No separate TP adjustment is needed for interest on receivables if working capital adjustment is made: ITAT

Case Details: ERM India (P.) Ltd. v. NeAC - [2021] 132 taxmann.com 220 (Delhi - Trib.)

Judiciary and Counsel Details

• • Anil Chaturvedi, Accountant Member and K. Narasimha Chary, Judicial Member
  • Ajit Jain, A.R. and Arpan Khanna, CA for the Appellant. 
  • Bhagwati Charan, Sr. DR for the Respondent.

Facts of the Case

Assessee-company made international transactions with Associated Enterprises. TPO suggested enhancing income of assessee on account of interest on receivables from AEs. Assessee submitted that TPO erroneously considered continuing debit balance of receivables from AEs as an “unsecured interest-free loan” granted by assessee to its AE’s during relevant previous year.

According to assessee, once the primary transaction of provision/receipt of consultancy services was held to be at arm’s length price, then intercompany receivables arising therefrom (being consequential and closely linked to the main transaction) also conform to arm’s length principle, and it was a debt-free company, and therefore no borrowed funds were utilised to grant extra credit period to AEs.

ITAT Held

The Delhi Tribunal held, following the ruling of ITAT delivered in the case of Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79 held that no additional imputation of interest on outstanding receivables is warranted if the pricing/profitability of assessee is more than the working capital adjusted margin of comparables companies. Thus, the addition made on account of interest on receivables cannot be sustained.

Case Review

• • Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79 (Delhi – Trib.) (para 11) followed.

List of Cases Referred to

• • Pr. CIT v. Kusum Health Care (P.) Ltd. [2018] 99 taxmann.com 431/[2017] 398 ITR 66 (Delhi) (para 3)
  • CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.) (para 4)
  • Bechtel India (P.) Ltd. v. Asstt. CIT [2017] 85 taxmann.com 121 (Delhi – Trib.) (para 4)
  • Techbooks International (P.) Ltd. v. Dy. CIT [2015] 63 taxmann.com 114 (Delhi – Trib.) (para 8)
  • Mckinsey Knowledge Centre (P.) Ltd. v. Dy. CIT [2017] 77 taxmann.com 164 (Delhi – Trib.) (para 8)
  • Mckinsey Knowledge Centre India (P.) Ltd. v. Pr. CIT [2018] 96 taxmann.com 237/407 ITR 450 (Delhi) (para 8)
  • Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79 (Delhi – Trib.) (para 10).