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Facts
The assessee, Vodafone India Services Private Limited, is an indirect subsidiary of Vodafone Group Plc. The case involves an appeal against an assessment order that included an addition for imputed interest on outstanding trade receivables. The assessee had an Advance Pricing Agreement (APA) with the CBDT which, according to the assessee, covered the realization period of invoices.
Held
The Tribunal found that the APA agreement between the assessee and CBDT, particularly Annexure-II concerning Critical Assumptions, covered the delay in receivables for the period in question. Furthermore, the same APA was accepted by the TPO in a subsequent assessment year. Therefore, the Tribunal found no justification for the adjustment made by the TPO/AO.
Key Issues
Whether interest can be imputed on outstanding trade receivables when an Advance Pricing Agreement (APA) governs the realization period of invoices and if the APA was correctly considered by the revenue authorities.
Sections Cited
143(3), 144C(13), 144B, 270A, 271BA, 92, 92C, 92D, 92E, 92B, 92CC
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER;
This appeal by assessee is directed against the addition in the assessment order passed under section 143(3)/ 144C(13) /144B dated 28.07.2025, passed in pursuance of directions of Dispute Resolution Penal (DRP) dated 04.06.2025 for assessment year ( A.Y.) 2022-23.The assessee has raised following grounds of appeal; A. General Ground (1) Assessing the total income at ₹ 418.64 crore against income of Rs. 417.28 crore filed by the assessee. B. Legal grounds (2) On the facts and circumstances of the case and in law, the AO/NFAC/DRP adding not appreciating the transaction opted receivable for services(provision of information technology enabled services (ITeS) is 2022-23) Vodafone India Services Private Limited
already dealt with in the bilateral advance pricing agreement (BAPA) signed between the Appellant and the CBDT. (3) The AO/NFAC have ignored the mutual agreement signed between the competent authorities of United Kingdom and India which provides for a specific clause whereby recalculation of any trade receivable or payable is not required, and no interest is to be imputed for any of the BAPA years. (4) On the facts and circumstances of the case and a law, the AO/NFAC /DRP adding not passing the final assessment order without taking into account the bilateral advance pricing agreement/modify tax return which was in possession of TPO/NFAC an DRP as on date of passing the order/directions. C. Transfer pricing grounds with respect to the dispute on interest on outstanding receivable. (5) The AO/an official erred in imputed interest on trade receivable from the AEs amounting to ₹ 1.35 crore and disregarded the fact that outstanding receivable pertaining to Vodafone Group Services Ltd is not a separate international transaction. (6) The AO/NFAC an DRP wide acknowledging the fact that the existing arrangement of the Appellant should be respected has earned in assuming that Appellants pre-existing arrangement is 60 days. (7) The AO/NFAC heard in failing to appreciate that Appellants is adept for the company and thereby no interest-bearing funds were used to pass on the benefit in the form of credit to AEs. (8) The AO/NFAC I did not considering the rectification application filed by the Appellant before passing the final assessment order under section 143(3)rws 144C(13) read with section 144C of the Act. (9) The AO/NFAC erred in calculating interest in passing the final assessment order under section 143(3)rws 144C (13) and 144B of the Act. D. Initiation of penalty proceeding under section 270 (A) and 271 BA of the Act. (10) Initiating the penalty proceeding under section 270(A) of the act for furnishing inaccurate particulars of income .
(11) Initiating the penalty proceeding under section 271 BA of the Act or not reporting the transactions pertaining to interest on outstanding receivable in Form 3CB.
Brief facts of the case are that assessee is a domestic company and indirect subsidiary of Vodafone group plc, engaged in the business of providing call centre services, finances and accounting shared services, human resource shared services, information technology services, networking support services and Vodafone solutions to the operating companies of Vodafone Globally. For the year under consideration the assessee filed its return of income on 29thNovember 2022, declaring income of Rs. 417.28 crore. The case was selected for scrutiny. During the assessment, the assessing officer noted that assessee reported certain international transaction with its associated enterprises (AE). Consequent of reporting international transaction, the assessing officer (AO) made reference to transfer pricing officer (TPO) for computation of arm’s length price of such international transactions. During the proceeding before TPO, he issued show cause notice to the assessee on 2ndDecember 2024 and again on 23rdDecember 2024, asking the assessee as to why interest should not be charged on outstanding receivable if any, which are pending for more than 30 days. The contents of show cause notice is recorded by TPO in para 7.1 of his order. The assessee filed its reply, the contents of reply of the assessee are recorded in para 7.2 of order of TPO.
