TaxTMI 
TaxTMI 
2025 (3) TMI 640
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....ided by the AE, free of cost, as a part operating cost to the assessee. 4. The facts in brief are that the assessee is an Indian company and engaged in the business of sales & marketing analytics and business consulting services to the pharmaceutical & healthcare industry. The assessee company has two subsidiaries namely Pharma ARC Inc (USA) and Pharma ARC Consulting Services Gmbh (Switzerland). The company during the year has entered various international transactions with its AEs including the provision of IteS Services. The assessee to benchmark such international transaction (provision of ITES services) has adopted the TNMM method as most appropriate method to compute the ALP. The assessee by applying the TNMM method computed its PLI as OP/OC which comes 14.79% and based on TP study claims that the transaction of provision of ITES services is at ALP. 4.1 The TPO, however, was not satisfied with the process of computation of PLI made by the Assessee. As per the TPO, the cost incurred by the AEs relating to ESOP provided to the employee of the assessee company and notional cost/depreciation of assets either tangible/intangible provided by the AEs free of cost to assessee fo....
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....ing cost of the assessee to work out the PLI of the assessee. In this regard, we find relevant to refer the judgement of Hon'ble Delhi High Court in the case of M/s Li and Fung India Private Limited (40 taxmann.com 300 (Delhi)) where the Hon'ble Delhi High Court while adjudicating the decision of the Tribunal held that the approach of the TPO and the tax authorities in essence imputes notional adjustment/income in the assessee's hands on the basis of a fixed percentage of the free on board value of export made by unrelated party vendors. The relevant extract of the order is as under: 39. The TPO's determination enhanced LFIL's cost base for applying the operating profit over total cost margin. LFIL's compensation model is based on functions performed by it and the operating costs incurred by it and not on the cost of goods sourced from third party vendors in India. Allotting a margin of the value of goods sourced by third party customers from Indian exporters/vendors to compute the appellant's profit is unjustified. This Court is of opinion that to apply the TNMM, the assessee's net profit margin realized from international transactions had to be ca....
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....if the operating cost of Commvault India is more than the revenue earned from distribution of software products. Accordingly, the AE has not charged any amount towards the license fee to Commvault India during the year under consideration. 6.2 In relation to activity of purchase of software for distribution, the Ld. TPO has held that the company is not acting as a distributor but rendering service to its AE by selling licenses on behalf of the AEs. The ld. TPO observed that the AE has supplied products free of cost to assessee for sale in India. This transaction was not reported in TP document as the receipt of products was free of cost and the sales were made to domestic parties. Accordingly, the assessee had treated the same as not falling within the definition of international transaction. The ld. TPO examined the distribution and license agreement dated 01/04/2010 and the terms and conditions agreed upon thereon. From the same, he concluded that even though the cost price as nil, but the product has a price. Therefore, the transaction of purchase is an international transaction with the AE in which the purchase cost is nil. He observed that if no cost is paid towards t....
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.... 5,37,13,991/- Adjustment - Rs. 1,66,53,598/- The aforesaid working and the action of the ld. TPO was upheld by the ld. DRP. 6.5 The ld. AR vehemently argued that adoption of re-sale price method (RPM) would be ideal to benchmark the transactions carried out by the assessee with regard to the software distribution activity as against the Transaction Net Margin Method (TNMM) adopted by the ld. TPO and upheld by the ld. DRP. The ld. DR also agreed for adoption of resale price method in the instant case. We find as per 10B(1)(b) of the Income-tax Rules, re-sale price method could be applied where the property or service purchased from Associated Enterprises are resold to an unrelated enterprise. The facts of the assessee's case squarely fit into this parameter as assessee herein has purchased the software free of cost from its AE and had sold it to unrelated parties in India. Hence, we hold re- sale price method should be the most appropriate method in the instant case. Moreover, the re-sale price method is traditional transaction method which would always be preferable to transactional profit method like profit split method and TNMM. 6.6 Yet ....
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....re it was held as under; 21. The TPO had also alleged that the assessee had not accounted for its cost regarding stock option granted to the employees of the assessee company by its AE and no doubt, the amount of Rs. 2.00 Crores added by the A.O. also includes the value in respect of such ESOP as well as cost of administrative and management support services received by its AE and the amount payable for using assets of AE. Regarding the value of ESOP, it is held in various Tribunal orders that it is not a part of operating cost and therefore, the value of ESOP has to be excluded from the amount of Rs. 2.00 Crores worked out by the TPO as cost incurred by the assessee from its AE without paying anything. 8.3 Based on the above, we can safely conclude that the stand of the lower authorities for including the notional cost (discussed above) in calculating the PLI of the assessee in the given facts and circumstances is not sustainable. 8.4 Moving further, it is necessary to take a note of the amendment brought under the Income Tax Amendment Rule 2017, where under rule 10TA in the definition of operating expense, share based compensation has been included in the definitio....
