The ruled that no notional interest can be assumed by the Transfer Pricing Officer ( TPO ) on deferred receivables from a debt-free company.
The primary issue addressed was whether deferred payments should be treated as an international transaction under Section 92B of the Income Tax Act, 1961, thereby warranting an adjustment for notional interest.
The Court referred to the precedent set in PCIT v. Kusum Health Care Pvt. Ltd., where it was established that merely having receivables beyond an agreed period does not automatically qualify them as international transactions unless they demonstrate a pattern that impacts the working capital of the assessee and provide a benefit to the associated enterprise (AE).
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In this case, the Division Bench High Court upheld the ruling of the Income Tax Appellate Tribunal ( ITAT ), which noted that Global Logic India was a debt-free company. As there was no evidence that borrowed funds were being utilised for delayed receivables, the deferral of payment was incidental to the sale transaction and did not constitute a separate international transaction.
Furthermore, it was highlighted that Global Logic did not charge interest from unrelated third parties for similar delays, reinforcing that no adjustment for notional interest was warranted in this case.
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The Delhi High Court Bench of Justice Yashwant Verma and Justice Ravinder Dudeja dismissed the Revenue’s appeal while leaving the question of law open for future proceedings.
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