TaxTMI 
TaxTMI 
2023 (2) TMI 837
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....intenance expenses, foreign exchange loss and recruitment and reimbursement expenses u/s. 37 of the Act. (c) Levy of interest u/s. 234B and 234C of the Act and Advance tax paid not considered. 3. The assessee company is a wholly owned subsidiary of Veveo Inc., USA. Subsequent to the acquisition of Veveo Inc. USA by Rovi Corporation, the assessee also forms part of Rovi Group. It provides IT, ITES and MSS services to Associated Enterprise [AE] offered by Rovi Group. The Assessee filed the return of income for the assessment year 2016-17 on 29.11.2016 declaring a total income of Rs.8,03,16,570. The case was selected for scrutiny through CASS and a notice u/s.143(2) was duly served on the assessee. In view of the large international transaction carried out by the assessee, a reference was made to the Transfer Pricing Office (TPO). The TPO aggregated the ITE services rendered by the Assessee along with its SWD services and determined a TP adjustment of Rs. 4,49,24,168/- towards the SWD segment. Additionally, the TPO determined a TP adjustment in respect of interest on delayed receivables of Rs. 2,91,451/-. A draft assessment order dated 16.12.2019 was passed by the AO incor....
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.... the Profit Level Indicator (PLI). The assessee selected 8 comparable companies and the range of weighted average of OP/OC of the comparable companies were as follows:- Sl. No. Name of the company Weighted average (in %) 1. Akshay Software Technologies Ltd. 0.04 2. Evoke Technologies Pvt Ltd. 5.47 3. Sasken Communication Technologies Ltd. 6.35 4. C G Vak Software & Exports Ltd. 10.30 5. Intense Technologies Ltd. 10.47 6. Mindtree Ltd. 19.89 7. R S Software (India) Ltd. 21.36 8. R Systems International Ltd. - IT Services and Products 22.40 35th Percentile 6.35 Median 10.38 65th Percentile 19.89 9. The financials of the of the assessee as per the TP study is as given below - Operating Income Rs. 57,93,47,456/- Operating Cost Rs. 49,69,96,104/- Operating Profit (Op. Income - Op. Cost) Rs. 8,23,51,352/- Operating/Net mark-up (OP/OC) 16.57% 10. The weighted average of the comparable companies is in the range of 6.35 percentile to 19.89 percentile and therefore the assessee concluded that the international transactions are within arm's length. 11. TPO reject....
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....erein, an increase in the size and scale of the operations lead to a decrease in the long run average cost of each unit or each service project delivered. Therefore, the per unit fixed cost of a small scale company would be much higher than of a medium/large size organisation. Further, it is submitted that medium/large size organisation operating in a particular industry also enjoys benefits of certain other market drivers and cost arbitrages. It is submitted that the turnover of the Assessee from rendering SWD services is Rs. 57,20,14,832/-. This being so, the TPO ought to have applied the upper turnover filter while selecting companies comparable to the Assessee. The ld AR placed reliance on the decision of the Bangalore Bench of this Hon'ble Tribunal in Autodesk India (P) Ltd. V. DCIT (2018) 96 taxmann.com 263 (Bang Trib) and Razorpay Software Pvt. Ltd. (order dated 27.12.2021 passed in IT(TP)A No. 190/Bang/2021). The ld AR further submitted that on application of the turnover filter on 1- 200 crores, the following the companies would be excluded: (a) Infosys Ltd. (b) Larsen & Toubro Infotech Ltd. (c) Persistent Systems Ltd. (d) Aspire Systems....
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....ench 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 earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding coordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in....
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....vices vis-à-vis revenue generated from KPO services are not available. The Company has also incurred significant outsourcing charges in the nature of subcontracting expenses. 19. Without prejudice, if the company were to be retained in the final list of comparables, the company's turnover for the financial years 2013-14 and 2014-15 is in excess of Rs. 200 crores, and therefore the margins for the said years ought to be excluded, and the margin of the company at -2.09% ought to be considered. 20. We have considered the rival submissions and perused the material on record. The comparability of R S Software in similar circumstances was also considered by this Tribunal in Barracuda Networks India Private Limited Vs. CIT, (2022) 95 ITR (Trib) 0350 (Bangalore) wherein it was held as under:- "20. The submission of the learned Counsel for the Assessee was that as per the proviso to Rule 10CA(2) of the Rules, R.S.Software (India) Ltd., cannot be regarded as comparable company for Financial Year 2013-14 and 2014-15 because in those years, the turnover of this company was more than Rs.200 crores. Therefore as per the first and second proviso to Rule 10CA(2) of the Rules,....