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.... filters, the TPO selected a set of 13 comparable companies. Using the comparable companies' data, the TPO calculated the PLI of the comparable companies at 24.37% as compared to the margin declared by the assessee at 3.68%. The list of comparable companies and the detailed working of the PLI by the TPO is available on pages 46 and 47 of the TPO order. Consequently, the TPO determined an upward adjustment of Rs.69,18,16,840/- only and added the same to the total income of the assessee. 11. The aggrieved assessee filed an objection before the Ld. DRP, and among other contentions, objected to the comparability of the new set of comparable companies selected by the TPO. The learned DRP, after considering the facts in totality confirmed the order of the TPO after excluding one company i.e. ultra marine & pigment ltd. (SEG) subject to the inclusion two more company namely Cheers Interactive India Pvt. Ltd. And Informed Technologies India Ltd. in the list of comparables. Pursuant to the direction of the learned DRP, the ALP margin was recalculated at 22.90%, as against 24.37% computed by the TPO in the original proceedings. 12. Being aggrieved by the order of the learned DRP, the a....
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.... learned TPO, lacks segmental data and therefore, should be rejected. Fails export earnings filter proposed to be applied by the learned TPO for the two previous years, i.e., FY 2015-16 and FY 2014-15 Functionally different - Engaged in KPO services No segmental details are provided. 14. 'Accordingly, following the aforesaid decision of the tribunal, we hold that the Eclerx Services Ltd and Vishal Information Technologies Ltd. (earlier Coral Hub Ltd.) are liable to be rejected as invalid comparable. "As regards the other comparables namely Crossdomain Solutions and Datamatics Financial Services, we find that the Transfer Pricing officer and the Id. CTJ(A) have found their functions to be similar to that of KPO and that of E-clerx and Vishal technologies. Since, the /TAT has duly upheld the rejection of the aforesaid companies, i.e., these two companies are also liable to be rejected. Furthermore, Datamatics Financial Services also fails the export filter of 75% which has been adopted by the transfer pricing officer. Hence, in the background of aforesaid, we hold that following comparable are to be rejected: • Eclerx Serv....
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....nt/promotional expenditure. Functionally not comparable No segmental details are available. Advertising and sales promotional expenses 18. "We have given a careful consideration to the rival submissions and are of the view that it would be just and appropriate to set aside the question of comparability of Manipal Digital Systems Pvt. Ltd., to the TPO/AO to examine as to whether the Junctional profile of the assessee and the assesses in the decisions cited by the learned AR remains the same in Assessment Year 2017-18 as it was in Assessment Year 2016-17" 12.1.10 Accordingly, the above comparable i.e., Manipal Digital Systems Pvt. Ltd. is directed to be excluded from the list of comparables. 13.1 In view of the above, we direct the AO/TPO to exclude this company Manipal Digital Systems Pvt. Ltd from the list of comparables. 4. CES Ltd.- M/s Exxonmobil Services and Technology Pvt Ltd [IT(TP)A No. 958/Bang/20221 - (Case Law PB pg 177 - para 14 onwards) 14. The Id. A.R. submitted that CES Limited ("CES") is functionally different and therefore ought to be rejected Functionally different - engaged in KPO ser....
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....onal publisher through every stage of the author to reader publishing process and provides the digital first strategy for publishing contents, production and transformation, delivery and customer support. Thus, NPS Ltd. Has been rejected based on functional incomparability. Hence, on the same logic SPI Technologies Ltd. to be excluded." 18.1 In view of the above, we direct theAO/TPO to exclude this company SPI Technologies India Pvt. Ltd. from the list of comparables. The Appellant submits that all of the above companies have also been excluded in the case of M/s. Deliverhealth Solutions India Pvt. Ltd. [IT(TP)A No. 342/Bang/2022] Further, the Appellant also prayed for the exclusion of following companies - Inteq BPO Services Pvt. Ltd. Inteq - M/s Deliverhealth Solutions India Pvt. Ltd. [IT(TP)A No. 342/Bang/2022] - (Case Law PB pg 66 - para 5.5 onwards) 5.5 The Ld.AR has submitted that this comparable has been excluded by Coordinate Bench of this Tribunal in case of Mindteck (India) Ltd. vs. DCIT in IT(TP)A No. 21 1/Bang/2022 for A. V. 2017-18 vide order dated 30. 11.2022. He submitted that the assessee in Mindteck (India) Ltd. vs. DCIT....
