TaxTMI 
TaxTMI 
2023 (10) TMI 251
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..... 5,62,08,198/- being notional interest imputed in respect of delayed receivables, the aggregate of which is Rs. 6,02,73,415/-. 3. BRIEF FACTS: (i) The Assessee is a subsidiary of Arm Limited, UK. The Assessee is engaged in providing contract software development services ('SWD services') and MSS to its AEs. (ii) During the previous year relevant to the assessment year 2018-19, the relevant international transactions that took place between the Assessee and its AE was the provision of SWD services by the Assessee at a price of Rs. 4,36,29,32,202/- and provision of MSS at a price of Rs. 4,35,41,366/-. The Assessee was compensated on a cost-plus basis, and in the TP study maintained by the Assessee, the Assessee concluded the international transactions as being at arm's length. (iii) On a reference being made by the Assessing Officer, the TPO passed an order dated 29.07.2021 determining a TP adjustment of Rs. 30,48,82,625/- in respect of the SWD services segment, adjustment of Rs. 47,39,738/- in respect of the MSS segment and an adjustment of Rs. 2,84,48,899/- being notional interest in respect of the delayed receivables. (iv) Initially, a draft assessment order dated ....
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....nbsp; Assessee TPO Methodology adopted TNMM TNMM Profit Level Indicator (PLI) OP/TC OP/OC Database used CAPITALINE PLUS PROWESS Comparables selected 8 13 Period for which data used FYs 2015-16 to 2017-18 FYs 2015-16 to 2017-18 A.3. Filters applied by Assessee in its TP study: Step Description 1. Companies for which relevant financial data was available for FY 2016-17 and 2017-18 - selected. 2. Companies having positive sale in the current financial year, i.e. FY 2018-19 or the year immediately preceding the current year, i.e. FY 2017-18 - selected. 3. Companies which are independent, non-governmental, non-cooperatives - selected. 4. Companies having sales of less than INR 1 crore - rejected. 5. Companies with average positive net worth in the current financial year or the year immediately preceding the current year- selected. 6. Companies primarily involved in service activity - selected. 7. Companies clearing quantitative and qualitative criteria - selected. A.4. Comparables selected by Assessee and the range of weighted average of OP/TC of comparable companies: ....
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....ors P R Pvt. Ltd. 38.33 28.77 30.29 33.29 12. Majestic Research Services & Solutions Ltd. 56.25 45.95 35.88 51.73 13. Cheil India Pvt. Ltd. 74.38 64.45 66.17 69.58 35th Percentile 18.21 Median 19.94 65th Percentile 27.74 A.7. Computation of arm's length price by the TPO and the adjustment made: Taxpayers operating revenue Rs. 4,37,04,549/- Taxpayer operating cost Rs. 4,03,90,434/- Taxpayers operating profit Rs. 33,14,115/- Taxpayers PLI 8.21% 35th Percentile Margin of comparable set 17.11% Adjustment required (if PLI<35th Percentile) Yes Median margin of comparable set Rs. 19.94/- Arm's length price Rs. 4,84,44,287/- Price received 4,37,04,549/- Shortfall being adjustment u/s. 92CA 47,39,738/- 3.1 DIRECTIONS ISSUED BY THE DRP: Briefly, the directions issued by the DRP are as follows: (i) The DRP accepted the Assessee's contention that Focus Suites Solutions & Services Ltd., Egon Zehnder In....
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....ant, is bad in law, contrary to the facts and circumstances of the case, and is liable to be quashed. 2. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred in making a transfer pricing (TP) adjustment of INR 4,065,217 to the Appellant's marketing support services ('MSS') segment and INR 56,208,198 towards interest on delayed receivables. 4.1 These grounds are general in nature, which do not require any adjudication. 5. Ground Nos.3 to 3.5 of the assessee's appeal are reproduced as under: 3. That on the fact and in the circumstances of the case and in law, with respect to adjustment to the transfer price of the MSS segment, the learned Panel / AO / TPO erred in: 3.1 Rejecting the TP documentation maintained by the Appellant under Section 92D of the Act, in good faith and with due diligence, on the grounds that the Assessee did not apply appropriate filters and accordingly contended that the data used in computation of arm's length price (ALP') is not reliable or correct. 3.2. Rejecting the comparability analysis carried out by the Appellant in the TP documentation and in conducting a ....
