Pricing ground Upward Adjustment to ITES Segment: The DRP/AΟΤΡΟ have erred in arriving at an upward adjustment to revenue earned from the AE in relation to the ITES segment by disregarding and rejecting the economic analysis carried out by the Appellant in its Transfer Pricing documentation. 2. Assessment Order - Barred by limitation and void ab initio a) That the impugned order dated 24.12.2026 passed by the Ld. AO under section 144C(13) of the Act, having been passed beyond limitation provided in terms of Section 144C(13) r.w S.153(3) of the Act, is barred by limitation, void ab initio and is liable to be quashed. 3. TP: Filters applied wrongly a) Without prejudice to the above, the DRP/TPO/AO has erred in applying a filter of 75% of export sales to total sales to select comparable companies. b) The TPO/AO has incorrectly computed the employee filter for companies selected in TP order, that was brushed aside by the DRP without providing cogent reasons 4. TP: Incorrect margin computation & forex income treatment a) DRP/TPO/AO has treated Rates & taxes and misc. expenses as non-operating in nature b) DRP/TPO/AO have incorrectly considered foreign exchange income as operating income while computing margin of the Appellant and comparable companies 5. TP: Erroneous comparability analysis undertaken by TPO: a) TPO erred in rejecting the benchmarking analysis of Appellant and in conducting a fresh benchmarking analysis in determining the arm's length price. b) Incorrect inclusion: DRP/AO/TPO erred in including the following companies as comparables, despite being functionally dissimilar; Integra Software Services Pvt. Ltd Cheers Interactive (India) Pvt Vitae International Accounting Services Pvt. Ltd E Care India Pvt. Ltd Bahar Infocons Pvt. Ltd TTEC India Customer Solutions Pvt. Ltd (formerly Motif India Infotech Pvt. Ltd.) c) Incorrect rejection of comparable companies: The DRP/AO/TPO has erred in dismissing filters applied and incorrectly rejecting the following companies on basis of new search criteria without providing any cogent reasons. Cameo Corporate Services Ltd

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CES Ltd Silgate Solutions Ltd Allsec Technologies Ltd Athena BPO Pvt Ltd 6. TP: Computation of Notional Interest on Outstanding Receivables incorrect: a) Outstanding receivables not a loan: The DRP/TPO erred in treating outstanding receivables of the Appellant as interest free loans and charged interest of Rs 92,30,445.27/- without appreciating the facts or law. b) Outstanding receivables adjustment not a separate transaction: TPO posits wrongly receivables are a separate transaction ignore they are part and parcel of business operations of Appellant. c) Extension of realization during COVID ignored: Without prejudice, the DRP/TPO erred in disregarding the extension due to COVID, as per the circulars / notifications issued by RBI, in relation to realisation of Exports up to a period of 15 Months. d) Arbitrary Credit period of 30 days assumed: Without prejudice, the TPO erred in disregarding the average credit period of 75 days of the comparable companies and arbitrarily adopting a credit period of 30 days for computing alleged adjustment e) DRP enhancing interest without basis: DRP incorrectly enhanced the original interest determined by TPO and added an additional markup of 100 basis points. 7. The appellant craves to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner any of the foregoing grounds at or before the hearing of appeal.”

4.

However, the ld.AR stated that the assessee is not pressing all the above grounds and pressed the following grounds of appeal:

(i) Incorrect inclusion of the following comparable companies :- (a) Integra Software Services Private Limited (b) Cheers Interactive (India) Private Limited (c) Vitae International Accounting Services Private Limited (d) E Care India Private Limited. (ii) Incorrect rejection of following comparable companies:- (a) Cameo Corporate Services Limited (b) CES Limited (c) Silgate Solutions Limited. (iii) Computation of notional interest on outstanding receivables.

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5.

