ITAT Bangalore Strikes Down Notional Interest Adjustment on Associated Enterprise Receivables

The Income Tax Appellate Tribunal in Bangalore adjudicated multiple transfer pricing and corporate tax disputes concerning Dotgo for assessment year 2021-22. The bench specifically deleted the notional interest adjustment after observing that the advances provided to associated enterprises were effectively utilized to settle outstanding receivables. Alongside this relief, the tribunal evaluated several other contested matters including marketing expenses, bank charges treatment, segmental profit margins, and the selection of appropriate software comparable companies.

This decision provides clarity on how tribunals view working capital adjustments and associated enterprise transactions where fund movements overlap. Taxpayers facing similar transfer pricing additions on outstanding receivables can rely on this principle if advances offset the credit period extended to foreign affiliates. The ruling emphasizes examining the actual flow of funds rather than applying blanket notional interest rates on every delayed payment.

Tax professionals handling transfer pricing assessments for assessment year 2021-22 should review their client files for parallel issues regarding associated enterprise advances and receivable balances. Companies must ensure their documentation clearly demonstrates the nexus between advances and receivable settlements to secure similar relief before appellate authorities.