TaxTMI 
TaxTMI 
2025 (4) TMI 979
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....velopment support and related services and Interest on overdue receivables to the Appellant's total income. 1.2 The Ld. AO/TPO erred in not considering the decisions of the Hon'ble Income Tax Appellate Tribunal ('ITAT') passed in favour of the Assessee for prior years (AY 2017-18 and AY 2018-19) for similar issues under consideration. 1.3 The Ld. AO/TPO erred in not providing the Assessee a copy of the 'Giving Effect Order' passed by the Ld. TPO, thereby causing grave injustice to the Assessee by not providing any opportunity to verify the application of the directions of the Hon'ble DRP by the Ld. AO/TPO in the Final Assessment Order. Further the same renders the entire Assessment proceedings to be void, bad in law and the adjustment made thereto is liable to be quashed. 1.4 Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. AO /TPO has erred in not passing the final assessment order dated 30 July 2024 as per the directions of the Hon'ble DRP Panel as prescribed in section 144C (10) and 144C (13), thereby rendering the assessment order being null & void and liable to be quashed. ....
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....lter and significant related party transactions. Ground No. 3: Transfer Pricing - Interest on Outstanding Receivables 3.1 On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. TPO erred in making an adjustment of INR 2,13,79,401 and the Hon'ble DRP further erred in confirming the actions of the Ld. AO/TPO, whereby treating outstanding receivables from inter-company transaction of recovery of expenses as an international transaction and - Re-characterizing the same as loan granted by the Appellant to the Associated Enterprise ('AE'); - Arbitrarily imputing an interest based on LIBOR plus 400 basis points, without any basis 3.2 Erred in imputing interest on outstanding receivables separately than the underlying international transactions. 3.3 Erred in failing to appreciate that Appellant is a debt free company and thereby erroneously alleging that interest bearing funds were used to pass on the benefit in the form of extended credit period to AE. 3.4 The Ld. AO/Ld. TPO failed to appreciate that the Appellant has net payable position and therefore the question of charging interest does no....
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....tware development and support services 1,796,819,482 Transactional Net Margin Method 3 Rendering of warranty services 580,633,440 Transactional Net Margin Method 4 Rendering of Project and installation services 330,147,690 Transactional Net Margin Method 5 Availing of project and installation services 37,917,115 Transactional Net Margin Method 6 Rendering of sales and marketing service 402,207,281 Transactional Net Margin Method 7 Purchase of assets 2,962,521 Transactional Net Margin Method 8 Purchase of software license (Firewall, NetApp etc.) 67,456,046 Comparable Uncontrolled Price Method 9 Purchase of software license (Software VMWARE) 1,709,635 Other Method 10 Allocation of Microsoft Azure License Cost 20,144,898 Transactional Net Margin Method 11 Recovery of Expenses 454,032,201 Comparable Uncontrolled Price Method 12 Reimbursement of expense paid 129,897,046 Transactional Net Margin Method 13 Reimbursement of expenses paid 14,838,543 Comparable Uncontrolled Price Method 14 Amount collected on behalfofAE 6,325,000 Other Method ....
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....assessee, the Ld.TPO selected set of following 18 compatibles by retaining 8 comparable selected by the assessee and computed median at 20.89%. Sr. No. Company Name PLI 1. Harbinger Systems Pvt. Ltd. 0.70% 2. Evoke Technologies Pvt. Ltd. 3.62% 3. Sagarsoft (India) Ltd. 8.53% 4. Indianic Infotech Limited 10.31 % 5. Orion India Systems Private Limited 13.40 % 6. e-Zest Solutions Ltd 16.37 % 7. Sasken Technologies Ltd. 18.51 % 8. Great Software Laboratory Pvt. Ltd. 20.11 % 9. Caliber Interconnect Solutions Pvt. 20.53 % 10. Daffodil Software Pvt. Ltd. 21.25 % 11. Techwave Infotech Private Limited 22.77 % 12. Comviva Technologies Ltd. 23.34 % 13. Virinchi Ltd 24.40 % 14. X S Cad India Pvt. Ltd. 24.92 % 15. Nihilent Ltd. 25.31 % 16. C G VA K Software and Exports Ltd. 29.08 % 17. Moonfrog Labs Pvt. Ltd. 44.34% 18. Cybage Software Pvt. Ltd. 46.66 % 35^th Percentile 18.51 65^th Percentile 23.34 Median 20.89 Assessee's ALP 18.16 The Ld.TPO thus proposed ....
