Clinasia Labs Private Limited Vs ITO (ITAT Hyderabad)
Interest on delayed outstanding payments is an international transaction; ITAT directs AO/TPO to to compute interest @6% of SBI rate.
The case of Clinasia Labs Private Limited vs ITO presented before the Income Tax Appellate Tribunal (ITAT) Hyderabad delves into the intricacies of transfer pricing, specifically focusing on the classification of interest on delayed outstanding payments as an international transaction. The Tribunal’s decision to benchmark this interest at 6% of the State Bank of India (SBI) rate rather than the initially adopted 7.5% by the Transfer Pricing Officer (TPO) forms the crux of this case.
Grounds and Arguments
1. Original Interest Rate Determination: Grounds No. 12 to 14 focused on trade receivables where the assessee’s representative (AR) contested the TPO’s application of a 7.5% interest rate on outstanding receivables for 11 months ending 31st March 2016. This rate was upheld by the Dispute Resolution Panel (DRP).
2. Assessee’s Argument: The AR referenced past ITAT decisions, particularly in the cases of Paegasystems Worldwide India Pvt. Ltd. and Open Text Corporation India (P) Ltd., where the Tribunal had applied the London Interbank Offered Rate (LIBOR) as the basis. The AR suggested that a similar approach should be taken in Clinasia Labs’ case.
