The case titled ‘ERM India Pvt. Ltd. vs NeAC, New Delhi’ concerns an appeal against the addition of interest on receivables made by the National e-Assessment Centre (NeAC) for the assessment year 2016-17. The final tribunal order was pronounced on 2021-09-28. This case was filed to challenge the addition of interest on receivables from associated enterprises (AEs).
Case Number: ITA 513/DEL/2021
Appellant: M/s ERM India Pvt. Ltd., New Delhi
Respondent: NeAC, New Delhi
Assessment Year: 2016-17
Case Filed On: 2021-05-13
Order Type: Final Tribunal Order
Date of Order: 2021-09-28
Pronounced On: 2021-09-28
Judges: Anil Chaturvedi, Accountant Member and K. Narasimha Chary, Judicial Member
This appeal in ITA No. 513/DEL/2021 is filed by ERM India Pvt. Ltd. against the assessment order dated 26.03.2021, passed pursuant to the directions dated 17.11.2020 of the Dispute Resolution Panel (DRP) -I, New Delhi, for the assessment year 2016-17. The appeal challenges the addition of Rs. 2,10,22,69/- on account of interest on receivables from the AEs.
The appellant, ERM India Pvt. Ltd., engaged in the business of consulting in environmental, health, and safety, social land, and natural resources management, filed a return of income on 30/11/2016, declaring an income of Rs. 10,02,95,050/-. The case was referred to the Transfer Pricing Officer (TPO) for determination of arm’s-length price, who suggested an enhancement of income by Rs. 2,10,22,69/- due to interest on receivables from AEs. The Assessing Officer passed the draft assessment order on 21/12/2019 under section 144C of the Income Tax Act, 1961.
The appellant filed objections before the DRP, arguing that the TPO erroneously considered the continuing debit balance of receivables from AEs as an unsecured interest-free loan. The appellant contended that once the primary transaction of consultancy services is at arm’s length, the intercompany receivables arising therefrom also conform to the arm’s length principle. The appellant emphasized that it is a debt-free company, not charging or paying interest to/from AEs, and that commercial factors warrant a longer credit period.
The appellant relied on the decision in Kusum Healthcare Private Limited vs. ACIT [2017] 398 ITR 66 (Delhi), arguing that once working capital adjustment is made, it subsumes interest on receivables, negating the need for separate benchmarking. The DRP, however, upheld the separate benchmarking, citing amendments to Section 92B of the Act and decisions in CIT vs. Patni Computer Systems Ltd (2013) 215 Taxman 108 (Bom) and Bechtel India Private Limited vs. ACIT (2017) 85 taxmann.com 121 (Delhi-Trib).
The tribunal noted that the DRP did not follow the decision in Kusum Healthcare, citing amendments to Section 92B of the Act. However, it referenced the Hon’ble Delhi High Court’s decision in Mckinsey Knowledge Centre India (P.) Ltd. vs. Principal Commissioner of Income-tax [2018] 96 taxmann.com 237 (Delhi), which requires examination of reasons for credit or delay in payment.
The tribunal highlighted that the view in Kusum Healthcare still holds, stating that working capital adjustment subsumes interest on receivables, and no separate benchmark is needed. It emphasized that once working capital adjustment is given, it includes interest on receivables.
The tribunal concluded that the addition made on account of interest on receivables cannot be sustained. It directed the Assessing Officer to verify and grant the TDS under law, allowing the appeal partly and dismissing the stay application.
Order pronounced in the open court on 28.09.2021.
Sd/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER
Sd/- (K. NARASIMHA CHARY) JUDICIAL MEMBER
Delhi; Dated: 28.09.2021.
*aks*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi.
Date of dictation: 04.08.2021
Date on which the typed draft is placed before the dictating member: 04.08.2021
Date on which the typed draft is placed before the other member: 04.08.2021
Date on which the approved draft comes to the Sr. PS/PS: 04.08.2021
Date on which the fair order is placed before the dictating member for pronouncement: 04.08.2021
Date on which the fair order comes back to the Sr. PS/PS: 04.08.2021
Date on which the final order is uploaded on the website of ITAT: 04.08.2021
Date on which the file goes to the Bench Clerk: 04.08.2021
Date on which the file goes to the Head Clerk: 04.08.2021
The date on which the file goes to the Assistant Registrar for signature on the order: 04.08.2021
Date of dispatch of the order: 04.08.2021.
ERM India Pvt. Ltd. vs NeAC, New Delhi – ITA 513/DEL/2021: Interest on Receivables
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