The Assessee is engaged in the business of providing call center and business process outsourcing services. During the relevant AY, the Assessee had international transactions with its Associated Enterprises (AEs).  On a perusal of the invoices raised, it was noted by the Transfer Pricing Officer that there was an excess delay beyond the credit period in relation to payment made (i) by AE to Assessee towards the sale invoices; and (ii) payment by Assessee to AEs towards outstanding payables. Consequently, adjustment for interest to be charged on the outstanding receivables and payables was proposed by Transfer Pricing Officer resulting in a net adjustment of interest receivable.

The Hon’ble Tribunal relied on the decision of the Hon’ble Delhi High Court in the case of ACIT v. Kusum Health P. Ltd. [2018] 99 taxmnn.com 431 (Delhi) and certain other ITAT decisions wherein it was held that where working capital adjustment takes into account the impact of outstanding receivables, no further adjustment is required of interest on outstanding receivables of AEs beyond the agreed credit period if the margin of the assessee is comparable to that of external comparables. The Tribunal in the instant case thereby held the adjustments made to be unwarranted and unjustified. The following facts were noted by the Tribunal in coming to the said conclusion (i) the international transaction of the Assessee with its AEs was bench marked by adopting TNMM which the Transfer Pricing Officer had accepted to be at ALP; (ii) the Assessee had made working capital adjustments to the margin earned while computing TNMM for determining ALP (iii) the difference in operating margin on the international transactions was within the permissible range of 5% of adjusted profits of comparable companies. (AY. 2012-13)