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....s retainership fees, shoot/production fees and service receipts & other fees. No segmental information is available as regards these diverse activities and therefore, the company cannot be considered as comparable to the Assessee. 6.2.2 The ld. A.R. submitted that this company was directed to be excluded by the DRP in the assessee's own case for the assessment years 2013-14 and 2014-15 on the ground that it is not functionally comparable to the assessee. The relevant extracts of the DRP's directions are reproduced on page 256-257 of the appeal set. 6.2.3 Further, the ld. A.R. submitted that this company was directed to be excluded from the final list of comparables in the Assessee's own case by this Hon'ble Tribunal for the assessment year 2016-17 vide its order dated 30.08.2022 in IT (TP) A No. 235/Bang/2021 and thus, this company ought to be excluded from the final list of comparables. 6.2.4 Without prejudice, the Assessee sought the re-computation of margin of Scarecrow Communications Ltd. The ld. A.R. submitted that the correct weighted average margin of this Company is 9.26% as against 10.80%, as computed by the TPO. 6.3. The ld. D.R. relied on the orders of lower ....
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....strategic human capital services. Thus, the services provided by the company are more in the nature of knowledge process outsourcing services ('KPO'), which as per Rule 10TA of the Income Tax Rules, 1962 includes human resources services, engineering and design services, business analytics and market research, etc. which are not similar to the MSS provided by the Assessee. 8.1 In this regard, the ld. A.R. placed reliance on the order dated 30.03.2023 passed by this Hon'ble Tribunal in the case of TiVo Tech Pvt. Ltd. v. ACIT in IT(TP)A No. 862/Bang/2022 for assessment year 2018-19 and in the case of Lloyds Offshore Global Services (P.) Ltd. v. DCIT (reported in (2023) 146 taxmann.com 226 (Bangalore-Trib.), wherein in the case of a similarly placed assessee for the assessment year 2015-16 and 2016-17, this company came to be excluded. In view of this, this Company ought to be excluded as it is functionally not comparable to the Assessee. 8.2. The ld. D.R. relied on the orders of lower authorities. 9. We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in the case of Tivo Tech Pvt. Ltd. in I....
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....y similar with the company. This observation of the DRP is contrary to the functions described at page 761 of the paper book carried out by assessee under the marketing support service segment. We therefore hold this comparable to be not functionally similar with that of assessee. Accordingly, this comparable is directed to be excluded from the final list." 9.1 In view of the above order of the Tribunal, since the facts and circumstances of the case are similar, we direct the AO/TPO to exclude this Axience Consulting Pvt Ltd. from the list of comparables. (C) Dun & Bradstreet Information Services India Pvt. Ltd.: Functionally dissimilar 10. The ld. A.R. submitted that Dun & Bradstreet is engaged in providing service such as Business Information Report, Credibility & Business Insight solutions, Supply Management Solutions, etc. These suites of services are in the nature of credit risk solutions and trading exchange solutions, which are not comparable activities undertake by MSS providers such as the Assessee. Further, the Company is not a pure service provider as it also offers technology products, unlike the Assessee. It is also submitted that the Company earns re....
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....ort placed at page 4556, the description of the project or services provided by this company is mentioned to be credit reporting services. At page 4662, we note that this company is engaged primarily in the business of providing risk management and sales and marketing solutions. The background of the company also describes to be providing learning and economic insight services. The company offers a wide suite of information solutions and its services are used extensively by banks, financial institutions, multi nationals, corporate entities, public sector undertaking, exporters and importers. It also describes itself to be in the field of market analysis, locate prospects and incurs revenue from new and existing customers. The sales and marketing solutions offered by this company also include sale of data and related services. In our considered opinion, these functions cannot be compared with the limited services rendered by assessee to its AEs. We accordingly direct this comparable to be excluded." 11.1 In view of the above order of the Tribunal on the basis of functionality, we direct the AO/TPO to exclude this company M/s. Dun & Bradstreet Information Services India P....
