ARIBA TECHNOLOGIES INDIA PRIVATE LIMITED ,SINGAHALLI VILLAGE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), BENGALURU, KORAMANGALA

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ITTPA 768/BANG/2026Status: DisposedITAT Bangalore02 July 202610 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the issue of netting off receivables and payables requires factual verification. It found merit in the assessee's contention that corresponding payables to the same AE cannot be ignored when determining adjustments for delayed receivables. Citing the decision in Pathpartner Technology (P.) Ltd. vs. Deputy Commissioner of Income-tax, the Tribunal restored the issue to the AO/TPO to verify if receivables and payables pertain to the same AE and arise in the normal course of business. If established, the adjustment should be computed only on the net receivable amount. The Tribunal also found that the rate adopted by the TPO required reconsideration. Consistent with settled law and decisions of coordinate benches, it directed the AO/TPO to adopt LIBOR plus 200 basis points for computing any surviving adjustment. The assessee was to be afforded an opportunity to be heard and furnish relevant details. The Tribunal set aside the issue and directed the TPO/AO to recompute the arm's length price of notional interest on receivables as discussed. Consequently, this ground of appeal was partly allowed for statistical purposes.

What were the facts?

The assessee, Ariba Technologies India Pvt. Ltd., is an IT company providing Software Development Services and IT Enabled Services to its Associated Enterprises (AEs) on a cost-plus mark-up basis. For Assessment Year 2022-23, the assessee filed its return of income on 30.11.2022. During Transfer Pricing (TP) proceedings, the TPO treated the delay in realization of trade receivables from AEs as unsecured loans and computed notional interest for the period of delay. The TPO relied on Section 92B of the Income Tax Act, 1961, which defines 'international transaction' to include capital financing. The TPO calculated an upward adjustment of Rs. 3,90,28,715/- by applying average LIBOR + 450 Basis Points to the average receivables. The assessee objected to this before the DRP, arguing that delayed receivables are a consequence of the principal transaction and not a separate international transaction. The DRP upheld the TPO's action, relying on the Explanation to Section 92B and judicial precedents. The assessee appealed to the ITAT.

What were the issues?

1. Whether the delay in realization of trade receivables from AEs constitutes a separate international transaction requiring a transfer pricing adjustment, as per Section 92B of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that delayed receivables are merely a consequence of the principal international transaction (sales) and not a separate transaction. Without prejudice, it contended that as a debt-free company, it incurred no financing cost, making notional interest adjustment inappropriate. Furthermore, it argued that since AEs did not charge interest on payables due from the assessee, it was inappropriate to impute notional interest only on receivables, and a net-off of receivables and payables should be considered. Revenue's Contention: The revenue supported the lower authorities, arguing that outstanding receivables from AEs constitute a separate international transaction, justifying the TPO's adjustment. The revenue contended that the adjustment was to determine arm's length compensation for extended credit, not to treat receivables as loans. It also argued that the assessee being debt-free is irrelevant for benchmarking from an independent party perspective and that the assessee failed to establish that receivables and payables pertained to the same AEs.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE

Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K

For Appellant: Shri Aliasgar Rampurwala, CA &, Shri Manju Prasad, Advocate
For Respondent: Smt. Nandini Das, CIT (DR)
Hearing: 09.06.2026Pronounced: 02.07.2026

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER

IT(TP)A No. 768/Bang/2026 Assessment Year: 2022-23

Ariba Technologies India Pvt. Ltd., The Dy. Commissioner of Vs. No.1, 3rd Floor, Plot Nos. 26-29 Income Tax, and 29P, Circle – 1(1)(1), Hitech Defense and Aerospace Park (IT Bengaluru. Sector), Industrial Area Sy.No.6 (Block 70,71,76-79 and 86), Singahalli Village, Bengaluru Urban – 562 149. PAN – AADCA 0918 P APPELLANT RESPONDENT Assessee by : Shri Aliasgar Rampurwala, CA & Shri Manju Prasad, Advocate Revenue by : Smt. Nandini Das, CIT (DR) Date of hearing : 09.06.2026 Date of Pronouncement : 02.07.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal has been instituted by the assessee against the order of the Ld. AO/TPO u/s 143(3) r.w.s. 144C(13) of the Act dt. 05.12.2025 for the AY 2022-23.

