TaxTMI 
TaxTMI 
2022 (6) TMI 1383
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....ncome of Rs.5,89,150/- under normal provisions and Rs.2,66,64,328/- under MAT. 6. The assessee company applied TNNM method as most appropriate method for benchmarking the services provided to its AEs and the operating profit/operating cost was used by the assessee company as the profit level indicator to test the assessee company's OP/OC with respect to international transactions with AEs with reference to uncontrolled comparables identified as a result of searches carried out in external databases. 7. Assessee company used capitaline databases to search for the comparables and identified 11 comparables under Software Development Services and arrived at the arithmetic mean of 13.49% as against its own margin of 15.02%. The assessee company's margin being within +5/-5% range, it was concluded that the international transactions with its AEs were at Arm's Length. For transactions under ITES assessee company shortlisted 7 comparables with arithmetic mean PLI OP/OC at 19.24% as against PLI of the taxpayer at 20.02%, it was contented that the international transactions with its AEs were at Arm's length. 8. The learned TOP took operating cost of Rs.8,74,49,838/- for software dev....
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....ver of more than Rs.350 crores and also operated in different functions. The list of comparables objected by the assessee before the CIT (A) are as follows: S.No Name of company Operating Revenue OP/OC 1 Igate Global Solutions Ltd 11,92,93,17,000 24.58 2 Infosys BPO Ltd 2,54,46,00,00,00 0 43.74 3 L & T Infotech Ltd 23,36,29,52,834 18.08 4 Mindtree Ltd 8,88,02,00,861 11.79 5 Persistent Systems Ltd 6,29,15,80,000 26.68 6 Sasken Communication Technologies Ltd 4,02,87,78,000 26.99 7 Tata Elxsi Ltd 3,61,27,43,012 13.77 8 Zylog Systems Ltd 9,15,97,68,067 26.21 11. The CIT (A) excluded three companies out of the 8 above companies as under: S.No Name of company Operating Revenue OP/OC 1 Infosys BPO Ltd 2,54,46,00,00,00 0 43.74 2 L & T Infotech Ltd 23,36,29,52,834 18.08 3 Tata Elxsi Ltd 3,61,27,43,012 13.77 12. Aggrieved by the order of the Ld CIT CA), the assessee is in appeal before the Tribunal by raising the following grounds of appeal: 1. The Ld. CIT (A)/ Ld.AO are not justified in ....
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....pany does not satisfy the filter of information technology services revenue being more than 75% of total revenues, applied by the TPO himself. We find that on similar facts for the year under consideration i.e. Assessment Year 2011-12, a co-ordinate bench in the case of GT Nexus Software (P.) Ltd. (supra) has upheld the DRP's exclusion of this company from the list of comparables on account of it failing to satisfy the filter of 75% revenues to be from software technology services revenue. In the said order the co-ordinate bench has also held this company to be functionally not comparable to a provider of pure software development services to its AE's. Following the decision of the coordinate bench in the case of GT Nexus Software (P.) Ltd. (supra), we direct the TPO/AO to exclude this company, M/s. Acropetal Technologies Ltd. from the list of comparables." 13.2 E-Zest Solutions Ltd: E-Zest Solutions Limited is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, IT design services and in Technology Consulting Services including product development consulting services. These services are high end ITES normally categorised as knowle....
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....ny having expertise in emerging technologies cloud Saas, Business Intelligence and mobility for more than 10 years and serving 8 industries across the globe with over 200 software professionals. Whereas, the assessee-company is in the software development and also ITES services and cannot be considered as functionally comparable. In the decision of Bangalore Tribunal in the case of 3DPLM Software Solutions Ltd. v. Dy. C1T [2014J 42 taxmann.com 333 this comparable was considered and it was held that while the assessee is into software development services, this company i.e. E-Zest Solutions Ltd., is rendering product development services and high-end technical services which come under the category of KPO services and hence was to be omitted from the set of comparables. Thus, considering these facts and the decision of the Tribunal, TPO was to be directed to exclude the E-Zest Solutions Limited from the list of comparables.[Para 8)" 13.5 Persistent Systems Ltd: Assessee's main objection is that the company Persistent Systems Limited is engaged in software product designing and analytic services and has income from license fee. Hence the same is functionally different from that....
