TaxTMI 
TaxTMI 
2025 (10) TMI 902
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.... AO') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - I, Bengaluru ('Hon'ble DRP') on the following grounds: On the facts and circumstances of the case and contrary to law - 1. The Deputy Commissioner of Income tax (Transfer Pricing Officer) - 2, ('Ld. TPO') and the Deputy Commissioner of Income Tax, Circle 2(1), Hyderabad ('Ld. AO') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - I, Bengaluru ('Hon'ble DRP') erred in making an addition of Rs. 33,90,99,385/- (based on the provisions of chapter X of the Income Tax, 1961 ('the Act')) and the said addition being wholly unjustified is liable to be deleted. 2. The Ld. TPO erred in, and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO in rejecting the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ('Rules') and making an adjustment of Rs. 33,90,99,385/-, 3. The Ld. TPO erred in, and the Hon'ble DRP further erred in upholding / confirming th....
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.... / confirming the action of the Ld. TPO in not considering provision of bad and doubtful debts as operating in nature. 11. The Ld. TPO erred in, and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO in :- 11.1 In considering trade receivables from AE as a separate international transaction and further erred in proposing transfer pricing adjustment in the nature of interest on receivables amounting to INR 36,28,335 /- 11.2 Not appreciating that the instant transaction is not covered in the definition of international transaction as defined u/s 92B of the Act in the facts and circumstances of the case; 11.3 Delinking the inter-company receivables arising from the main international transactions and proceeding to benchmark the same as a separate transaction. 11.4 Taxing notional interest to tax without considering that neither the AE nor the Appellant charges any interest in case of any delay in payment. 11.5 Without prejudice to above, the Ld. TPO erred in, and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO in determining the arm's length interest on th....
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....udicial precedent of the Hon'ble Income Tax Appellate Tribunal (ITAT) Hyderabad, in the case of Hyderabad Infratech Private Limited wherein int was held that CCDs cannot be categorized as a loan and LIBOR cannot be considered for determining the ALP of the international transaction of interest on CCD. g) Not considering the findings of the working paper published by the Reserve Bank of India on January 21,2022 on the topic: India's External Commercial Borrowings ('ECB's) - Determinants and Optimal wherein it has been observed that the total cost of a foreign currency denominated loan translated to a total cost of 12% to 13% post hedging which is far higher than the interest rate of 10% adopted by the Appellant. 14. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal. 3. The brief facts of the case are that, the assessee is a company engaged in the business of providing Information Technology Enabled Services ("ITES") to its various foreign subsidiaries ("AEs"). The assessee filed its return of income for Assessment Year 2021-22 on 14.03.....
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....nditure has resulted in distortion of operating margin and is contrary to the settled principles of transfer pricing. Accordingly, the Ld. AR prayed before the Bench to make a suitable direction to the Ld. AO/TPO to exclude domestic revenue and expenditure while computing the operating margin. 7. Per contra, the Learned Departmental Representative ("Ld. DR") placed reliance on the orders of the Ld. AO/TPO. It was submitted that no interference is warranted as the lower authorities have adopted a consistent approach and the operating margins were computed on the entity-level basis, which according to the Ld. DR, reflects the true profitability of the assessee. 8. We have carefully considered the rival submissions and perused the material available on record. The issue under consideration is limited to whether the domestic revenue and expenditure should be excluded while computing the operating margin for determination of ALP in respect of international transactions relating to provision of ITES. On perusal of the order of the Ld. TPO, we find that no specific reasoning has been given while including domestic revenue and expenditure. Similarly, the Ld. DRP has also not rendered....
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....ustified and no interference is called for. 11. We have considered the rival submissions and perused the material available on record. The short issue for adjudication is whether the RPT filter should be computed on aggregate basis or separately for revenue and expenditure. It is not disputed that, in the assessee's own case for AYs 2017-18 and 2018-19, the Ld. TPO had applied the aggregate method of computation of RPT filter. In the year under consideration, however, without assigning any cogent reason or pointing out any change in facts or law, the Ld. TPO has changed the methodology by adopting separate computation for revenue and expenditure. We are of the considered view that in the absence of any change in facts or law, the principle of consistency must be followed. Once the methodology has been accepted in earlier years and there being no distinguishing feature in the present year, the same method should be applied. Our view also finds support from the decision of Bangalore Bench of the Tribunal in Toyota Kirloskar Motor Pvt. Ltd. vs. ACIT (supra), wherein at para nos.28 & 28.1 of its order, the Tribunal has held as under: "28. Ground Nos. 3 & 4 is related to....
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....d. AO/TPO to recompute the RPT filter on aggregate basis across all comparables and thereafter rework the comparability analysis. 13. Under the ground nos. 5, 6 & 7 the assessee is seeking exclusion of Infosys BPM Limited, Sutherland Global Services Private Limited, Integra Software Services Private Limited and MPS Limited from the list of comparables. As regards exclusion of Infosys BPM Limited, the Ld. AR contended that this company fails the RPT filter if it is applied on an aggregate basis by considering both revenue and expenditure. It was further submitted that Infosys BPM Ltd cannot be compared functionally as it enjoys significant brand value and intangibles, giving it an advantage over captive service providers like the assessee. 13.1 With respect to exclusion of Sutherland Global Services Pvt. Ltd., it was submitted that this company too fails the RPT filter for AY 2019-20 if the aggregate method is applied. Hence, its margin for AY 2019-20 should be excluded while computing the average margin of comparables. 13.2 Regarding exclusion of Integra Software Services Pvt. Ltd. and MPS Ltd., the Ld. AR relied on the decision of this very Tribunal in the case of Infor I....
