INFOSYS BPM LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BENGALURU

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ITTPA 688/BANG/2026Status: DisposedITAT Bangalore07 May 2026AY 2022-236 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that no adjustment on account of notional interest on delayed receivables is warranted. The reasoning was based on the undisputed fact that the assessee is a debt-free company. The Tribunal respectfully followed the binding decisions of the Hon'ble Delhi High Court in Principal Commissioner of Income-tax vs. Inductis India (P.) Ltd. and the dismissal of the SLP by the Hon'ble Supreme Court. The ratio is that if an assessee is debt-free, imputing notional interest on delayed receivables is not justifiable, as there is no cost of funds or evidence of passing on a financing benefit. The addition made by the TPO is directed to be deleted. Ground No. 4 pertaining to FTC was dismissed as not pressed by the assessee. The appeal of the assessee is partly allowed.

What were the facts?

The assessee, Infosys BPM Limited, filed its return of income for Assessment Year 2022-23. The TPO treated the delay in realization of trade receivables from Associated Enterprises (AEs) as unsecured loans and computed notional interest under Section 92B of the Income Tax Act, 1961, resulting in an upward adjustment of Rs. 20,11,44,311. The assessee argued that interest on delayed receivables should not be a separate international transaction, that realization from AEs was faster than from non-AEs, and that re-characterization as a loan was erroneous. The assessee also contended that as a debt-free company, no notional interest should be imputed. The Dy. Commissioner of Income Tax, Circle – 3(1)(1), Bangalore, is the respondent. The appeal is against the assessment order passed by the AO pursuant to the directions of the DRP.

What were the issues?

1. Whether, as a question of law and fact, the Tribunal has to decide if notional interest on trade receivables from AEs can be treated as a separate international transaction under Section 92B of the Income Tax Act, 1961, when the assessee is a debt-free company. Assessee's contentions: The assessee argued that as a debt-free company, imputing notional interest is artificial and not in line with the arm's length principle, as there is no cost of funds. They also argued that receivables are a consequence of sales and not a separate transaction, and that the average realization period from AEs was shorter than from non-AEs. Revenue's contentions: The revenue contended that delay in realization of receivables from AEs constitutes a separate international transaction under Section 92B, including capital financing. They argued that by allowing extended credit, the assessee provided a financing benefit akin to an unsecured loan. The revenue stated that the debt-free status is irrelevant as transfer pricing focuses on arm's length conditions and opportunity cost, and an independent enterprise would charge interest.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: Shri Padam Chand Khincha, CA
For Respondent: Dr. Divya K.J, CIT (DR)
Hearing: 21.04.2026Pronounced: 07.05.2026

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal has been instituted by the assessee against the assessment order passed by the AO u/s 143(3) r.w.s. 144C(13) of the Act, in pursuant to the directions of the Ld. DRP issued u/s 144C(5) of the Act dt. 15.12.2025

2 In the memo of appeal, the assessee has raised 04 grounds and sub grounds of appeal challenging the transfer pricing adjustment and corporate tax adjustment, which we for the sake of brevity are not inclined to reproduced here.

IT(TP)A No.688/Bang/2026 Page 2 of 6

3.

At the outset, we note that ground No. 1 along with sub- grounds 1 and 2 and ground No. 5 along with sub-grounds 1 to 3 are general in nature and does not call for any fresh adjudication. Hence, the same are dismissed as general.

4.

Ground Nos. 2 and 3 raised by assessee are interconnected and pertains to notional interest on trade receivables.

5.

The brief facts of the case on hand are that the assessee, a public limited company, is engaged in the business of process management. The assessee filed its return of income for AY 2022-23 declaring total income of Rs. 6,62,26,91,050/- under normal provisions of the Income Tax Act and Rs. 12,15,58,12,710/- under MAT provisions. The case of assessee was picked up for complete scrutiny under CASS.

6.

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 SBI PLR Rate i.e. 12.26%, after allowing a credit period of 30 days, and determined the total upwards adjustment at Rs. 20,11,44,311/- only by adding to the total Income of the assessee.

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IT(TP)A No.688/Bang/2026 Page 3 of 6

7.