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....e research and development in the said year in respect of multimedia wireless broadband and mobile value added services and the breakup revenue is not available and cannot be considered as comparable. Thus, the TPO is directed to exclude this company from the list of comparables. [Para 12}." 13.8 Further, the learned Counsel for the assessee submitted that the above company owns intellectual property rights in the form of numerous patents and also has branded products and hence cannot be considered as a comparable. 13.9 The similar view has been taken by Hon'ble Jurisdictional ITAT (Hyderabad Tribunal) in the case of Syniverse Technologies Service (India) (P.) Ltd Vs DCIT [2021) 123 taxmann.com 258 (Hyderabad - Trib.) wherein the Hon'ble ITAT held that "9. We have considered the rival contentions. As seen from the orders placed on record and also consistent stand taken by the Tribunal in various such cases, we have no hesitation in excluding two companies, Persistent Systems iid., and Sasken Communication Technologies Ltd on functionality basis....." 13.10 Igate Global Solutions Ltd During the year under consideration, the company has acquired majority ....
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....Trib.}, this comparable was excluded from the list of comparables. The relevant findings of the co-ordinate bench read as under: "4.6 We have heard both the parties and perused the records. The segmental data was not available for the assessment year under question of this company. The company is earning revenue from two business segments, namely, software services and software products. However, separate segmental data with respect to the aforesaid two segments is not available in the financial statement. The assessee company cannot be compared with this company as there is not segmental data available. Besides, this there was extraordinary events occurred during the year as the company has acquired M/s. Brainhunter lnc., Canada. Thus, as held by this Tribunal in various decisions companies having extraordinary event has to be excluded". 13.15 Persistent Systems & Solutions Ltd Persistent Systems and Solutions Limited is engaged in diversified services such as software consultancy, software product development and system integration services unlike the assessee who is only involved in CSD activities and is hence functionally different. It is seen that apart from fun....
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....ubmitted as under: 14.2 It was the contention of the learned AR that E-Zest Solutions Ltd was held to be into KPO service and the issue has been considered by the Coordinate Bench of ITAT Bangalore, in the case of Blue Yonder India (P), reported in (2021) 123 taxmann.com 32 (Bang.Trib.). 5.2 We have heard the rival submissions and perused the material on record. The Annual Report of e-Zest Solutions Limited for assessment year 2010-2011 (placed at page 527 to 534of the paper book) clearly demonstrates that it is engaged in end to end product development, including product design and development. Thus, it is clearly incomparable to the assessee. Further it has significant inventory (nearly 15% of the income from its operations) which substantiates the assessee's contention that it is a product development company, and thus incomparable to the assessee which is engaged in rendering routine IT services. In addition, the services rendered by e-Zest Solutions Limited are diverse such as product development, software services, web development, and support services. The company is also engaged in rendering business intelligence and analytical services, which are akin to IT ena....
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....services (referred to as ITES) such as email marketing, search engine marketing, social media marketing and data mining services". 16. The learned DR had further drawn our attention to page No.159 of the Paper Book, on the basis of this it was submitted by the learned DR that the only objection raised by the assessee before the learned CIT (A) was that E-Zest Solutions Ltd is having high turnover and the TPO adopted a filter of Rs.1.00 crore to infinity and therefore, this comparable namely E-Zest Solutions Ltd is required to be excluded. However, neither the profile, nor the functional similarity of E-Zest Solutions Ltd was disputed by the assessee before the lower authorities. 17. We have heard the rival contentions and perused the material available on record. It is clear from the record of the lower authorities that the assessee has not filed any objection to the comparables selected by the TPO namely E-Zest Solutions Ltd before the TPO. Further, before the CIT (A), the assessee has challenged the exclusion of the E-Zest Solutions Ltd on the basis of the turnover stating that the operating revenue of E-Zest Solutions was Rs.12,07,06,696/-. The primary challenge of the ass....
