TaxTMI 
TaxTMI 
2025 (6) TMI 1623
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....National Faceless Assessment Centre, Delhi u/s 143(3) r.w.s 144C(13) read with section 1448 of the Income-tax Act pursuant to the directions dated 28 January 2022 by Dispute Resolution Panel, Bangalore ('DRP") u/s 144C(5) of the Act and read with order dated 14 February 2022 issued by Transfer Pricing Officer (TPO') u/s 92CA(3) of the Act, is bad in law and void ab-initio so far as it is prejudicial to the Appellant Transfer Pricing Adjustment 2. That on the facts and circumstances of the case and in law, the Learned TPO/AO erred in making transfer pricing adjustment of: a. Rs. 1,60,72,299 on account of provision of software development services by the Appellant to its Associated Enterprises ('AEs"). b. Rs. 4,70,287 on account of interest payment on external commercial borrowing from the AE. 3. That on the facts and circumstances of the case and in law, the Learned TPO/AO erred in not following the directions of the DRP which leads to deletion of transfer pricing adjustment of Rs. 1,60,72,299 while Issuing the final assessment order u/s 144 r.w.s 144C(13) and 144C(13) read with sections 143(3A) & 143(38) of the Act. ....
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....lowing companies as comparables: a) Evoke Technologies Pvt Ltd b) Sasken Technologies Ltd c) E - Zest Solutions Limited d) DCIS DOT COM Solutions Private Limited e) Akshay Software Technologies Limited f) FCS Software Solutions Limited g) Batchmaster Software Private Limited h) Kals Information Systems Pvt Ltd i) Indianic Infotech Limited j) Minvesta Infotech Limited k) SybrantTechnologies Private Limited l) Happiest Minds Technologies Pvt Ltd 11. That on the facts and circumstances of the case and in law, the Learned TPO/AO erred in rejecting Happiest Minds Technologies Pvt Ltd. on account of persistent loss filter. 12. That on the facts and circumstances of the case and in law, the Learned TPO/AO/DRP erred by not appreciating that the comparables listed in ground 10 are functionally comparable and meets the filter adopted by the TPO and therefore should be included in the list of comparables. 13. That on the facts and circumstances of the case and in law, the Learned TPO/AO/DRP erred in wrong application of persistent loss making filter. ....
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....abad (in short "TPO") under Section 92CA of the Act. 5. The TPO vide his order passed under Section 92CA(3) of the Act, dated 28/01/2021 suggested the following adjustments: Sl no Description Adjustment U/s. 92CA(3) 1. Software Development Services 2,16,96,351 2. Excess amount of interest paid towards Rupee Denominated External Commercial Borrowings 4,70,287 Total borrowings U/s. 92CA 2,21,66,638 6. The AO vide his draft assessment order under Section 143(3) r.w.s 144C of the Act made a Transfer Pricing (TP) adjustment of Rs. 2,21,66,638/- (supra) to the Arm's Length Price (in short "ALP") as was determined by the TPO. 7. The assessee company objected to the adjustments made by the AO/TPO and filed objections before the Dispute Resolution Panel-1, Bangalore (in short "DRP"). 8. The DRP vide its order passed under Section 144(5) of the Act, dated 28.01.2022 though scaled down the TP adjustment of Software Development Services (SDS) to Rs. 1,60,72,299/-, but upheld the TP adjustment to the interest paid on Indian Rupee (INR) denominated External Commercial Borrowings (ECB's). 9. Thereafter, the A.O vide his final order o....
