IVY MOBILITY SOLUTIONS PVT. LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

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ITTPA 34/CHNY/2026Status: DisposedITAT Chennai07 July 2026AY 2022-2311 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided the issues as follows: Regarding the rejection of segmental financials and the computation of ALP based on segmentation, the Tribunal noted that the lower authorities had not examined the segmentation exercise on merits. Since additional evidence was submitted and the assessee's segmentation methodology was accepted under safe harbour rules in subsequent assessment years, the Tribunal remitted this issue back to the AO/TPO. The AO/TPO was directed to consider the additional evidence and the fact that the segmentation was accepted in subsequent years, while giving the assessee a reasonable opportunity of being heard. The Tribunal expressly left undecided the specific quantum of adjustment related to segmentation, pending factual verification. Regarding the upward adjustment towards interest on outstanding receivables, the Tribunal noted the ratio laid down in the case of M/s. Gimpex Pvt. Ltd. vs. ACIT, which held that if the assessee does not charge interest on delayed receivables from non-AEs, then selective charging of notional interest on AE receivables is not warranted and overlooks commercial realities. The Tribunal observed that the average realization period of outstanding receivables from AEs was 26 days, which was less than the 30-day credit period allowed by the TPO. Considering this and the fact that the assessee did not charge notional interest on non-AE receivables, the Tribunal held that charging notional interest from AE receivables was not warranted and directed the AO/TPO to delete the adjustment made in this regard. The Tribunal did not make any specific findings on the arithmetical error in total income computation, as the primary issues revolved around transfer pricing adjustments.

What were the facts?

The assessee, Ivy Mobility Solutions Pvt. Ltd., filed an appeal against the final assessment order passed by the National Faceless Assessment Unit (AO) for Assessment Year 2022-23. The AO's order was passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961. The assessee contended that the AO erred in computing the total income at INR 27,33,37,824/-, whereas the correct figure should be INR 18,41,66,042/-. This discrepancy was attributed to an arithmetical/typographical error. The appeal also raised grounds related to upward transfer pricing adjustments on international transactions with Associated Enterprises (AEs), including the rejection of the assessee's transfer pricing documentation, the addition of new comparable companies, the invocation of section 92C(3), the rejection of segmental margins, the treatment of foreign exchange loss, and the rejection of risk adjustments. Additionally, the assessee challenged the upward adjustment for interest on outstanding receivables.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the AO erred in computing the total income due to an arithmetical/typographical error, as alleged by the assessee. 2. Whether the AO/DRP erred in confirming the TPO's action in making an upward transfer pricing adjustment to the international transactions undertaken by the appellant with its AEs, specifically concerning: a. The rejection of the assessee's TP documentation and the performance of a fresh search leading to the addition of new comparable companies (Section 92C). b. The invocation of Section 92C(3) of the Income Tax Act, 1961. c. The rejection of the assessee's segmental margin and audited segmental accounts, and the failure to appreciate the scientific allocation method and commercial rationale for segmentation (Section 92C). d. The computation of the margin at the entity level instead of considering segmental results, and the inclusion of non-AE transactions in the transfer pricing adjustment (Section 92C). e. The treatment of foreign exchange loss as operating in nature and the failure to analyze its real nature (Section 92C). f. The rejection of the risk adjustment requested by the assessee, considering its role as a captive service provider versus entrepreneurial comparable companies (Section 92C). g. The retention of functionally dissimilar or earning abnormal margins comparable companies. 3. Whether the AO/DRP/TPO erred in re-characterizing outstanding receivables as a loan and treating them as an international transaction, and in enhancing the TP adjustment for interest on outstanding receivables by directing the computation of interest at LIBOR plus 450 basis points (Section 92B and Section 92C). Assessee's Contentions: - The total income computation error was an arithmetical/typographical mistake. - The TPO/DRP erred in rejecting TP documentation, adding new comparables, invoking Section 92C(3), rejecting segmental margins, treating forex loss as operating, rejecting risk adjustments, and including incorrect comparables. - Outstanding receivables are not loans and not explicitly recognized as international transactions under Section 92B. The delay in realization is a commercial reality, and the ICAI guidance note on Form 3CEB should be considered. The Finance Act 2012 explanation refers to direct loans for capital financing, not trade receivables. - The credit terms with AEs should be compared with third-party customers. The interest rate and credit period adopted were arbitrary. - Reliance was placed on the decision in M/s. Gimpex Pvt. Ltd. vs. ACIT for the issue of interest on receivables. Revenue's Contentions: - The revenue relied on the orders of the lower authorities.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144B,Section 92C,Section 92C(3),Section 92B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S

