LI vs. PACE INDIA PRIVATE LIMITED,BANGALOREVS.DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BANGALORE

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ITTPA 614/BANG/2026Status: DisposedITAT Bangalore29 April 2026AY 2022-236 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the notional interest on delayed receivables constitutes a separate international transaction. This is based on the Explanation to Section 92B of the Income Tax Act, 1961, which expands the definition of 'international transaction' to include 'deferred payment or receivable or any other debt arising during the course of business'. Therefore, non-charging or under-charging of interest on the excess period of credit allowed to an AE for invoice realization falls within the scope of an international transaction. The Tribunal also noted that various judicial precedents support this view. Regarding the interest rate, the Tribunal, referencing the jurisdictional Bangalore ITAT's decision in Synechron Technologies (P.) Ltd vs. ACIT, found the TPO's adoption of LIBOR + 450 basis points to be erroneous. It directed the TPO to recompute the notional interest by adopting LIBOR plus 200 basis points. Furthermore, the Tribunal, to provide reasonable relief, adopted a credit period of 60 days, directing the TPO to verify the credit period of comparable companies before computing the interest. The grounds of appeal were allowed for statistical purposes.

What were the facts?

The assessee, Livspace India Pvt. Ltd., filed an appeal against the assessment order passed by the Dy. Commissioner of Income Tax, Circle – 4(1)(1), Bengaluru, for Assessment Year 2022-23. The appeal was filed pursuant to directions from the Dy. Commissioner of Income Tax (Appeals) [DRP]. The assessee is engaged in the sale of interior and decoration products and also provides SWD services to its holding company, Livspace Pte. Ltd. The assessee had international transactions aggregating to approximately Rs. 332.57 crores with its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) treated the delay in realization of trade receivables from AEs as unsecured loans and computed notional interest for the period of delay, making an upward adjustment of Rs. 16,83,236/-. The DRP upheld the TPO's action, relying on the Explanation to Section 92B of the Income Tax Act, 1961.

What were the issues?

1. Whether the Tribunal had to decide if the notional interest on trade receivables constitutes a separate international transaction under Section 92B of the Income Tax Act, 1961, and if the TPO erred in re-characterizing delayed realization of trade receivables as a loan transaction. Assessee's Contentions: - The interest on delayed receivables should not be considered a separate international transaction as it is merely a consequence of the principal international transaction (sales), which was not disturbed. - The AO/TPO erred in re-characterizing the delayed realization of trade receivables as a loan transaction. - The rate of LIBOR + 450 basis points adopted by the TPO is excessive and incorrect. - The credit period allowed should be 180 days, not 30 days. Revenue's Contentions: - The TPO rightly treated the outstanding receivables from AEs as a separate international transaction in view of the Explanation inserted to Section 92B of the Act, which specifically includes deferred payments or receivables arising during the course of business.

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 Narendrar Kumar J Jain, Advocate
For Respondent: Dr. Divya K.J, CIT (DR)
Hearing: 20.04.2026Pronounced: 29.04.2026

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. 26.12.2025

2.

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

IT(TP)A No.614/Bang/2026 Page 2 of 6

3.

At the outset, we note that ground Nos. 1 and 2 are general in nature and does not call for any specific adjudication. Accordingly, the same is dismissed as infructuous.

4.

Ground Nos. 3 and 4 raised by assessee are interconnected and pertains to notional interest on trade receivables.

5.

The facts of the case on hand are that the assessee, a private limited company, is engaged in the business of sale of interior and decoration related products. The assessee also renders SWD services to its holding company viz. Livspace Pte. Ltd. During the year under consideration, the assessee entered international transactions aggregating to approximately Rs. 332.57 crores with its AEs.

6.

During the assessment 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 LIBOR+450 bps, after allowing a credit period of 30 days, and determined the total upwards adjustment at Rs. 16,83,236/- only by adding to the total Income of the assessee.

7.

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

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IT(TP)A No.614/Bang/2026 Page 3 of 6

8.

Before the Ld. DRP, the assessee submitted the interest on delayed receivables should not be considered as a separate international transaction on the reasoning that it represents only a consequence of the principal international transaction i.e. sales which has not been disturbed. Further, the assessee submitted that the AO/TPO erred in re- characterization of delayed realization of trade receivables as a loan transaction. Hence, the assessee prayed that the same should be deleted.

8.1 However, the Ld. DRP regarding the contention of the assessee as to 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. 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 bps rate.

9.

Aggrieved by the order of the AO/TPO and the direction of ld. DRP, the assessee preferred an appeal before us.

10.

The Ld. AR before us has filed an appeal set running from page 01 to 237 containing the grounds of appeal, orders of lower authorities and submissions made before them. The ld. AR for the assessee also

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IT(TP)A No.614/Bang/2026 Page 4 of 6

submitted one page chart depicting the computation of debtor turnover days of the comparable companies of the assessee.

10.1 The ld. AR for 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. 16,83,236/- only.

10.2 The assessee further submitted that the rate i.e. LIBOR + 450 basis point adopted by the TPO is excessive and incorrect. Similarly, the credit period allowed should be of 180 days and not 30 days as adopted by the TPO.

11.

On the other hand, the Ld. DR before us submitted that the TPO has rightly treated the outstanding receivables from AEs as a separate international transaction in view of the Explanation inserted to section 92B of the Act, which specifically includes deferred payments or receivables arising during the course of business.

12.

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 LIBOR + 450 basis point rate. At the outset, regarding the contention of the assessee that the interest on delayed receivables should not be treated as a separate international transaction, we find that by virtue of the

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IT(TP)A No.614/Bang/2026

Page 5 of 6

amendment inserted by way of Explanation to section 92B of the Act, the term “international transaction” has been expanded to specifically include within its ambit “deferred payment or receivable or any other debt arising during the course of business”. Therefore, non-charging or under-charging of interest on the excess period of credit allowed to the associated enterprise for realization of invoices would fall within the scope of an international transaction under the said provision. We also note that various judicial precedents have taken a similar view that delay in realization of receivables from AEs constitutes a separate international transaction requiring benchmarking under the transfer pricing provisions. Likewise, 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 vs. 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.”

12.1 Accordingly, in view of the above, we direct the TPO to recompute the notional interest on delayed receivables, if any, by adopting LIBOR plus 200 basis points.

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IT(TP)A No.614/Bang/2026 Page 6 of 6

12.2 Before parting, we note that the assessee has furnished a working indicating that the average receivable period of comparable companies is about 57 days. In order to provide reasonable relief, we adopt a credit period of 60 days. The TPO is directed to verify the credit period of comparables and thereafter compute the interest, if any, by applying LIBOR plus 200 basis points. Hence, the ground of appeal of the assessee is allowed for statistical purposes.

13.

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

Order pronounced in court on 29th day of April, 2026.

Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 29th April, 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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