Question 1

What are the key legal issues in ERM India Private Limited vs. Assessment Unit, Income Tax Department?

Accepted Answer

1. Whether the AO erred in making a transfer pricing adjustment of INR 75,65,322 to the income of the appellant considering the debit balance of receivables from AEs as a separate international transaction. 2. Whether the AO erred in not granting the credit of entire TDS amounting to INR 2,96,77,034 as claimed by the appellant.

Question 2

What are the facts of ERM India Private Limited vs. Assessment Unit, Income Tax Department?

Accepted Answer

ERM India Private Limited, a subsidiary of ERM Asia Pacific Holdings Ltd., is engaged in providing consultancy services in various practice areas. During the assessment year 2021-22, the company benchmarked its international transactions at the entity level under the Transactional Net Margin Method (TNMM). The net level margins earned by the appellant were computed at 18.03 percent, which is higher than the arm’s length margin of 4.82 percent computed for comparable companies. The Assessing Officer (AO) accepted the arm’s length nature of the principal international transactions but challenged the delay in receipt of outstanding receivable balances from Associated Enterprises (AEs). The AO re-characterized the outstanding balance of receivables as an arrangement to grant long-term, interest-free, unsecured credit and imputed notional interest at 15.25 percent. The appellant contested this adjustment, arguing that the working capital adjustment subsumed the impact of outstanding balances and that no interest was charged from third-party customers on outstanding receivables.

ERM India Private Limited vs. Assessment Unit, Income Tax Department

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