For Respondent: Mr. K. Jayaganesh, CIT

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the final order of the assessment passed by National Faceless Assessment Unit (in short "AO") passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short "the Act") dated 28.12.2025 for Assessment Year (AY) 2022-23. The grounds of appeal raised by the assessee are as under: “1. The Appellant objects to the Final Assessment Order dated 28.12.2025, passed under section 143(3) r.w.s. 144C (13) r.w.s 144B of the Income-tax Act, 1961 ('the Act') by the Assessment Unit, Income Tax Department, National Faceless Assessment Centre (AO) ('the Assessing

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Officer'/AO'), which is erroneous and contrary to law, facts and circumstances of the case.

2.

The AO has erred in computing the total income at INR 27,33,37,824/- in the final assessment order, as against the correct figure of INR 18,41,66,042/-. The said determination is the result of a clear arithmetical/typographical error, which has led to an incorrect computation of assessed income and consequential demand.

Transfer Pricing Grounds 3. Upward transfer pricing adjustment to the International Transactions undertaken by the appellant with its Associated Enterprises ('AE')

General 3.1. The AO/DRP erred in law and facts in confirming the action of the TPO in determining an upward adjustment to the value of international transactions undertaken by the Appellant.

3.2. The AO/ DRP erred in law and facts in confirming the action of the TPO, in rejecting the assessee's TP documentation and performing a fresh search resulting in the addition of new comparable companies.

3.3. The AO/DRP erred in law and facts in confirming the action of the TPO of invoking the provisions of section 92C(3) of the Income Tax Act, 1961.

comparable 3.4. The TPO erred in not providing the search parameters basis which the co companies were selected by him.

3.5. The AO/DRP/TPO failed to appreciate/ consider the rebuttals made by the appellant against the comparable companies selected by the TPO.

Incorrect rejection of Segmental margin 3.6. The TPO/DRP has erred in rejecting the segmental margin prepared by the assessee

3.7. The TPO/DRP has erred in rejecting the audited segmental accounts submitted by the assessee.

3.8. The TPO/DRP failed to appreciate that segmental results are prepared using scientific allocation method for segmentation results to maintain transparency and integrity in financial reporting.

3.9. The TPO/DRP failed to appreciate the commercial and economic rationale for preparing separate segmental accounts for AE and non-AE transactions, which is critical for an accurate transfer pricing analysis.

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3.10. The TPO ought not to have computed the margin of the assessee at entity level considering the segmental results prepared by the assessee are more reliable compared to the entity-wide margins.

3.11. The TPO has erred in computing the transfer pricing adjustment by including non-AE transactions, which is contrary to the fundamental principles of transfer pricing that mandate benchmarking only AE transactions.

3.12. The DRP has erred in upholding the findings of the TPO without appreciating that the segmentation methodology adopted by the assessee has been accepted and agreed to, by the TPO in the subsequent safe harbour proceedings.

Incorrect treatment of Forex loss as operating in nature 3.13. Without prejudice, the AO/DRP erred in confirming the action of TPO in treating the foreign exchange loss incurred during the year as operating in nature while computing the margin of the appellant at entity level.

3.14. The AO/DRP erred in not appreciating and analysing the real nature of such forex loss and reasons for incurring such forex loss.