The assessee in its reply stated that there is outstanding trade receivable balance of the assessee as on 31stMarch 2022. All invoices have been realised during the period under consideration. The assessee specifically stated that 2022-23) Vodafone India Services Private Limited there is advance pricing agreement (APA) which specifically contained the term that amount should be realised in a manner and weighted average of realisation of invoices is 60 days. The assessee explain that average period of realisation is 38 days. During the year under consideration all invoices are realised as per erstwhile APA terms. The assessee also explained that the during the year under consideration, they have undertaken international transaction with its AEs resulting in receivable for the same. Such receivables have been settled as an ongoing basis in normal course of business in an arm’s length manner having regard to economic and commercial factors. On the basis of such submission the assessee stated that receivable does not warrant determination of any separate arm’s length price under section 92C of the Act. The assessee also referred certain provision of section 92, 92C, 92D and 92 E and relied on certain case laws. The reply of the assessee was not accepted by TPO. The TPO was of the view that explanation furnished by assessee is not acceptable for the reasons that there was amendment by way of Explanation to section 92B, with retrospective effect from 01.04. 2002, wherein international transaction would specifically include any deferred payment or receivable or any other debt arising out in the course of business.
The TPO on the basis of details of receipt and issuance of invoices worked out adjustment of ₹1,35,99,570/-as per his working in para 7.4 of his order. On receipt of order/report of TPO, the assessing officer past draft assessment order on 27th March 2025. The copy of draft assessment order was served
Before DRP, the assessee filed its detailed statement of facts as well as submission, wherein the assessee reiterated the similar submission as made before TPO. The assessee also relied upon certain case laws of various benches of Tribunal, wherein it was held that the credit extended to the AEs cannot be treated as a transaction stand-alone without considering the main transaction of sale. Even by considering it as a separate transaction, the interest in any case would be the average cost of total funds available to the assessee and not the rate at which loan is available. The assessee also explained that trade receivable and advance pricing money is different and cannot be equated The DRP in its direction dated 4thJune 2025 upheld the action of AO /TPO. The DRP while affirming the order of TPO held that BAPA is silent on the matter of outstanding trade receivable and the received cycle and imputation of interest thereon. There is no direct and clear guidance in the (BAPA) agreement between assessee and the CBDT. On receipt of the direction of the DRP, the AO passed final assessment order, addition therein is impugned before this Tribunal.
We have heard the submissions of the learned authorised representative (ld.
AR) of the assessee and the ld Commissioner of Income Tax-Departmental (CIT-DR) for the revenue and have gone through the orders of lower authorities carefully. The ld AR of the assessee submits that the assessee has entered into APA under section 92CC with Central Board of Direct Taxes 2022-23) Vodafone India Services Private Limited (CBDT) vide agreement dated 22nd January 2025. Under the said agreement the years covered are from Financial Year (FY) 2019-22 to FY 2023-24 and rollback for FY 2018-19. In the APA, there is provision for pre-existing arrangement of assessee with its AE with respect to raising of invoices and payment cycle for the services. While signing the agreement the assessee specifically certified that there was no outstanding receivable for the period covered under the agreement. The assessee again vide its letter dated 10 April 2025 address to Competent Authority of India, New Delhi certified that that all invoices pertaining to FY 2018-19 to FY 2023-24 have been raised and realised for the completed APA. In accordance with assessees existing arrangement with its AEs and that there is no outstanding receivable for the covered years. The TPO as well as DRP overlooked such clauses in the agreement. Copy of agreement is already placed on record. The ld A.R. of the assessee invited our attention on page No. 47 and 87 of Paper Book (PB) containing such reference about receivables in APA and would submits that in subsequent assessment yeari.e.s in AY 2023-24, the same APA has been accepted by TPO and no adjustment on similar issue is made by TPO. Copy of show cause notice issued dated 28.04.2025 by TPO for AY 2023-24 along with order of TPO dated 26.09.2025 is placed on record. Once the TPO has accepted the similar bilateral agreement in subsequent year, the addition suggested by TPO is liable to be deleted.
On the other hand, the ld CIT- DR for the revenue supported the order of TPO /DRP.
We have considered the rival submission of both the parties and perused the orders of lower authorities. We find that there is limited dispute for our consideration. We find that the adjustment suggested by TPO and upheld by DRP has been referred by us in proceeding paragraphs, which is not repeated here for the sake of brevity. We find that as per APA between the assessee and the CBDT, the delay in receivable is clearly covered by the Critical Assumptions which is part of Annexure -II attached with the said agreement, wherein the FY 2018 -19 to 2023 -24 are covered. We further find that the same agreement has been accepted by TPO himself in subsequent assessment year thus, we do not find any justification for suggesting adjustment, when the contents of similar APA has been accepted by TPO himself in the subsequent assessment year. Hence, the grounds of appeal raised by the assessee are accepted directing the AO /TPO to delete such adjustment on account of delay in receivable. In the result, the grounds of appeal raised by assessees are allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open Court on 30th January, 2026.
Sd/- Sd/- GIRISH AGRAWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBERs MUMBAI, DATED: 30.01.2026 Self/ dragon