IHS GLOBAL PRIVATE LIMITED,KRISHNARAJAPURAM, BENGALURU vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BMTC BUILDING, KORAMANGALA, BENGALURU

The only issue raised by the assessee is that the AO/DRP erred in making upward adjustment of Rs. 31,89,289/- on account of delayed recovery of the trade receivables from the associated enterprises.

The TPO during the proceedings found that there was a delay in the recovery of trade receivable form the associated enterprises, which represents the international transaction and accordingly he made the upward adjustment of Rs. 31,89,289/- to the total income of the assessee. The TPO, while bench marking the impugned international transaction had adopted the SBN/short term deposit interest rate. Accordingly, the AO in the draft assessment order made the addition of Rs. 31,89,289/- to the total income of the assessee.

The assessee next carried the matter before the DRP, which was rejected by it vide order direction dated 29/05/2024. The AO finally in the final assessment order made the addition of Rs. 31,89,289/- to the total income of the assessee.

Being aggrieved by the order of the AO/DRP, the assessee is in appeal before us.

The ld. AR before us submitted that the assessee as per the agreement with the AE was to grant credit for 90 days, which has not been considered by the AO/DRP in his order. Accordingly, the ld. AR submitted that there cannot be any adjustment of the trade receivables from the AE within the period of 90 days.

On the other hand, the ld. DR contended that the assessee has nowhere raised the contention before the DRP that the trade receivables were realized from the associated enterprises within 90 days.

The ld. AR in his rejoinder fairly agreed that the issue of the credit period of 90 days was not raised before the DRP and ld. AR accordingly prayed to restore the issue to the file of the DRP/TPO for necessary verification. The ld. AR also submitted that the TPO in the assessment year 2021-22 has allowed the credit period of 90 days. The ld. AR also submitted that if the credit period exceeds 90 days then such receivables can be bench marked at Libor + 200 basis points. In this regard, the ld. AR relied on the order of this Tribunal in the case of DCIT Vs. Hewlett Packard India Software Operations Private Limited (2022) 149 taxmann.com 280 (Bang. Trib.).

We have heard the rival contentions of both the parties and perused the materials available on record. In the light of the above discussion, we are of the view that the issue on hand needs to be revisited at the level of the TPO so as to find out whether the trade receivables are outstanding more than 90 days if yes, only such trade receivables will be made subject to the adjustment on account of interest up to the end of the financial year in dispute. The TPO is also directed to bench mark such transactions at Libor and 200 base points as held by the ITAT in the case of Hewlett Packard India Software Operations Pvt. Ltd., cited Supra, where in it was held as under: 37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly."

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