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2022 (3) TMI 1513
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.... 1. The learned AO/ Transfer Pricing Officer (.TPO') erred. in law and in facts. in making an addition of INR 1,44.13,409 to the total income of the Appellant on account of adjustment in the arms length price for international transactions entered by the Appellant with its associated enterprise. 2. The learned AO/ TPO erred. in law and in facts. by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules. and conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the Appellant's international transaction is not at arms length: 3. The learned AO/ TPO erred. in law and facts. in not accepting Other Method as the most appropriate method for benchmarking the payment of royalty transaction: 4. The learned AO/ TPO erred. in law and facts. in not accepting Transactional Net Margin Method ('TNMM') as the most appropriate method for benchmarking the payment of royalty transaction: 5. The learned AO/ TPO erred. in law and in facts. in the rejection of the external comparable uncon....
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....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." 2. Brief facts of the case are as under: At the outset, the Ld.AR submitted that the main issue in these two appeals is regarding the characterisation carried out by the Ld.TPO of the assessee's business. The assessee is a manufacturer of software products, it owns and develop IP of the software product by the name CRM software. The assessee also sells this software product in America and in Asia-pacific region. The Ld.AR submitted that in the TP study by assessee for the assessment years under consideration, assessee has been characterised as manufacturer of software products, based on the functional analysis. 3. It is submitted that the Ld.TPO for A.Y. 2011-12 accepted the activity of assessee to be a manufacturer of software products, however, characterised the business of assessee as software development service provider. The Ld.TPO then applied the filters applicable to SWD service provider bench mark the transaction by applying comparables who are in the software development services. 3.1 The Ld. AR further submitted that for ye....
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....om software services. 7. It has been submitted that for A.Y. 2010-11, assessee was identically characterised in the TP study which has not been disturbed by the transfer pricing officer therein. Subsequently, assessee has been characterised in different ways in the subsequent assessment years which needs to be verified at the end of Ld.TPO. In the interest of justice and to remain consistent in the approach of characterisation of assessee's business module, we remand the transfer pricing issues to the Ld.AO/TPO for de novo verification. Assessee is directed to file complete details regarding FAR analysis before the authorities in order to substantiate its arguments regarding the characterisation in the TP study. The Ld.TPO is directed to analyse the details so filed by assessee and to consider the international transactions in accordance with various principles laid down by this Tribunal as well as various High Courts on this issue. Needless to say that proper opportunity of being heard is to be granted to assessee. Accordingly, ground nos. 1 to 9 stands allowed for statistical purposes. 8. The Ld. Counsel submitted that assessee has raised additional grounds for yea....
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....ces of the case, the learned AO / TPO erred in law and in facts: a. by determining the arm's length margin/ price using only FY 2012-13 data which was not available to the Appellant at the time of complying wit the transfer pricing documentation requirements; b. by rejecting certain comparable companies identified by the Appellant for having different accounting year (i.e. companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months); c. by rejecting certain comparable companies identified by the Appellant using employee cost greater than 25% of the total revenues as a comparability criterion; d. by rejecting companies having IT income less than 75% of total operating revenue as a comparability criterion; e. by applying only the lower turnover filter of less than INR 1 crore as a comparability criterion and not applying an appropriate upper turnover filter; f. by exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes; g. in selecting c....
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....2022 for A.Y. 2016-17 wherein an identical issue has been dealt with as under. "35. The only other issue that remains for adjudication is ground No.15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee's own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:- "23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capi....
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....(c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include- . . . . . (c) capital financing, including any type of longterm 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 other debt arising during the course of business;. . . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Amer....
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....it is an international transaction as per Explanation to section 92B 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 loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an int....