Assessee’s Contentions

Revenue’s Contentions

Court’s Judgement

The assessee had aggregated IT support services with its other international transactions and benchmarked them under TNMM. Since the TPO had accepted the overall margins as arm's length, one element could not be separately carved out and benchmarked at NIL.

The Revenue contended that the third-party software/licence costs were in the nature of reimbursement of expenses and did not involve any service element. Accordingly, the 5% markup charged by the AE was not at arm’s length.

The ITAT held that once the overall margin under TNMM was accepted, the TPO could not separately carve out IT support expenses and benchmark them. Accordingly, the downward adjustment towards IT support services was deleted.

The assessee submitted it was a debt-free company Therefore, no separate interest adjustment was warranted on outstanding receivables. It also claimed deduction for capital expenditure incurred on scientific research under Section 35(1)(iv).

The TPO treated outstanding receivables as a separate international transaction and made a notional interest adjustment. The AO also disallowed the scientific research deduction on the ground that the claim was not properly evidenced.

The Tribunal noted that the assessee continued to be debt-free as at 31.03.2022 and, following its own earlier decision, held that the interest adjustment on receivables was unwarranted. The AO/TPO was accordingly directed to delete the adjustment.