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....saction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; ............................. (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms....
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....rior to the current year may also be considered but with a rider that "if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared". If by application of any filter an enterprise undertaking uncontrolled transaction similar to an international transaction is regarded as not being comparable in the earlier two years immediately preceding the current year and thereby attracting the provisions of Rule 10B(2) or 10B(3) then the data for those years will not have any influence on the determination of transfer prices in relation to the transactions being compared for the current year and hence have to be ignored. On a harmonious reading of the provisions of Rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly." 21. The facts of the present case are identical to the case of Barracuda Networks India Private L....
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....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). (iii) Goldstar Jewellery Ltd. v. JCIT (reported in [2015] 53 taxmann.com 353 (Mumbai-Trib) where the Tribunal held as follows:- 25. Without prejudice the ld AR submitted that in any event, the interest rate, if at all ought to be LIBOR plus, and not as directed by the DRP. Reliance in this regard is placed on the decision of this Hon'ble Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. v. The Addl./Jt./Dy./Asst.Commissioner of Income Tax/ITO, National Faceless Assessment Centre (Order dated 21.01.2022 passed in IT(TP)A No. 397/Bang/2021). The ld AR also prayed that a credit period of 90 days is a reasonable period and if the same is granted, there is no delay in realising any of the invoices by placing reliance on the decision of the coordinate bench of the Tribunal in the case of Applied Materials India Pvt. Ltd. v. ITO (Order dated 08.06.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 3403/Bang/2018). 26. We have considered the rival submi....
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..... He also placed reliance upon decision of Delhi Tribunal 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. [IT Appeal 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 ....
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....bmitted that, while answering above question, Hon'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....
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....to Ld.AO/TPO for deciding it in conformity with the 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" 27. In view of the above discussion and considering the decision ....
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....nd maintenance Rs. 1289671/- (being 30% of Rs. 42,98,904/-) The DRP has failed to adjudicate on the said issue. Recruitment expenses Rs. 3,27,448/- (being 30% of the expenses amounting to Rs. 10,91,491) If the Assessee submits proof of TDS payments, the AO was directed to not disallow 30% of the trade payables. Reimbursement expenses Rs. 5,75,991/- (being 30% of the expenses amounting to Rs. 19,19,969/-) If the Assessee submits proof of TDS payments, the AO was directed to not disallow 30% of the trade payables. Forex loss Rs. 14,13,683/- The Assessee was directed to furnish invoice wise details of foreign exchange loss. 30. The ld. AR made the following submissions with regard to the various disallowance made u/s.37- (i) On remand by the DRP, the AO called for certain details vide notice dated 23.03.2021 which were to be submitted by the Assessee on or before 30.03.2021. Since the Assessee was unable to collate the required details in time, the Assessee filed a letter dated 30.03.2021 before the AO seeking additional time till 13.04.2021 to collate the required documents. However, the AO proceeded to pass the final assessment orde....
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....loss amounting to Rs. 47,12,278/- was furnished before the AO (pages 970-976 of the paperbook). It is submitted that foreign exchange loss amounting to Rs. 46,57,125/- was accounted by the Assessee towards the following: * Bravo rewards; * Amount payable to vendors; * Amount receivable towards recovery of expenses on account of share based compensation plans; * Amount payable to employee on account of retention bonus; and * Amount receivable towards export of services (viii) The balance forex loss of Rs. 55,153/- has been accounted by the Company upon consolidation of financials on account of merger of Snapstick Technologies Pvt. Ltd. with the Assessee. Also, it is submitted that the Assessee has disallowed a sum of Rs. 93,331/- in its return of income incurred towards fixed assets. Hence 30% disallowance on the said amount would lead to double disallowance. 31. Further, the ld AR is submitted that all the above mentioned expenses were incurred by the Assessee in normal operations of the business and were incurred exclusively for the purpose of business and ought to be allowed as a business expenditure. It is submitted that t....