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....ian India i Software Support !? 27.3 Varian India is responsible for providing software development as per the scope of work provided by Varian AEs within the agreed time. After developing the software as per specifications, Varian India exports the same to Varian AEs through data communication links or any other mode as specified by the AEs from time to time. ii. Quality Testing 27.4 Varian India is also responsible to identifying bugs and conducting debugging of the same in the software codes. General Administrative and Management 27.5 Varian India also performs the required general administration and management functions like finance, accounting, legal etc. to carryout its day-to-day business operations in India. D. Functions performed by Varian AEs 27.6 The functions performed by Varian AEs are elaborated below: i Varian AEs are responsible for understanding the requirement of software. Based on the agreement with customers, Varian AEs provide software support services. ii. Accordingly, Varian AEs instruct Varian India to develop or test the software accordance w the instruction and specif....
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....isks associated with product/service failures including non- performance to generally accepted or regulatory standards. This could result in product recalls and possible injuries to end-users. Varian India provides software development services to Varian AEs. Hence, Varian India bears the service liability risk to the extent of service rendered by it to Varian AEs. Since Varian AEs being the contracting entities, are responsible for service liability risk. 4. Credit Risk This is the risk arising from non-payment of dues by customers. Since Varian India is appointed to provide software support services and it directly bills to Varian AEs, hence it does not bear credit risk of non-payment by customers Varian AEs are responsible for collection and billing activities for their respective customers. Hence, they bear the credit risk for non- payments and bad debts. 6. Technology Risk This risk arises if the market in which the Company operates in is sensitive to introduction of new products and technologies. Hence, in that case, business units may face loss of potential revenues due to inefficiencies arising from obsolete infrastructure and tools as well as obsole....
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....t; ✓✓✓ High; ✓✓Moderate Low; ✓- Indicates no responsibility Summary of the functional and Risk Analysis of Varian India and Varian AEs: 28.3 Based on the foregoing discussion it can be concluded that: * Varian India performs all the normal functions in relation to software development and related services; * Varian India does not own any non-routine intangibles; and * Varian AEs face market risk, credit risk, product, service liability and contract risk, technology risk and manpower risk for their business. Characterisation 29.3 Considering the functions performed, assets owned and risk assumed Varian India's activities are limited only to the extent of providing off shore support for software development services. Varian India does not own any intangibles. Accordingly, Varian India can be characterized as a limited risk service provider engaged in providing off shore software development services and undertaking limited manpower risk and service liability risk for its activities in India." 7. Based on the above, we shall undertake the comparability analysis of the compan....
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....es. A.6 Admittedly there are no factual differences in FAR of the assessee for the year under consideration vis-à-vis assessment year 2017-18. The Ld.DR has not brought anything on record to distinguish the above observations of the coordinate bench of this Tribunal is assessee's own case. Respectfully following the same we direct the Ld.AO/TPO to exclude these comparables from the final list. C. Techwava Infotech Pvt.Ltd The Ld.AR submitted that this company is not comparable with that of the assessee. It is submitted that, this company is engaged in providing business process outsourcing services, enterprise information management services & enterprise performance management services. It is also submitted that, this company has significant related party transaction exceeding 38%. Whereas the assessee is limited risk service provider engaged in providing off shore software development services and undertaking limited manpower risk and service liability risk for its activities in India. C.1 On the contrary, the Ld.DR placed reliance on the orders passed by the authorities below. We have perused the submission advanced by both sides in light of records plac....
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.... amount towards finance lease obligations on assets acquired on lease. Since, it is debt free company, no adjustment can be made towards notional interest on receivables. Without prejudice to above, the Ld. AR submitted that LIBOR has to be adopted. He submitted that the Ld.TPO presumed assessee's average maturity period of receivables and computed the adjustment which is not in accordance with the transfer pricing principles. 7.3 On the contrary, the Ld.DR submitted that the argument of the assessee cannot be accepted by virtue of the decision of the Hon'ble Kolkotta Special Bench in the case of Instrumentation Corpn. Ltd. v. Asstt. DIT reported in (2016) 71 taxmann.com 193, wherein it was 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 92B of the Act. Further, it was held that, once it is an international transaction, TP adjustment is to be made by applying LIBOR rate as applicable to the country where the AE is situated and for the excess period of credit allowed to AE for realisation of invoices. We have perused the submissions advanced by both sides in l....