2.

In the memo of appeal, the assessee has raised as many as 04 grounds along with sub-grounds of appeal challenging the addition made

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on the issue of Transfer pricing adjustment, which we for the sake of brevity and convenience are not inclined to reproduce the same here.

2.1 The issue raised by the assessee in Ground No. 1 is general in nature and does not call for any fresh adjudication. Hence the same is dismissed as being infructuous.

3.

Ground Nos. 2 to 4 along with sub-grounds are interconnected and pertains to interest on delayed receivables.

4.

The brief facts of the case on hand are that the assessee, a private limited company, is engaged in the business of providing Software Development Services (SWD) and Information Technology Enabled Services (ITeS) to its AEs on a cost-plus mark-up basis.

5.

The Assessee company filed the return of income for the captioned AY on 30.11.2022 offering an income of Rs. 94,04,52,910/- only. Subsequently, the case of the assessee was selected for scrutiny through CASS. During the TP proceedings, the TPO treated the delay in realization of trade receivables from the AEs as unsecured loans advanced to the AEs and, accordingly, computed notional interest for the period of such delay during the year under consideration. In doing so, the Ld. TPO placed reliance on the provisions of section 92B of the Act, wherein the definition of “international transaction” has been expanded to include capital financing transactions arising in the course of business. The Ld. TPO computed notional interest on the average receivables of the assessee for the captioned AY by applying the average LIBOR + 450 Basis Points and

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determined the total upwards adjustment at Rs. 3,90,28,715/- only by adding to the total Income of the assessee.

6.

Aggrieved, the assessee filed objections before the Ld. DRP.

7.

Before the Ld. DRP, the assessee submitted the interest on delayed receivables should not be considered as a separate international transaction on the reasoning being they represent only a consequence of the principal international transaction i.e. sales.

7.1 Without prejudice, the assessee further submitted that it was a debt-free company during FY 2021-22 and had not borrowed any funds from external sources for financing its operations. Since no interest- bearing funds were utilized for extending credit to AEs, there was no occasion for any loss of interest or financing cost to the assessee. Accordingly, it was argued that no adjustment on account of notional interest on delayed receivables could be made.

7.2 The assessee further submitted that where the AEs had not charged any interest on delayed payment of payables due from the assessee, it would be inappropriate and one-sided to impute notional interest only on receivables outstanding from AEs. Accordingly, it was argued that the net impact of receivables and payables ought to be considered and on such basis no separate adjustment on account of interest on delayed receivables was warranted. The assessee therefore prayed for deletion of the adjustment made by the Ld. TPO.

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7.3 However, the Ld. DRP, with regard to contention of the assessee regarding whether the interest on delayed receivables constitutes a separate international transaction, observed that the amendment inserted by way of Explanation to sec. 92B of the Act, the term ‘internation transaction’ would specifically include within its ambit “deferred payment or receivable or any other debt arising during course of business…” and hence, non-charging or under-charging of interest on excess period of credit allowed to the AE for the realization of invoices would amount to an international transaction. The Ld. DRP further relied on plethora of judicial precedents in this regard.

7.4 The Ld. DRP further upheld the action of the ld. TPO in treating the interest on receivables as an international transaction and in taking LIBOR + 450 Basis points.

8.

Aggrieved by the actions of the Ld. DRP, the assessee preferred an appeal before us.

9.

The Ld. AR before us has filed a paper book running from page Nos. 1 to 556. The assessee before us submitted that trade receivables should not be treated as a separate international transaction and no interest should be imputed on the same. It was submitted that the TPO has wrongly treated the outstanding trade receivables as if they were unsecured loans advanced to the AEs and accordingly computed interest on such receivables amounting to Rs. 3,90,28,715/-. Further, the assessee before us has filed an application u/r 29 of ITAT rules, 1963 seeking permission to file additional evidence in support of grounds filed in the appeal. The assessee submitted that invoice‑wise details of receivables

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was sought by the Ld. TPO during the course of TP proceedings however, the Appellant could not furnish the invoice wise details owing to genuine practical constraints in collating data from multiple systems. At the relevant time, only aggregate transaction data was readily available and was duly filed. Accordingly, the Ld. TPO considered the average of opening balance and closing balance of receivables and levied interest considering LIBOR+450 basis points and made an adjustment of INR 3,90,28,715.00 only.

