Transfer Pricing Appeal: Exclusion of Comparables

The Tribunal partly allowed the appeal by excluding Larsen & Toubro Infotech Ltd. and Cybercom Datamatics Information Solutions Ltd. as comparables for transfer pricing adjustment. Infobeans Technologies Ltd. was retained as a comparable. The adjustment on interest on outstanding receivables was deleted based on precedents from previous assessment years.

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Issues Involved:
1. Transfer Pricing Adjustment for Software Development Services
2. Adjustment on Account of Interest on Outstanding Receivables

Summary:

Issue 1: Transfer Pricing Adjustment for Software Development Services

The assessee challenged the addition of Rs. 75,50,956/- made on account of transfer pricing adjustment related to the provision of software development services to its overseas Associated Enterprises (AEs). The dispute centered on the selection of three comparables: Larsen & Toubro Infotech Ltd., Infobeans Technologies Ltd., and Cybercom Datamatics Information Solutions Ltd.

- Larsen & Toubro Infotech Ltd.: The assessee argued that this company is not comparable due to its engagement in diversified activities, ownership of proprietary software products, and substantial brand value. The Tribunal agreed, noting that the company is involved in diversified activities and has substantial brand value, making it unsuitable as a comparable. Thus, Larsen & Toubro Infotech Ltd. was excluded.

- Infobeans Technologies Ltd.: The assessee contended that this company is functionally different as it engages in diversified activities, including research and development, and owns significant intangibles. The Tribunal, however, found that Infobeans Technologies Ltd. is primarily engaged in providing software services and is functionally similar to the assessee. Hence, it was retained as a comparable.

- Cybercom Datamatics Information Solutions Ltd.: The assessee argued that this company is involved in diversified activities and lacks segmental information. The Tribunal observed that the company provides various services beyond software development and lacks segmental information. Consequently, it was excluded as a comparable.

Issue 2: Adjustment on Account of Interest on Outstanding Receivables

The assessee challenged the adjustment of Rs. 11,45,642/- proposed by the TPO on account of interest on outstanding receivables from the AEs. The TPO had computed interest at the rate of 4.329% for receivables outstanding beyond 60 days. The Tribunal noted that in previous assessment years, similar adjustments were deleted following the decision of the Hon'ble Jurisdictional High Court in the case of Kusum Healthcare Pvt. Ltd. Respectfully following these precedents, the Tribunal deleted the addition.

Conclusion:

The appeal was partly allowed, with the Tribunal excluding Larsen & Toubro Infotech Ltd. and Cybercom Datamatics Information Solutions Ltd. as comparables while retaining Infobeans Technologies Ltd. The adjustment on account of interest on outstanding receivables was deleted.

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