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....pellant and rejected the submission. Thus, ground No.2.3 is partly allowed". 18. From the perusal of the above said discussions, it is abundantly clear that the primary focus of the assessee before the lower authorities was on account of higher turnover, and it was not its case of functional dissimilarities. However, as the case may be, the Coordinate Bench of ITAT Bangalore in the case of Blue Yonder India (P) Ltd (Supra) in para 5.2 have excluded the same by holding that E-Zest Solutions Ltd was into KPO Services. However, we may like to point out that from the perusal of the order of the Tribunal in Para 5.2 (supra) Tribunal have only considered annual report for the A.Y 2010-11, whereas A.Y under consideration before us is 2011-12. There is no factual findings given before us or even before the Hon'ble Coordinate Bench in the case of Blue Yonder India (P) Ltd demonstrating on the basis of the financials of E-Zest Solutions Ltd , that the activities of the assessee are dissimilar to that of the E-Zest Solutions Ltd. 19. In the light of the above, we deem it fit and proper to remand this issue back to the file of the CIT (A) for the purpose of considering afresh whether....
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.... OP/OR (%) 13.06% 17.20% OP/OC (%) 15.02% 20.77% 22. It was submitted by the learned DR that the assessee itself has admitted the inclusion of these three companies, then it is not open for the assessee to make a prayer before the Tribunal for exclusion of these companies. 23. In rebuttal, the learned AR has not disputed the above stated fact that though the assessee has not challenged the inclusion of these three companies. However, the assessee can always challenge the inclusion of the companies before the Tribunal. 24. We have heard the rival contentions and perused the available record. Admittedly, the Tribunal is required to decide an issue in accordance with law if the assessee is aggrieved by the order passed by the lower authority as per section 253 of the ACT. Admittedly, once the assessee itself is making a case of inclusion of these 3 companies before the lower authorities and the CIT (A) based on the submission of the assessee is passing the order, then it cannot be stated that the assessee is aggrieved by the order passed by the CIT (A). Since the assessee is not aggrieved by the order passed by the CIT (A) with respect to inclusion of these t....
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....ng Revenue OP/OC 1 Igate Global Solutions Ltd 11,92,93,17,000 24.58 2 Mindtree Ltd 8,88,02,00,861 11.79 3 Persistent Systems Ltd 6,29,15,80,000 26.68 4 Sasken Communication Technologies Ltd 4,02,87,78,000 26.99 5 Zylog Systems Ltd 9,15,97,68,067 26.21 In this regard, the assessee submitted the following case law: 15.1 The Hon'ble Bangalore Tribunal in the case of Barracuda Networks India (P.) Ltd. V. DCIT f2021) 31 taxmann.com 337 (Bangalore - Trib.) IT(TP) APPEAL NO.229 (BANG.) OF 2021 held" 14. In view of the aforesaid decision, we hold that companies listed in SI. No.(a) to (g) of Ground.No.4 raised by the Assessee whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies. " 15.2 In the case of Aptean India (P.) Ltd. V. DCIT [2021J 132 taxmann.com 253 (Bangalore - Trib.) the Hon'ble held as under: "15. In view of the aforesaid decision, we hold that companies listed in paragraph 8 of this order, whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies. "....
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....s, the activities being carried out by Mindtree Ltd arc in different line to the activities of the assessee company, Mindtree Ltd is to be rejected as comparable. 16.3 Ground No. 6(x) Persistent Systems Ltd. Persistent Systems Ltd. The assessee company would like to submit that the company Persistent Systems Limited is engaged in software product designing and analytic services and has income from license fee. Hence the same is functionally different from that of assessee company. Also, the segmental information is not available in the annual report of the company for the year under consideration. In absence of segmental details/ information a company cannot be taken into account for comparability analysis. The above view has been upheld by the Hon'ble Chennai ITAT in the case of Symantec Software & Services India (P.) Ltd. [2017J 79 taxmann.com 208 (Chennai - Trib.). wherein the Hon'ble ITA T for the same AY 2011-12 held that "17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in pro....