9.1 The assessee also submitted that it was a debt-free company during the relevant previous year and had not borrowed any funds from external sources. Therefore, there was no financing cost incurred by the assessee on account of the outstanding receivables and no notional interest adjustment was called for.

9.2 It was further contended that the authorities below failed to appreciate that the assessee had corresponding payables outstanding to its AEs arising in the normal course of business and no interest was charged by the AEs on such payables. Therefore, while determining any alleged benefit extended to AEs, the outstanding payables and receivables ought to have been considered together and appropriate netting-off should have been granted. Interest, if at all chargeable, could only be computed on the net outstanding amount after adjusting the payables against receivables. The assessee relied on the judicial precedent of Hon’ble Bangalore ITAT in the case of Pathpartner Technology (P.) Ltd. vs. Deputy Commissioner of Income-tax reported in [2026] 186 taxmann.com 121 (Bangalore - Trib.) dated 29-04-2026

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9.3 Without prejudice to the above, the assessee submitted that the Ld. TPO erred in adopting LIBOR plus 450 basis points for computing the adjustment. It was argued that the rate adopted is excessive and arbitrary. The benchmarking, if at all required, should be carried out by adopting an appropriate LIBOR-based rate having regard to the nature of the transaction and prevailing market conditions. The assessee accordingly prayed for deletion of the entire adjustment or, alternatively, for re-computation after granting netting-off of payables and applying an appropriate rate of interest.

10.

The Ld. DR, on the contrary, vehemently supported the orders of the lower authorities. It was submitted that outstanding receivables from AEs constitute a separate international transaction and, therefore, the Ld. TPO was justified in making a transfer pricing adjustment on account of delayed realization thereof. The Ld. DR contended that the adjustment was not made by treating the receivables as actual loans, but by determining the arm's length compensation for the extended credit period enjoyed by the AEs.

10.1 The Ld. DR further submitted that the assessee being a debt-free company is irrelevant for determining the arm's length price, as transfer pricing provisions require benchmarking of the transaction from the perspective of independent parties. It was also argued that the assessee failed to establish that the receivables and payables were eligible for netting-off and, therefore, the adjustment computed by the Ld. TPO was justified. The Ld. DR further supported the adoption of LIBOR plus 450 basis points and submitted that the assessee had failed to demonstrate that the rate adopted by the Ld. TPO was excessive or unreasonable.

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10.2 As regards the application filed under Rule 29 of the ITAT Rules, the Ld. DR opposed the admission of additional evidence on the ground that adequate opportunities had been granted before the lower authorities and the assessee had failed to furnish the documents at the appropriate stage. It was submitted that Rule 29 cannot be invoked to fill up deficiencies in the assessee's case. Without prejudice, the Ld. DR submitted that if the additional evidence is admitted, the matter may be restored to the file of the Ld. TPO/AO for verification thereof.

11.

We have heard the rival submissions of both the parties and perused the materials available on record. The issue relates to the transfer pricing adjustment made on account of interest on delayed realization of receivables from AEs. The assessee has also filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 seeking admission of certain additional evidence in support of its contention that corresponding payables were also outstanding to the AEs and, therefore, netting-off ought to be granted while computing the adjustment.

11.1 Considering the nature of the additional evidence and the fact that the same goes to the root of the controversy, we admit the additional evidence filed by the assessee in the interest of substantial justice. We further note that the assessee has specifically contended that the receivables and payables pertain to the same AEs and, therefore, the adjustment, if any, should be computed only on the net receivable position. Since this aspect requires factual verification and examination of the underlying transactions, the same has not been properly examined by the lower authorities.