The ld.AR for the assessee submitted that the TPO has wrongly excluded the following comparables, which has been confirmed by the DRP in its directions. Inteq BPO Services Private Limited 6. The ld.AR submitted that the nature of business of the comparable company is e-publishing services and also engaged in research and development activities. Therefore, the comparable company chosen by the TPO is functionally different from the activities of the assessee. The TPO has wrongly stated that the comparable company is providing e-publishing services, which falls under ITES services as stated in page No.9 of the TPO. In support of the above, the ld.AR relied on the following judicial precedents of various Tribunals. (i) Rage Frameworks India Private Limited v. ACIT ITA No.674/PUN/2022 (ii) Infor (India) Private Limited v. DCIT IT(TP)A No.1341/Hyd/2024 (iii) BNY Mellon International Operations (India) Pvt. Ltd. v. NAC ITA No.699/PUN/2021

Cheers Interactive (India) Private Limited 7. The TPO in its order in page Nos. 9 and 10, stated that M/s.Cheers interactive (India) Pvt. Ltd. is providing IT enabled services in its activities and included as a comparable company in determining the ALP of the assessee’s international transactions. However, the ld.AR submitted that the said company is specialized into research analytic sales and marketing services. The ld.AR took us through to the paper book page Nos.172 and 173, wherein the SBRL finance of the company shows that the revenue of the company is from information technology services, but not of ITES. Therefore, the company is engaged in the activities, which are functionally different from the assessee’s activities, and therefore, the said company needs to be excluded from the comparables. In support of the argument of the ld.AR, he relied on the decision of the Pune Tribunal in the case of Rage Frameworks India Private Limited v. ACIT, ITA No.674/PUN/2022.

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Vitae International Accounting Services Private Limited 8. The ld.AR for the assessee also submitted that Vitae International Accounting Services Private Limited has been wrongly included by the TPO as comparable to the assessee company’s transactions. However, the assessee’s activities are exclusively into business process outsourcing services under ITES segment. However, the comparable company’s activities are accounting and book keeping services, staffing for accounting and book keeping services. The ld.AR drew our attention to page Nos.174 and 175 of the paper book and shown that the assessee’s service category is other professional technical and business in the form of accounting services. Further, the revenue in its profit and loss account has been shown as processing fees. Therefore, the activities of the comparable company chosen by the TPO is functionally different from the assessee’s activities. The ld.AR also relied on the following Tribunal decisions in support of his arguments. (i) Rage Frameworks India Private Limited v. ACIT ITA No.674/PUN/2022 (ii) Infor (India) Private Limited v. DCIT IT(TP)A No.1341/Hyd/2024

E Care India Private Limited The ld.AR argued that the TPO / DRP have erred considering M/s.E Care India Pvt. Ltd. as comparable. The ld.AR drew our attention to the financials of the comparable company in paper book page No.176 (page 28 of the Financials) and submitted that the operations of the company is into medical transcription, which is functionally different. Further he stated that the functionality of the comparable is in the nature of BPO of medical transcription. In support of the above arguments, the ld.AR relied on the following decisions of the Tribunals. (i) Meritor Commercial Vehicle India Private Limited v. DCIT IT(TP)A No.1831/Bang / 2024 (ii) Headstrong Services India Private Limited v. DCIT ITA No.508/Del/2017

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9.

