I opted into the safe harbour and billed my AE at the prescribed mark-up. The TPO has still made an adjustment for interest on receivables collected late. Can he do that?
Yes. Safe harbour under s.92CB and the Rule 10T series covers only an 'eligible international transaction' as exhaustively defined in Rule 10TC, and interest on outstanding receivables is not among clauses (i) to (x) of that definition. So the adjustment on delayed receivables is not subsumed in the mark-up offered under the safe harbour rules. On quantum, the Tribunal substituted LIBOR plus 200 basis points for the LIBOR plus 400 basis points adopted by the TPO and DRP.
Decided by the ITAT (M. Balaganesh, Accountant Member and Yogesh Kumar US, Judicial Member (Delhi Bench 'I')) on 2024-02-28, reported as ITA No.995/Del/2021 (AY 2016-17). It bears on section 92CB, section 92CA, section 144C, section Rule 10TC, section Rule 10TD, section Rule 10TD(2) of the Income Tax Act 1961, in Assessment & Scrutiny matters.
The practical belief this corrects is a common one: that once Form 3CEFA is filed and the prescribed mark-up is charged, the transfer pricing exposure for the year is closed. It is not. The safe harbour is transaction-specific, not entity-specific, and Rule 10TC is a closed list — software development services, information technology enabled services, knowledge process outsourcing, intra-group loans, corporate guarantees within the specified limits, contract research and development relating to software or to generic pharmaceutical drugs, manufacture and export of core and non-core auto components, and receipt of low value-adding intra-group services. Anything outside that list, and delayed receivables from an AE are the commonest example, is benchmarked in the ordinary way. The second half of the order is the fallback most assessees actually need: even where the interest adjustment stands, the rate is arguable, and this Bench put it at LIBOR plus 200 basis points consistently with Tribunal decisions across the country.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, a wholly captive service provider to its United States associated enterprise Iomedia Inc., supplied outsourced software and 3D visualisation services in the nature of knowledge process outsourcing. It filed its return for AY 2016-17 on 25 November 2016 declaring Rs 3,81,65,380, offering income under the safe harbour rules in terms of Rule 10TD(2)(iii), and filed the audit report in Form 3CEFA stating that it had opted for the safe harbour regime for five years from AY 2013-14 to AY 2017-18. It invoiced its associated enterprise at a mark-up of 25 per cent on total expenses including depreciation, as the safe harbour prescribed. There was an intercompany agreement for the services. The TPO called for invoice-wise details together with the agreed credit period and the date of realisation of each invoice, and these were furnished. The TPO imputed interest on receivables from the associated enterprise realised beyond the agreed credit period, which the DRP fixed at sixty days, and on the DRP's directions the arm's length adjustment was computed at LIBOR plus 400 basis points, giving Rs 4,70,258.
The appeal was partly allowed. The assessee's contention that no further adjustment could be made once income had been offered at the safe harbour mark-up of 25 per cent was rejected, because interest on outstanding receivables is not one of the transactions listed in clauses (i) to (x) of the definition of 'eligible international transaction' in Rule 10TC and so cannot be subsumed in the safe harbour mark-up. On quantum, consistently with Tribunal decisions across the country, interest on outstanding receivables was directed to be computed at LIBOR plus 200 basis points instead of LIBOR plus 400 basis points.
The Tribunal reproduced the definition of 'eligible international transaction' in Rule 10TC in full and held that the definition exists for the purpose of the applicability of the safe harbour rules only. Interest on outstanding receivables does not appear in any of clauses (i) to (x), so the benefit of the arm's length adjustment being subsumed in the 25 per cent mark-up was not available. On rate, the Bench held that LIBOR plus 200 basis points would meet the ends of justice for both sides.
Hence the international transaction of interest on outstanding receivables does not figure in any of the clauses (i) to (x) in the aforesaid list.
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Handle my notice → Ask a CA on WhatsAppYes. Safe harbour under s.92CB and the Rule 10T series covers only an 'eligible international transaction' as exhaustively defined in Rule 10TC, and interest on outstanding receivables is not among clauses (i) to (x) of that definition. So the adjustment on delayed receivables is not subsumed in the mark-up offered under the safe harbour rules. On quantum, the Tribunal substituted LIBOR plus 200 basis points for the LIBOR plus 400 basis points adopted by the TPO and DRP. This was decided by the ITAT (M. Balaganesh, Accountant Member and Yogesh Kumar US, Judicial Member (Delhi Bench 'I')) and bears on section 92CB, section 92CA, section 144C, section Rule 10TC, section Rule 10TD, section Rule 10TD(2) of the Income Tax Act 1961. It is reported as ITA No.995/Del/2021 (AY 2016-17). The practical belief this corrects is a common one: that once Form 3CEFA is filed and the prescribed mark-up is charged, the transfer pricing exposure for the year is closed. It is not. The safe harbour is transaction-specific, not entity-specific, and Rule 10TC is a closed list — software development services, information technology enabled services, knowledge process outsourcing, intra-group loans, corporate guarantees within the specified limits, contract research and development relating to software or to generic pharmaceutical drugs, manufacture and export of core and non-core auto components, and receipt of low value-adding intra-group services. Anything outside that list, and delayed receivables from an AE are the commonest example, is benchmarked in the ordinary way. The second half of the order is the fallback most assessees actually need: even where the interest adjustment stands, the rate is arguable, and this Bench put it at LIBOR plus 200 basis points consistently with Tribunal decisions across the country. If it applies to you, the first step is this: Check your transaction against the closed list in Rule 10TC before assuming the safe harbour covers it; the mark-up you charged protects only the eligible transaction.
