The Income Tax Appellate Tribunal (ITAT), Bangalore ruled that outstanding sum of invoices is akin to the loan advanced by the assessee to foreign AE, so it is an international transaction as per explanation to Section 92B of the Income Tax Act, 1961 and no separate additions can be made by the Assessing Officer (AO).
The assessee, Swiss Re Global Business Solutions India Pvt. Ltd is a company and filed its return of income for the year declaring income. The case was selected for scrutiny and notice under section 143(2) was issued to the assessee. Notices under section 142 (1) were also issued to the assessee in response to which representative of assessee appeared before AO and filed required details as called for AO observed that assessee had an international transaction with associated enterprises which exceeded Rs.15 crore and accordingly this matter was referred to TPO. TPO upon receipt of the reference, called upon the assessee to file economic details of the international transactions in Form 3 CEB.
The assessee alleged that the addition made on interest on receivables against adjustment of notional interest on outstanding receivables.
The assessee contended that receivables are closely linked to the main transaction and so it cannot be considered as separate international transactions. He also submitted that company agreements provide for extending the credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances.
The tribunal consisting of an Accountant Member, A.K. Garodia and a Judicial Member Beena Pillai while setting aside the order of the AO ruled that outstanding sum of invoices is akin to the loan advanced by the assessee to foreign AE, so it is an international transaction as per explanation to Section 92B of the Income Tax Act, 1961 and no separate additions can be made by the Assessing Officer (AO).
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