Per contra, the ld.DR for the Revenue supported the orders of the authorities and submitted that the TPO and the DRP has analysed in detail of all the companies before selection of comparables for determining ALP of the international transactions of the assessee, and therefore, prayed for dismissing the appeal of the assessee by upholding the order of the AO. 10. We have heard the rival submissions, carefully perused the orders of the TPO, the DRP, the Assessment Order, the material placed on record and the judicial precedents relied upon by the parties. The controversy involved in the present appeal essentially relates to the determination of the Arm's Length Price of the international transactions entered into by the assessee with its Associated Enterprises in the IT Enabled Services (ITES) segment. The assessee is admittedly engaged in rendering routine software development support, analytical services and Business Process Outsourcing (BPO) services exclusively to its Associated Enterprises and is remunerated on a cost-plus basis. Therefore, while selecting comparable companies under the TNMM, it is imperative that only those companies performing similar functions, employing similar assets and assuming similar risks are selected. It is a settled proposition of law that functional similarity constitutes the foremost criterion in comparability analysis, and unless a company is functionally comparable, it cannot be retained merely because it satisfies quantitative filters. The Hon'ble Courts and various Benches of the Tribunal have consistently held that qualitative factors override quantitative parameters while determining comparability under Chapter X of the Act. Integra Software Services Private Limited 11. On perusal of the material placed before us, we find that the said company is predominantly engaged in e-publishing services involving content creation, digitisation, publishing solutions and other specialised knowledge-based services. Such activities require specialised domain expertise and are substantially different from routine IT enabled back-office support services

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rendered by the assessee to its AEs. The TPO has proceeded on the premise that e-publishing constitutes ITES. In our considered opinion, the classification of an activity under the broad expression "ITES" is not by itself sufficient for determining comparability. The functional profile, value addition, nature of services rendered and business model are the decisive factors. 12. The Pune Bench of the Tribunal in Rage Frameworks India Pvt. Ltd., as well as the Hyderabad Bench in Infor (India) Pvt. Ltd. and the Pune Bench in BNY Mellon International Operations (India) Pvt. Ltd., have consistently held that companies engaged in specialised e-publishing and knowledge process services cannot be compared with captive BPO service providers rendering routine IT enabled services. 13. Respectfully following the aforesaid judicial precedents and considering the functional profile of the company, we hold that Integra Software Services Private Limited fails the test of functional comparability and accordingly direct the AO/TPO to exclude the said company from the final list of comparables. Cheers Interactive (India) Private Limited 14. The records placed before us reveal that the company is engaged in specialised research analytics, sales support and marketing solutions. The financial statements also indicate revenue from Information Technology Services rather than routine IT enabled processing services. 15. The assessee, on the other hand, performs standardised back-office support services for its AEs without assuming significant business risks or undertaking specialised research functions. The functional distinction between research-based analytical services and routine BPO operations has repeatedly been recognised by various Benches of the Tribunal. The mere use of information technology does not render every service comparable with ITES. We therefore find merit in the contention of the assessee that the said company is functionally distinguishable. Accordingly, Cheers Interactive (India) Private Limited deserves to be excluded from the final set of comparables.

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Vitae International Accounting Services Private Limited 16. We have also examined the profile of Vitae International Accounting Services Private Limited. The material placed before us demonstrates that the company is engaged in specialised accounting, bookkeeping, staffing and professional financial services. Revenue has been earned by rendering accounting and related professional services involving domain-specific expertise. 17. The assessee, however, is engaged only in routine IT enabled support services to its Associated Enterprises and is not engaged in rendering specialised accounting or financial consultancy services. It is well settled that companies providing specialised professional services involving higher skill sets and value addition cannot be compared with routine captive BPO service providers. The Pune Bench in Rage Frameworks India Pvt. Ltd. and the Hyderabad Bench in Infor (India) Pvt. Ltd. have taken a similar view. Accordingly, Vitae International Accounting Services Private Limited is directed to be excluded from the list of comparables. E Care India Private Limited 18. Having examined the material available on record, we find considerable force in the submissions advanced on behalf of the assessee. The annual report of E Care India Private Limited clearly indicates that the company is predominantly engaged in medical transcription and allied healthcare outsourcing services. Such services involve specialised medical terminology, healthcare domain expertise, quality control procedures and higher value-added processes, which are qualitatively different from the routine IT enabled back- office support services rendered by the assessee to its AEs. It is a settled principle of transfer pricing jurisprudence that functional similarity is the primary test for determining comparability under the TNMM. Merely because two entities broadly fall within the ITES sector does not ipso facto render them comparable. Where the nature of services, skill set employed, value addition and business