3.15. Without prejudice to the above, that forex loss is notional and as such at least to the extent of unrealised portion of forex loss ought to be treated as non-operating expenditure.

Rejecting the grant of risk adjustment requested by the assessee 3.16. The DRP/TPO ought to have understood that the appellant operates as a captive service provider within the Associated Enterprise (AE) segment, whereas the comparable companies are entrepreneurial entities that inherently bear significantly higher risks.

3.17. Without prejudice, the DRP/TPO ought to have provided necessary risk adjustment to give effect to any differences in the comparability between the assessee and the entrepreneurial comparable companies.

Incorrect inclusion of comparable companies 3.18. Without prejudice to any of the objections, the TPO has failed to appreciate/ consider the rebuttals made by the assessee against the comparable companies selected by the TPO and erred in retaining such companies which are functionally not comparable to that of the assessee.

3.19. The TPO/DRP erred in retaining companies which are functionally dissimilar/ earning abnormal margins/ undertaking diversified functions

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as compared to that of the Appellant. The list of comparable companies are as below: • Systango Technologies Ltd. • Sasken Technologies Ltd. • CG-VAK Software & Exports Ltd • IDS Infotech Ltd. • Ksolves India Limited 4. Upward adjustment towards interest on outstanding receivables 4.1. The DRP/AO/TPO erred in re-characterizing of outstanding receivables as loan and treating outstanding receivables from AE as an international transaction. 4.2. The DRP/AO/TPO erred in facts and in law by holding that the delay in realization of receivables from AEs as an international transaction ignoring the fact that the same is not explicitly recognized as an international transaction in terms of section 92B of the Act. 4.3. Without prejudice to the above, the AO/DRP erred in in law and on facts in enhancing the TP adjustment in relation to outstanding receivables by directing the TPO to compute interest on LIBOR plus 450 basis points. 4.4. The DRP/AO/TPO failed to take cognizance of the guidance note issued by The Institute of Chartered Accountants of India (ICAI) on Report under Section 92E of the Income-tax Act, 1961 (Transfer Pricing) in respect of the disclosure of the international transactions in the Accountant's Report in Form No. 3CEB, wherein it specifically emphasizes to avoid duplication by reporting advances and debts of any principal transaction. 4.5. The DRP/AO/TPO erred in equating the outstanding receivables on account of business operations as financing/ funding without appreciating that the Explanation inserted by Finance Act 2012 refers to direct loans or advances given for capital financing. 4.6. The DRP/AO/TPO failed to take cognizance of the General Instructions for Preparation of Balance Sheet under Schedule III to the Companies Act, 2013 which clearly distinguishes the definition of "Trade receivables" and "loans and advances" and as such both the transaction cannot be treated equally. 4.7. The DRP/AO/TPO arbitrarily restructured legitimate business transaction of the Appellant thereby disregarding the principles laid down by OECD guidelines (para 1.121 and 1.123) which states that tax administrations should not disregard the actual

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4.8. Without prejudice to the above, the DRP/AO erred in confirming the action of the TPO of not having compared the credit terms agreed with AEs vis-à-vis the third-party customers by the Appellant in the absence of statutory stipulation. Transactions or substitute other transactions. 4.9. The DRP/AO/TPO erred in computation of notional interest on outstanding receivables by adopting an ad hoc rate of LIBOR plus 450 BPS without giving proper basis for the same. 4.10. The DRP/AO/TPO erred in computation of notional interest on outstanding receivables by adopting credit period of 30 days without giving proper basis for the same. 4.11. Without prejudice to the above, the interest attributed is high and arbitrary.”

2.