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11.2 We further find merit in the contention of the assessee that while determining the adjustment on account of delayed receivables, the existence of corresponding payables to the same AE cannot be ignored. In this regard, we find support from the decision of the Bangalore Bench of the Tribunal in Pathpartner Technology (P.) Ltd. vs. Deputy Commissioner of Income-tax [2026] reported in 186 taxmann.com 121 (Bangalore - Trib.) [29-04-2026], wherein the Tribunal held that the issue requires examination of the net receivable position after considering the corresponding payables. The relevant para is reproduced below: “22.3 With regard to the contention of assessee regarding net off, we take a note that the approach adopted by the TPO is not entirely justified. Where the assessee has both receivables and payables with the same AE, the impact of delay cannot be examined in isolation. If the assessee is also enjoying credit from the same AE, the real benefit, if any, has to be determined on a net basis. Ignoring the payables would result in an artificial and inflated adjustment which does not reflect the true economic substance of the transaction. 22.4 With regard to the contention of assessee regarding net off, we take a note that the approach adopted by the TPO is not entirely justified. Where the assessee has both receivables and payables with the same AE, the impact of delay cannot be examined in isolation. If the assessee is also enjoying credit from the same AE, the real benefit, if any, has to be determined on a net basis. Ignoring the payables would result in an artificial and inflated adjustment which does not reflect the true economic substance of the transaction. The above view finds strong support from the decision of the coordinate bench of the Tribunal in the case of ACIT v. Avery Dennison (I) (P.) Ltd. [2021] 133 taxmann.com 536 (Delhi - Trib.) dated [11-10-2021], wherein it was held that where the assessee has a net balance payable to AEs, the adjustment on account of interest on receivables does not survive if payables are not factored in. The said decision has been affirmed by the Hon'ble Delhi High Court in Pr. CIT v. Avery Dennision (I) (P.) Ltd. [2023] 154 taxmann.com 454 (Delhi) dated [20-09-2022], which has further held that where debtor days of non-AEs are higher than those of AEs and no interest is charged from non-AEs, the assessee is justified in not charging interest from AEs as well. The SLP filed by the Revenue against the said judgment has also been dismissed by the Hon'ble Supreme Court in Principal Commissioner of Income-tax v. Avery Dennison (I) (P.) Ltd. reported in Pr. CIT v. Avery Dennison (I) (P.) Ltd. [2023] 154 taxmann.com 455 / 295 Taxman 314 (SC) dated [11-082023], thereby lending finality to the issue.”

11.3 Accordingly, we restore this issue to the file of the Ld. AO/TPO with a direction to verify whether the receivables and payables sought to be

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netted-off pertain to the same AE and arise during the normal course of business. In the event the assessee is able to establish the nexus between such receivables and payables, the Ld. AO/TPO shall compute the adjustment, if any, only on the net receivable amount.

11.4 We also find that the rate adopted by the Ld. TPO requires reconsideration. Consistent with the settled position of law and various decisions of the coordinate benches (cited above), we direct the Ld. AO/TPO to adopt LIBOR plus 200 basis points for the purpose of computing any adjustment that may survive after granting the aforesaid relief. Needless to say, the assessee shall be afforded adequate opportunity of being heard and to furnish all relevant details in support of its claim. The relevant para is reproduced below: “22.6 The Tribunal in several cases consistently held that where the underlying transaction is in foreign currency, the appropriate benchmark rate is LIBOR plus a reasonable basis point spread. We find force in the following judicial precedents in the jurisdictional Bangalore ITAT in the case of Synechron Technologies (P.) Ltd v. ACIT [2025] 175 taxmann.com 404 (Bangalore - Trib.) [04-06-2025]. The relevant para is reproduced below: "We have heard the rival submissions and perused the materials available on record. So far as the argument of assessee that the transaction of outstanding receivables is not an international transaction, we do not find any force in this argument because now there are so many judgements on this issue, wherein it has been held that the transactions of outstanding receivables is an international transaction. So far as the applicability of rate is concerned, we observe that TPO has erred in applying LIBOR+450 basis points as a rate of interest, therefore, we modify this rate of interest to the tune of LIBOR+200 basis points, in the interest of justice and direct the TPO to calculate the interest attributable to the outstanding receivables accordingly."

11.5 In view of the above, we set aside the issue and direct the TPO/AO to recompute the ALP of Notional Interest on receivables in the manner discussed above and as per law. Hence, this ground appeal of the assessee is partly allowed for statistical purposes.

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12.

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

Order pronounced in court on 2nd day of July, 2026

Sd/- Sd/- (SOUNDARARAJAN K) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 2nd July, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore

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