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....'ble ITA T held that. 'The company Sasken Communication Technologies Ltd. is functionally non-comparable as they are into multimedia product and the research and development in the said year in respect of multimedia wireless broadband and mobile value added services and the break-up revenue is not available and cannot be considered as comparable. Thus, the TPO is directed to exclude this company from the list of comparables. [Para 12]. " The similar view has been taken by Hon'ble Jurisdictional ITAT (Hyderabad Tribunal) in the case of Syniverse Technologies Service (India) (P.) Ltd Vs DCIT [2021J 123 taxmann.com 258 (Hyderabad - Trib.) wherein the Hon'ble ITAT held that "9. We have considered the rival contentions. As seen from the orders placed on record and also consistent stand taken by the Tribunal in various such cases, we have no hesitation in excluding two companies, Persistent Systems Ltd., and Sasken Communication Technologies Ltd on functionality basis " 16.5 Ground No. 6(xiii) Zylog Systems Ltd. Zylog Systems Ltd: The company is engaged in provision of the various business activities and no segmental r....
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....dertook to take over the satisfaction of the liability by granting the note holders an option for being allotted shares in Zylog Systems Ltd. at a price of 991 subject to the approval of the shareholders and regulatory authorities on the "Due Date" which would fall after the end of the accounting year 2009-10.This would increase the equity capital of the company by 4,56,049 equity shares. If the notes were not convened into shares, Zylog Systems Ltd. will redeem the notes at 40% of the principle amount of Canadian $10.249262. " 26. Bench had enquired from the learned AR for the assessee company, "whether any submissions made before the learned CIT (A)" . In response, the learned AR stated that these companies were not challenged on the basis of functional dissimilarities or otherwise before the lower authority . 27 Further, it was submitted by the learned DR that the assessee has not raised any ground in the grounds of appeal challenging the turnover filter applied by the TPO/CIT(A) in the ground of appeal. It was submitted by the learned DR in the light of the above that inclusion of these companies at this stage is not permissible. 28. We have heard the rival contentions....
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....arables, the TPO has also not gone into the verticals/ horizontals of the comparable companies. Thus the main search strategy of the taxpayer as well as the TPO / AO has been to identify the companies which are engaged in the software development services. This also has to be kept in view that transfer pricing is not an exact science. It is difficult to find exact comparables particularly under TNMM. This constraint has been accepted by the ITAT, Delhi in the case of ST Microelectronics Ltd wherein the ITAT held: "ALP of an international transaction cannot be determined 'accurately in accordance with a scientific formula. It is quite difficult to arrive at any firm conclusion with mathematic precision." The ITAT Hyderabad in the case of Deloitte Consulting India Pvt. Ltd (15 ITR )(Trib.)573 Hyd has also held the same. The ITAT observed: "In our considered opinion, no two comparable companies can be replicas of each other. The application of Rule 108 should be carried out and judged not with technical rigor, but on a broader prospective". ITAT Delhi in the case of CRM Services (2011-TII-86-ITAT-DEL-TP, 48 SOT $1 (Del) has held: "that ....
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....f the assessee in India is the ALP factor which contributes to the additional income attributable to the assessee. Therefore, instead of the US rate or LIBOR, it will be justified in adopting the Indian rate. The TPO adopted rate of 12 %but did not give any basis for that. It will also not be proper to adopt PLR of the State Bank of India. This is because if the funds were brought in time and those funds were properly deployed, the assessee company may earn an income at the maximum rate applicable to deposits and not at the rate applicable to loans. Thus I hold that the period chargeable to interest has to be recomputed and it is appropriate to adopt a reasonable rate that would be available to the assessee on short-term deposits. Thus, I hold that the period chargeable to interest has to be recomputed and a reasonable deposit rate has to be applied for calculating the interest. Taking into consideration all aspects of the case like interest-free period and piece-meal remittance of the receivables, I fix the ALP interest rate at 8% and direct the Assessing Officer to compute the additional income at the rate of 8 % on Rs.5,84,94,810/- as against 12% adopted by the Assessin....