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model materially differ, such companies cannot be retained as comparables. This principle has consistently been recognised in the decisions relied upon by the learned Authorised Representative. 19. Respectfully following the ratio laid down in Meritor Commercial Vehicle India Private Limited (supra) and Headstrong Services India Private Limited (supra), and considering the distinct functional profile of the company, we hold that E Care India Private Limited is functionally incomparable with the assessee. Accordingly, we direct the AO/TPO to exclude E Care India Private Limited from the final set of comparables while determining the Arm's Length Price of the international transactions. 20. The ld.AR further submitted that the TPO had erroneously excluded certain companies which were originally selected by the assessee as comparables in its transfer pricing study for benchmarking the international transactions under the TNMM. It was contended that the exclusion of these companies was unjustified, as they satisfied the requisite functional and comparability criteria. Accordingly, the ld.AR prayed that the following companies be included in the final set of comparables: (i) Cameo Corporate Services Limited (ii) CES Limited (iii) Silgate Solutions Limited

Cameo Corporate Services Limited 21. The ld.AR submitted that the TPO / DRP has erroneously stated that the company fails the employee cost filter and hence rejected the comparable selected by the assessee vide TPO’s order in page No.8 and DRP’s directions in page No.15. The ld.AR submitted that in the annual report, employee costs embedded in the group of service costs as cost of services. Further, the ld.AR submitted that as considered by the TPO, if only employee benefit expenses considered, the average employee cost will come only meager Rs.18,471/- per

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annum per employee, which is highly impractical and impossible proposition. Therefore, the company is eligible to be considered as comparable to the assessee’s activities and passes the employee cost filter and hence prayed for including the same as comparable. CES Limited & Silgate Solutions Limited 22. The ld.AR stated that the employee cost filter cannot be applied to these comparables as there is no details of employee cost provided in the segmental working and the overall employee cost is not a basis for computation of segmental margin. However, the ld.TPO / DRP has failed to analyse the details available and stated that the comparable is failing employee cost filter and rejected the comparable. The ld.AR argued that to select the company as comparable under employee cost filter the threshold should be 25% to 50%, which the TPO have rightly adopted. Hence, the ld.,AR prayed for inclusion of the said company as comparable by relying on the following judicial precedents. (i) Societe Generale Global Solution Centre Pvt. Ltd. v. DCIT IT(TP)A No.1188/Bang/2011 (ii) Agilent Technologies (International) P. Ltd. v. ACIT ITA No.1171/Del/2022

23.

Similarly, in the case of Silgate Solutions Limited, the employee cost filter cannot be applied and placed the similar arguments as argued in respect of CES Limited and relied some judicial precedents (supra) and prayed for including the above company also as comparable to the assessee’s activities. 24. Per contra, the ld.DR for the Revenue supported the orders of the authorities and submitted that the TPO and the DRP has analysed in detail of all the companies before selection of comparables for determining ALP of the international transactions of the assessee, and therefore, prayed for dismissing the appeal of the assessee by upholding the order of the AO.

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25.

We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record. The issue for our consideration is whether the TPO was justified in excluding the three companies, namely, Cameo Corporate Services Limited, CES Limited and Silgate Solutions Limited, from the final set of comparables by applying the employee cost filter. 26. It is a settled proposition of transfer pricing jurisprudence that while applying quantitative filters for selection or rejection of comparables, the TPO is required to analyse the financial statements of the comparable companies in their entirety and not merely rely upon the classification of expenses under a particular accounting head. The purpose of the employee cost filter is to identify companies predominantly engaged in rendering services through human resources and not to reject otherwise functionally comparable companies on account of accounting presentation or disclosure practices adopted in their financial statements. Therefore, where employee-related expenditure is embedded under other expenditure heads or where segmental employee cost is not separately disclosed, the same requires proper examination before arriving at any conclusion regarding failure of the employee cost filter. Cameo Corporate Services Limited 27. The ld.AR submitted that the TPO rejected the company solely on the ground that it failed the employee cost filter. However, on examination of the Annual Report, it was demonstrated that substantial employee-related expenditure had been grouped under the head 'Cost of Services' and was not separately reflected under the caption "Employee Benefit Expenses". It was further contended that if only the amount disclosed under employee benefit expenses is considered, the average employee cost works out to an insignificant amount per employee, which is commercially unrealistic and clearly indicates that employee-related costs have been accounted for under another expenditure head.

