M/S. EXPLEO SOLUTIONS LTD.,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee company against the

assessment order passed u/s 143(3) r.w.s 144C(13) of the Income-tax

Act, 1961 (in short ‘the Act’) dated 22.10.2024 pursuant to the

directions of the Dispute Resolution Panel (in short ‘DRP’) dated

24.09.2024 for AY 2021-22.

which is engaged in the business of software validation and testing services. The assessee is part of an international group based out in

France, which has presence across various countries. The said

international group has its presence in India through the assessee which

in turn has four (4) Wholly Owned Subsidiaries (WOSs) outside India and

three (3) branches outside India, whose details are noted to be as

follows:

Expleo Solutions UK Ltd. (UK)

Expleo Solutions Pte. Ltd. (Singapore) Wholly Owned Subsidiaries

Expleo Solutions Inc. (USA)

Expleo Solutions FZE. (UAE) Expleo Solutions Limited, India (the Assessee)

Malaysia

Branch office Belgium

Philippines

of income on 12.03.2022 declaring a total income of ₹65,47,28,850/-.

The case of the assessee was selected for scrutiny and thereafter

referred to the Transfer Pricing Officer (‘TPO’). The TPO passed an order

u/s.92CA of the Income Tax Act, 1961 (hereinafter referred to as ‘the

Act‘) dated 17th October 2023 proposing an upward adjustment to the tune of ₹25,17,564/- on account of interest on outstanding trade

receivables from the foreign Associate Enterprises (‘AE’). Subsequently,

the AO is noted to have passed the draft assessment order u/s.144C

r.w.s.143(3) of the Act dated 29.12.2023 proposing the following

additions/disallowances:

Amount (in Particulars ₹) Name of the related Amount (in Nature of transaction party and country of ₹) location 11,51,69,480 i) Expleo Solutions Pte. Ltd. (Singapore) ii) Expleo Solutions UK 17,75,45,214 Ltd. (UK) iii) Expleo Solutions Inc. 4,94,84,670 (USA) a) Expenses for services iv) Expleo Solutions FZE 2,73,31,741 rendered 1. Disallowance (UAE) 68,11,29,132 u/s 40(a)(i) 7,37,166 v) Expleo Netherlands B.V. (Netherlands) 20,81,379 vi) Expleo Technology Egypt (Egypt) i) Expleo Solutions UK 12,15,38,333 Ltd. (UK) b) Cost Reimbursement ii) Expleo Solutions Inc. 2,05,73,928 Paid (USA) iii) Expleo Solutions FZE 16,66,67,221 (UAE) 2. TP addition on account of interest on outstanding trade receivable 25,17,564 3. Addition on account of difference of 26AS with books of accounts 5,95,14,405 TOTAL 74,31,61,101

before the DRP. It is seen that, the DRP vide its directions dated

24.09.2024 was pleased to give partial relief to the assessee. In respect

of the transfer pricing adjustment, the DRP directed the TPO to consider

the invoice-wise delay in days to compute the Arms Length Price (ALP) of

the transaction which resulted in revised adjustment of ₹18,67,077/- in

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 4 ::

place of ₹25,17,464/- originally computed by the TPO. The DRP

sustained the disallowance of ₹68,11,29,132/- u/s.40(a)(i) of the Act as

proposed by the AO in the draft assessment order. The DRP is found to

have restricted the addition made on account of difference of 26AS with

books of accounts to ₹4,16,285/- as opposed to ₹5,95,14,405/-

quantified by the AO. Consequently, the AO passed the final assessment

order dated 22.10.2024 u/s.143(3) r.w.s.144C(13) of the Act by

computing the assessable income at ₹133,81,41,344/-, whose break-up

is as under:-

Description Amount Income returned ₹65,47,28,850/- Add: TP adjustment ₹ 18,67,077/- Disallowance u/s. 40(a) (i) of the IT Act ₹68,11,29,132/- Addition on account of difference of 26AS ₹4,16,285/- with books of accounts Assessed Income ₹133,81,41,344/-

has preferred the present appeal on the following grounds:-

b. The DRP has not appreciated the business pattern of the Appellant and has concluded that payment to subsidiaries and associate companies are in the nature of "Fees for Technical Services" (FTS) requiring tax to be deducted at source in view of sec 9(1)(vii) ignoring the provisions of the DTAAs and exclusion under sec 9(1)(vii)(b).