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....unts outstanding from AEs have been/shall be settled by it with the associated enterprises on an ongoing basis in the normal course of business having regard to economic and commercial factors. The arm's length price determination for the said consequential receivables is subsumed within the arm's length price determination of the principal international transaction itself. 17.4 We also submit that extending credit period for realization of revenue from the AE is a closely linked transaction with the transaction of selling products to the AB and therefore cannot be treated as separate international transaction. 17.5 Section 92(1) of the Act and the provisions of Chapter X can be applied only for computation of income arising from an international transaction having regard to the arm's length price. When a transaction does not result in any income or no income arises from the transactions then the same cannot be the subject matter of computation of arm's length price as per the provisions of Chapter X. The term "any income" arising from an international transaction and the computation of income under Chapter X at "Arm's Length" is subject to the....
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....debtors, being inextricably connected with the sales, is also part of operating income. In the case of Nirma Industries Ltd. v. Dy. CIT [2006J 283 ITR 402/155 Taxman 330 (Guj.), Hon'ble High Court has dealing with the nature of interest on debtors, held it to be integral to business income. The same is the principle for the transfer pricing cases to that extent interest is to be taken as integral to sale proceeds, and, as such, includible in operating income. When such an interest is includible in operating income and the operating income itself has been accepted as reasonable under the TNMM, there cannot be an occasion to make adjustment for notional interest on delayed realization of debtors. One can understand separate adjustment for excess credit period when the arm's length price for exports has been benchmarked on the CUP basis but not in a case when the arm's length price of the exports has been benchmarked on the basis of TNMM The very conceptual foundation, for separate adjustment for delayed realization of debtors and on the facts of this case, is thus devoid of legally sustainable merits. " 17.9 Further, we have relied on the following case laws wher....
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....r that if after giving the necessary adjustment the international transaction of the assessee is found at arm's length then there is no question of any separate adjustment on account of allowing the credit period on the receivable from AE. " * Tally Solutions Pvt. Ltd. - I.T.(T.P) A. No.1364/Bang/2011 (para no. 5) "5 Following the earlier orders of this Tribunal, we hold that extending credit period for realization of sales to the AE is a closely linked transaction with the transaction of providing services to the AE and therefore cannot be treated as an individual and separate transaction of advance or loan. Accordingly, we direct the A.O/TPO to redo the exercise of determination of ALP by considering the credit period allowed in realization of sales proceeds as closely linked transaction with the transaction of providing services to the AE and therefore both has to be clubbed and aggregated for the purpose of determination of ALP. " The Hon'ble Bangalore Tribunal in the case of Ingersoll Rand (India) Ltd Vs. DCIT Bangalore [2016) 67 taxmann.com 328 (Bangalore - Trib.) in a recent judgment held: "35. We have heard both the parties. We fi....
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....o all the AEs and not only to the holding company, as taken by the TPo. It was submitted that the TPO has erred in adopting an interest rate of 14% by stating that in terms of the financial health, the AEs of the assessee are not considered fit to be returned even as BBB (Moderate Safety) as per CRISIL rating. Having so stated, the TPO arbitrarily concluded that the interest rate for BBB rated corporate Bond rates at 11.45% and with an upward adjustment of 20% to arrive at the conclusion that the rate of interest of J 4% is reasonable. 11.3 Per contra, the learned Departmental Representative supported the orders of the authorities below. 11.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial decision cited and placed reliance upon. We find that the decision of the ITAT, Mumbai Bench, in the case of Evonik Degussa P. Ltd. v. AC1T - os/), Circle 3(1), Mumbai (ITA No. 7653/Mum/2011, dt.21.11.2012) of ITAT, Mumbai Bench is squarely applicable to the facts of the case in the case on hand. In this decision the ITA T, Mumbai Bench at para 28 thereof has held as under: "28. After car....
