TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1388
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.... ("Hon'ble DRP"), Bangalore dated 09 September 2019 under section 144C(5) of the Act ("impugned order") inter-alia on the following grounds: That on the facts and circumstances of the case and in law: General 1. The impugned order and directions of the Hon'ble DRP are based on incorrect appreciation of facts and wrong interpretation of law and therefore, are bad in law. 2. The learned AO has erred in making adjustments/disallowances aggregating to INR 11,94.62,783 to the returned income and thereby has erred in law and on facts in assessing the total income of the Appellant at INR 24,38,80,173. 3. The learned AO has erred in laws and in facts, in determining a sum of INR 6,06,03,330 as the balance tax (including interest) demand payable by the Appellant. 4. Transfer Pricing grounds 4.1 The learned DRP/AO/TPO erred in making an addition of INR 11,03,17,720 to the total income of the Appellant on account of adjustment in the arm's length price ("ALP") of the provision of software development services transaction entered by the Appellant with its associated enterprise. 4.2 The learned DRPIAO/TPO have erred in law and facts by not accepting the economic....
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....of TP study for the reason that sufficient information was not available at the time of TP Study: * Maveric Systems Ltd * I2T2 India Ltd * Evoke Technologies Ltd * Harbinger Systems Pvt Ltd 4.9 The learned DRP/ AO / TPO erred in law and in facts, by accepting the following companies as comparable company though the same cannot be considered as comparable to the Appellant in law and fact on one or more grounds: * Tata Elxsi Ltd * Mindtree Ltd * Persistent Systems Ltd * Nihilent Technologies Pvt Ltd * Aspire Systems India Pvt Ltd * Inteq Software Pvt Ltd * Infosys Ltd * Thirdware Solution Ltd * Cybage Software Pvt Ltd 4.10 Without prejudice to the transfer pricing documentation maintained by the Appellant, the Learned DRP/ AO / TPO have failed to appreciate that the following companies are not functionally comparable to the Appellant, and therefore erred in considering the same as comparables: * Larsen & Toubro Infotech Ltd * Infobeans Technologies Ltd 4.11 The learned DRP/AO/TPO erred, in law and in facts, by erroneously computing the margins of certain comparable companies. 4.12 The learned DRP/AO/TPO erred, in law and in ....
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....ount of delayed/ outstanding receivable. Consequential grounds: 5. The learned AO has erred in levying interest of INR 2,15,04,395 under section 234B of the Act. 6. The learned AO has erred, in laws and on facts, in initiating penalty proceedings u/s 271(1)(c) of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before 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. At the outset, the Ld.AR submitted that, if the issue raised by the assessee in Ground no. 4.14 is considered, all other issues would become academic as the matter would have to be remanded for fresh consideration. He submitted that the assessee in Ground no. 4.14 has raised the issue of not considering the application of internal TNMM for the purpose of bench marking the international transaction. The Ld.AR submitted that assessee raised this issue before the DRP, and the DRP observed as under: "17.0 Ground of Objection 19 -....
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....ernational transaction and the uncontrolled transaction and between the enterprises entering into such transactions; and Absence of reliable gross margin data of comparable companies necessary for application of the method. Net margins earned by comparable companies performing activities similar to those of XSL are available in the public domain and can be easily established, thus facilitating a more reliable comparability analysis. Further, it is a well accepted principle that net margins are less affected by transactional differences than are prices (as in the case of CUP) and gross margins (as in the case of CPM). In this case, since the functions performed by comparables identified by us were broadly similar to the functions performed by XSL, the TNMM, which involves net margin comparison, was considered as the most appropriate method for testing the above mentioned transaction of XSL. 5.1.3 Search for comparable uncontrolled data Based on the provision of Rule 10B of the Rules, comparables for the international transaction would have to be companies which are engaged in same or similar activity as XSL, and are comparable in terms of functions performed, risks assumed ....
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....c factors. The Ld.AR primarily submitted that, the arms length determination in respect of the trade receivables stands subsumed within the determination of principle transaction, being the software development service segment. 7. It is also the submission of the Ld.AR that, the assessee also rendered services to unrelated third parties, and no interest was charged by the assessee in respect of delayed receivables from such unrelated third parties, and therefore, the assessee cannot be charged with any interest in case of the receivables outstanding from the AE. He thus vehemently argued that no separate adjustment in respect of delayed receivables is required when Working Capital Adjustment is granted when margins of the international transactions are to be computed. We note that the Ld.TPO computed the interest on outstanding trade receivables using LIBOR of six month + 400 basis points which is computed at an effective rate being 4.3836%. 8. From the records we note that the Ld. TPO records that, realisation of receivables from non-AE was within 112 days, whereas there is a delay of 11 days in realising the receivables from the AE on which the Ld. TPO has computed interest. ....
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....ints. 13. In support of this above view, we rely on the observations of Coordinate Bench of this Tribunal in case of M/s. Zynga Game Network India Pvt. Ltd. vs. DCIT in ITA No. 2573/Bang/2019 by order dated 23/03/2021 for A.Y. 2015-16 which is placed at page 4436 of the legal paper book. Accordingly Ground no. 4.14 raised by assessee stands allowed for statistical purposes. 14. All other issues in respect of the transfer pricing adjustment alleged in the present appeal is kept open. 15. The assessee has raised the following additional grounds. "In addition to the grounds of appeal raised before the Hon'ble Bench, the Petitioner hereby wishes to submit the following additional grounds: Corporate tax matters 7. Provision for onerous lease amounting to INR 16,02,473 reversed during the year out of provision created during Assessment Year 2009-10 and added to book profit for that year in view of creation, should be excluded in book profit computation for Assessment Year 2015-16 in terms of clause (i) of Explanation I to Section 115JB(2) of the Act. 8. Without prejudice to our contention that provision for onerous lease is an ascertained liability, where an upward ad....