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....We have also gone through Page Nos. 2376 to 2382 of the paper book forming part of the annual financial statements of MPS and found that MPS is involved in content development and transformation. We have also gone through Par No.6 of the decision of the Coordinate Bench of the Tribunal in the case of Rage Frameworks India (P) Ltd v/s ACIT (Supra), which is to the following effect: "6. We now proceed to deal with the assessee's ground no.2.1 seeking to exclude the foregoing comparable companies in its Information Technology Enabled Services [in short "ITES"] segment. It emerges during the course of hearing that this tribunal's recent coordinate bench's order in Schlumberger India Technology Centre (P.) Ltd. vs. DCIT [2022] 142 taxmann.com 243 (Pune-Tribunal) has already excluded M/s. Manipal Digital Systems Private Ltd., Domes e-Data Private Ltd., and MPS Ltd., i.e. three of the above comparable entities as not functioning in "ITES segment". The other entities included by the learned lower authorities i.e., Vitae International Accounting Services Private Limited, Access Healthcare Services Private Limited and Integra Software Services Private Limited are also fo....
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....ing to the related party disclosure of audited financial statements of Iservices, placed at page nos. 2269 and 2270 of the paper book, it was pointed out that the total related party transactions during the year are Rs. 40,56,000/- (Rs.3,60,000/- + Rs. 36,96,000/-). He further submitted that the total turnover of the company is Rs. 12,90,56,540/ -. Therefore, the RPT works out to approximately 3% of turnover, which is well within the 25% threshold prescribed. It was contended that once the RPT filter is correctly applied, Iservices India Pvt. Ltd. passes the test and therefore deserves to be included in the list of comparables. Accordingly, the Ld. AR prayed for a direction to the Ld. AO/TPO to include Iservices India Pvt. Ltd. in the final set of comparables. 16.1 As regards inclusion of Cheers Interactive India Pvt. Ltd the Ld. AR submitted that the Ld. TPO, at page 36 of its order, excluded this company on the reasoning that it failed the RPT filter. In doing so, the Ld. TPO considered RPT income of Rs. 31,66,578/- and RPT expenses of Rs. 19,93,10,091/-, and computed the percentage of RPT income and RPT expenses separately. Since the RPT expenses were computed at 29.72% of to....
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.... have carefully considered the rival submissions and perused the material available on record. With regard to the inclusion of Iservices India Pvt. Ltd, we have gone through the audited financial statements of Iservices India Pvt. Ltd., placed at page no. 2269 of the paper book. On perusal of the same, we find that the total related party transactions are Rs. 40,56,000/- as against the turnover of Rs. 12,90,56,540/ -. Thus, the percentage of related party transactions works out to about 3 %, which is well below the 25% threshold. Therefore, the reasoning given by the Ld. TPO for exclusion of Iservices India Pvt. Ltd. on the ground of RPT filter is unsustainable. Once the correct computation is applied, the company passes the RPT test and is functionally comparable to the assessee. Accordingly, we direct the Ld. AO/TPO to include Iservices India Pvt. Ltd. in the final list of comparables, after due verification of figures from the audited accounts. 18.1 With regard to inclusion of Cheers Interactive India Pvt. Ltd., on perusal of the audited financial statements placed in the paper book (page no. 2305), we find that the total RPT expenses and RPT revenue aggregate to Rs. 6,96,31,....
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....Accordingly, the Ld. AR prayed that the same direction be followed in the year under consideration. The Ld. AR further submitted that the assessee has also requested that such notional interest be computed by applying a weighted average credit period. However, he fairly admitted that this request was specifically rejected by the Tribunal in the assessee's own case for AY 2017-18 (Supra). 20. Per contra, the Ld. DR relied on the order of the Ld. AO/TPO. 21. We have considered the rival submissions and perused the material available on record. We have gone through the decision of this Tribunal in the assessee's own case for AY 2017-18 (Supra), wherein at para no. 14 of its order, this Tribunal has held as under: "14. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The TPO has benchmarked interest receivable on trade receivables from AE by applying SBI short term deposit rate on the ground that, if the assessee had received the amount from the AE which would have reduced cost of borrowings in India which is always at Indian prime lending rate or short term deposit rate of Indian banks. It was t....
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....edit period, we note that this specific plea was considered and rejected by the Tribunal in assessee's own case in AY 2017-18 (Supra). Therefore, following the same, we reject the request of the assessee for adopting weighted average period. 22. Ground No. 13 of the assessee is related to Benchmarking of Interest on CCDs. In this regard, the Ld. AR submitted that the Ld. TPO has benchmarked the interest payable on CCDs by applying SIBOR (Singapore Interbank Offered Rate), whereas the assessee had adopted SBI Prime Lending Rate (PLR). It was argued that the issue is squarely covered by the decision of the Special Bench of this Tribunal in the assessee's own case in ITA No.111 & 506/Hyd/2022 for AYs 2015-16 and 2018-19. The Ld. AR invited our attention to para no. 23 of that order and submitted that the Special Bench has categorically held that where Fully Convertible Debentures (FCDs), Non-Convertible Debentures (NCDs), or other debentures are denominated in Indian currency, the appropriate benchmark for interest is the domestic SBI PLR, and not any foreign interbank rate. The Ld. AR therefore prayed that the same direction may be followed for the year under consideration....