Transfer pricing adjustment on account of interest on outstanding receivable

This Income Tax Appellate Tribunal case concerns a transfer pricing adjustment made by the Transfer Pricing Officer (TPO) on interest for delayed trade receivables from associated enterprises. The TPO determined an adjustment of over Rs. 1.2 crore. The assessee also sought to claim unrecovered employee and vendor advances as business losses, which were written off in their profit and loss account.

IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES “A”, BANGALORE
Before Shri George George K, JM and Shri B.R.Baskaran, AM
IT(TP)A No.3358/Bang/2018 : Asst.Year 2014-2015

M/s.Xchanging Solutions Limited
Plot No.13, 14, 15 SJR i-Park
EPIP Industrial Area, Phase I
Whitefield, Bangalore – 560066.
PAN : AAFCS9303L.

vs

The Dy.Commissioner of
Income-tax, Circle 7(1)(2)
Bangalore

Appellant by : Sri.Chavali Narayanan, CA
Respondent by : Sri.Sumer Singh Meena, CIT(OSD)-DR
Date of Hearing : 28.10.2021
Date of Pronouncement : 01.11.2021

O R D E R

This appeal at the instance of the assessee is directed against final assessment order dated 22.10.2018 passed u/s
143(3) r.w.s. 144C of the I.T.Act. The relevant assessment year is 2014-2015.

2. For the relevant assessment year 2014-2015, the assessee had entered into an international transaction for provision for software services to its Associate Enterprises (AEs) as well as non-AEs. During the course of assessment proceedings, the case was referred to Transfer Pricing Officer (TPO) to determine Arm’s Length Price (ALP) of Software Development (SWD). The Transfer Pricing Officer (TPO) passed order dated 30.10.2017 u/s 92CA of the I.T.Act determining transfer pricing adjustment of Rs.7,75,64,059 in respect of SWD services and Rs.1,20,83,994 in respect of interest on delayed receipts of trade receivables from its AEs. Pursuant to the TPO’s order, draft assessment order dated 22.12.2017 was issued by the Assessing Officer (AO) incorporating the aforesaid transfer pricing adjustment.

3. The assessee had given advances to the employees against their salary for meeting expenses on food and travel while working on clients deliverables / projects. Further, some advances were also given to various vendors / service providers for carrying out various services in connection with the operations of the assessee. Certain advances could not be recovered from the employees who had left the services of the assessee and also from the vendors due to various reasons. The advances which could not be recovered has been written of to the profit and loss account of the assessee for the relevant assessment year and claimed as allowable expenses / business loss in terms of section 37(1) r.w.s. 28 of the I.T.Act.

4. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 01st day of November, 2021.

Please find attached the enclosed file for the full judgement