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28.

We find considerable merit in the aforesaid submission. The rejection of a comparable merely on the basis of the nomenclature adopted in the financial statements, without examining the composition of the expenditure, is not sustainable. The TPO has not brought any material on record to establish that the employee cost embedded in the service cost has been excluded while computing the employee cost ratio. In the absence of such verification, the conclusion that the company fails the employee cost filter cannot be sustained. 29. In our considered opinion, the employee cost filter cannot be applied in a mechanical manner by ignoring the accounting treatment adopted by the company. Since the company is otherwise functionally comparable and there is no adverse finding regarding its functional profile, the rejection merely on the basis of presentation of employee costs is unsustainable. We, therefore, direct the AO/TPO to include Cameo Corporate Services Limited in the final set of comparables for determining the Arm's Length Price. CES Limited 30. We have also examined the reasons assigned by the TPO for rejecting CES Limited. The rejection is founded solely on the alleged failure of the employee cost filter on the basis of segmental information. The material placed before us reveals that although the company has reported segmental financials, the employee costs have been disclosed only at the entity level and not separately for each segment. In such circumstances, application of the employee cost filter exclusively on the basis of segmental disclosures, without appreciating the overall financial statements, is neither justified nor in consonance with settled principles governing transfer pricing analysis. 31. The judicial precedents relied upon by the ld.AR, particularly Societe Generale Global Solution Centre Pvt. Ltd. v. DCIT and Agilent Technologies (International) Pvt. Ltd. v. ACIT, support the proposition that a comparable cannot be rejected merely because segment-wise employee costs are not separately available, especially where the company is otherwise functionally

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comparable. Accordingly, we hold that the rejection of CES Limited is not sustainable. The AO/TPO is, therefore, directed to include CES Limited in the final set of comparables while recomputing the Arm's Length Price. Silgate Solutions Limited 32. The facts relating to Silgate Solutions Limited are substantially similar to those of CES Limited. The TPO has rejected the company by applying the employee cost filter without appreciating that segment-wise employee cost details are not separately disclosed in the financial statements. Except for the application of the employee cost filter, no other functional dissimilarity has been brought on record by the Revenue for excluding the company. Once the company is found to be functionally comparable, its exclusion merely on account of non-availability of segment-wise employee cost figures cannot be sustained. The employee cost filter is intended to facilitate the identification of service- oriented companies and cannot be applied so rigidly as to defeat the objective of arriving at a reliable set of comparables. 33. In view of the foregoing discussion, we hold that Silgate Solutions Limited has been wrongly excluded by the TPO/DRP. Accordingly, we direct the AO/TPO to include Silgate Solutions Limited in the final set of comparables for the purpose of determining the Arm's Length Price. 34. The next issue raised by the assessee is computation of notional interest on outstanding receivables. In its grounds of appeal and pressed by the ld.AR. The ld.AR for the assessee submitted that the TPO / AO and DRP erred in treating the outstanding receivables from AE as a separate international transaction without appreciating that such receivables are intrinsically linked to the principal business transactions. Therefore, the benchmarking of the outstanding receivables, if any, has been subsumed with the benchmarking of the principal international transaction, and hence, no separate adjustments is warranted. The ld.AR also stated that the TPO has failed to appreciate the extended realization timelines permitted during the Covid period including

