2023 (3) TMI 253

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....e is a company engaged in the business of computer software development and related services. They have filed their return of income for the assessment year 2010-11 on 29/9/2010 declaring a total income of Rs. 5,37,14,560/-. It was noticed by the learned Assessing Officer that the assessee company had international transactions with its Associated Enterprises ("AEs") and therefore the determination of the arm's length price (ALP) was referred to the Learned Transfer Pricing Officer (TPO). 3. During the year, towards provision of software development services, the assessee received a sum of Rs. 41,72,29,259/- from its AE Alliance Global Services LLC and while adopting the transaction net margin method (TNMM) as the most appropriate method with OP/OC as PLI, the assessee analysed the international transaction to reach their margin at 12.03% whereas the average margin of the sixteen comparables selected by the assessee happens to be at 13.18%. Ld. TPO accepted four out of sixteen comparables selected by the assessee and rejected the balance 14 comparables further the Ld. TPO conducted search and found that other entities are also comparable with the assessee and by adding them he f....

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....justment. 7. In this appeal, assessee challenged the inclusion of E-Infochips, Bangalore Ltd., Kals Information System Ltd. and Persistent Systems Ltd., in the software development service segment. In respect of E-Infochips, Bangalore Ltd., assessee submitted before the learned TPO that as per the website of the company, this entity is engaged in the product development service, hardware engineering services, product re-engineering, design IP development and verification IP development, but though the company derives 13.5% of the total revenue from consultancy, no segmental information is available. Apart from that it was contended that the margins earned by the E-Infochips, Bangalore Ltd., is about 72.32%. He placed reliance on the decision of a Co-ordinate Bench of this Tribunal in the case of Intoto Software India Vs. ACIT (2014) 146 ITD 360 in support of his contention that when an entity is both a product company and a software development service provider, in the absence of the segmental information, it cannot be a good comparable. 8. Learned TPO, however, did not agree with the assessee stating that as per the director's report, this company is engaged in the developme....

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....s part of a different segment, we find it difficult to hold that there is more than one segment for the purpose of comparison. Merely because E-Infochips earns a margin at 72.32% for a particular year, it is not possible to exclude the same because, it is not solely depending upon the margin for a particular year, the ALP adjustment will be made but it would be only one of the several entities the average of which is taken into consideration, and thereby ironing out the difference if any, from entity to entity. The view taken in Intoto Software (supra) has no application to the facts of the case. We, therefore, decline to interfere with the findings of the authorities below insofar as E-Infochips, Bangalore Ltd., is concerned. 11. In respect of Kals Information System Ltd., assessee submitted before the learned TPO that this entity is engaged in the business of development software products and also providing services apart from engaged in providing the implementation and maintenance of software products. Further, this entity holds inventories constituting 27% of the total current assets. 12. According to the learned TPO, in the preceding year, Kals Information System Ltd., w....

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....d that it is not a good comparable. 16. Now coming to Persistent Systems Ltd., assessee pleaded before the learned TPO that this entity acquired assets in Paxonic, Inc. and that the learned TPO himself rejected certain companies that have peculiar economic circumstances. It was further pleaded that this entity is engaged in rendering outsourced product development services as against software development services, as could be gathered from the annual report. As per the assessee, Persistent Systems Ltd., is engaged in product development also and, therefore, not comparable to the assessee. Lastly it was contended that segmental information is not available. Learned TPO referred to page No. 74 of the annual report and observed that this company is a leading provider end to end software product development service from research to testing to professional services and customer support. He further observed that this company provides customised innovation, services and business models for each phase of the software product cycle, helping the customer to reduce the cost, avoid waste and create fully integrated product, which according to the learned TPO denotes the provision of softwar....

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.... DRP observed that delays in receiving the money has a cost attached to the assessee in its business requirements, because if the money was received in time as contemplated in the trade practice, the said amount would have been utilised by the assessee in its working capital requirements as well as reducing financial burden of borrowing money from financial institutions. Learned DRP further referred to the amendment to section 92B of the Act by way of Finance Act, 2012 with retrospective effect from 01/04/2002 to include such receivables or any other date arising during the course of business as international transaction. 23. Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., (in ITA No. 6530/Del/2016, dated 16/05/2017) while referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Patni Computer Systems (2013) 215 Taxmann 108 (Bom), wherein the amendment to Section 92B of the Act by Finance Act, 2012 with retrospective effect from 01/04/2002 was considered. While following the view taken by the Tribunal in the case of M/s. Logix Microsystems Ltd. Vs. ACIT in I.T.A No.423/Bang/2009, dated 07/10/2010, learned TPO thought it proper to ....

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....rpose of benchmarking loan/advance given to foreign AE's, and held that the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. This view is affirmed by the Hon'ble Bombay High Court [2018] 96 taxmann.com 223 (Bombay) observing that in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher than the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extending of credit beyond the normal period of sixty days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of sixty days. On this premise the Hon'ble High Court upheld the Tribunal computing interest at LIBOR rates as the rate prevailing in country where the loan is received/consumed by the AE by observing that the same cannot be faulted. 27. In the case of CIT Vs. CottonNaturals (I) (P.) Ltd. [2015] 55 ....