c. The DRP should have appreciated that what was paid to the subsidiaries and associate concerns were in respect of the services rendered by them to 3rd parties abroad and the amount payable to the Subsidiaries and Associates by Non-residents for services rendered abroad. Hence no part of the income accrues or taxable in India. Consequently, no tax needs to be deducted at source in respect of payment made to subsidiaries and associates for the services rendered by them abroad to 3rd parties.

d. The DRP should have appreciated, that subsidiaries and associates in UK, USA, Singapore and Netherlands have rendered services only to the Third Party Clients and thus have not made available any technical knowledge to the Appellant and consequently the payment cannot be considered as fees for technical services rendered to the Appellant but only as their Business Profits accruing abroad under the respective DTAAs and therefore there is need to deduct tax at source in respect of such payments.

e. The DRP should have appreciated that in respect of reimbursement of actual expenses of Rs. 30,38,12,84/- incurred by subsidiaries and associates for services obtained by them abroad, this does not result in any income accruing to the subsidiaries and associates in India and hence no tax need be deducted when there is no income accruing to the recipient which is taxable in India.

f. The DRP should have appreciated that apart from not making any technical knowledge available to the Appellant, in respect of countries where FTS is not separately dealt with in the DTAA, like UAE and Egypt, such payments would constitute business profits and to the extent the business profits does not arise on account of their activity in India, the same is not taxable in India and consequently no tax need be deducted in respect of such payments.

a. The DRP erred in confirming the upward adjustment of Rs. 25,17,464/- being notional interest that should have been charged on outstanding Receivables from AEs. Per Contra the DRP erred in ignoring the amount of Payables to the AEs for which the Appellant did not pay any interest. The DRP ought to have appreciated that as both receivable and payable represent requirement and availability of funds, both should be considered together and only the net of two would constitute international transaction requiring adjustment.

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 6 ::

b. Without prejudice, appellant being a debt free company there cannot be any TP adjustment in this regard. Reliance is placed on Chennai ITAT decision in Temenos India Pvt Ltd vs. DCIT (IT (TP) A 32/Chny/2024 dated 3.12.2024) 5. Appellant craves leave to adduce additional grounds in support of their claim in the course of appeal proceedings.

Vijayaraghavan, Advocate, assailing the action of the AO/DRP disallowing

₹68,11,29,132/- u/s.40(a)(i) of the Act submitted that the lower

authorities had made the impugned disallowance without giving proper

opportunity to the assessee to substantiate the underlying transaction

for which the payments made to its Associated Enterprises (AEs).

Drawing our attention to Para No.9.2 of the draft assessment order

dated 29.12.2023, he pointed out that, the AO had given show cause

only on 28.11.2023 requiring the assessee to explain as to why the

related party payments to the tune of ₹68,32,10,511/- should not be

disallowed on account of non-deduction of TDS u/s.40(a)(i) of the Act.

The assessee had claimed that the TDS was not applicable for the

aforesaid transaction for the following reasons:

a) For all the transactions including reimbursements – it was submitted that the payments were not taxable in India under the relevant DTAAs owing to:

• the "make available" condition in the definition of FTS under the DTAAs with the USA, UK, Singapore, and Netherlands, and

• the absence of an FTS clause in the DTAAs with the UAE and Egypt.

b) For all the transactions including reimbursements– reliance was placed on the exclusionary clause under Section 9(1)(vii)(b) of the Act, asserting that the services were utilized outside India for business carried out outside India.

c) For transactions characterized as reimbursements – it was contended that, in the absence of any income element, the provisions for TDS were not attracted.

made the impugned disallowance in the most non-speaking manner,

arbitrarirly by holding as under:

9.2 Related Party Payments in foreign entities

9.2.1 A show cause notice dated 28.11.2023 bearing DIN ITBA/AST/F/143(3)(SCN)/2023-24/1058265522(1) was issued to the assessee requiring to submit why the addition of Rs.68,32,10,511/- should not be made on account of non-deduction of TDS u/s. 40(a)(i) of the Income tax Act'1961 in respect of the following transactions:

Sl. No. Name of Related Person Nature of Transaction Amount Paid 1 Expleo Solutions UK Cost Reimbursement 12,15,38,333/- Paid 2 Expleo Solutions Inc. Cost Reimbursement 2,05,73,928/- Paid 3 Expleo Technologies Egypt Cost Reimbursement 20,81,379/- Paid 4 Expleo Solutions Pte. Ltd. Expenses for Services 11,51,69,480/- rendered 5 Expleo Solutions FZE Expenses for Services 19,39,98,962/- rendered 6 Expleo Solutions UK Expenses for Services 17,75,45,214/- rendered 7 Expleo Solutions Inc Expenses for Services 4,94,84,670/- rendered 8 Expleo Technologies Expenses for Services 20,81,379/- rendered 9 Expleo Netherlands Expenses for Services 7,37,166/- rendered Total 68,32,10,511/-

