2023 (3) TMI 597 - AT - Income Tax

Tribunal Adjusts Comparables & Interest, Orders Fee Reconsideration

The Tribunal allowed the appeal for statistical purposes and dismissed the Stay Application as infructuous. It directed the exclusion of certain entities ... TP Adjustment - addition on account of software development and related IT services segment - comparable selection - HELD THAT:- Comparability of Infosys Limited, Larsen & Toubro Infotech Limited, Tata Elxsi Limited (seg), Persistent Systems Limited, Mindtree Ltd and E-Info Chips Pvt. Ltd , such entities are not at all good comparables to the assessee and directed the deletion of the same from the final list of comparables. We direct the exclusion of Infosys Limited, Larsen & Toubro Infotech Limited, Tata Elxsi Limited (seg), Persistent Systems Limited, Mindtree Ltd, Cybage Software Private Limited and E-Info Chips Pvt. Ltd from the list of final comparables on the ground of either functional dissimilarity or scales of turnover and profits or non-availablity of segmental information. Interest on receivables - credit period determination - As submitted that in the agreement, 90 days period is prescribed and, therefore, the Revenue authorities cannot substitute their notions of collectability of interest in this period - HELD THAT:- When the parties entered into an agreement in respect of the credit period to be allowed, the interest relatable to such allowable credit period will be subsumed into the price of the goods or services, which are subject to the ALP examination. It is only the period subsequent there to has to be considered for calculation of deemed interest. While respectfully following the view taken by the Co-ordinate Bench of the Tribunal in assessee’s own case for the assessment year 2014-15 [2019 (9) TMI 973 - ITAT HYDERABAD] we set aside the assessment order on this aspect and restore the issue to the file of learned Assessing Officer/ Ld. TPO, for considering the credit period allowed by way of agreement and in the absence of any such agreed credit period, to consider 90 days or the industry average credit period, as the case may be, for calculating the interest. Grounds No. 8 to 10 are treated as allowed for statistical purposes. Allowability of management fee - as submitted that for this assessment year, the details were submitted and available before the Ld. DRP but the Ld. DRP missed this aspect and did not consider the material available before them - HELD THAT:- Considering the facts and circumstances, we are of the considered opinion that it would be in the fitness of things to restore this issue to the file of the learned Assessing Officer/ Ld. TPO to consider the material filed by the assessee. Ground No. 11 is accordingly treated as allowed for statistical purposes. Credit of Tax Deducted at Source and credit of advance tax - HELD THAT:- It is a matter of verification of record and consequential grant of credit of credit of Tax Deducted at Source and credit of advance tax. Learned Assessing Officer will verify the material and accordingly take a view. Interest under section 234B of the Act is consequential in nature and dependent upon the above. Issues Involved:1. Inclusion/Exclusion of comparables in the software development services segment.2. Levy of interest on receivables.3. Adjustment on account of management fee.4. Non-grant of credit of tax deducted at source (TDS) and advance tax.Issue-wise Detailed Analysis:1. Inclusion/Exclusion of Comparables in the Software Development Services Segment:The primary grievance of the assessee was against the consideration of certain entities as comparables in the software development services segment. The assessee argued that the entities retained by the Ld. DRP were not comparable due to differences in the scale of operations or the nature of functions performed. The entities in question included Infosys Limited, Larsen & Toubro Infotech Limited, Tata Elxsi Limited (seg), Persistent Systems Limited, Mindtree Ltd, Cybage Software Private Limited, and E-Info Chips Pvt. Ltd., among others. The assessee emphasized that these entities were previously found non-comparable in earlier years. The Tribunal reviewed the findings of the Ld. TPO and Ld. DRP and noted the consistent exclusion of these entities in prior years due to functional dissimilarity, scales of turnover and profits, or lack of segmental information. Consequently, the Tribunal directed the exclusion of these entities from the list of comparables for the current assessment year as well.2. Levy of Interest on Receivables:The assessee contended that interest on receivables should only be calculated for the period exceeding the credit period stipulated in the agreement, which was 90 days. The Tribunal upheld this view, referencing the assessee's case for previous assessment years, and remanded the issue to the file of the learned Assessing Officer/ Ld. TPO to calculate interest only for the period exceeding the agreed credit period or 90 days/industry average credit period if no agreement existed.3. Adjustment on Account of Management Fee:The assessee argued that the details regarding the management fee were submitted to the Ld. DRP but were not considered. The Tribunal noted that similar issues in earlier years were remanded for verification of facts and directed the learned Assessing Officer/ Ld. TPO to consider the material filed by the assessee and take a view accordingly.4. Non-grant of Credit of Tax Deducted at Source (TDS) and Advance Tax:The assessee's grievance was that the learned Assessing Officer failed to grant credit for TDS and advance tax attributable to the transferor companies amalgamated with the assessee. The Tribunal directed the learned Assessing Officer to verify the material and grant the appropriate credits.Conclusion:The appeal was treated as allowed for statistical purposes, and the Stay Application was dismissed as infructuous. The Tribunal's directions included the exclusion of certain entities from the list of comparables, recalculation of interest on receivables based on the credit period, reconsideration of the management fee adjustment, and verification of TDS and advance tax credits.