TaxTMI 
TaxTMI 
2022 (7) TMI 1512
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.... making an adjustment to the extent of Rs. 5,22,13,394/- towards the arms length price on the basis of the order of the Transfer Pricing Officer u/s. 92CA of the Act, dated 30.10.2019, the direction of the Dispute Resolution Panel, dated 16.02.2021 and the consequential order giving effect passed by the TPO on 24.03.2021. ii) not appreciating the fact that, the DRP has erroneously upheld rejection of TP study of the appellant by the TPO despite the fact that, the alleged defects relied upon by the TPO to reject the TP study did not exist and therefore the DRP also could not have rejected the TP study and under the circumstances, the question of a fresh search process and selection of comparable did not arise. iii) not appreciating the fact that, the DRP has not accepted the specific objection of the appellant that, the turnover of the company should also be a criteria and ignoring the ratios laid down by various tribunals and high courts has retained the giants in the field such as M/s. Larson & Toubro Infotek Ltd, M/s. Infosys Ltd, Cybage Software Ltd, Nihilent Ltd, Persistent Systems ltd, Thirdware Solutions Ltd, Aspire systems (India) Pvt Ltd AND Tata Elxsi Ltd....
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....rofits and hence, there is no issue of persistent loss. ix) not appreciating the fact that, the DRP could not have rejected the comparable M/s. 8k Miles Software Solutions Ltd for the alleged reason that, no segmental data was available ignoring the fact that, it was within the powers of the TPO to call for such information under the provisions of section 133(6) of the act, before rejection and in the absence of any such effort the comparable could not have been rejected. x) not appreciating the fact that, in the case of the comparable M/s. ASM Technologies Ltd the DRP has given specific directions to verify the claim of the appellant that the company does not fail the export turnover criteria and the TPO has passed the final order on 24.03.2021 without any verification and rejecting the comparable, thereby the order of the TPO is bad in law and not as per the directions of the DRP. xi) not appreciating the fact that, the DRP has not considered specific objections in regard to the issues such as functionality, diversified activity, presence of intangibles, peculiar economic circumstances etc., in respect of each of the comparables selected by the TPO incl....
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.... been collected u/s. 133(6) of the act, were not furnished to the appellant and under the circumstances, the order passed is bad in law and against the principles of natural justice. iii) The learned TPO has erred in passing an order u/s. 92CA(3) of the act, on the basis of the results of a faulty search process in as much as information u/s. 133(6) of the act, have been called for from the proposed comparables in an arbitrary manner wherein the comparables have been selected first and the information u/s. 133(6) of the act, has been called for only from such comparables to justify a selection which was already concluded and the DRP has erred in confirming such search process. " 1.1. Facts of the case are that the assessee M/s. Meritor CVS India (P) Ltd is in the business of computer radiated designing and development of commercial vehicle systems. The company is developing specific software for Associate Enterprise, which is also subsidiary of the ultimate holding company. The software developed is used in house, integrating the same with the main product. Finally, what is being marketed is the final product by the ultimate holding company. The role of the company has ....
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....igh courts has retained the giants in the field such as M/s. Larson & Toubro Infotek Ltd, M/s. Infosys Ltd, Cybage Software Ltd, Nihilent Ltd, Persistent Systems ltd, Thirdware Solutions Ltd, Aspire systems (India) Pvt Ltd AND Tata Elxsi Ltd as a part of the final list of comparables." 3.1 In this ground, the assessee wants exclusion of the following comparables was only pressed. (i) L&T Infotech Ltd. (ii) Infosys Ltd. (iii) Tata Elxi Ltd. 3.2 The Ld. A.R. submitted that the turnover of assessee is only Rs. 37.17 Crores, however, the turnover of these companies are as follows:- (i) L&T Infotech Ltd. Rs. 5568.05 crores (ii) Infosys Ltd. Rs. 54,035 crores (iii) Tata Elxi Ltd. Rs. 1041.46 crores. 3.3 Thus, he submitted that high amount of turnover companies cannot be compared to the assessee company as assessee's turnover is very low compared to those companies. He relied on the various decisions specifically Barracuda Networks India Pvt. Ltd. in IT(TP)A No.229/Bang/2021 dated 25.10.2021. "12. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisio....
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....gin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 42. The Assessee's turnover was around Rs. 110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs. 200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned....
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....ble companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred t....
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....this ground of appeal, assessee wants exclusion of following comparables on the basis of functionality:- (i) Tata Elxi Ltd. (ii) Persistent Systems Ltd. (iii) Infobeans Technologies Ltd. (iv) Thirdware Solutions Ltd. (v) Cybage Software Ltd. Tata Elxi Ltd. 4.2 This comparable is not required to be adjudicated as we have already directed the AO/TPO to exclude this comparable from the list of comparables on the basis of turnover filter while adjudication in ground No.1(iii). Persistent Systems Ltd. 4.3 The Ld. A.R. submitted that this company is functionally different with the diverged business and lack of segmental results and it is also engaged in R&D activities and existence of high brand value. 4.8 We have heard the rival submissions and perused the materials available on record. In this case, assessee's turnover was Rs. 37.17 crores as against the turnover of Persistent Systems Ltd. At Rs. 147.64 crores. This company having less than turnover 10 times of the assessee's turnover and has to be considered as a comparable company. Hence, turnover filter cannot be applied to exclude this company. 4.9 On the other hand, as....
