TaxTMI 
TaxTMI 
2022 (11) TMI 1320
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.... CASS and statutory notices under Sections 143(2) and 143(1) were issued and served upon the assessee. During the previous year relevant to the assessment year 2016-17, the relevant international transactions that took place between the assessee and its AE was the provision of SWD services by the assessee at a price of Rs.192,08,08,541/- and the provision of ITESservices at a price of Rs. 19,98,81,854/-. The assessee was compensated on a cost plus mark up basis, and in the TP study maintained by the assessee, the assessee concluded the international transactions as being at arm's length. On a reference being made by the Assessing Officer, the TPO passed an order dated 29.10.2019 determining the following TP adjustment (i) SWD services segment - Rs. 20,53,36,725/- (ii) ITES segment - Rs.1,60,93,297/- (iii) Notional interest in respect of the delayed receivables - Rs. 7,29,62,864/- 3. Initially, a draft assessment order dated 26.11.2019 came to be passed by the Assessing Officer, in which the aforesaid TP adjustments were incorporated. Further, the Assessing Officer proposed a disallowance of the claim made by the assessee under Section 80G, on the groun....
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.... Pvt. Ltd. 18.72 11. RS Software (India) Ltd. 20.96 35th Percentile 8.11 Median 11.65 65th Percentile 17.82 9. Out of the 11 comparables selected by the Assessee, the TPO accepted 4 compatables, viz. Kals Information Systems Ltd., E-Zest Solutions Ltd., CG-Vak Software & Exports Ltd.and RS Software (India) Ltd. and rejected the other 7. The TPO applied fresh filters and arrived at the below comparables. Sl. No. Name of the Company Mark-up on Total Costs (WC-unadj) (in %) 1. Kals Information Systems Ltd. 8.60 2. E-Zest Solutions Ltd. 10.87 3. Rheal Software Pvt. Ltd. 14.50 4. Sybrant Technologies Pvt. Ltd. 14.74 5. CG-VAK Software & Exports Ltd. 18.50 6. R S Software (India) Ltd. 20.87 7. Larsen & Toubro Infotech Ltd. 24.83 8. Nihilent Technologies Ltd. 26.36 9. Inteq Software Pvt. Ltd. 28.20 10. Persistent Systems Ltd. 30.89 11. Infobeans Technologies Ltd. 32.42 12. Thirdware Solution Ltd. 36.90 13. Infosys Ltd. 38.61 14. Aspire Systems (India) Pvt. Ltd. 39.28 15. Cybage Software Pvt. Ltd. 66.45 35th Perc....
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....teq Software Pvt. Ltd. and Infobeans Technologies Ltd. ought to be excluded on account of the companies being functionally dissimilar to the Appellant. (Ground No. 9) d. That Minvesta Infotech Ltd. ought to be included in the final list of comparables as the company is functionally comparable to the Appellant. (Ground No. 10) e. That Sagarsoft (India) Ltd. and Evoke Technologies Pvt. Ltd. ought to be included in the final list of comparables as the companies are functionally comparable to the Appellant. (Ground No. 11) f. The TPO erred in computing the margins of CG-Vak Software&Exports Ltd., Kals Information Systems Ltd. and Cybage Software Pvt. Ltd. in the Order Giving Effect to DRP directions. (Ground No. 14) Ground - 5 13. The learned A.R. submitted that out of the final list of comparables post-DRP directions Sr. Nos. 8, 9, 11, 13 to 16 should be excluded based on the upper turnover filter. In this regard the learned A.R. submitted that the TPO erred in not applying a cap on upper limit on the turnover/service revenue while selecting the companies comparable to the assessee. In this regard, it is submitted that application of turnover filter is....
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....determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earlies....
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....ard to exclusion of Persistent Systems Ltd., Nihilent Ltd., Aspire Systems (India) Pvt. Ltd., Infosys Ltd., Thirdware Solution Ltd., Cybage Software Pvt. Ltd. and Larsen & Toubro Infotech Ltd., on the ground that these companies are functionally not comparable with the assessee. Since we have already excluded these companies from the list of comparables on the basis of turnover filter Ground No. 9 in this regard does not warrant a separate adjudication. 18. The assessee sought for exclusion of Inteq Software Pvt. Ltd. and Infobeans Technologies Ltd. on the basis that these companies are functionally dissimilar to the assessee. In this regard the learned A.R. submitted that Inteq Software Pvt. Ltd. ("Inteq") The company is functionally dissimilar to the assessee. The company is engaged in diversified business lines such as Microsoft dynamics, data warehousing, EI & EDI services, Healthcare BPO and consulting services including provision of end-to-end solutions to clients in the nature of back office services, transaction-based services, MIS and analytical reporting services. Thus, Inteq is not comparable to the software development functions of the assessee. It is fur....