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....ompany is dissimilar is that of company is not acceptable to the Id DRP" 27.5 "We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this comparable came for consideration in the case of Vee Technologies Pvt. Ltd. cited (supra), wherein held that this company is involved in business process management services and cannot be considered as a comparable to a company providing ITeS such as the assessee. Being so, we direct the AO/TPO to exclude Inteq BPO Services Pvt. Ltd. from the list of comparables. Directed accordingly.' 5.5.4 Nothing contrary to the above has been brought on record by the Ld.DR. We therefore do not find any reason to interfere with the above observations. Respectfully following the view taken in Mindteck (India) Ltd. vs. DCIT (supra) by Coordinate Bench, we direct exclusion of this comparable from the final list. Accordingly, ground nos. 2.1 and additional ground raised by the assessee stands partly allowed. 2. Vitae International Accounting Services Pvt Ltd- M/s Primera Medical Technologies Private Limited [ITA No. 381/Hyd/2022] - (Case Law PB pg....
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....ious selection as to the quality and nature of content of service has to be taken into account in finalizing the list of comparables. As observed by the Hon'ble Delhi High Court Rule 1OB(2)(a) of the Income Tax Rules, 1962 ("the Rules") mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/product characteristics. 17. Going by this view taken by the Special Bench in the case of Maersk Global Centres (India) (P) Ltd., (supra) and Hon'ble Delhi High Court in the case of Rampgreen Solutions (A) Ltd., (supra), we find that the functions performed by Vitae Internationa/Accounting Services Pvt. Ltd., Domex E- Data Pvt. Ltd, and MPS Ltd., fall broadly in the class of ITeS, but those are akin to the functions enumerated in clause (iv) to (vii) of Rule 10TA(g) of the Rules, thereby rendering themselves to be non- comparables to the assessee. We, therefore, direct the learned Assessing Officer/learned TPO to exclude these entities from the list of comparables. Extracts from judicial pronouncement in case of M/s Rage Frameworks India Private Limited [ITA No.674/PUN. /2022]- - (Case Law PB pg 5- para 6 onwards) 6. We now....
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....cted issue raised by the assessee in ground No. 10 is that the learned DRP/AO/TPO erred in confirming the addition of Rs.9,09,83,702 on account of notional interest to be charged on overdue receivables from the AE. 15.4 During the proceedings, the TPO observed that the assessee had reported receivables of Rs. 167,44,48,423.00 from associated enterprises, which appeared to represent interest-free loans disguised as delayed receivables. According to the TPO, such receivables from associated enterprises constitute an international transaction that must be determined at arm's length price under the provisions of section 92CA of the Act. Consequently, the TPO computed the arm's length interest on the outstanding receivables at Rs.9,09,83,702.00 using 14% rate of interest being SBI-PLR for the AY 2016-17 and made an upward adjustment to the total income of the assessee. 15.5 The assessee raised objections before the learned DRP but did not succeed. Consequently, the DRP upheld the findings of the TPO. 16. Aggrieved by the order of the ld. DRP/ TPO/AO, the assessee has filed an appeal before us. 17. The learned AR before us submitted that the authorities below have err....
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....hin time. Therefore, extending of credit beyond the normal period of sixty days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of sixty days. On this premise the Hon'ble High Court upheld the Tribunal computing interest at LIBOR rates as the rate prevailing in country where the loan is received/consumed by the AE by observing that the same cannot be faulted. The relevant extract of the judgment reads as under: 7. We note the finding of fact by the Tribunal that no interest is charged by the respondent assessee from its AEs as well as its non-AEs for delayed payment of export receivable and expenses. Further finding of fact that operating margin earned by the respondent assessee in respect of its transactions with AEs is higher than that earned on transactions with non-AEs entities. Thus, keeping the above finding of fact, we proceed to examine the Revenue's challenge to the impugned order of the Tribunal. The entire exercise of determining the ALP in respect of the AE transaction is to arrive at the price which would be the normal pric....
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.... claimed interest expenses on the CCD issued to the AE amounting to Rs. 14,42,29,801.00 which was disallowed by the TPO treating the CCD as investment in the equity of the company. The view taken by the TPO was subsequently upheld by the learned DRP. 22. Being aggrieved by the direction/order of the learned DRP/TPO/AO, the assessee is in appeal before us. 23. The learned AR before us submitted that the identical issue was raised in the own case of the assessee for the assessment year 2015-16 in ITA No. 1549/Bang/2019 which was decided by the ITAT in its favour vide order dated 19-06-2020. Thus, the learned AR submitted that the issue on hand stands covered in favour of the assessee. 24. On the other hand, the learned DR vehemently supported the order of the authorities below. 25. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the issue raised on hand stands covered in favour of the assessee by the order of the ITAT cited above in the own case of the assessee. The relevant extract of the order of the ITAT is reproduced as under: 9. We have given a careful consideration to the riv....
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....g the delayed contribution under the PF Act. 28. At the outset, the learned AR for the assessee before us fairly agreed that the issue on hand stands covered against the assessee by virtue of the judgement of Hon'ble Supreme Court in the case of Checkmate Services Private Limited Vs Commissioner of Income Tax reported in 143 taxmann.com 178 (SC) wherein it was held as under: 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as ....