9.2.2 In connection to the above, the authorized representative appeared before the undersigned.

The assessee vide their submission has stated that a transaction amounting to Rs.20,81,379/-with Expleo Technologies was considered twice. Initially, the nature of transaction was categorized as "Cost Reimbursement paid" and subsequently as "Expenses for services rendered". Whereas the actual transaction amounting to Rs.20,81,379/- with Expleo Technology Egypt is in the nature of "Expenses for services rendered". The submission made by the assessee w.r.t transaction amounting to Rs.20,81,379/- with Expleo Technologies is found to be acceptable.

9.2.3 The submissions made by the assessee with regard to balance amount of Rs.68,11,29, 132/-(Rs.68,32,10,511 Rs.20,81,379) have been considered carefully and the same does not appear satisfactory. The assessee has also relied on various case laws. In this regard, it is pertinent to mention that the provision of the Income Tax Act must be applied with reference to the facts and circumstances of each case.

9.2.4 In view of the above discussion, the addition of Rs.68,11,29,132/- u/s. 40(a)(i) of the Act is made to the total income of the assessee.

(emphasis supplied)

the AO by holding as under:

7.2 Panel: The relevant section is as under Section 9: Income deemed to accrue or arise in India.

(1) The following incomes shall be deemed to accrue or arise in India-

(vii) income by way of fees for technical services payable by-

(a) the Government; or

(b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

The Panel perused the decision of the ITAT, Chennai in the assessee's own case for the A.Ys for the A.Y 2012-13 and 2013-14. The Panel perused that decisions rendered in appeals (ITA No 223 and 224/Chny/2019, decision pronounced on 3/5/2021). The facts of these appeals are a little different from the present case. In these cited cases, the assessee had incurred expenses towards payment of foreign agent commission to M/s.Fayali Informatic CO.LLC, UAE and M/s.Micro Centre, Bahrain for procuring orders for the assessee in the Middle east region. Whereas in the present case, certain employees were taken on contract basis from a third-party vendor in UAE in connection with projects undertaken by the Assessee in UAE. These employees worked on different projects for the Assessee. For administrative convenience, the remuneration cost of these employees, as billed by the third-party vendor was paid by Expleo Solutions UAE. Thereafter, the costs were reimbursed by Expleo India to Expleo UAE on cost-to-cost basis without any markup.

Further, it was contended that for the payments made to the related parties located in UAE and Egypt, the applicant submitted in the absence of a specific provision for taxation of FTS as per DTAA entered between India and UAE & Indian and Egypt, the said payments are not taxable in India.

However, the Panel is of the opinion that when Indian subsidiary company incurs expenses or makes purchases or avails any service from some third party abroad and payment to such third party is routed through its holding or related company abroad, provision for deduction of tax at source apply as if assessee has made payment to such independent party de hors routing of payment through holding company. The remission of amount to the holding or related company for finally making payment to the third person will be considered as payment to third party. It cannot be termed as reimbursement of expenses to the holding company. If the contention of the assessee is accepted and the payment to third party, routed through its related concern, is considered as reimbursement of expenses to the related party, then probably all the relevant provisions in this regard will become redundant. In the case of ACIT Vs Evolv Clothing Company Ltd, the Chennai Tribunal held that payments made by the assessee for availing services to its overseas entity not having PE in India, with deducting tax could be disallowed under section 40(a) (i) of the Act. Accordingly, with respect to the cost to cost reimbursements to related parties in UAE and Egypt, the Panel is of the opinion that taxes should be withheld for the reimbursement of expenses. Grounds rejected.

As regards the payments made to wholly owned subsidiaries in the USA, UK, Singapore or the Netherlands, the assessee submitted that it has customers both in and outside India. With respect to the customers outside India, the service is required to be rendered on site as well i.e., the location of the customer which is outside India. In such cases, wherever, the applicant has its wholly owned subsidiaries or other group companies outside India, such work which is required to be done on site is carried out by such wholly owned subsidiaries / group companies as per the service agreement and also certain costs are reimbursed on cost-to-cost basis. The assessee contended the payments made to the related parties located in UK, USA, Singapore and Netherlands do not qualify as FTS by reading through the restricted or beneficial make available clause of the Double Taxation Avoidance Agreement ('DTAA') entered between India and the respective countries and hence these amounts paid cannot be taxed as FTS and are covered by the exclusionary clause under section 9(1)(vii)(b) of the I.T.Act.