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.... Rs. 62 crore (FY 2015-16) in a period of 1 year (76%). Also, the company's profitability increased by 147%. Detailed submissions are made at pages 1925-1927 of the paper book. 19. The learned AR in this regard placed reliance on (i) NTT Data FA Insurance Systems (India) Pvt. Ltd. v. DCIT (order dated 03.10.2022 in IT(TP)A No. 261/Bang/2021), (ii) Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 235/Bang/2021). (iii) Global Logic India (P.) Ltd. V. DCIT [2022] (134 taxmann.com 35) (Del-Trib) (iv) ADP Pvt. Ltd. v. DCIT(Order dated 03.02.2022 in ITA Nos. 227&228/Hyd/2021 (v) Red Hat India Pvt. Ltd. v. NFAC (order dated 25.02.2022 passed in ITA No. 1379/Mum/2021) 20. The ld DR relied on the order of the lower authorities. 21. We have heard the rival contentions and perused the material on record. We notice that the coordinate bench in the case of NTT Data FA Insurance Systems (India) Pvt. Ltd (supra) has considered the issue of exclusion of Inteq Software Pvt. Ltd. and Infobeans Technologies Ltd. and held as under: - "18. We have heard the rival submissions ....
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....nge from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee". 22. Respectfully following the same, we direct that Infobeans be excluded from the final list of comparables in this case also. 7.4 On perusal of the order of the coordinate bench of this Tribunal and on perusal of the financial statements of Infobeans Technologies Ltd., we observe that the company is functionally not comparable and no segmental details are available. Therefore, the coordinate bench did not consider this company as comparable in assessee's own case for AYs 2014-15 & 2015-16. Respectfully following the decision of the coordinate bench, we direct the AO/TPO....
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....P that the company is functionally comparable and qualifies all filters applied by the TPO. The DRP did not accept the contentions of the assessee and upheld the decision of the TPO by quoting the same reason that the company fails different financial year filters. 24. Before us the learned A.R. submitted that Minvesta is engaged in business of software development and maintenance services which are comparable to the services rendered by the Assessee. The company came to be rejected by the TPO on the mere ground that the company fails different financial year ending filter, which was upheld by the DRP. In this regard, it is submitted that a company which is functionally comparable to the Assessee and passes all filters applied by the TPO cannot be rejected on the sole ground that it follows a different financial year ending. Reliance in this regard is placed on the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Mercer Consulting India Pvt. Ltd. [2017] (390 ITR 615). 25. The learned D.R. submitted that the ratio laid down in the case of Mercer Consulting India Pvt. Ltd. (supra) cannot be applied as it is since if there are enough number of comparab....
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....nancial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule(4) of rule 10B. 27. The ratio laid down in the above decision of the Hon'ble High Court is that the company cannot be excluded merely because its financial year is different from the financial year of the assessee and that so long as the data relating to the financial year is available even if the financial year followed is different the company should be included for the purpose of comparables. Respectfully following the above decision we are not in agreement with the decision of the lower authorities to exclude Minvesta Infotech Ltd only on the basis that the company fails different financial year filter. The learned AR during the course of hearing submitted that the financial data are available in pages 2066, 2067 and 2075 of the paper book. We therefore remit the issue back to the AO/TPO to examine the relevant financial data from which the details can be extrapolated for the purpose of comparison and accordingly decide the inclusion of the company after giving a reasonable oppo....
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....wn case by this Hon'ble Tribunal for the assessment year 2011-12. Further, reliance is also placed on the decision of the Hyderabad Bench of the Hon'ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227&228/Hyd/2021) and the decision of this Hon'ble Tribunal in the case of Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 235/Bang/2021]). It is submitted that this company is consistently included in the final list of comparables in cases of similarly placed assessees, and therefore the company ought to be included. (ii) As regards Sagarsoft, it is submitted that the company is engaged in rendering software development and consultancy services, and is functionally comparable to the Assessee. Further, the company passes all the filter applied by the TPO. While so, the TPO erroneously held that the company fails the SWD service filter. The DRP upheld its rejection on an altogether different ground that the company was not there in the search matrix of the TPO. It is submitted that undisputedly, the company is functionally comparable to the Assessee. Th....