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....ench" of the Tribunal in the case of Invesco (India) Private Limited vs. DCIT, Circle 2(2), Hyderabad - ITA-TP No. 111/Hyd/2022 & 506/Hyd/2022; dated 29/01/2025. 14. Per contra, the Learned Departmental Representative (in short "Ld. DR") supported the order of the A.O/TPO. It was submitted by him that as the AO had applied the appropriate filters and the selected comparables were functionally comparable, therefore, there was no substance in the Ld. AR's claim for exclusion of the aforesaid five (5) comparables for the solitary reason that they had a higher turnover as in comparison to the assessee company. 15. Apropos, the benchmarking of the interest paid by the assessee company to its AE on the ECB denominated in Indian rupees, the Ld. DR supported the orders of the AO/TPO. It was submitted by him that since the ECB was denominated in Indian rupees, it was factually a "Masala Bond" Transaction of the assessee, and therefore, there was no infirmity on the part of the TPO/DRP in benchmarking the same based on the other public Masala Bond rates as the most appropriate method under CUP. It was submitted by him that the domestic rates like SBI- PLR could not be adopted as a comp....
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.... 45,639.6 3. Larsen & Toubro Infotech Ltd 22.23% 6,182.9 4. Mindtree Ltd 17.83% 4,752.6 5. Tata Elxsi Ltd 24.58% 1,233.6 22. Ostensibly, the financials of the assessee company reveal that its turnover for the subject year was 25.56 crore (approx.). Considering the turnover of the assessee company, we concur with the Ld. AR that the aforementioned five (5) comparable selected by the TPO having exceptionally high turnovers are typically the market leaders possessing significant brand value, economies of scale and access to advanced technology and larger client basis, which, thus, fundamentally differentiates them from a smaller or medium sized company like the assessee company before us. We are of the firm conviction that the TPO/ DRP had erred in not appreciating the significance of the "turnover filter" while identifying the appropriate parties for the SDS segment of the assessee company. Also, we find substance in the Ld. AR's claim that the aforesaid comparables viz., (i). Infosys Ltd; (ii). Wipro; (iii). Larsen & Turbo Infotech Ltd; (iv). Mindtree Ltd; and (v). Tata Elxsi Ltd., having substantial turnovers, are the leaders of the industry....
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....r that was significantly higher than that of the assessee company, the same was to be excluded from the list of comparables. Further, we find that the ITAT, Hyderabad "A" Bench in the case of Infor (India) Private Limited vs. DCIT [2022] 143 taxmann.com 212 (Hyd.), had held that where the selected company was having a huge turnover and high profit margin as compared to the assessee company, it could not be selected as a comparable. Also, a similar view had been taken by the Bangalore "B" Bench of the Tribunal in the case of Tektronix India (P.) Ltd vs. ACIT [2023] 153 taxmann.com 30 (Bangalore - Trib.). The Tribunal taking cognizance of the fact that the turnover of the assessee company was Rs. 90.90 crores, had directed that the companies having turnover of less than Rs. 1 Cr or turnover more than Rs. 200 crores were to be excluded from the comparability analysis. Also, the ITAT, Bangalore "C" Bench in the case of IG Infotech (India) (P.) Ltd vs. ACIT [2023] 153 taxmann.com 684 (Bangalore - Trib.) had held that where the assessee providing SDS had a turnover of Rs. 48.8 crores, the companies whose turnover in the current year was more than Rs. 200 crores should be excluded from th....
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....red to discharge its interest liability and principal amount liability in terms of Indian Rupees only, which was popularly known as Masala Bonds concept. The TPO based on his aforesaid conviction identified the interest rates of two comparable transactions (Masala Bonds) from the public data basis, viz., (i) HDFC: 7.875%; and (ii) NTPC: 7.48%, and called upon the assessee company to explain that as to why the "Comparable Uncontrolled Price" (in short, "CUP") method be not adopted for benchmarking the transaction of interest payment on the Indian rupee denominated ECBs. The TPO after considering the average interest rate of 7.68% per annum (average of HDFC and NTPC rates), based on his aforesaid observations made a TP adjustment of Rs. 4,70,287/-. The aforesaid TP adjustment made by the TPO was thereafter upheld by the DRP. 28. As observed hereinabove, the Ld. AR has assailed the rejection by the TPO/DRP of the benchmarking of its aforesaid international transaction, i.e interest paid on Indian Rupee denominated ECBs that was done by applying SBI-PLR, and thereafter substituted the same by applying the CUP Method taking the interest rate paid on Masala Bond transactions as compar....