TaxTMI 
TaxTMI 
2019 (2) TMI 227
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....adjudication. 3. As far as ground Nos.9, 11 and 15 are concerned these grounds read as follows:- "9. The learned AO erred in adopting a threshold of 0% for applying the Related Party filter ('RPT") as per the directions of the Hon'ble DRP and thereby erred in rejecting the functional comparable companies. 11. The learned AO/learned TPO erred in including companies that do not satisfy the test of comparability. Specifically, the following company should have been rejected: 15. The learned AO/learned TPO erred in recharacterizing the debtors outstanding from the AE as loans extended to the AE and thereby erred in computing notional interest on the outstanding balance from the AE. While doing so, the learned AO/learned TPO erred: 15.1 By not appreciating that the debts were outstanding with the AE purely because of genuine business reasons and it was not with a malafide intention to extend indirect credit period to the debtors. 15.2 In computing the notional interest on the outstanding balances from the AE by adopting an adhoc threshold of 3 months as the arm's length benchmark for making the transfer pricing adjustment. ....
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.... 7. In support of assessee's claim that the price received in the international transaction is at arms length. The assessee filed Trasnfer Pricing Analysis selecting 21 companies as comparable with the assessee in terms of Functions performed, Assets employed and Risks Assumed (FAR) and the arithmetic mean of profit margin of those companies was within the profit margins earned by the assessee in the international transaction. 8. The TPO to whom the determination of ALP was referred by the AO u/s 92CA of the Act, rejected 14 of those comparable companies chosen by the Assessee and accepted 7 comparable companies chosen by the assesee. The TPO on his own added 4 more comparable companies which resulted in final set of 11 comparable companies. The arithmetic mean of profit margin of 11 comparable companies after providing for working capital adjustment was as follows:- Sl. No Name Sales Cost PLI 1 I C R A Techno Analytics Ltd. (seg) 11,89,81,000 9,52,33,000 24.94% 2 Infosys Ltd. 2,11,40,00,00,000 1,45,81,00,00,000 44.98% 3 Kals Information Systems Ltd.(seg) 2,16,92,935 1,61,39,288 34.41% 4 Larsen & Toubro Infotec....
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....it excluded companies which had transactions with related parties. The threshold limit applied by the DRP on account of RPT filer was 0%. By applying RPT filter 3 more companies got exclude namely ICRA Techno Analytics Ltd., Persistent Systems and Solutions Ltd., and Think Soft Global Services Ltd. 12. It can be mentioned here that in assessee's own case for asst. year 2005-06, Bangalore ITAT, in the decision reported in (2015) 61 taxman.com 81 (Bangalore Trib.), took the view that thresh hold limit of Related Party Transaction for exclusion as not comparable should be 15% of the turnover of the comparable companies. In other words if the comparable company chosen had transactions of 15% of more of its sales with related parties, then those companies were to be regarded as not comparable companies. In the present case, the 3 companies excluded had RPT transaction which were ICRA Techno Analytics Ltd., 14.95% of Sales Persistent Systems and Solution Ltd., 5.39% of sales and Think Soft Global Services Ltd. 11.01% of its sales. It is the plea of the assessee in ground No. 9 that the aforesaid 3 companies should be considered as comparable companies because the RPT transactions are ....
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....ony India (P.) Ltd. (supra) wherein a view has been taken that comparable companies having RPT of upto 15% of total revenues can be considered as comparable companies. In view thereof, the plea of the Assessee requires to be accepted. The TPO/AO are directed to adopt a threshold limit of 15% of the total revenue attributable to related party transaction as ground for rejecting comparable companies. Consequently, it is held that companies having RPT upto 15% of the total revenues can be included." 15. We have considered the rival submission and we are of the view that application of RPT filer at 15% of the sales would be appropriate in the given facts and circumstances of the case and as laid down in the case of Auto Desk India Pvt. Ltd., (Supra), we hold accordingly and direct to inclusion of 3 companies which were excluded by application of RPT Filter by the DRP. 16. The 2 companies out of the 11 companies chosen as final comparable companies by the TPO which remain after the order of the DRP were Kals Information Systems Ltd., and RS Software (India) Ltd. The assessee seeks to exclude Kals Information - Systems Ltd., from the list of comparable companies on the grounds that....