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....venue of the company is from software development. Given that the basis on which the TPO came to the conclusion that the company fails the SWD service revenue filter is not clear. Further the assessee has made the submission before the TPO bringing the above fact to his notice (page 532 of paper book). However we notice that the TPO has not examined this. The DRP has rejected stating that the assessee has not brought any documentary evidences. We notice that in the case of Redhat India Pvt. Ltd. (supra) which was also an appeal in relation to Assessment Year 2016-17, the Mumbai Bench of the Tribunal held that the comparability of the company requires to be examined afresh. Considering the facts of the present case and respectfully following the decision in the case of Redhat India Pvt. Ltd. (supra) we remit the issue back to the TPO with a direction to examine the facts properly and decide the issue afresh after giving a reasonable opportunity of being heard to the assessee. Ground 14 34. The assessee is seeking recomputation of margins of certain comparables vide this ground. In this regard we direct the AO/TPO to consider the correct margins with respect to the final list o....
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....e final order of assessment passed in accordance with the directions of the DRP. 40. The effect grounds of appeal with regard to the IT Enable Services are as given below: - a. That the TPO while applying the turnover filter rejected companies having turnover less than Rs. 1 Crore, erred in not applying upper limit on sales turnover filter while selecting Tech Mahindra Business Services Ltd., Infosys BPM Ltd., SPI Technologies India Pvt. Ltd. and Eclerx Services Ltd. (Ground No. 5) b. That without prejudice, Infosys BPO Ltd., Eclerx Services Ltd. and SPI Technologies India Pvt. Ltd. ought to be excluded from the final list of comparables as the companies are functional dissimilar to the Assessee. (Ground No. 9) c. That Ace BPO Services Pvt. Ltd., Microgenetic Systems Ltd., and R Systems International Ltd. ought to be included in the final list of comparables as the companies are functionally comparable to the Assessee.(Ground No. 10) d. That Informed Technologies India Ltd. and Crystal Voxx Ltd. ought to be included in the final list of comparables as the companies are functionally comparable to the Assessee. (Ground No. 11) e. That w....
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....and therefore the finding of the DRP that the functionality of the company cannot be ascertained is erroneous. Further, the company does not fail the persistent loss filter applied by the TPO. The company earned a margin of 5.85% during the financial year 2013-14, 1.99% during the financial year 2014-15, and incurred a loss of -0.27% during the financial year 2015-16. It is submitted that the loss incurred by the company during the year under consideration cannot lead to the conclusion that it is a persistent loss making company, and therefore the DRP's finding is erroneous. Submissions in this regard are places at pages 2047-2049 of the paper book. 47. Reliance in this regard is placed on the decision of the Hyderabad Bench of the Hon'ble Tribunal in Infor (India) Pvt. Ltd. v. DCIT (order dated 06.10.2021 passed in IT(TP)A No. 198/HYD/2021). 48. The ld DR relied on the order of the lower authorities 49. We have heard the rival submissions and perused the materials available on record. The coordinate bench of the Tribunal has been consistently holding that if there is loss consistently in immediate previous 3 years then only the comparable would have to be excluded. On the....
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....tained in sub-rule (4), the data to be used for analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction shall be,- (i) the data relating to the current year; or (ii) the data relating to the financial year immediately preceding the current, if the data relating to the current year is not available at the time of furnishing the return of income by the assessee, for the assessment year relevant to the current year: Provided that where the data relating to the current year is subsequently available at the time of determination of arm's length price of an international transaction or a specified domestic transaction during the course of any assessment proceeding for the assessment year relevant to the current year, then, such data shall be used for such determination irrespective of the fact that the data was not available at the time of furnishing the return of income of the relevant assessment year.] 53. According to the above rule use of multiple year data would be used in the cases where TNMM, RPM or CPM is used as the most appropriate method to benchmark the transaction. The ....
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....upra)., has considered the issue of inclusion of R Systems International Ltd., and held that the company cannot be excluded merely because its financial year is different from the financial year of the assessee and that so long as the data relating to the financial year is available even if the financial year followed is different the company should be included for the purpose of comparables. The learned AR during the course of hearing submitted that the financial data are available in pages 2054-2056 of the paper book. We therefore remit the issue back to the AO/TPO to examine the relevant financial data from which the details can be extrapolated for the purpose of comparison and accordingly decide the inclusion of the company after giving a reasonable opportunity of being heard to the assessee. 57. Ground No. 14 is with regard to consideration of the correct margins of Eclerx Services Ltd. In this regard the TPO is directed to apply the correct margins to the final list of comparables after giving effect to the directions in this order. 58. The TPO is further directed to recompute the arms length price of the assessee in SWD segment and ITES segment in accordance with the d....