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....ate Bench of this Tribunal cited supra in assessee's own case for the AY 2006-07, we are of the view that the lower authorities erred in making TP adjustment on account of notional interest on outstanding receivables from AEs and hence the assessee's ground(s) of appeal on this issue is allowed. * Det Norske Veritas AlS Vs. ADIT International Taxation Mumbai {2016] 67 taxmann.com 16 (Mumbai - Trib.) "The consideration as to how the assessee would have received interest if money was given to an outsider is irrelevant because it is not a case of extending loan or placing deposit, rather it is a case of amount becoming due as a result of commercial transaction. In any event, when international transactions have been benchmarked on the basis of TNMM, and interest on delay in realization of amounts is only incidental to such transactions rather than a standalone transaction, such an adjustment cannot be made independently. For this proposition, we find support from a coordinate bench decision in the case of Micro Ink Ltd. v. Addl. e1T [2015/ 63 taxmann.com 353 (Ahd.). In the light of the above discussions, and bearing in mind entirety of the case, we deem it fi....
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....we request your goodself not to consider receivables as a separate international transaction. 17.14 The Ld. CIT(A)/TPO ought to have appreciated that the receivables arise in the normal course of business and are not to be treated as loans for levy of interest. 17.15 Without prejudicial to our above submission, we would further like to submit that even if the interest on trade receivables is considered as separate international transaction the interest on delayed receivables shall be calculated only after allowing the credit period as specified in invoice. 17.16 Further, we would like to submit that considering the trade receivables as loan or advance given to AEs is not correct as per law, without prejudice to our above arguments even if the receivables are considered as loan or advance given to AE then the interest rate that to be charged shall not exceed average Libor rate existing at that period. 17.17 The similar view has been upheld by the Hon'ble Rajasthan High Court in the case of CIT vs Vaibhav Gems Ltd [2017] 88 taxmann.com 12 (Rajasthan) wherein the Hon'ble High Court held that "10. Regarding LIBOR rate plus 2% on acco....
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....ndia's prime lending rate @14.75% in the Transfer Pricing Officer's (TPO) order and upheld to that @ 4% to 9.25% as applicable in case of the very bank's domestic short term deposits involving 7 - 554 days; as the case may be. 2.1 Learned CIT-DR's vehement contention is that the TPO as well as the DRP have rightly taken the foregoing SBI rate's benchmark involving the short term deposits. 2.2 We find no merit in the instant argument as such a short term deposit cannot be taken at par with an international transaction u/s.92B of the Act since the latter involves foreign currency and overseas market conditions. In addition to this, learned lower authorities have also not adopted any uncontrolled party/comparable in the very segment as well so as to come to the conclusion that the assessee's receivables in case of overseas AEs involved more than the market practice of reasonable time period. We keep in mind all these clinching aspects and direct the TPO to delete the impugned ALP adjustment in issue. The assessee's former substantive ground stands accepted in the above terms. " Further, in the case of Value Momentum Software Servi....
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....erprise (AE) concerned only as comparable(s). Case law Technimont Private Limited in ITA No.487/MUM/2017 (TS-880-HC 2018-Bom-TP) (Mum) and holds that an AE itself could not be taken as a comparable since lacking uncontrolled transactions Coupled with these facts that the impugned adjustment has been made as per 561 short-term deposit rates only which are not applicable in international transactions. We accordingly direct the TPO to delete the impugned assessment. 17.22 The similar view has been taken in the recent judgement of Hon'ble Hyderabad Tribunal in the case of Synergies Castings Ltd Vs ACIT [2021) ITA No. 285/HYD/2021 (Hyderabad- Trib.) wherein the Hon'ble Tribunal held that "4. Next comes the latter issue of ALP adjustment pertaining to interest on receivables to the tune of Rs.82,66,546/- emanating from the order of Transfer Pricing Officer's (TPO's) and DRP's directions going by interest [email protected]% as per SBI domestic term deposits returns. Suffice to say, it transpires at the outset that we need not delve much deeper qua the relevant facts pertaining to the instant issue. We find that assuming but not accepting that the Id. ....