Aggrieved, the assessee filed objections before the Ld. DRP. 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 The assessee also submitted that the average credit period of realization from AE is 36 days whereas the average credit period of realization from non-AE is 66 days. The assessee also submitted that the TPO erred in not netting off the opening and closing deferred payables to the non-resident AEs, in computing the notional interest. Further, the assessee submitted that the AO/TPO erred in re-characterization of delayed realization of trade receivables as a loan transaction. The assessee also relied on various judicial precedents in this regard. Hence, prayed that the same should be deleted. However, the Ld. DRP, upheld the action of the ld. TPO.

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 503 and a compilation of case laws. Among various contentions, one of the contentions raised by the ld. AR for the assessee is that the assessee is a debt-free company and does not incur any interest cost on its operations. It was contended that since the assessee has not borrowed any funds, there is no cost of funds attributable to the alleged delay in realization of receivables from AEs. In such a situation,

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IT(TP)A No.688/Bang/2026 Page 4 of 6

imputing notional interest would be purely artificial and not in line with the arm’s length principle.

10.

The Ld. DR on the contrary supported the orders of the TPO and direction of ld. DRP and submitted that delay in realization of receivables from AEs constitutes a separate international transaction under section 92B of the Act, which includes capital financing. By allowing extended credit, the assessee has provided a financing benefit to its AEs, akin to an unsecured loan. The contention that receivables are incidental to sales is untenable in view of the Explanation to section 92B. Further, the plea of the assessee being debt-free is irrelevant, as transfer pricing focuses on arm’s length conditions and includes opportunity cost of funds. It was argued that an independent enterprise would charge interest for such delay; hence, the TPO’s adjustment using SBI PLR at 12.26% after 30 days is justified.

11.

We have considered the rival submissions of both the parties and perused the materials available on record. The TPO has treated the outstanding trade receivables from AEs as a separate international transaction and computed interest thereon by adopting the SBI PLR Rate i.e. 12.26%. Regarding the contention being debt-free company, no notional interest can be imputed on delayed receivables from its AEs, we find merit in this contention. The Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax vs. Inductis India (P.) Ltd. [2023] 157 taxmann.com 87 (Delhi) dated 04-12-2023 has held that where the assessee is a debt-free company, the question of charging notional interest on receivables does not arise and such TP adjustment is liable to be deleted. The said view has attained finality, as the SLP filed by the

.

IT(TP)A No.688/Bang/2026 Page 5 of 6

Revenue has been dismissed by the Hon’ble Supreme Court in Pr. Commissioner of Income-tax Delhi vs. Inductis India (P.) Ltd. reported in [2025] 175 taxmann.com 423 (SC) dated 05-05-2025. The relevant para of Hon’ble Delhi HC judgment is reproduced below: “Earlier, in similar circumstances, the issue came up before the Income Tax Appellate Tribunal in the case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxmann.com 6 (Delhi - Trib.) and the Tribunal held that the assessee being a debt free company, it would not be justifiable to presume that the borrowed funds have been utilized to pass on the facilities to its AEs and the revenue also had not brought on record that the assessee had been found paying interest to its creditors or suppliers on delayed payments. This view of the Income Tax Appellate Tribunal was upheld by a coordinate bench of this court in appeal titled Pr. CIT v. Bechtel India (P.) Ltd. [IT Appeal No. 379 of 2016, dated 21-7-2016], observing that no substantial question of law arose as the Tribunal had returned a finding of fact to the effect that the assessee was a debt free company and a question of receiving any interest on receivable did not arise. Against the said judgment, Pr. CIT v. Bachtel India (P.) Ltd. CC No.(s) 4956 of 2017 preferred by the revenue was dismissed vide order dated 21-7-2017.”

11.1 In the present case, 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 that any benefit has been passed on 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. Accordingly, respectfully following the binding decisions of the Hon’ble Delhi High Court in Inductis India (P.) Ltd. (supra) as affirmed by the Hon’ble Supreme Court, we hold that no adjustment on account of notional interest on delayed receivables is warranted. The addition made

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IT(TP)A No.688/Bang/2026 Page 6 of 6

by the TPO is therefore directed to be deleted. In view of the above, the ground raised by the assessee is allowed.

12.

Ground No. 4 along with sub-grounds 1 to 3 are interconnected and pertains to FTC.

13.

At the time of hearing, the assessee did not press this ground. Hence, the same is dismissed as not pressed.

14.

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

Order pronounced in court on 7th day of May, 2026 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 7th May, 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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