Assessee's appeal partly allowed, stay application dismissed. Tribunal directed exclusion of comparables, margin recomputation, interest adjustment.

The appeal filed by the assessee was partly allowed, and the stay application was dismissed. The Tribunal directed the exclusion of certain comparables, recomputation of margins for specific companies, and adjustment of interest on receivables. The order was pronounced on October 19, 2020.

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Issues Involved:
1. Addition to the appellant's total income.
2. Inclusion of functionally dissimilar companies as comparables.
3. Rejection of certain companies as comparables.
4. Incorrect computation of margins for specific companies.
5. Rejection of appellant's transfer pricing study.
6. Risk adjustment denial.
7. Classification of bad debts and provisions as non-operating expenditure.
8. Denial of working capital adjustment.
9. Treatment of receivables from associated enterprises as separate international transactions.
10. Interest on delayed trade receivables.
11. Inconsistency with previous assessment orders.
12. Use of SBI short-term deposit rates instead of LIBOR.
13. Breach of principles of natural justice.

Detailed Analysis:

1. Addition to the Appellant's Total Income:
The appellant challenged the addition of INR 4,60,53,538 to their total income. The Tribunal dismissed the general grounds of appeal (Ground Nos. 1, 5, and 13) as they were considered general in nature.

2. Inclusion of Functionally Dissimilar Companies as Comparables:
The appellant argued that certain companies were incorrectly included as comparables by the TPO. These companies included Infosys Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd., Tata Elxsi Ltd. (Seg), Persistent Systems Ltd., Thirdware Solution Ltd., Cybage Software Pvt. Ltd., and others. The Tribunal agreed with the appellant regarding Infosys Ltd., Larsen & Toubro Infotech Ltd., and Mindtree Ltd., stating these companies are giant companies in software development and not comparable to the appellant. Similarly, Tata Elxsi Ltd., Thirdware Solutions Ltd., and Persistent Systems Ltd. were excluded due to the non-availability of segmental details. Cybage Software Pvt. Ltd. was excluded due to abnormally high margins.

3. Rejection of Certain Companies as Comparables:
The appellant requested the inclusion of companies like Evoke Technologies Pvt. Ltd., InfoMile Technologies Ltd., I2T2 India Ltd., Kireeti Soft Technologies Ltd., SagarSoft India Ltd., Akshay Software Technologies Ltd., and Harbinger Systems Pvt. Ltd. The Tribunal dismissed the request for Akshay Software Technologies Ltd. and Harbinger Systems Pvt. Ltd. as not pressed. For SagarSoft India Ltd., the Tribunal upheld its exclusion due to persistent losses.

4. Incorrect Computation of Margins for Specific Companies:
The appellant argued that the margins for Nihilent Technologies Ltd., Thirdware Solution Ltd., and Sasken Communication Technologies Ltd. were incorrectly computed. The Tribunal directed the TPO to recompute the margins for Nihilent Technologies Ltd. and Sasken Communication Technologies Ltd. after providing the appellant an opportunity to present their case.

5. Rejection of Appellant's Transfer Pricing Study:
The TPO rejected the appellant's transfer pricing study due to defects in filters and conducted a fresh benchmarking. The Tribunal upheld the TPO's decision to reject the appellant's transfer pricing study.

6. Risk Adjustment Denial:
Ground No. 6 was not pressed by the appellant during the appeal hearing and was dismissed as not pressed.

7. Classification of Bad Debts and Provisions as Non-Operating Expenditure:
Ground No. 7 was not pressed by the appellant during the appeal hearing and was dismissed as not pressed.

8. Denial of Working Capital Adjustment:
Ground No. 8 was not pressed by the appellant during the appeal hearing and was dismissed as not pressed.

9. Treatment of Receivables from Associated Enterprises as Separate International Transactions:
The Tribunal upheld the AO/TPO/DRP's adjustment of INR 1,05,81,517 on account of interest on receivables, stating that the interest on trade receivables became an international transaction after the amendment to section 92B of the Act.

10. Interest on Delayed Trade Receivables:
The Tribunal directed the TPO to allow a credit period of 90 days or the industry average and to compute the interest on the deviation. The interest should be charged at the rates of short-term deposits of SBI, as decided by the ITAT in the earlier year's orders.

11. Inconsistency with Previous Assessment Orders:
The Tribunal did not provide a separate adjudication for this ground as it was considered general in nature.

12. Use of SBI Short-Term Deposit Rates Instead of LIBOR:
The Tribunal upheld the use of SBI short-term deposit rates for computing interest on receivables, following the decision in the earlier year's orders.

13. Breach of Principles of Natural Justice:
The Tribunal did not provide a separate adjudication for this ground as it was considered general in nature.

Conclusion:
The appeal filed by the assessee was partly allowed, and the stay application was dismissed. The Tribunal provided specific directions for the exclusion of certain comparables, recomputation of margins, and adjustment of interest on receivables. The order was pronounced in open court on October 19, 2020.

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