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....t reflects an international transaction intended to benefit the associated enterprise in some way. 11. The court finds that the entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this court in CIT v. EKL Appliances Ltd.[2012] 209 Taxman 200/345 ITR 241/345 ITR 241(Delhi). 36. In another decision Mckinsey Knowledge Centre India (P.) Ltd. [2018] 96 taxmann.com 237 (Delhi), HIGH COURT OF DELHI held as under :- "33. It was similarly held in BT e-Serv (India) (P.) Ltd. v. ITO [2017] 87 taxmann.com 251 (Delhi - Trib.) as follows: ....
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....e is no independent international transaction because the effect of the credit to that extent is factored in the agreed prices. But for extra credit, the effect of the credit to that extent cannot be factored in the agreed prices because it is not even known at the stage as to how extra credit will be allowed and therefore, that is an independent international transaction and hence, separate bench making has to be done and TP adjustment is to be made as per law. This is worth noting that by allowing, extra credit in excess of agreed period of 30 days, profit shifting is there because if credit period is more, prices go up which is not done in the present case since, the prices are determined on the basis of 30 days credit period. 38. From the reading of these judgement and the explanation to section 92B, it is abundantly clear that the outstanding receivable by the assessee from its AE, is required to be benchmarked, so as to ensure that they should not be any shifting of profit from assessee to its AE. 39. In the present case, the total turnover of the assessee in respect of Software Development Services was Rs.9,86,90,620/- whereas the trade receivable during the present pe....
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....espect of two segments i.e. ITeS and SDW only after receipt of show cause notice and no separate study was filed with respect to interest chargeable from the AEs. Assessee has not submitted any details of raising of invoices and subsequent receipts of the receivables from the AE despite the receipt of the show cause notice before the TPO . The TPO, in the light of non cooperation of the assessee and also no objection of the taxpayer had computed the interest by applying interest @ 12%. However, the said rate of 12% was reduced as mentioned herein above to 8% by the learned CIT (A). In our considered opinion, the application of 8% interest, though in strict sense, would be contrary to the principles of TP analysis as the transfer pricing officer was required to bring the comparable either internal comparable or the external comparable by applying CUP method and then fix the rate of interest on the delayed receivables from the AE. However, with a view to give a quietus to the issue , we are of the opinion that instead of 8% interest rate, rate of interest of 6% be applied on outstanding receivable at the year end . 40. In our considered opinion, the submission of the assessee that....
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....see is in the case of ERM India (P) Ltd vs. National E-assessment Centre, New Delhi reported in (2021) 132 taxmann.com 220 (Del.Trib) wherein in para 11, it is mentioned that once the working capital adjustment is given, then it subsumes the interest on receivables and no separate benchmark for it has to be made and for that purpose, the Tribunal had relied upon the judgment of the Hon'ble Delhi High Court in the case of Kusum Healthcare (P) Ltd. In the present case, it is not the case of the assessee or the Assessing Officer that the working capital adjustment was given to the assessee or sought by the assessee. Therefore, the said judgment is not applicable. The 4th judgment relied upon by the assessee is in the case of Ingersoll Rand (India) Ltd vs. Dy.CIT reported in (2016) 67 taxmann.com 328 (Bang.Trib). This judgement pertains to the A.Y 2010-11. This judgment is also not applicable for the simple reason, that there is a change in law which was brought into by the Finance Act, 2012 and therefore, the Tribunal did not have the benefit of examining the interest on the receivables. The 5th judgment relied upon by the assessee is in the case of GSS ....