7.3 The Panel is of the opinion that for a receipt to be income in the hands of the recipient, element of profits therein is immaterial. In the present case, the assessee may strongly contend that these are reimbursements for onsite work. However, the assessee has not provided any agreements it has with these WOS to demonstrate the remuneration/billing or invoicing model to evidence the payments made. Hence the Panel is of the opinion that these payments made attract withholding tax and the AO has rightly made the disallowance. Grounds rejected.

disallowance by stating that the assessee did not provide requisite

evidences or agreements with the related parties to demonstrate the

remuneration/billing or invoicing model to evidence the reimbursements

made. Therefore, according to the Ld.AR, both the lower authorities did

not examine the facts of the case and instead passed non-speaking

order, which in his view, was unjustified and bad in law. The Ld. AR has

now placed before us additional evidences running more than 354 pages,

contents of which are noted as under:

Sl.No. Particulars Page Nos. 1 Master Service Agreement (MSA) between the Customer (Aviva Ltd) and the 1-20 appellant along with its Singapore subsidiary 2 Statement of Work (SOW) between the Customer (Aviva Ltd) and the appellant 21-33 along with its Singapore subsidiary and copy on invoices raised by the Singapore subsidiary on the customer 3 MSA between the Customer (Total System Services Inc) and the appellant along 34-108 with its USA subsidiary 4 SOW between the Customer (Total System Services Inc) and the appellant along 109-126 with its USA subsidiary and copy on invoices raised by the USA subsidiary on the customer 5 MSA between the Customer (Wizink Bank SAU) and the appellant along with its 127-158 UK subsidiary 6 SOW between the Customer (Wizink Bank SAU) and the appellant along with its 159-186 UK subsidiary and copy on invoices raised by the UK subsidiary on the customer 7 Service Agreement between Appellant and its UK Subsidiary 187-195 8 Service Agreement between Appellant and its UAE Subsidiary 196-203 9 Copy of the ITR filed in the USA for the USA Subsidiary 204-233 10 Copy of the ITR filed in the UK for the UK Subsidiary 234-244 11 Copy of the ITR filed in Singapore for the Singapore Subsidiary 245-248 12 Copy of the Financial Statement of the UAE Subsidiary 249-263 13 Reimbursement Debit Notes issued by the USA Subsidiary along with back to 264-298 back invoice copies 14 Reimbursement Debit Notes issued by the UK Subsidiary along with back to 299 - 341 back invoice copies 15 Employee secondment Agreement between the appellant and Fayafi Infomatic 342-348 Co. LLP, UAE 16 SOW for transactions with Expleo Technology Egypt 349-354 17 Order of the Hon'ble ITAT in Aspire Systems India (P.) Ltd [2023] 157 355-368 taxmann.com 699 (Chennai - Trib.)

admitted for delivery of justice in terms of Rule 29 of the ITAT Rules and

that the matters be set aside back to the file of the AO. Per contra, the

Ld. DR supported the order of the lower authorities.

assessee to show cause as to why the expenses of Rs.68.32 crores paid

to its related parties should not be disallowed on account of non-

deduction of TDS u/s 40(a)(i) of the Act. It is observed that, the

assessee had filed explanation for non-deduction of TDS claiming the

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 11 ::

payments to be in nature of reimbursements or if the natures of services

are examined, it will not be taxable in terms of DTAA with respective

countries. But, it is noted that no details or evidences were submitted

before the AO. The AO is noted to have acted in the most perfunctory

manner by simply disallowing the impugned sum, holding the

explanations of the assessee to be unsatisfactory. We find that, no

cogent reasoning was given by the AO for justifying the impugned

disallowance. The AO also did not call for or examine the taxability of the

payments under the provisions of the respective DTAAs relied upon by

the assessee. The DRP also simply confirmed the action of the AO citing

lack evidences demonstrating the billing or invoicing model of the

assessee and the related parties. We thus observe that, none of the

lower authorities had undertaken any fact finding exercise, nor the

assessee had furnished any details / evidences before them. Before us,

the Ld. AR has now filed additional evidences (supra) and has attempted

to demonstrate that these payments were in the nature of

reimbursements having no income element. And he further argued that if

the natures of services are examined, it will not be taxable in terms of

DTAA with respective countries and therefore not amenable to

withholding tax provisions u/s 195 of the Act. Having regard to the fact

that, these relevant details/evidences were not available before the

lower authorities, in the fitness of the matters and fairness to both the

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 12 ::

parties, we consider it fit to remit this issue back to the file of the AO to

consider the same afresh and decide the same in accordance with law.

