AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (6) TMI 647
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....ssued by the Dispute Resolution Panel - 1, Bengaluru (DRP), on the following grounds: On the facts and in the circumstances of the case and in law, the Learned AO/ TPO/ DRP has: GENERAL GROUND 1. Erred in assessing the total income of the Appellant at Rs 45,578,858 as against Rs 24,437,726 as computed by the Appellant in its return of income. TRANSFER PRICING MATTERS Rejection of transfer pricing documentation maintained and undertaking fresh search of comparables: 1) Rejection of the transfer pricing documentation maintained by the assessee in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("Rules") and undertaking a fresh economic analysis during the course of assessment proceedings and accordingly making an adjustment of Rs 77,411,952 to the international transactions of providing software services to its AE; Rejection of use of multiple year data 2) Rejecting the use of multiple year data and using data for the FY 2011-12 only; Use of additional filters 3) Inter-alia use of the following additional/modified filters in undertaking the comparative analysis and....
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....ce have been aggregated for determination of ALP under TNMM. (ii) Not appreciating the fact that under TNMM, the impact of outstanding receivables on the working capital adjustments have already been taken into account in determining the arm's length margin hence there is no need of imputing interest on outstanding receivables again. (iii) Not appreciating the facts and circumstances surrounding the receivables and re-characterising the outstanding receivables as unsecured loans advanced to AEs. (iv) Not appreciating that the instant transaction is not covered in the definition of international transaction as defined u/s 92B of the Act in the facts and circumstances of the case. 3. Without prejudice to the above, not undertaking an objective economic analysis to determine the arm's length price of the outstanding receivables by (i) Not appreciating that the receivables due from overseas AE's are in foreign currency and hence interest, if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans. (i.e. at USD "LIBOR plus"). (ii) Not following the directions of Hon'bl....
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....raised by the assessee and has finally selected 13 comparables with average OP/OC of 20.05% and after allowing working capital adjustment, finally computed operating margin at 18.5%. Since the appellant margin was 11.87%, proposed TP adjustment of Rs. 1,36,52,580/- to the provisions of software development services to the AEs. 4. The TPO further noted that the assessee has outstanding receivables of Rs. 6,06,46,787/- from its AEs. After considering the relevant objections raised by the assessee has treated the outstanding receivables as international transactions u/s 92B of the I.T. Act, 1961 and has computed the interest receivables on outstanding receivables from AE by adopting the SBI PLR at 14.75% and proposed addition of Rs. 89,45,401/-. In pursuant to the TP adjustment as suggested by the Assessing Officer, the Assessing Officer has passed draft assessment order u/s 143(3) r.w.s. 92CA(3) on 29.02.2016 and made addition towards TP adjustment suggested by the TPO. The Assessing Officer had also made addition towards belated payment of employees contribution to PF and addition towards credit balance written back and disallowance of professional tax payable u/s 43B of the I.T.....
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....e further submitted that L&T Infotech is engaged in development at software products as evident from the disclosures in the Annual Reports, whereas the appellant is a captive service provider to its AEs in respect of provision of software development services. He further submitted that L&T Infotech is a giant software company and its turnover is much higher than the turnover of the appellant company and on this filter itself, the L&T Infotech should be excluded. However, he fairly conceded when the Bench has posed a question whether L&T Infotech was considered by the appellant in their TP study, he has admitted that it was originally selected by the appellant as comparable to the appellant company. 9. The learned DR, on the other hand, supporting the order of the TPO/DRP submitted that it is not just proper and correct on the part of the appellant to seek exclusion of L&T Infotech Ltd, when the appellant itself has selected the said company as comparable in their TP study. Further, the assessee could not adduce any reason as to how L&T Infotech is functionally dissimilar from the assessee, except stating that its turnover is much higher than the appellant's turnover. Since it wa....
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....st reasons given by the learned Counsel for the assessee is that the above company is functionally different and had insufficient segmental information. The argument of the learned Counsel for the assessee is fallacious for the simple reason that when the company is functionally different and insufficient information available in their annual report with regard to the comparison of data, then how and why the appellant company has selected the above company in the final list of comparable is not explained. Further, on broad analysis of the profile of the appellant company, on comparison with the Persistent Systems Ltd, in our considered opinion, both are functionally similar except for the reason that the Persistent Systems Ltd is having higher turnover when compared to appellant company. Since the appellant itself has included the above company in the final set of comparables, the argument of the learned Counsel for the assessee that on turnover filter, this company should be excluded cannot be accepted. In so far as various case law relied upon by the assessee, although there are divergent views on this issue, but the fact remains that when the appellant is not able to offer any e....
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....s been enlarged so as to include the loan transaction or any receivables from AE. Therefore, we reject the argument of the assessee. In so far as imputing interest, in our considered opinion, the prevailing currency in which the outstanding receivable is denominated by the assessee and its AEs, is important criteria if receivable is denominated in foreign currency, then appropriate rate would be to adopt LIBOR and further a mark up for the risk and other parameters. In case the outstanding receivable is denominated and payable in Indian Rupee, then the prevailing rate of interest in India needs to be adopted for bench marking the outstanding receivables. This has been further strengthened by the safe harbor rules notified by the CBDT and as per the said rules the advance or intra group loan referred to item No.(iv) of Rule 10C, where the amount of loan is denominated in Indian rupee, then the SBI PLR rate should be adopted. Where advance or intra group loan referred to in item (iv) of Rule 10C where the amount of loan is denominated in foreign currency, then 6 months LIBOR rate with appropriate mark up should be considered. This is further fortified by the decision of the Hon'b....