AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (3) TMI 1513
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.... 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 uncontrolled transaction ('CUT*) search conducted for benchmarking the payment of ....
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....re 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 year under consideration, the Ld.TPO held that the business of assessee involves three segments viz., i) software development service segment, ii) software product segmen....
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....en 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 year under consideration as under: Additional grounds of appeal: "Based on the facts and circumstances of the case and in law, Talisma Corporation Private Limited (hereinafter referred to as "Appellant"), respectfully craves leave to ....
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....parable 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 companies such as Ducon Infra Technologies Ltd., Birla Shloka Edutech Ltd., Sonata Information Technology Ltd., Ontrack Systems Ltd., Vama Industries Ltd., and Accel Frontline Ltd. which are functionally not comparable to the Appellant; h. in rejecting certain companies such as Edulink, cMeRun Corp., Siboney Learning Group, Online Educ....
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.... 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 capital subsumes sundry creditors and therefore separate addition is not called for. 23.1. Ld.TPO computed interest on outstanding receivables under weighted average method using LIBOR + 300 basis points applicable for year under consideration that worked out to 3.3758% on receivables that exceeded 30 days. It has been argued by Ld.AR that authorities below disregarded busi....
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..... . . ' 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 Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble Delhi Bench in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.), which dealt....
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....s 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 international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd v. DCIT [2017] 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an as....