The assessee is at liberty to furnish any further relevant documentary

evidences in support of their claim. Needless to say, the AO shall afford

sufficient opportunity of hearing to the assessee before passing the

order. This ground is therefore allowed for statistical purposes.

pricing adjustment on account of interest on outstanding trade

receivables to the tune of ₹18,67,077/-. The facts as noted are that, the

TPO had treated outstanding receivables exceeding thirty (30) days as

interest-free loans. It was reasoned that, an independent third party in

an uncontrolled situation would have sought compensation for the delay

payment of receivables. The TPO calculated the interest rate to be

4.186% (LIBOR 0.686 + 350 BPS) and computed the interest on invoices

outstanding beyond thirty (30) days at ₹25,17,464/-. Pursuant to the

directions of the DRP, the TPO is found to have re-calculated the interest

with reference to individual invoice-wise delay in days and accordingly

arrived at the final transfer pricing adjustment of ₹18,67,077/-.

Aggrieved by the same, the assessee is now in appeal before us.

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 13 ::

that, the assessee, likewise, had also not charged any interest on its

outstanding receivables from its non-AEs and therefore it was unjustified

to hold that interest ought to have been charged on the receivables

outstanding from AEs. He further explained that the impugned AY 2021-

22 was an extraordinary year which coincided with the peak of the

Covid-19 pandemic, which had severely affected businesses worldwide

due to various uncontrollable factors and constraints. He submitted that,

as a service industry entity, the assessee was also impacted by Covid-

19, which influenced the company's outstanding receivable and payable

balances and therefore urged us to delete the impugned TP adjustment.

The Ld. AR further submitted that the assessee being a debt-free

company, no interest could have been adduced towards the overdue

receivables. In support, he relied on the decision of the coordinate Bench

in Temenos India Pvt Ltd vs. DCIT (IT (TP) A 32/Chny/2024).

The Ld. AR alternatively submitted that, the lower authorities had

otherwise erred in ignoring the fact that, for the amount payable to the

AEs, the assessee did not pay any interest as well. He contended that, as

both receivable and payable to the related parties represent requirement

and availability of funds, both should be considered together and only

the net of two would constitute international transaction requiring

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 14 ::

adjustment. Per Contra the Ld DR supported the impugned action of TPO

and doesn’t want us to interfere.

of the authorities. The impugned issue of TP adjustment on account of

interest on overdue receivables from AEs is found to be squarely covered

by the decision of this Tribunal in the case of Temenos India Private

Limited (supra) wherein it was held as under:-

“11.4 We have heard rival submission of the parties on the issue in dispute and relevant material on record including the decisions cited by the Learned Counsel of the assessee as well as by the Learned DR. In the instant case, the Learned DRP has noted the decisions of the Tribunal and High Court in the earlier years. In assessment year 2010- 11 the Tribunal in ITA No.1478/Del/2015 placed reliance on the decision of the Tribunal in the case of Kusum Healthcare Private Limited (supra) and held that impact of credit period was duly factored in working capital adjustment allowed while determining the arm's-length price and, therefore, no separate adjustment for interest on receivables was warranted in the hands of the tested party. The relevant extract of the decision of the Tribunal is reproduced as under:

"15.1 It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE's. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments.

11.5 On appeal by the Revenue, against the above order of the Tribunal, the Hon'ble Delhi High Court (ITA No. 379/2016) in order dated 21/07/2016 dismissed the appeal observing as under:

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 15 ::

"4. As far as question (B) concerning the adjustment for interst no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned."

….

company, the TP adjustment of notional interest on overdue receivable is

held to be unwarranted. The above principle has also been followed in

the recent decision of this Tribunal in the case of Trimble Information

Technologies India Private Limited (ITTPA No.28/CHNY/2024).

In light of the factual matrix of the present case, and in consonance with

IT (TP) A No.136/Chny/2024 (AY 2021-22) M/s.Expleo Solutions Ltd. :: 16 :: the judicial precedents of this Hon'ble Tribunal, we direct the TPO to delete the impugned transfer pricing adjustment of ₹18,67,077/-. Accordingly, this ground is allowed.

Order pronounced on the 28th day of January, 2026, in Chennai.

Sd/- Sd/- (इंटूरी रामा राव) (एबी टी. वक�) (INTURI RAMA RAO) (ABY T. VARKEY) लेखा सद�/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER

चे�ई/Chennai, �दनांक/Dated: 28th January, 2026. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड$फाईल/GF