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....itted that since the profile for the assessment year 2018-19 is same, the company ought to be excluded from the final list of comparables. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. At page 4818 of the annual report placed in the paper book, we note that this company is providing services in the field of advertising, PR and allied services. Further in the notes to the financial statements at page 4843, this company is said to be engaged in selling of space for advertisement in print media and public relations business. At page 4844, income from services has been said to be recognised from advertising, public relations and allied services however in the profit and loss account at page 4840, the entire income has been categorised to be under revenue from operations with the segmental details available as advertising services and other operating income under schedule 18. In note 28 at page 4855, it has been stated that the company's business activity falls within a single business segment i.e. advertising, selling of space for advertisement in print media....
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....tc. which are different from the services rendered by the Assessee. Therefore, this company ought to be excluded from the final list of the comparables. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. We note that this company is providing advertising services and the principle business activity has been described at page 4868 of the paper book in the annual report to be advertising and marketing communications. The revenue recognition by this company has been mentioned to be an advertising agency catering services to much number of clientele. We therefore do not find this comparable to be functionally similar with that of assessee who is a captive service provider. Accordingly, this comparable is directed to be excluded from the final list." 15.1 In view of the above order of the Tribunal on the basis of functionality and dissimilarity, we direct the AO/TPO to exclude this company M/s. Lintas India Pvt. Ltd. from the list of comparables. (F) Majestic Research Service & Solutions Ltd. ('Majestic'): Functionally dissimilar: 16. The ld. A.R. submitte....
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....7. We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in the case of Tivo Tech Pvt. Ltd. cited (supra) wherein the Tribunal held as under: "9(v) It is submitted that Majestic is engaged in market research services. It offers customer service evaluation, mobile analytics, eye tracking, agricultural research etc. It offers a suite of customized solutions that cater to business at various stages of product development or launch across the product life cycle. It offers a wide range of qualitative and quantitative research services. It is involved in high-end services like research services, data analytics, product development and testing, etc. market scoping etc. It also focuses on market research, advertising research, and brand research and to deliver powerful insights into the effectiveness of branding, advertising and consumer choices relies on high level technologies such as eye tracking, mobile analytics, video analysis, facial recognition, digital tracking, online communities, neuroscience, emotional analysis, automated audience measurement, sensory sciences, etc., which is functional....
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.... attracting clients who are advertisers by developing advertising strategies by a workforce which majorly constitutes of creative writers and designers etc. The Company also undertake research activities to understand a client's market situation, competition and customers in the process of planning an advertisement campaign etc. Given the above, the ld. A.R. submitted that the activities undertaken by the Company are not akin to the services rendered by the Assessee. 18.1 The ld. A.R. further submitted that the company enters into an agreement with its customers under which it procures advertising services on behalf of the customers and bills the customers on cost-to- cost basis without charging any mark-up. The company earns revenue from commission income, fee from production job, transaction processing job, etc. which is in contrast to the Assessee's business model under MSS segment. Therefore, the Company operates under a different business model and provides services which are not comparable to the MSS provided by the Assessee. Given the same, the Company ought to be excluded from the final list of the comparables. 18.1.1 The ld. A.R. placed reliance in this regard on the....
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.... us. From the annual report placed at page 5447 of the paper book, this company is described to be a full-fledged advertising service company. It is only the entire revenue earned by this company is from advertising services as observed at page 5485. The general information provided at page 5582 of the paper book reveals that this company is engaged in the business of advertising, communication, publicity and merchandising including undertaking market research, planning and providing consultancy services and training in the same field. There is no segmental details available and the entire revenue is disclosed as revenue from sale of services. In light of the above, we do not find this company to be functionally similar with that of assessee. Accordingly, we direct this comparable to be excluded. Accordingly Ground no.6.3 raised by the assessee stands allowed." 19.1 In view of the above order of the Tribunal on the basis of functionality and dissimilarity, we direct the AO/TPO to exclude this company M/s. Cheil India Pvt. Ltd. from the list of comparables. 20. Ground No.3.7 of the assessee's appeal is reproduced as under: "3.7. Excluding the followi....