The assessee is a private limited company engaged in route market solutions to various principles in the consumer packaged goods/FMCG Industry and also a cloud based enterprise solution provider. The assessee filed a return of income for AY 2022-23 on 10.11.2022 declaring total income of Rs.7,95,92,730/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to compute the Arm's Length Price (ALP) of the international transactions. The TPO proposed upward TP adjustment towards AE sales amounting to Rs.8,61,41,751/- and upward adjustment towards outstanding receivables amounting to Rs.20,57,070/-. The A.O passed the draft assessment order incorporating the TP adjustments against which the assessee filed its objections before the Disputes Resolution Panel (DRP). As per the directions of the DRP, the TP adjustment towards AE sales was revised to Rs.10,19,59,825/- and the adjustment towards outstanding receivables was revised to Rs. 26,13,486/-. The assessee is in appeal before the Tribunal

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against the final order of assessment passed by the A.O pursuant to the directions of the DRP.

TP adjustment towards AE sales:

3.

The assessee in transfer pricing document has benchmarked the international transaction relating to provision of software development services to its AE under cost plus method (CPM). Considering that under safe harbour rate for the services rendered by the assessee being 17% the assessee concluded that the cost plus margin charged at 20% by the assessee is at arm's length. The TPO rejected segmental results on the ground that the assessee has not furnished sufficient documentary evidences in support of the allocation of cost between AE and non-AE segments. The TPO accordingly determined the ALP by considering the entity level margins instead of the margins relating to AE segment. The DRP upheld the approach of the TPO by observing that the assessee has not maintained audited segmental financials and adequate documentary evidence establishing the basis for cost allocation.

4.

The Ld. Authorized Representative (AR) of the assessee in this regard submitted that the assessee in subsequent AYs i.e., 2024-25 and 2025-26 has opted for safe harbour provisions in respect of the software development services rendered to the AE and that the revenue has accepted the AE specific segmental results without any adverse observations on the segmentation or the underlying cost allocation methodology. The Ld. AR further submitted that since the main contention of the revenue is that the assessee has not provided sufficient evidence on the cost allocation or segmentation, the assessee is now submitting the additional evidences as listed below:

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1.

Audited segmental financial statements duly certified by an independent Chartered Accountant.

2.

Details of cost allocation methodology along with the rational adopted.

3.

Supporting documentary evidences including sample invoices, employee wise details of personnel deployed on AE and non AE projects, sample time sheet, employee wise salary details, email correspondence evidencing marking efforts and other relevant records substantiating the segmental allocation.

5.

The Ld. AR submitted that the assessee for the year under consideration has followed the same methodology for the segmental details for AE and non-AE related transactions as applied in the subsequent AYs. The Ld. AR further submitted that the segmentation has been rejected for the year under consideration only on the ground that the same has not audited. The Ld. AR also submitted that the assessee during the course of hearing submitted the segmentation as followed as per safe harbour rules in subsequent years but the same is rejected for the reason that it is not filed along with the return of income. The Ld. AR prayed that the additional evidences now submitted would substantiate the segmentation and is audited by independent Chartered Accountant. Accordingly the ld AR prayed for admission of the additional evidence and one more opportunity be given before the lower authorities.

6.

The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.

7.

We have heard the parties, and perused the material available on record. As per the transfer pricing study, the assessee is rendering software development services to its AE as well as non AE. The assessee for the

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purpose of benchmarking the transactions has segmented the software development services between AE and non AE transactions and since the margin charged on the AE @ 20% is more that the safe harbour margin of 17% the assessee concluded that the price charges is at arm's length. We notice that the TPO/DRP has rejected the segmentation on the ground that the segmental financials are not audited and that the basis of allocation between the AE and non AE is not substantiated. The additional evidence now submitted by the Ld. AR goes to the route of the issue and therefore for a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. During the course of hearing, the Ld. AR drew our attention to the orders passed by the TPO where no TP adjustment is proposed towards the impugned transactions accepting the segmental financials submitted by the assessee under safe harbour rules (page 158 to 179 of paper book). The Ld. AR also drew our attention to the segmentation workings carried out by the assessee for the year under consideration to submit that the assessee has followed the same methodology with respect to segmentation. In our view, rejecting the segmentation merely for the reason that it is not audited and that the allocation methodology is not properly explained by the assessee is not tenable without proper examination on merits. Since the lower authorities have not examined the segmentation exercise carried out by the assessee on merits and the additional evidences in that regard is now submitted by the assessee, we are of the view that the ALP computation of the assessee based segmentation needs factual verification. Accordingly, we remit the issue back to the A.O/TPO with a direction to consider the additional evidence now submitted by the assessee. The AO/TPO is further directed to keep in mind the fact that the segmentation carried out by the assessee under safe harbour rules in subsequent AYs has

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been accepted without any adverse observations. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.

