TaxTMI 
TaxTMI 
2020 (5) TMI 512
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....ommissioner of Income Tax, Circle - 6(1)(2) (hereinafter referred lo as learned Assessing Officer" or the "learned AO"), dated 30 August 2018 for the Assessment Year (A 2014-15, under section 143(3) read with section 144C(1) of the Income Tax Act, 1961 ("the Act") in pursuance of the directions issued by Dispute Resolution Panel (hereinafter referred to as the "Hon'ble '_I DRV). Bangalore dated 23 August 2018 under section 144C(5) of the Act inter-alia on the following grounds ácta are without prejudice to each other: That on the facts and circumstances of the case and in law: 1. Impugned order of Ld.AO pursuant to directions of Ld. DRP, erred in assessing the total income at INR 32.6034,282, as against returned income of INR 15,70,57,200; 2 Ld.AO DRP and TPO erred in making addition of INR 16,89,77,082 to total income of Appellant on pretext that price charged was lower than arm's length price determined for Information Technology Enabled Services ("ITeS") rendered by Appellant to its AE(s), 3 Impugned final assessment order passed by Ld.AO is invalid being not in conformity with section 144C (13) of the Act 4 L.d.AO ....
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..... MPS Limited ("MPS") b) Ld.AO, DRP and TPO erred, by rejecting the following comparable companies selected by the Appellant in its TP documentation even though the companies are functionally comparable to the Appellant: i. Allsec Technologies Limited ("Allsec') ii. Informed Technologies India Limited ("Informed Technologies") iii. Jindal Intellicom Private Limited ("Jindal Intellicom") iv. R Systems International Limited ("R Systems") v. Datamatics Financial Services Limited ("Datamatics") c) Ld.AO, DRP and TPO erred, by rejecting the following comparable companies that were a part of the search undertaken by Id. TPO even though such companies are functionally comparable to the Appellant. i. Harton Communications Limited ("Hartron") d) Ld.AO DRP and TPO erred, by rejecting ACE Software Exports Limited ("ACE Software") even though the company is functionally comparable to the Appellant, on ground that it was additionally proposed to be included by the Appellant during TP Assessment proceeding. Although some of the companies were chosen/ not chosen as comparables in the transfer pricing stu....
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....f Libor plus 300 basis point for computing notional interest to be charged on the alleged delay in collection of receivables. 18. Ld.AO erred, in law and in facts, by wrongly levying interest of INR 3,40,37,289 under section 234B of the Income Tax Act, 1961; 19 Without prejudice to our ground of appeal no. 18 above, LdAO erred, in law and in facts, by computing the amount of interest of INR 3,40,37,289 incorrectly under section 234B of the Income Tax Act, 1961; 20 Ld.AO has erred, in law and in facts, in initiating penalty proceedings u/s 271(1)(c) of the Act. Appellant submits that each of above grounds is independent and without prejudice to one another. Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at y time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law." Brief facts of the case are as under: 2. Assessee is a company and filed its return of income for year under consideration on 28/11/15 declaring income of Rs. 18,12,97,820/-. The case was selected for scrutiny and notice un....
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.... 2 Companies that had ceased business operations or were currently inactive This is an appropriate filter 3 Companies that had been declared sick or had persistent negative net worth This is an appropriate filter 4 Companies that have turnover less than 1 crore This is an appropriate filter 5 Companies having different functions as compared to the assessee company A subjective filter. To be seen on a 6 Companies that do not have significant case to case (less than 25 percent) foreign exchange earnings Inappropriate filter. The TPO has applied more 7 Companies thathadsubstantial (in appropriate filter. excess of 25%) transactions with related parties This is an appropriate filter 8 Companies that have persistent operating losses This is an appropriate filter 9 Companies that have exceptional years of operations Inappropriate filter. The TPO has 10 Companies that are duplicated in the applied more databases with different names or merged to form another company This is an appropriate filter 6. In TP study, assessee used comparable is considering weighted average margin of data for 3 years. Assessee use....
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....excluded; • Companies that are functionally different from the Appellant. 10. Assessee during the Transfer Pricing assessment proposed to additional comparables being, Harton Communications Ltd and Tech Mahindra Business Services Ltd., as additional companies, which were subsequently rejected by Ld.TPO. Final list of comparables selected by Ld.TPO are as under: 11. The margin computed by Ld.TPO was 37.79% and thereby proposing adjustment being shortfall at Rs. 19,13,14,563/- in respect of ITES segment. 12. Ld.TPO also benchmarked delay in receipt of payment for receivables under weighted average method using LIBOR +300 basis points in respect of payments beyond the agreed credit period of 30 days that worked out to be 3.3758%. 13. Transfer Pricing adjustment proposed by Ld.TPO is as under: Aggrieved by proposed adjustment, assessee filed objections before DRP. 14. The DRP after considering various submissions advanced by assessee included Tech Mahindra Business Services Ltd., in final list of comparables and directed the Ld.AO/TPO to rectify factual errors in margin computation. 15. Ld.AO, upon receipt of DRP directions computed transfer pricing ad....