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....und No. 2.13 is in respect of following comparables that the assessee is seeking to include under the MSS segment: * Cheers Interactive India Pvt.Ltd., * MCI Management India Pvt.Ltd. and * Showhouse Event Management India Pvt. Ltd., It is submitted that these companies are engaged in providing MSS services. It is submitted that these comparables were not considered by the Ld.TPO, as they did not appear in the search matrix carried out by him, which has been upheld by the DRP. The both sides relied on the submission made in respect of comparables sought for inclusion under SWD segment. On similar situation, we have remanded the comparable to the Ld.AO/TPO for fresh consideration herein above following the decision of coordinate bench of this Hon'ble Tribunal in the case of Prism Networks Pvt. Ltd. reported in (2022) 141 taxmann.com 163. Respectfully following the above view mutatis mutandis, we remit the comparables back o the Ld.AO/TPO for fresh consideration in the light of information available in public domain. Accordingly this ground stands allowed for statistical purposes." 21.1 In view of the above or....
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.... Prism Networks Private Limited reported in (2022) 141 taxmann.com 163. 8.2. We thus remand the comparables to the Ld.TPO to consider it based on FAR analysis in accordance with law. The Ld.AR is directed to file the annual reports of the above comparables to the Ld.AO/TPO to assessee in considering them as per the directions hereinabove. Accordingly Ground no.6.2 raised by the assessee stands allowed for statistical purposes." 23.1 In view of this order of the Tribunal, we remit this comparable Kestone Integrated Marketing Services Pvt. Ltd. to the file of AO/TPO for fresh consideration on similar lines. 23.2 Other comparables in ground No.3.7 in sl.nos. (c) Fusion Events Ltd. (d) Cheers Interactive India Pvt. Ltd. (e) Deepali Designs & Exhibits Pvt. Ltd. & (f) Netlink Solutions (India) Ltd. - Info Media Segment, are dismissed as not pressed. 24. Ground No.3.8 of the assessee's appeal is reproduced as under: "3.8. Excluding the following companies even though they are functionally comparable to the Appellant and pass all the filters applied by the learned TPO: a) DNA Entertainment Network Pvt. Ltd." 24.1 At the time of heari....
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....the circumstances of the case and in law, the learned Panel / AO / TPO erred in treating outstanding receivables from AEs as a separate international transaction as per the provisions of section 92B of the Act. 9. That without prejudice, the learned AO/Panel erred in ignoring that, if at all a TP adjustment has to be sustained with respect to the notional interest on delayed receivables, the interest should be computed using LIBOR as against SBI short term deposit rate 10 On the facts and in the circumstances of the case and in law, the learned Panel erred in directing the TPO to use SBI shortterm deposit rate for computing notional interest on delayed receivables without appreciating the fact that the Appellant's receivables are realised in USD and not in INR currency. 11 On the facts and in the circumstances of the case and in law, the learned AO / TPO erred in not considering the interest rates specifically provided in the directions issued by the learned Panel, while computing the interest on delayed receivables 12. The learned Panel erred in adopting an invoice wise approach for computing interest on delayed receivables, instead of consi....
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....2 passed in IT(TP)A No. 209/Bang/2021). 27.1.5 Further, she submitted that since the Assessee's receivables are realised in USD and not in INR currency, the DRP erred in directing the AO/TPO to use SBI short term fixed deposit interest rate for computing interest. Therefore, the applicable interest rate would if at all be LIBOR. 27.1.6 Reliance in this regard is placed on the decision in Applied Materials (supra) and the decision of this Hon'ble Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. v. The Addl./Jt./Dy./Asst.Commissioner of Income Tax/ITO, National Faceless Assessment Centre (Order dated 21.01.2022 passed in IT(TP)A No. 397/Bang/2021). 27.1.7 Wherefore, she prayed that this Tribunal be pleased to allow the appeal, in the interests of justice and equity. 27.2 The ld. D.R. relied on the orders of the lower authorities. 28. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Applied Materials India Pvt. Ltd. in IT(TP)A No.209/Bang/2021. The Tribunal vide order dated 30.11.2....