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...., needs to be excluded from the comparables. To support this contention, reliance was placed on various judicial pronouncements, including the decision of the Hon'ble ITAT, Bangalore in the case of Trilogy E Business Software India Pvt. Ltd Vs. DCIT (ITA NBo.1201/Bang/2010) which has been cited in the later judgments of the Bangalore ITAT in the case of Curam Software International Pvt. Ltd. Vs. ITO (ITA no.1280/Bang/2012) as well as in the appellant's own matter in ITA No.1538/Bang/2012. Additionally, the discussion around this company in the case of NettHawk Networks India Private Ltd. Vs. ITO (ITA no.7633/M/2012) was also cited. 9.3 The objections and arguments of the taxpayer have been considered and the order of the Hon'ble ITAT Bangalore in the case of M/s Trilogy E Business Software India Pvt. Ltd (supra) perused. At Para-46 of this order, the Hon'ble ITAT considered the decision in the case of Bindview India Private Limited and in Para-47 held as follows "we have given a careful consideration to the submission made on behalf of the assessee, we find that the TPO has drawn conclusions on the basis of the information obtained by issue of noti....
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....are product company. We are of the view that in the given facts and circumstances of the case, it is just an appropriate to set aside the matter to the TPO on the question regarding this company as comparable company and directing the TPO to exercise his power u/s 133(6) of the Act to find out whether this company is product company and also segmental margin, if it is a product company as well as software development services company. After affording opportunity of being herd to the assesee, the TPO will consider the comparability of this company with that of the assessee. 19. The next grievance of the assessee is reproduced in ground No.15. 20. As far as aforesaid grievance projected by the assessee is concerned, the TPO noticed that the assessee was allowing substantial credit period for payment to the AE. In these circumstances, the TPO made an addition of Rs. 52,73,0325/- treating the extended credit period given by the assessee to AE as international transaction. Following were relevant observations of the TPO in the order of assessment. Interest on Sundry debtors outstanding for more than 3 months: The taxpayer has shown receivables of Rs. 16,82 Crore ....
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....utstanding with the AE were pure1y because of business and commercial expediency and there was no malafide intention to extend indirect credit period to the AE. The TPO, however, computed notional interest at the rate of 11.25% (being the SBI Prime Lending Rate) for the outstanding receivables from AE beyond 3 The taxpayer has grieved this treatment and cited the decision of the Hon'ble Mumbai ITAT in case of Evonik Degussa India P. Ltd.v/s Asstt. Commissioner of Income Tax-OSD Circle-3(1) (ITA No. 7653/Mum./2011) where it was held that the T.P. adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income, it was also pointed out by the taxpayer that the TPO had not given any basis for arriving at a threshold of three month for computing the notional interest. 7.3 The taxpayer's objections as above have been considered along with the judicial decision cited. The decision was given in the context of the case where the taxpayer had no interest liability and no external borrowing. In the case of Mastek Ltd vs Addl. CIT (2012) 21 taxmann.com 173 the Hon'ble ITAT Ahma....
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....n but it is closely linked or continuous transaction along with sale transaction to the AE. The credit period allowed to the arty depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE. As per Rule 1 OA(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregate and clubbing of closely linked transaction are permitted under said rule. This concept of aggregation of the transaction which is closely liked is also supported by OCED transfer pricing guidelines. In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation what is to be considered is that one transaction is follow-on of the earlier transaction and then the subsequent transaction is carried out and dependent....
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....AEs then no adjustment can be made being the transaction is at arm's length. The third aspect of the issue is that the arm's length interest for making the adjustment. Both the TPO and the DRP has taken into consideration the lending rates, however, this is not a transaction of loan or advance to the AE but it is only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan is available. Accordingly, we direct the AO/TPO to re-do the exercise of determination of the ALP in terms of above observation". Respectfully following the above decision, we hold that there can be no separate international transaction of 'interest' in the international transaction of sale. Early or late realization of sale proceeds is only incidental to transaction of sale, but not a separate transaction in nature. Since we hold that the impugned transaction of interest on delayed realization of sale proceeds is not international transaction, it is not necessary to adjudicate upon the additional gr9inds raised by the ....
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....ware and licence and the total cost of such purchase was Rs. 10,39,0590/- were capitalized in the books of account under the head 'computer & software'. The assessee claimed the depreciation at 60% on computer software. The AO noticed that while making payment for the purchase of software and licence, the assessee did not deducted tax at source. According to the AO, assessee ought to have been deducted tax at source u/s 194J of the Act in respect of such purchases since the assessee has not deducted tax at source, the AO was view that provision of sec. 40a(ia) of the Act will be attracted. He was of the view that depreciation claimed on purchase of software and license by the assessee should be disallowed u/s 40a(ia) of the Act. The AO accordingly disallowed the depreciation to the extent of Rs. 1,039,590/- and the DRP confirmed the action of the AO. 28. Aggrieved by the order of the DRP, the assessee has raised ground No.16 before of the Tribunal. 29. The issue raised by the assessee in the aforesaid ground of appeal is no longer res integra and has been decided by the ITAT, Bangalore in the case of M/s Wintac Ltd., Vs. DCIT in ITA No. 834/Bang/2016 order dated 13/4/2017. In....