Outstanding Receivables are Part of Working Capital Hence No Separate Benchmarking Required for them

DCIT Vs. EXL Service.com (India) Pvt. Ltd. (ITAT Delhi)

The issue under consideration is whether the addition made on imputing interest on outstanding receivable from associated enterprises as its separate international transaction and its determination of ALP is justified in law?

In the present case, the transfer pricing adjustment in relation to delay in receipt of receivable from associated enterprise. The learned assessing officer from the perusal of the invoice of details of services rendered to the associated enterprise noted that in certain cases the remittances were received by the appellant after sometime beyond the period agreed between the parties i.e. 90 days. The learned transfer-pricing officer concluded that the outstanding receivable are like a short-term loans/advances only and they fund the working capital requirement of the associated enterprise for the period. He therefore stated that delay in receipt of receivable is an unsecured loan advance to the associated enterprise, so a separate International Transaction, and imputed notional interest at the rate of 10.84 percentages being the base rate of interest of state bank of India on the period of delay exceeding 90 days. On the objection before the learned dispute resolution panel the adjustment proposed by the learned transfer pricing officer was upheld however the learned DRP directed the learned TPO to recompute the interest by imputing the rate of 4.519 percentage being LIBOR +400 basis points. Accordingly, the learned transfer-pricing officer while giving effect to the direction of the learned dispute resolution panel computed the transfer pricing adjustment on account of interest for the period of delay in receipt of trade receivable from the associated enterprise.

ITAT states that, the assessee has been granted the working capital adjustment while computing the arm’s-length price of the international transaction of the sale of services, according to us no separate benchmarking should be done of the outstanding receivable as outstanding receivable are part of the working capital of the assessee. Further the issue is squarely covered in favour of assessee by the decision of the honourable Delhi High Court in case of Principal Commissioner Of Income Tax Versus Kusum Healthcare Private Limited (supra). Therefore the appeal of the assessee is allowed and learned transfer pricing officer/learned assessing officer are directed to delete the addition made in relation to the delay in receipt of receivable from associated enterprise.

No disallowance for Deduction of tax at source at lower rates compared to what was prescribed under section 40(a)(ia)

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