2023 (6) TMI 817 - AT - Income Tax

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 ... TP adjustment - international transaction relating to provision of software development services to the overseas AEs - Comparable selection - HELD THAT:- Larsen & Toubro Infotech Ltd. cannot be comparable to the assessee as it is in diversified activities. The company has also developed various products and created marketing intangibles. Further, being a part of the Larsen & Toubro group, it has substantial brand value. Infobeans Technologies Ltd.being functionally similar to the assessee, is a comparable. Cybercom Datamatics Information Solutions Ltd. company, in addition to software development services, is providing various other consultancy, advisory, technical and surveyor of information services. Whereas, segmental information relating to its activities are not available in the Annual Report. Considering the aforesaid factors, various Benches of the Tribunal, including Delhi Benches have excluded this company from being treated as comparables. Maintaining judicial consistency, we hold that the company cannot be treated as comparable to the assessee. Adjustment on account of interest on outstanding receivables from the AEs - while rejecting assessee’s submission, the TPO computed interest at the rate of 4.329% in respect of receivables, which remained outstanding beyond the period of 60 days from the date of issue of invoice - HELD THAT:- While considering identical issue in assessee’s own case in assessment years 2010-11, 2011-12, 2012-13, the Tribunal has deleted similar adjustments made by the TPO. Identical view was expressed by the Tribunal while deciding assessee’s appeal for assessment year 2014-15 [2019 (5) TMI 621 - ITAT DELHI] after following the decision of Kusum Healthcare Pvt.ltd. [2017 (4) TMI 1254 - DELHI HIGH COURT] decided the issue in favour of the assessee. Issues Involved:1. Transfer Pricing Adjustment for Software Development Services2. Adjustment on Account of Interest on Outstanding ReceivablesSummary:Issue 1: Transfer Pricing Adjustment for Software Development ServicesThe 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 ReceivablesThe 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.