2025 (10) TMI 85

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....ransactions in Form 3CEB :- Nature of International transactions Amount (in INR) Method used Provision of IT services 156,47,13,486 TNMM Corporate guarantee provided to the Assessee by the AEs Nil Other Method 3. The appellant-company also submitted TP study by adopting by adopting Transactional Net Margin Method (TNMM) as most appropriate method and sought to justify the international transactions are at arm's length price (ALP). On noticing the above international transaction, the AO referred the matter, under the provisions of section 92CA(1) of the Act, to the Transfer Pricing Officer (TPO) for the purpose of determination of ALP in respect of the above international transaction. 4. The TPO vide order dated 09/10/2023 passed u/s. 92CA(3), suggested the TP adjustment in respect of software development agreement of Rs. 12,84,50,000/- and also interest on delayed receivables of Rs. 5,97,26,729/- u/s. 92CA of the Act. While doing so, the TPO rejected the TP study report submitted by the appellant company and proceeded with the benchmarking of the transaction by adopting the following filters :- a. Use of current year data wherever avail....

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....ables on delayed realization of debts from the appellant's AEs and computed the ALP as under :- SOFTWARE DEVELOPMENT SEGMENT Formula Particulars Amount (in Lakhs) as per audited financials A Operating Revenue (OR) 15,647 B Operating Cost (OC); 13580 C=A-B Operating Profit (OP) 2,085 D=C/B OP/OC 15.22% G ALP OP/OC 24.68% H=G*B ALP OP 3,347 I=H+B ALP OR 16,931 J=I-A Adjustment 1,284.5 7. The TPO also suggested TP adjustment of Rs. 5,97,26,729/- in respect of interest on delayed receivables from AEs. 8. On receipt of TPO's order, the draft assessment order was passed by the AO u/s. 144C(1) of the Act on 18/12/2023 for the A. Y. 2021-22 after proposing the addition on account of TP addition suggested by the TPO of Rs. 18,81,76,729/ -. On receipt of draft assessment order, several objections were raised by the appellant before the Dispute Resolution Panel (DRP). The DRP had dismissed all the objections raised by the appellant. After receipt of the directions issued by the DRP, the final assessment order was passed vide order dated 23/10/2024 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of....

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....t giving due regard to the facts and circumstances of the business of the Appellant. 4. Comparability Analysis adopted by the Ld. TPO for determination of arm's length price 4.1 The Ld. TPO/ Ld. AO/ Ld. Panel erred in law and in facts, by rejecting companies with different financial year ending (i.e., other than 31 March). 4.2 The Ld. TPO/ Ld. AO/ Ld. Panel while applying the turnover filter rejected companies having turnovers less than INR 1 crore, however, erred in not applying an appropriate upper limit to reject high turnover companies and thereby, erred in accepting companies without considering the turnover and size of the Appellant and comparables. 4.3 The Ld. TPO/ Ld. AO/ Ld. Panel erred in law and in facts, by rejecting companies having service revenue less than 75 percent of total operating revenue. 4.4 Without prejudice to the TP study maintained, the Ld. TPO/ Ld. AO/ Ld. Panel erred in law and in facts, by applying 25 percent related party criteria in accepting/ rejecting comparables. 4.5 The Ld. TPO/ Ld. AO/ Ld. Panel erred in rejecting comparable companies having export earnings less than 75 percent of the tota....

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....PO/ Ld. Panel erred in law and on facts in not allowing appropriate adjustments under Rule 108 to account for, inter alia, differences in (i) accounting practices, (ii) marketing expenditure adjustment, (iii) research and development expenditure adjustment, (iv) working capital, and (iv) risk profile between the Appellant and the comparable companies. 10. Computation of Interest on delayed receivables 9.1 The Ld. AO/Ld. TPO/ Ld. Panel erred in law and in facts, by considering inter-company trade receivables outstanding beyond 60 days, as a separate international transaction without appreciating that such outstanding receivables are intrinsically linked to the primary international transaction of provision of IT service, which has already been held to be at arm's length. 9.2 The Ld. AO/ Ld. TPO/ Ld. Panel erred in law and in facts by characterizing the delayed intercompany trade receivables as a loan extended by the Appellant to its AEs, without appreciating that the said outstanding receivables have only arisen as a result of the primary international transaction and are not in the nature of a capital financing arrangement. 9.3 The Ld. AO/ L.d. TPO....