TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 1594
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....ransaction was referred to the TPO u/s 92CA of the Act. 3. The TPO considered that the assessee is providing software development and other related support services to its parent company from its software company in Hyderabad. He observed that the assessee has entered into two international transactions, (i) provision of SDS to the tune of Rs. 17,40,35,664/- and (ii) recovery of expenses of Rs. 1,29,07,441/-. Further, the TPO also noticed that the assessee has not reported the transaction of receivables of Rs. 6,04,89,522/- either in the form 3CEB or T.P. document. 4. During the T.P. proceedings, the TPO observed that the assessee, after applying certain filters, has short-listed around 10 comparables to benchmark the software development services (SDS) transaction at 8.49% as against the margin of the assessee at 8.32% and therefore, treated the transaction to be at ALP. The TPO, however, was of the view that the search process conducted by the assessee is not in conformity with the TP regulations and therefore, has resulted in selection of inappropriate comparables. He, therefore, rejected the TP documentation of the assessee and conducted an independent analysis by aggregati....
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....y the Appellant from the TPO's search process 10. Incorrectly computing the operating profit margins of the comparable companies. 11. Not granting comparability adjustment on account of differences in risk profile of the Appellant vis-a-vis that of independent entrepreneurial companies. 12. Not granting the benefit of proviso to section 92C(2) of the Act. 13. Considering outstanding receivables from Associated Entity as a separate international transaction for arm's length bench marking analysis. 14. Not considering the fact that working capital adjustment takes into account the differences between credit period of the Appellant and comparable independent companies and hence no separate adjustment is required for outstanding receivables 15. Not considering the jurisdictional tribunal rulings which have held that a separate adjustment for outstanding receivables is not warranted 16. Not considering the fact that the average receivables collection period of the Appellant is within the range of average receivables collection period of comparable uncontrolled companies and industry average. 17. Not considering the fact that in the case of software servic....
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....ax, Circle-16 (1), Hyderabad reported in (2015) 63 Taxmann.com 92 Hyderabad ITAT. 8. The ld DR, on the other hand, submitted that the assessee itself in its TP study had not taken the internal TNMM as the most appropriate method and further that the non-AE transactions of the assessee are with domestic companies, whereas AE transactions are international transactions and therefore, the market conditions of domestic as well as international are not the same and therefore, the AE and non-AE transactions cannot be treated on par with each other. Therefore, he submitted that the internal TNMM cannot be accepted. 9. Having regard to the rival contentions and the material on record, we find that the Coordinate Bench of the Tribunal at Delhi in the case of Lummus Technology Heat Transfer BV (Supra) was considering the case of an assessee which had both AE and non-AE transactions. It is not clear from the said case, whether the non-AE transactions were also international transactions. As rightly pointed out by the ld DR, the market conditions would not be the same for domestic and international transactions and therefore, they cannot be considered on par with each other and particularl....
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.... 13. The ld DR, on the other hand, submitted that the provision for bad and doubtful debts cannot be considered as operating expense as it is not uniform in the case of the assessee as well as the comparable companies. He submitted that the FAR analysis requires that all the factors of the comparability should be uniform and consistent and provision of bad and doubtful is not a consistently uniform factor which could bring the companies on par. He therefore, relied upon the order of the TPO. 14. Having regard to the rival contention and the material on record, we find that in the case of Alliance Global Services IT India Pvt. Ltd (Supra), the Coordinate Bench of this Tribunal by following the decision of the Coordinate Bench in the case of M.s Kenexa Technologies (P) Ltd has held that the provision for bad and doubtful debts is part of operating expenses. The Tribunal has directed the TPO to allow the same. Similarly, in the case of TNS India Pvt. Ltd, the Tribunal has directed the TPO therein, to treat the provision for bad and doubtful debts as operating expenses. Respectfully following the same, we direct the TPO to treat the provisions of bad and doubtful debts in the case of....
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....adjustment towards outstanding receivables. Further, we also agree with the contention of the assessee that when the assessee is not paying interest on its payables, assessee is also not justified in charging interest on outstanding receivables. Therefore, on all these counts, the grounds of appeal Nos. 13 to 18 are allowed. 18. As regards Ground No.7 is concerned, the assessee is seeking exclusion of RS Software (India) Ltd, Mindtree Ltd, Persistent Systems Ltd, L&T Infotech Ltd and Infobeans Technolotgies Ltd, since according to the assessee, they are not comparable to the assessee. Let's therefore, consider the assessee's objections, company-wise: i) RS Software India Ltd 18.1 The ld Counsel for the assessee submitted that the said company has a turnover of Rs. 293.02 crores as against the assessee's turnover of Rs. 17.04 crores revenue from the international transaction. Therefore, according to the assessee, it is incomparable in terms of the scale of operations and that the competitors to the said company are huge IT Companies like Infosys, Wipro, TCS, HCL whose brand and market reach are their major strengths. He referred to the non-routine intangibles possessed by the ....
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....urnover and also has brought out the ownership of non-routine intangibles of RS Software India Ltd which could be a factor for its high turnover. We find that in the case of M/s. GT Nexus Software (P) Ltd in IT(TP)A No.409/Bang/2016, the Coordinate Bench of the Tribunal has considered the turnover filter of 10 times tolerance range of assessee's turnover to direct exclusion of RS Software India Ltd, Mindtree Ltd, Persistent Systems Ltd, Infosys Technologies Ltd, L&T Infotech Ltd and TATA Elxsi Ltd and Sasken Communications Ltd. Further, in the case of M/s Nebulae Technologies Pvt Ltd in ITA No.2144/Hyd/2011, the Coordinate Bench of this Tribunal has considered the turnover, brand value, scale of operations, diversified activities and owning of intangible assets as relevant factors to exclude the companies. Therefore, respectfully following the said decision and the rationale given therein, we direct the TPO to exclude this company from the list of comparables. ii) Minidtree Ltd 18.4 The assessee's objections to this company are almost similar to the objections in the case of RS Software India Ltd, such as diversified activities; incomparable scale of operations, the Revenue bei....