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....rt of their contentions. 20.4. It has been noted that Rule 10B(4) casts obligation on assessee to conduct comparability analysis using data for relevant financial year. Proviso to Rule 10 B (4) would apply only in a situation where, Tata relating to relevant financial year reveals facts which could influence determining transfer price. Further rule 10 B (5) gives an option of using either of the method with the proviso that at the time of determination of arm's length price of international transaction during the course of assessment proceedings for relevant assessment year in the even data for relevant financial year is available, then such data should be used irrespective of the fact that the data was not available at the time of furnishing return of income for relevant year. 20.5. As we analyse transfer pricing assessment proceedings, it is noted that at the time of assessment, data for relevant assessment year was available, which was used by Ld.TPO, as against average of multiple year data used by assessee transfer pricing document. This in our view is in accordance with the rules specified. We, therefore, do not find any infirmity in analysis carried out by Ld.TPO by....
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....0 times below and 10 times above the turnover of the assessee, appears appropriate. Only restriction is that such comparables also should be functionally comparable with assessee. In our view, turnover filter would vary from company to company depending on functional comparability. 21.5. This view originates from decision of coordinate bench of this Tribunal in case of ACIT Vs. M/s McAfee Software (India) Pvt. Ltd., reported in (2016) 68 taxmann.com 293. Relevant observation in this decision is as under :- "8. Generally, a turnover filter is adopted to avoid selection of high end companies (big companies) with that of 'minnows' in the similar line of business. How to adopt the filter depends on each case. Say for example, in the TP analysis of a company having 20 Crores receipts, a company with 2 Crores to 200 Crores can be stated to be within the range i.e., factor of ten as upper and lower limits. In certain cases, the ITAT also accepted turnover filter of 1 Crore to 200 Crores. But the range cannot be fixed, as the facts may vary from case to case. Simply a comparable can not be excluded on upper turnover limit when infact in number of cases Assessees do not ....
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.... Assessee provides assistance in day-to-day management of organisation like finance, human resource, Information Systems. Assessee is in fact responsible for arranging necessary resources and is responsible for managing its own cash flow, accounts payable, accounts receivable. Project management: Assessee jointly with its associated enterprise undertake project management. Though the project is managed locally by assessee, schedules are discussed and mutually agreed between assessee and associated enterprise before commencement of assignment. Assessee has to ensure close coordination, quality control and believable rework in the contract execution. Performance/quality control: Assessee is responsible for ensuring that requisite qualities/performance standards are met and it is free of error and confirms to design specifications given by associated enterprises. II. Risk assumed: Assessee in providing services to its associated enterprises and assume zero risk in respect of services rendered to its associated enterprise. III. Assets employed: Assessee owns routine assets like office equipments computer systems and peripherals furniture fittings motor vehicles etc ke....
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....ious objections raised by assessee. Ld.AR submitted that this comparable money is functionally not similar with that of assessee, as it is involved in providing cloud computing related services and provides high end ITES services. Ld.AR also submitted that this company is engaged in infrastructure management services also. Further it has been submitted that Ld.TPO considered this comparable at entity level without looking into the segmental details. On the contrary, Ld.CIT.DR submitted that, assessee has admitted before DRP in its submission that ITES segment of this comparable should be considered. He thus submitted for the comparable to be set aside to Ld.TPO for verification. We have perused submissions advanced by both sides in light of records placed before us. Admittedly, it is observed that, this comparable has 2 segments, one being infrastructure management service segment and IT enabled service segment. Both DRP as well as Ld.TPO considered revenue generated by this comparable at entity level, instead of considering segmental revenue under ITES service segment. We therefore set aside this comparable back to Ld.AO/TPO with a direction to consider this comparable ha....
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....rejoinder submitted that CD was provided to assessee however the information was contrary to the details available in public domain. He submitted that assessee had requested for cross examination of the person who had provided the information under section 133 (6) that was denied by Ld. TPO. He thus submitted that due process of law has not been followed by Ld.TPO. Considering the arguments advanced by both sides, we are of opinion that the comparable must be set aside to Ld.AO/TPO for reconsideration. Assessee has filed various details before us showing functional dissimilarities whereas Ld.TPO is said to have information from the comparable under section 133 (6). It is also noted that Ld.TPO has not dealt with objections raised by assessee. We direct Ld.AO/TPO to consider all objections raised by assessee in respect of this company and to verify details in respect of this comparable in accordance with law. Needless to say that assessee shall be granted proper opportunity of being heard in accordance with law. Accordingly this comparable is set aside to Ld.AO/TPO for edification. e) MPS Ltd. It was submitted that, assessee provided this additional comparable to Ld.T....
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....ity level. It has been submitted that, this crucial objection raised by assessee, has not been considered by authorities below. In support of, Ld.AR placing reliance on decision of Pune Tribunal in case of Yazaki India Pvt Ltd vs DCIT in ITA No.621/Pun/2014 for assessment year 2009-10 by order dated 11/07/2019. On the contrary Ld.CIT.DR placed reliance on observations of authorities below. We have perused submissions advanced by both sides in light of records placed before us. It is observed that this comparable has not been verified by Ld.AO/TPO having regards to the submissions made by assessee. We therefore, direct Ld.AO/TPO to verify this comparable in the light of observations by Pune Tribunal in case of Yazaki India Pvt Ltd vs DCIT (supra). Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly this comparable is set aside to Ld.AO/TPO. Ground No. 12: It has been submitted that working capital adjustment was denied while computing the margin on the ground that assessee has not been able to demonstrate the differences that had impacted the profit. Various decisions of coordinate bench of th....
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....for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 23.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include- ...... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any oth....
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....le Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15-7-2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to....