The assessee, a wholly captive service provider to its United States associated enterprise Iomedia Inc., supplied outsourced software and 3D visualisation services in the nature of knowledge process outsourcing. It filed its return for AY 2016-17 on 25 November 2016 declaring Rs 3,81,65,380, offering income under the safe harbour rules in terms of Rule 10TD(2)(iii), and filed the audit report in Form 3CEFA stating that it had opted for the safe harbour regime for five years from AY 2013-14 to AY 2017-18. It invoiced its associated enterprise at a mark-up of 25 per cent on total expenses including depreciation, as the safe harbour prescribed. There was an intercompany agreement for the services. The TPO called for invoice-wise details together with the agreed credit period and the date of realisation of each invoice, and these were furnished. The TPO imputed interest on receivables from the associated enterprise realised beyond the agreed credit period, which the DRP fixed at sixty days, and on the DRP's directions the arm's length adjustment was computed at LIBOR plus 400 basis points, giving Rs 4,70,258. The matter was decided on 2024-02-28 by the ITAT (M. Balaganesh, Accountant Member and Yogesh Kumar US, Judicial Member (Delhi Bench 'I')). On those facts the ITAT held as follows. The appeal was partly allowed. The assessee's contention that no further adjustment could be made once income had been offered at the safe harbour mark-up of 25 per cent was rejected, because interest on outstanding receivables is not one of the transactions listed in clauses (i) to (x) of the definition of 'eligible international transaction' in Rule 10TC and so cannot be subsumed in the safe harbour mark-up. On quantum, consistently with Tribunal decisions across the country, interest on outstanding receivables was directed to be computed at LIBOR plus 200 basis points instead of LIBOR plus 400 basis points.
The Tribunal reproduced the definition of 'eligible international transaction' in Rule 10TC in full and held that the definition exists for the purpose of the applicability of the safe harbour rules only. Interest on outstanding receivables does not appear in any of clauses (i) to (x), so the benefit of the arm's length adjustment being subsumed in the 25 per cent mark-up was not available. On rate, the Bench held that LIBOR plus 200 basis points would meet the ends of justice for both sides. In the words reproduced by the source cited on this page: "Hence the international transaction of interest on outstanding receivables does not figure in any of the clauses (i) to (x) in the aforesaid list."
It was decided by the ITAT on 2024-02-28 and is reported as ITA No.995/Del/2021 (AY 2016-17). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 92CB, section 92CA, section 144C, section Rule 10TC, section Rule 10TD, section Rule 10TD(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal was partly allowed. The assessee's contention that no further adjustment could be made once income had been offered at the safe harbour mark-up of 25 per cent was rejected, because interest on outstanding receivables is not one of the transactions listed in clauses (i) to (x) of the definition of 'eligible international transaction' in Rule 10TC and so cannot be subsumed in the safe harbour mark-up. On quantum, consistently with Tribunal decisions across the country, interest on outstanding receivables was directed to be computed at LIBOR plus 200 basis points instead of LIBOR plus 400 basis points. It arises in Assessment & Scrutiny matters, on section 92CB, section 92CA, section 144C, section Rule 10TC, section Rule 10TD, section Rule 10TD(2) of the Income Tax Act 1961, and was decided by M. Balaganesh, Accountant Member and Yogesh Kumar US, Judicial Member (Delhi Bench 'I'). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Reconcile the agreed credit period against every invoice and its realisation date, and produce that invoice-wise chart yourself — the TPO called for exactly that here. Argue the credit period first: the DRP allowed sixty days, and outstandings realised within the agreed period give rise to no imputation at all. If an adjustment survives, contest the rate, and cite the LIBOR plus 200 basis points line rather than accepting LIBOR plus 400. Keep the Form 3CEFA and the period for which the safe harbour option was exercised on record, and check that the option covers the year in dispute.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing. A name search returns two documents: this order and McKinsey Knowledge Centre India Pvt Ltd v DCIT, Circle 16(1), Delhi, ITAT Delhi, 4 June 2024. That order was opened. This case appears there only in the Departmental Representative's submissions — 'Reliance was also placed on the recent decision of Hon'ble Tribunal in the case of Iomedia India Pvt. Ltd. vs. ACIT' — advanced for a LIBOR plus 200 basis points rate on outstanding receivables. The Bench did not adopt it; it decided ground 15 in the assessee's favour on the authority of the assessee's own earlier cases and deleted the receivables adjustment entirely. No High Court or Supreme Court record carries the name, and no appeal against this order was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The header in the copy I read names the respondent as ACIT, Circle-12(3), New Delhi, while the indiankanoon case title reads 'Acit Circle-12(2), New Delhi'. The order is short — the operative discussion is paragraphs 4 to 7 — and the definition of 'eligible international transaction' in Rule 10TC is reproduced in it in full; I did not independently verify that reproduction against the current notified text of Rule 10TC. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was partly allowed. The assessee's contention that no further adjustment could be made once income had been offered at the safe harbour mark-up of 25 per cent was rejected, because interest on outstanding receivables is not one of the transactions listed in clauses (i) to (x) of the definition of 'eligible international transaction' in Rule 10TC and so cannot be subsumed in the safe harbour mark-up. On quantum, consistently with Tribunal decisions across the country, interest on outstanding receivables was directed to be computed at LIBOR plus 200 basis points instead of LIBOR plus 400 basis points.
TaxSphere, “Iomedia India Pvt Ltd v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/iomedia-india-92cb-safe-harbour-rule-10tc-receivables/ (validity last checked 2026-09-08)
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