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relaxations by the RBI permitting realization of export proceeds up to 15 months. Therefore, the notional interest on outstanding receivables arrived by the TPO is erroneous. Without prejudice, the ld.AR also argued that the TPO has arbitrarily adopted a credit period of 30 days while computing the notional interest by disregarding the average credit period to comparable companies and the business realities of the assessee instead of appropriate credit period ought to have been considered for benchmarking purposes. The ld.AR further submitted that the DRP has erred in enhancing the rate of interest applicable to overdue receivables by increasing the mark up over LIBOR, without adequate basis or proper justification. 35. Apart from above arguments, the ld.AR submitted that the assessee is a debt free company having no borrowings from either internal or external sources and consequently has not incurred any additional financial cost. Accordingly, the adjustment towards notional interest on outstanding receivables cannot be made. The ld.AR drew our attention to the audited balance sheet in paper book page No.177 and shown that the company is not having any borrowings. In support of the above arguments, the ld.AR relied on following judicial precedents: (i) Freshworks Technologies Pvt. Ltd vs. DCIT - IT(TP)A No. 27/CHNY/2026 (AY 2022-23) (ii) Temenos India Pvt. Ltd., vs. DCIT - IT(TP)A No. 32/CHNY/2024 (AY 2020-21) (iii) Expleo Solutions Ltd., vs. DCIT IT(TP)A No.136/Chny/2024 (AY 21- 22) (iv) Sanmina-SCI India Pvt. Ltd., vs. DCIT - IT(TP)A No.23/Chny/2018 (AY 2013-14) (v) Turbo Energy (P.) Ltd. Vs. DCIT - IT(TP)A No. 127 (CHNY) OF 2024 (AY 2021-22) (vi) Valeo India (P.) Ltd. Vs. DCIT IT(TP)A No. 77 (CHNY) OF 2024 (AY 2021-22) (vii) CH Robinson Worldwide Freight India Pvt Ltd vs DCIT - ITA No 2533/Chny/2024 (AY 2020-21&2021-22) (viii) Gimpex Private Limited - I.T. (TP)A.No.57/Chny/2019 (AY 2015- 16) (ix) PCIT vs. Inductis India Pvt Ltd - ITA No 175 (Delhi HC) of 2019 (AY 2012-13)

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(x) Bechtel India Pvt. Ltd., vs. DCIT in ITA No.1478/Del/2015, HCITA 379/Del/2016. (AY 2010-11

36.

Per contra, the ld.DR for the Revenue submitted that the assessee has extended the credit limit to the AEs, and hence, the computation of notional interest by the TPO is in accordance with the law. Consequently, the DRP has rightly enhanced the mark up over LIBOR. Therefore, the ld.DR prayed for confirming the order of the AO by dismissing the grounds of appeal of the assessee. 37. We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record along with the judicial precedents relied on. The issue for our consideration is whether the TPO was justified in making an adjustment towards notional interest on outstanding receivables from the AEs by treating the same as a separate international transaction under Chapter X of the Act. The ld.AR contended that the outstanding receivables are intrinsically linked to the principal international transaction of rendering IT enabled services and, therefore, once the principal transaction has been benchmarked under the TNMM and accepted to be at Arm's Length, no separate adjustment on account of outstanding receivables is warranted. It was further submitted that during the relevant previous year, the Reserve Bank of India had granted relaxation in the realization period of export proceeds in view of the Covid-19 pandemic, permitting realization up to fifteen months, which has not been appreciated by the TPO while computing the impugned adjustment. The ld.AR also assailed the adoption of a uniform credit period of 30 days and enhancement of the interest rate by the DRP by adding a further mark-up over LIBOR without assigning any cogent reasons. 38. We find considerable force in the submissions advanced on behalf of the assessee. It is now well settled through a catena of judicial pronouncements that although outstanding receivables may constitute an international transaction within the meaning of section 92B of the Act, an adjustment cannot be made in

