Benefit Test Must Be Considered For Determining ALP Adjustment Qua Notional Interest On Outstanding Receivables: Bangalore ITAT

Referring to the judgment of ITAT Delhi in ITA NO.1248/Del/2012, the Bench comprising Goerge Goerge K (Vice President) and Laxmi Prasad Sahu (Accountant Member) observed that “there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way”. (Para 12)

As per the brief facts of the case, the TPO had made adjustment for outstanding receivables as international transactions, and the DRP directed to adopt SBI short term deposit rate for computing interest rate after allowing credit period of 30 days or as per agreement/invoices.

The Bench referred to the ruling in case of Caparo Engineering India Pvt Ltd wherein the Delhi ITAT remitted entire issue to consider applicability of Delhi High Court ruling in Kusum Healthcare and also with a direction to examine assessee's alternative argument with respect to adoption of LIBOR+200 points as against 400 bps.

The Bench also noted that the TPO accepted rectification application filed by assessee and included Sundaram Business Services Ltd as comparable under ITeS segment, thereby resulting in nineteen comparables being included and revised adjustment was calculated at NIL.

The ITAT therefore remitted the said issue to AO/TPO for deciding TP adjustment made towards notional interest on outstanding receivables in terms of judgment of the Delhi High Court.

Counsel for Appellant/ Tax Payer: Nageshwar Rao & Nitin Inamdar

Counsel for Respondent/ Department: Dr. Manjunath Karkihalli

Case Title: Altisource Business Solutions Private Ltd vs DCIT

Case Number: IT(TP)A No 898/Bang/2022

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