TP adjustment towards interest on receivables: 8. The TPO made an upward adjustment towards interest on outstanding receivables @ LIBOUR + 350 basis points. The TPO while doing so has allowed 30 days credit period. The DRP enhanced the adjustment by directing the TPO to attribute interest rate @ LIBOUR + 450 basis points.

9.

The Ld. AR submitted that the assessee has not charged any interest from its non AE customers even where the receivables have exceeded the credit period of 30 days and therefore no interest is chargeable. The Ld. AR in this regard relied on the decision of the Coordinate Bench in the case of M/s. Gimpex Pvt. Ltd. vs. ACIT [IT(TP)A No.57/Chny/2018 dated 05.04.2019] where it is held that: “23. Now we take up the dispute regarding the Arms Length Price adjustment imputing interest on overdue receivables. It is not disputed by the Revenue that assessee had not charged interest either from its Associated Enterprise or from Non Associated Enterprises, for delay in collection of receivables. It is also not disputed that out of the total transactions of the assessee almost 57% were with its Non Associated Enterprises. Once there is complete uniformity followed by assessee in not charging any interest from any party, whether Associated Enterprise or Non Associated Enterprises, in our opinion there could not be any selective imputing of notional interest. Submission of the assessee that out of total sales of about of B261 Crores to its Associated Enterprise, B100 Crores was received well within the due date and small delays were only in the balance of B161 Crores has not been disputed by the ld. Departmental Representative. Assessee had not offered any discount to any party for payment of bills before the expiry of the credit period. Hence, it is only a natural corollary that it did not charge any interest for delays also. Where a good part of the dues were collected earlier to the due date, in our opinion the instances where there were delays could not be selectively elected for a levy of charge of notional interest. Such an approach if accepted will completely overlook

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commercial realties. That apart, once TNMM method is considered as the most appropriate method, as held by Ahmedabad Bench of the Tribunal in the cases of Bisazza India (P) Ltd (supra) and Gemstone Glass Pvt Ltd (supra) the net margin worked out there under could take care of all such notional interest cost, wherever it could be imputed and there could be no Arms Length Price adjustment for any overdue receivables. We therefore delete Arms Length Price adjustment of Rs.6,18,43,887/- made on overdue receivables.”

10.

The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.

11.

We have heard the parties, and perused the material available on record. The Coordinate Bench in the above decision has laid down the ratio that when the assessee has not charged any interest for delay in collection of receivables from non AE enterprises then the delay from AE transaction could not be selectively chosen for levy of charge of notional interest and that the same completely overlooks commercial realities. We further notice that the average realization period of the outstanding receivables from AE for the year under consideration works out to 26 days as per below working:

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12.

We notice that the TPO himself has given a credit period of 30 days on individual transactions while arriving at the upward adjustment towards interest. Therefore, considering the fact that the average credit period is less than 30 days and the fact that the assessee has not charged any notional interest on non AE receivables, we hold that charging notional interest from AE receivables in the present case is not warranted. Accordingly, we direct the AO/TPO to delete the adjustment made in this regard.

13.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced on 07th day of July, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा सद�य लेखा सद�य सद�य /Accountant Member सद�य लेखा लेखा �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 07th July, 2026. EDN, Sr. P.S Digitally signed by आदेश क� �ितिल�प अ�े�षत/Copy to: EJTADA DURGA EJTADA DURGA NARESH 1. अपीलाथ�/Appellant NARESH Date: 2026.07.10 09:59:12 +05'30' 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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