TaxTMI 
TaxTMI 
2020 (7) TMI 621
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....nhancing the income of the Appellant by Rs. 3,46,60,211/-. 2.1. The Ld. TPO erred on the facts and in the circumstances of the case and in law in framing the order u/s 92CA of the Income Tax Act, 1961 ('the Act') on findings which are erroneous in law, contrary to the facts and based on mere conjectures and surmises. 2.2. The Ld. TPO failed to appreciate the submissions made/ contentions raised by the Appellant and further erred in making several allegations, observations, assertions and inferences in the order, which were both factually incorrect as well as legally untenable. 3. The Ld. AO (following the directions of the Ld. DRP), erred both on facts and in law in confirming the addition of Rs. 3,17,63,342/- to the income of the Appellant proposed by the Ld. TPO by holding that its international transactions pertaining to' provision of software development services do not satisfy the arm's length principle envisaged under the Act and in doing so, the Ld. DRP and the Ld. AO has grossly erred in agreeing with and upholding the Ld. TPO's action of: 3.1. not appreciating that none of the conditions set out in section 92C(3) of t....
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....ing established jurisprudence in this regard; 3.12. disregarding the analysis and documentation submitted by the Appellant to benchmark the international transaction pertaining to provision of software development services by using internal Comparable Uncontrolled Price as the most appropriate method to determine the arm's length price; 3.13. disregarding the analysis and documentation submitted by the Appellant to benchmark the international transaction pertaining to provision of software development services by using internal Transactional Net Margin Method as the most appropriate method to determine the arm's length price; 3.14. disregarding the fact that internal comparable analysis is preferable over external comparable analysis; and 3.15. disregarding judicial pronouncements in India in undertaking the TP adjustment. 4. The Ld. AO/Ld. TPO erred in facts and in law in enhancing the income of the Appellant by Rs. 28,96,869/- by treating the receivables outstanding beyond 30 days from associated enterprises as deemed loan and charging notional interest; 5. The Ld. DRP erred in disregarding the detailed arguments/ subm....
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.... the assessee as to the upward adjustment to be made in its hand. The assessee filed objection before the DRP, which in turn directed exclusion of two concerns i.e. Infosys Ltd. and eZest Solutions Ltd. and inclusion of Think Soft Global Services Ltd. The DRP also directed that working capital adjustment is to be allowed. The DRP directed application of LIBOR rates instead of SBI PLR lending rates for the adjustment to be made on account of interest on Receivable. Consequent to the directions of DRP, the AO/TPO drew up final list of comparable totaling 17, whose mean margins worked to 19.04% and made upward adjustment of Rs. 3,46,60,211/-. The AO/TPO also reworked the adjustment to be made on account of interest on Receivables. The Assessing Officer passed the consequent order making upward adjustment of Rs. 3,46,60,211/- against which the assessee is in appeal before us. 5. The ground of appeal nos. 1 and 2 are general in nature and does not require any adjudication. The issue raised in ground of appeal no. 3 is against the transfer pricing adjustment made on account of provision of Software Development Services by the assessee to its AE totaling Rs. 3,17,63,342/- . By way of g....
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....o Technolgy Services Ltd. 54.42% 17. Thinksoft Global Services Ltd. 0.02% Mean 19.04% 9. The first concern which the assessee wants to be excluded is M/s. Acropetal Technologies Limited (Seg). The learned AR for the assessee pointed out that the said concern fails employee cost/sale filter. The case of the assessee was that the said concern was providing the services onsite. Our attention was brought to the note at page 48 of the paper book wherein the expenditure on onsite development incurred on technical sub-contractor was debited. The learned AR further stated that the said technical sub-contractors cannot be the employees of the concern. He placed reliance on the decision of Delhi Tribunal in Bechtel India (P.) Ltd. vs. DCIT [2019] 101 taxmann.com 385 (Delhi-Trib). He also placed reliance on the decision of the Hon'ble Delhi High Court in Rampgreen Solutions vs. CIT [2015] 377 ITR 533 (Delhi) 2015. 10. The learned DR for the Revenue from the profile of the assessee in the TP study report placed at pages 36 & 37 of the Paperbook pointed out that the assessee was providing array of services, which included Software Development Services and Infra....