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....well as Non-AEs for a period exceeding the credit period purely because of business reasons. (viii) The Assessee has not charged any interest for the receivables outstanding for a period exceeding 30 days even to Non-AEs. (ix) Relevant submissions in this regard are placed at pages 2106 - 2116 of the paper book. 62. The learned AR placed reliance on the following decisions in support of the above submissions (i) Avnet India (P.) Ltd. v. DCIT (reported in [2016] 65 taxmann.com 187 (Bangalore-Trib)). The appeal against the above order came to be dismissed by the Hon'ble High Court of Karnataka in PCIT and anr. V. Avnet India (P.) Ltd. (Order dated 01.08.2018 passed by the Hon'ble High Court of Karnataka in ITA No. 358/2016). (ii) Goldstar Jewellery Ltd. v. JCIT (reported in [2015] 53 taxmann.com 353 (Mumbai-Trib)): (iii) CIT Vs Indo American Jewellery Ltd. (order dated 08.01.2013 passed by the Hon'ble High Court of Bombay in ITA(L)No. 1053/2012) 63. We heard the rival submissions and perused the material on record. In our opinion, the impugned issues of whether the interest on receivable is a separate international transaction and th....
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....unal in case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxman.com 6 which subsequently upheld by Hon'ble Delhi High Court vide order in Pr. CIT v. Bechtel India (P.) Ltd. [ITAppeal No. 379 of 2016, dated 21-7-16] also upheld by Hon'ble Supreme Court vide order, in CC No. 4956/2017. 23.3. It has been submitted by Ld.AR that outstanding receivables are closely linked to main transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides 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 (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an internatio....
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....'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, Hon'ble Bombay High Court restored the issue to file of Tribunal for fresh decision in light of legislative amendment. It was thus argued that non/under-charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction and ALP of such international transaction has to be determined by Ld.TPO. Insofar as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 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 i....
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....he above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law." 36. Accordingly, we are of the opinion that deferred receivables would constitute an independent international transaction and the same is required to be benchmarked independently as held by the Hon'ble Karnataka High Court in PCIT v. AMD (India) Pl. Ltd., ITA No.274/2018 dated 31.8.2018. 37. Once we have held that the transaction between the assessee and AE was in foreign currency with regard to receivables and transaction was international transaction, then transaction would have to be looked upon by applying the commercial principles with regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly" 64. In so far as the question of rate of interest is concerned, we find that this issue is no more res integra in ....
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....ed a deduction of Rs. 14,17,500/-. The deduction so claimed came to be disallowed by the lower authorities on the ground that the donation being in pursuance of the CSR policy, is not voluntary in nature, and is therefore not eligible for deduction. 68. The learned AR submitted that the amount of donation made has already suffered a disallowance under Section 37 of the Act. If a further disallowance is made under Section 80G of the Act, more so in view of such claimed not being prohibited by the said section, it would lead to double disallowance. Therefore the disallowance made by the Assessing Officer ought to be set aside. The learned AR placed reliance in this regard is placed on the decision of coordinate bench of the Tribunal in the case of First American (India) Pvt. Ltd. v. ACIT (Order dated 29.04.2020 passed in ITA No. 1762/Bang/2019). 69. We heard the rival submissions and perused the material on record. We notice that the impugned issue has been considered by the coordinate bench in the case of First American (India) Pvt. Ltd (supra) where it has been held that - We have perused submissions advanced by both sides in light of records placed before us. ....
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...." to those, who pursue corporate social responsibility projects under following sections. * Section 30 provides deduction on repairs, municipal tax and insurance premiums. * Section 31, provides deduction on repairs and insurance of plant, machinery and furniture * Section 32 provides for depreciation on tangible assets like building, machinery, plant, furniture and also on intangible assets like know-how, patents, trademarks, licenses. * Section 33 allows development rebate on machinery, plants and ships. * Section 34 states conditions for depreciation and development rebate. * Section 35 grants deduction on expenditure for scientific research and knowledge extension in natural and applied sciences under agriculture, animal husbandry and fisheries. Payment to approved universities/research institutions or company also qualifies for deduction. In-house R&D is eligible for deduction, under this section. * Section 35CCD provides deduction for skill development projects, which constitute the flagship mission of the present Government. * Section 36 provides deduction regarding insurance premium on stock, health of ....