The Delhi High Court has held that the assessee was a debt-free company and there was no need to impute notional interest on outstanding receivables.
M/ S Inductis India Pvt Ltd, the respondent/assessee being a wholly owned subsidiary of ExlService Mauritius Ltd (which in turn is a subsidiary of ExlServices Holdings Inc. US) was engaged in providing IT-enabled back-office research and data analytics services to its associated establishments (AE) and filed its return of income on 29.11.2012 declaring its total income as Rs.16,42,41,218/-.
The case of the respondent/assessee was selected for scrutiny assessment and notice under Section 143(2) of the Act was issued to it on 08.08.2013, which was followed by notice under Section 142(1) of the Act with a detailed questionnaire dated 06.11.2015, in response whereof the respondent/assessee attended the proceedings whenever called upon to do so.
Regarding adjustments on account of the delay in the realization of receivables, the DRP held that because of explanation (i)(c) to Section 92B of the Act, deferred receivables from AE is an international transaction and that aggregation of the transaction is possible only when the transactions are continuous and closed linked but the respondent/assessee had failed to discharge its onus to establish that the transaction of outstanding receivables was not a separate transaction and no separate adjustment on that account was warranted, and that the respondent/assessee had failed to establish that delay in payment of receivables was compensated by AE through a set-off.
The Tribunal accepted the claim of the respondent/assessee that it being a debt-free company, no adjustment on account of notional interest on receivables was warranted in view of an earlier decision of a coordinate bench of the Tribunal.
In light of the case of PCIT vs Boeing India (P) Ltd, the division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia held that “the assessee company being a debt-free company the question of receiving any interest on receivables did not arise so the adjustment made by the Assessing Officer on account of interest on outstanding receivables was liable to be deleted.”
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