TaxTMI 
TaxTMI 
2019 (3) TMI 1594
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....f the Arms' Length Price (ALP) of the said transaction 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 ....
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....llant in its Transfer Pricing study. 9 Not accepting E-Zest Solutions Limited as additional company proposed by 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 ave....
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....n of the Tribunal at Delhi in the case of Lummus Technilogy Heat Transfer BV (Supra) and also in the case of NTT Data Global Delivery Services Ltd.v. Deputy Commissioner of Income-tax, 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 ou....
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....604/Hyd/2014) iii) DCIT vs. M/s. Palred Technologies Ltd (formerly Four Soft Ltd) (ITA No.186/Hyd/2014, 207/Hyd/2014 & 268/Hyd/2015). iv) M/s Sum Total Systems vs. DCIT (ITA No.255/Hyd/2015) 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 di....
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....on of working capital adjustment, no separate adjustment is required. Further, we also find that the average credit period of the comparables is 81 days, whereas in the case of the assessee, it is 79 days and therefore, there is no need for any 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 i....
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....o determine as to whether material differences between the assessee and the comparables can be eliminated and unless such differences cannot be excluded, it has to be included as a comparable. In the case before us, the assessee has brought out that the comparable companies have huge turnover 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 t....
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....e agree with the contention of the learned DR that the assessee has to prove the impact of the merger/demerger of the said company on its margin for the relevant financial year. Since the assessee has failed to prove the same even before us, we reject the assessee's contention on the comparability of this company with the assessee. (iv) Larsen & Toubro Infotech Ltd 18.10 The objections of the assessee are that the company is functionally dissimilar and that it develops in-house intangibles, has strong brand value, is involved in diversified operations which includes products and also performs R&D Activities. He submitted that the Revenue of the L&T ranges to Rs. 3,613/- crores and therefore, the scale operation is incomparable. As we have already held that the turnover filter of 10 times of the tolerance range is a relevant filter. Respectfully following the same, we direct the AO/TPO to exclude this company also from the final list of comparables. Ground of appeal No.7 is accordingly partly allowed. 19. As regards Grounds of appeal No.8 & 9, we find that the assessee is seeking inclusion of these companies in the final list of comparables. The assessee has relied upon the....