:-17-: IT(TP)A. No:30/Chny/2026

a routine or mechanical manner without examining the surrounding facts and commercial circumstances. The Transfer Pricing provisions contemplate determination of the Arm's Length Price having regard to the actual conduct of the parties and the economic realities of the transaction. 39. The records reveal that the assessee is a captive service provider rendering services exclusively to its AEs on a cost-plus basis. The international transaction relating to the rendering of IT enabled services has already been benchmarked under the TNMM. In such circumstances, where the impact of the working capital position forms part of the overall profit level indicator and the margins have been accepted after benchmarking, a separate adjustment towards outstanding receivables would ordinarily result in duplication unless it is demonstrated by the Revenue that the delay in realization constitutes an independent financing arrangement conferring a separate economic benefit upon the AE. 40. We further find from the audited financial statements placed before us that the assessee is admittedly a debt-free company and has not availed any borrowings either from internal or external sources. Consequently, no interest expenditure or financing cost has been incurred by the assessee on account of delayed realization of receivables. This factual position has not been disputed by the Revenue. The Hon'ble Delhi High Court in PCIT v. Inductis India Pvt. Ltd. has held that where the assessee is a debt-free company and no interest- bearing funds have been utilised, no transfer pricing adjustment on account of outstanding receivables is called for merely because the realization has taken place beyond the stipulated credit period. Similar principles have also been reiterated by various Benches of the Tribunal, including the decisions relied upon by the learned Authorised Representative in Freshworks Technologies Pvt. Ltd., Temenos India Pvt. Ltd., Expleo Solutions Ltd., Sanmina-SCI India Pvt. Ltd., Turbo Energy (P.) Ltd., Valeo India (P.) Ltd., CH Robinson Worldwide Freight India Pvt. Ltd., Gimpex Private Limited and Bechtel India Pvt. Ltd.

:-18-: IT(TP)A. No:30/Chny/2026

41.

We also find merit in the contention of the assessee that the TPO has arbitrarily adopted a uniform credit period of 30 days without undertaking any analysis of the actual credit period prevailing in the industry or the credit period enjoyed by comparable uncontrolled enterprises. The determination of the Arm's Length Price cannot rest upon arbitrary assumptions divorced from commercial realities. Equally, the enhancement made by the Dispute Resolution Panel by increasing the applicable interest rate over LIBOR has been made without assigning any independent reasons or demonstrating the economic basis for such enhancement. Further, the undisputed factual position is that the relevant assessment year falls immediately after the Covid-19 period during which the Reserve Bank of India had granted extended timelines for realization of export proceeds. The authorities below have not examined the effect of such regulatory relaxation while determining the period of delay attributable to the assessee. This omission also renders the adjustment unsustainable.

42.

Having regard to the entirety of the facts and circumstances of the case, particularly the fact that the assessee is a debt-free captive service provider; and respectfully following the co-ordinate Bench decision, we are of the considered opinion that the adjustment made towards notional interest on outstanding receivables is not sustainable either on facts or in law. Accordingly, we direct the AO/TPO to delete the adjustment made towards notional interest on outstanding receivables. Consequently, the enhancement made by the DRP by increasing the mark-up over LIBOR also stands deleted.

43.

In view of the above discussions and findings, we allow the grounds of appeal pressed by the ld.AR and dismiss all other grounds of appeal as not pressed.

:-19-: IT(TP)A. No:30/Chny/2026

44.

In the result the appeal of the assessee is partly allowed.

Order pronounced in the court on 21st July, 2026 at Chennai.

Sd/- Sd/- (जॉजा जॉजा के) (एस. आर. रघुनार्था) (GEORGE GEORGE K) (S. R. RAGHUNATHA) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनांक/Dated, the 21st July, 2026. Devadas आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR 5. गाडा फाईल/GF Digitally signed by DEVADAS DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.07.24 11:33:30 +05'30'

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