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....echnologies Ltd.: The Id . AR of the assessee submitted that company is functionally different for the following reasons: 1. It is engaged in diversified activities in the nature of custom application development, content management systems, enterprise mobility, big data analytics, 2. No change in the business as compared to last year 3. Leading provider of consulting technology & next generation service. 4. There is abnormal increase in* percentage of revenue from 35.35 crore to 62.06 crore. 5. It is also into IT enabled services i.e. business process management, HR and Payroll, commerce 6. No segmental details are available. 7.1 He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for AY 2014-15 wherein this company is excluded as comparable. 7.2 The Ld. DR, on the other hand, submitted that this company is engaged in rendering of software services and, hence, functionally comparable to assessee company. 7.3 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate be....
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.... taxpayer sought exclusion of Infobeans as a comparable again on ground of functional dissimilarity, it also being into providing services viz. software engineering services primarily in Custom Application Development (CAD), Content Management Systems, Enterprise Mobility, Big Data Analytics, UX & UI, Automation Engineering Services, as is evident from its financials, available on page 123 of the annual report paper book. 45. The taxpayer also brought on record profile of the Infobeans at pages 58 to 60 of the appeal memo wherein it is claimed by the Infobeans that it is providing wide range of services under four verticals i.e. services, automation, enterprise and industries and under the automation services verticals, the company is providing advanced robotic process automation services. Since Infobeans is into diversified activities it cannot be a suitable comparable vis-à-vis the taxpayer which is a routine software development services provider. Infobeans has been excluded as a comparable on account of functional dissimilarity visà-vis routine software development service provider by the coordinate Bench of the Tribunal in case of Pub Matic India (P) Ltd....
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....information in the annual report. In view of the categorical information in the actual report that the company is engaged in software development services, hold that this company is software service provider and functionally comparable to the assessee. 4.19 It was contended that the company is engaged in functionally dissimilar activities and ITES activities with reference to certain information said to be available in the company's website. As already discussed at part 2.9.2 above, we note that the information put in website cannot be given much credence, as they are mete toward looking statements with the motive of advertisement and other promotion. Besides, such information pertains to the activities of the entire group. Further, the information in website arc dynamic and cannot be related to a particular period. The information in the website in the-year 2018-19 or 2019-20 will show the functionality for the current period, which may be very much different from that existing in 2015-16, the year scrutiny. There is no way to verify whether the said information have relevance for the year under scrutiny. Therefore, as a principle. this ['Act strictly goes by the inform....
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....e was persistent loss ignoring the fact that, for the F.Y. 2015-16 the said company had reported profits and hence, there is no issue of persistent loss. " 6.1 In this ground assessee seeks exclusion of Sagar Soft India Ltd. According to the Ld. A.R., this company is having persistent loss and only in assessment year 2016-17, it was declared profit. 6.2. We have heard the rival submissions and perused the materials available on record. If there is loss consistently in immediate previous 3 years then only it would have excluded. On the other hand, if the loss is only in one assessment year out of 3 immediate previous assessment years, this company is to be considered as comparable. Accordingly, this issue is remitted to the AO/TPO for fresh consideration. 7. Ground No.1(ix) is reproduced as under:- "1(ix) not appreciating the fact that, the DRP could not have rejected the comparable M/s. 8k Miles Software Solutions Ltd for the alleged reason that, no segmental data was available ignoring the fact that, it was within the powers of the TPO to call for such information under the provisions of section 133(6) of the act, before rejection and in the absence of any such e....
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....orking capital adjustment be allowed and the justification for such directions are improper and not tenable under law. 1(xiii) making an adjustment to the extent of Rs. 14,79,713/- towards the arms length price on the basis of the order of the Transfer Pricing Officer u/s. 92CA(3) of the Act, in the order dated 24.03.2021 giving effect to the directions of the DRP in the order dated 16.02.2021, towards the interest receivable on alleged delay in recovery of receivables ignoring the fact that, there was no such delay in recovery. 1(xiv) making an adjustment to the extent of Rs. 14,79,713/- towards interest receivable on alleged delay in recovery of receivables ignoring the fact that, the DRP specifically directed that, the details of realization with reference to each of the invoices were to be produced before the Assessing Officer/Transfer Pricing Officer who were directed to compute interest for the period of delay and in the absence of any such opportunity provided to produce the details as directed no adjustment could have been made and hence the adjustments are against a directions of the DRP. 1(xv) making an adjustment to the extent of Rs. 14,79,713/....
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....action and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 17.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i)of this Explanation provides that: (i) the expression "international transaction" shall include- ..........(c) capital financing, including any type of long-term or short-term borro....
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....of such international transaction has to be determined by Ld.TPO. In so far as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 17.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15-7-2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B 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. 17.8. Alternatively, it has been....