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....rned, the same would not differ irrespective of the transfer pricing method adopted. In other words, the comparable transactions/entities must be selected on the basis of similarity with the controlled transaction/entity. Comparability of controlled and uncontrolled transactions has to be judged, inter alia, with reference to comparability factors as indicated under rule 10B(2) of the Income Tax Rules, 1962. Comparability analysis by TNMM method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable ALP. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified. Wide deviations in PLI must trigger further investigations/analysis. 44. Consideration for a transaction would reflect the functions performed, the significant activities undertaken, the assets or resources used/consumed, the risks assumed. Thus, comparison of activities undertaken/function....
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....direct the AO/TPO to exclude the margins of M/s. Acropetal Technologies Limited (Seg) from the final list of comparables. 14. Now coming to the next concern i.e. E-Infochips Limited. The objection against its inclusion by the learned AR for the assessee is that the said concern fails services revenue filter. He pointed out that the said filter was 75%. Referring to the order of the TPO, the learned AR for the assessee pointed out that TPO himself had applied the filter of 75% and in case concern fails the said filter, then the same has to be excluded. The learned AR for the assessee referred to the order of TPO at page 42, para 11.3 and pointed out that the TPO had wrongly observed that services filter in case of the said concern was 74%. 15. The learned DR for the Revenue strongly objected to the submissions of the learned AR and pointed out that the same come to 84.93%. He pointed out that 74% is wrongly mentioned. The learned AR in re-joinder for the assessee in rejoinder pointed out that the service revenue filter may be verified by the AO / TPO. 16. The limited issue raised before us is whether a concern which fails service revenue filter applied by the TPO, can this ....
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....d. The claim of the assessee is that the said concern is functionally dis-similar as it is developing mobile enterprise applications etc,. It was further pointed out that the said concern was rendering variety of services; however, the segmental details were not available. 20. The learned DR for the Revenue said that the assessee was also providing whole range of services and the product revenue was 10%. Further TPO had applied filter of 75%. 21. On hearing the rival contentions, we are of the view that first step which has to be seen is functional comparability. The concerns are providing variety of services and application of service filter of 75% would come in the next rung of comparability. M/s Sasken Communication Technologies Limited was developing mobile enterprise applications and solutions across various mobile platforms including iOS, Android, Blackberry, RIM and Symbiam platform; which are clearly mentioned in the annual report of the said concern. The assessee on the other hand was only providing Software Development Services to its AE. Hence the concern Sasken Communication Technologies Limited is not functionally comparables to the assessee and same needs to be ....
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....o.1104/Del/2015 and for Assessment Year 2012-13 in ITA No.1115/Del/2017 vide order dated 12.12.2017. The Tribunal has relied on the decision of Hon'ble Delhi High Court in Pr. CIT-V vs Kusum Health Care Pvt. Ltd. in ITA No.765/2016, judgement dated 25.04.2017 and held that no adjustment is to be made on account of notional interest on receivables by relying upon Explanation (i), (a) & (c) of section 92B by treating the continued debt balance as an international transaction. Moreover when the taxpayer is debt free company, there is no question of charging any interest on Receivables. This issue has also been decided by Hon'ble Delhi high Court in case of Pr. CIT-1 vs M/s. Bechtel India Pvt. Ltd. in ITA 379/2016 (supra) order dated 21.07.2016. The relevant findings of the order of the Tribunal are in paras 14 to 18 which read as under:- 14. Provisions contained under Explanation (i), (a) & (c) of section 92B have been analyzed by Hon'ble Delhi High Court in case cited as Pr. CIT-V vs. Kusum Health Care Pvt. Ltd. in ITA 765/2016 order dated 25.04.2017, wherein it is held that the expression added in Explanation to section 92B does not mean that de hors the context, every item....
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....interest on receivables by relying upon Explanation (i), (a) & (c) of section 92B by treating the continued debt balance as an international transaction. Moreover when the taxpayer is debt free company, there is no question of charging any interest or receivables. This issue has also been decided by Hon'ble Delhi High Court in case of Pr. CIT-1 vs. M/s. Bechtel India Pvt. Ltd. in ITA 379/2016 order dated 21.07.2016. 16. Furthermore when we examine the entity level margin of the taxpayer vis-à-vis comparable companies, the taxpayer has earned higher margin i.e. taxpayer earned 38.39% OP/OC margin vis-à-vis margin of comparable companies at 11.43%. In such circumstances, no separate adjustment on account of interest can be made. Because the credit period extended to AE cannot be considered as a standalone transaction without considering the main transaction of the sale. 17. Furthermore when the taxpayer is undisputedly a debt free company, as it is not the case of the ld. TPO that borrowed funds have been appropriated enabling the AE to make the delayed payment on receivables. So when outstanding receivables is not a separate international transaction,....