TaxTMI 
TaxTMI 
2025 (7) TMI 1489
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....nal transactions with its AE's:- (i) Provision of software and other services; (ii) Provision of Global IT Services; (iii) Purchase of fixed assets; (iv) Sale of fixed assets; & (v) Payment towards Artistocrat Super Share Plan on behalf of employees. In the instant appeal the assessee has assailed adjustment made in respect of provision of software and other services. The assessee applied Transactional Net Margin Method (TNMM) to benchmark international transaction. The method applied by the assessee was accepted by the Transfer Pricing Officer (TPO). The margins of the assessee i.e. OP/OC is 15.59% which has been again accepted by the TPO. The assessee by way of ground no. 4 & 5 of appeal has assailed inclusion/exclusion some of the comparable companies while finalizing the list of comparables by the TPO. The assessee is seeking exclusion of Cybage Software P. Ltd., Sagarsoft (India) Ltd. and Nihilent Ltd. on the ground that they are functionally different. The assessee is seeking inclusion of two comparable companies i.e. R Systems International Ltd. and Infomile Technologies Ltd., which were originally included in the list of compa....
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....ftware services, business consultancy in the area of enterprise transformation, change and performance management and is also providing IT related services. No segmental information is available in public domain with regard to activities carried out by the company. He refers to financial statement of the company for the period 01.04.2019 to 31.03.2020 at pages 38 to 47 of the paper book to buttress his argument that no segmental data is available in public domain. He further pointed that during the relevant period the company acquired business of Hyper collective Creative Technologies P. Ltd. an advertising agency. 3.4. In respect of Sagarsoft (India) Ltd., the ld. Counsel submits that as the company is providing end to end Hi-Tech Software-as-a-Service and other services which include creation of complete software and delivering created products to and customers the company cannot be selected as comparable due to difference in functionality. Further segmental information between products and services are not available. He further pointed that a perusal of financial statement would show that overseas travelling expenses of the said company are as high as 21.16%, whereas travelli....
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....he assessee does not pay interest on account of any delayed payment made to third party operational creditors. No inference can be drawn that any funds carrying interest was utilized to grant extra credit period to the AE's. 7. In respect of ground no. 10 of appeal relating to computation of alleged interest on outstanding receivables. The ld. Counsel submits that the TPO has erred in computing interest on outstanding receivables on each invoice ignoring the fact that there were instances where the payments was received much prior to the credit period allowed by the TPO itself. The assessee had provided detailed working, however, the TPO ignored the working and computed the notional interest on outstanding receivables. Without prejudice to the primary argument, the ld. Counsel submits that outstanding receivables cannot be characterized as loan and advances to AE's. Even, if an adjustment is warranted and notional interest is to be imputed on a LIBOR base rate then an appropriate markup should be arrived at through proper bench marking analyses. The ld. Counsel further pointed that the weighted average credit period of the assessee is 27 days, whereas, the TPO has considered ave....
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....included said company in the list of comparables for the reason that since the company is also engaged in software services it is comparable. Whereas, according to the assessee the said company is not comparables as the company is engaged in creation of complete software and delivering created products to end customers. Further no segmental information regarding products and services is available in public domain. The assessee further pointed that overseas travelling expenses are as high as 21.16%, whereas the assessee, has travelling expenditure of 1.23% of the total turnover. Referring to the traveling expenses, the argument of ld. Counsel is that Sagarsoft (India) Ltd. is engaged in on-site services, which is not in the case of the assessee. A perusal of Financial Statements of Sagarsoft (India) Ltd. for the Financial Year ending on 31.03.2020 at pages 303 to 315 shows that the company is only engaged in software development and consultancy activities, hence, no segmental reporting by the assessee. As per the Financials there is no product development by the company. From perusal 24th Annual Report relating to Financial Year 2019-20 of the company, it is not emanating that there....
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....ayed for inclusion of R Systems International Ltd. and Infomile Technologies Ltd. R Systems Ltd:- R Systems Ltd. was rejected by the TPO for the reason that the company is having different financial year ending. If a company is functionally comparable, the same cannot be rejected merely for the reason that it has different Financial Year ending. If, quarterly results are available the same can be considered to have financial data of congruent period. If calenderization is done and financial data is aligned with the tested party's fiscal year, the company can be selected as comparable. The Hon'ble Delhi High Court in the case of CIT vs. Mckinsey Knowledge Centre India Pvt. Ltd. (supra) approved the decision of the Tribunal holding that if the comparable is that if the comparable is functionally same as that of tested party then same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings. Similar view has been expressed in v....
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....tors varies. High levels of working capital create costs either in the form of incurred interest or in the form of opportunity costs. Working capital yields a return resulting from a) higher sales price or b) lower cost of goods sold which would have a positive impact on the operational result. Higher sales prices acts as a return for the longer credit period granted to customers. Similarly in return for longer credit period granted, a firm should be willing to pay higher purchase price which adds to the cost of goods sold. Therefore, high levels accounts receivable and inventory tend to overstate the operating results while high levels of accounts payable tend to understate them thereby necessitating appropriate adjustment. The appropriate adjustments need to be considered to bring parity in the working capital investment of the assessee and the comparables rather than looking at the receivable independently. Such working capital adjustment takes into account the impact of outstanding receivables on the profitability. In this regard, the reliance is placed on the following rulings wherein the need to undertake working capital adjustment has been appreciated by the Hon'ble Trib....