ISG Novasoft Technologies Ltd. Vs DCIT (ITAT Bangalore)
ISG Novasoft Technologies Ltd. appealed against the assessment order passed under sections 143(3) read with 144C and 92CA of the Income-tax Act, 1961. The assessee, engaged in IT support and IT-enabled services, had international transactions with its Associated Enterprise (AE). The TPO made an adjustment of Rs.3,27,21,491 towards notional interest on outstanding receivables, which was subsequently enhanced by the TPO to Rs.5,73,74,255 pursuant to the DRP’s direction to adopt SBI short-term deposit interest rates.
The assessee submitted that it was a debt-free company, fully funded by its AE, and had no borrowed funds apart from meagre finance lease obligations. It contended that no separate adjustment for notional interest was warranted. Without prejudice, it submitted that LIBOR should be used rather than domestic SBI rates because the receivables were denominated in US dollars.
The assessee further contended that its weighted average maturity period for AE receivables was 167 days and referred to the RBI Master Circular providing an all-in-cost ceiling over six-month LIBOR of 200 basis points for loans with maturity up to three years. It also argued that interest should be calculated only beyond a reasonable credit period and only for the relevant assessment year.
