TaxTMI 
TaxTMI 
2026 (4) TMI 1525
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....wever, assessee at the time of hearing before us only argued with respect Ground Nos. 8, 11 and Ground Nos. 17 to 24, contending other grounds being Ground Nos. 1 to 7 and 9 & 10 and 12 to 16 as academic. 3. The issue raised by the assessee in ground No. 8 of the appeal is that the learned DRP and TPO erred in not applying the upper turnover filter. 4. The brief facts are that the assessee is a wholly owned subsidiary of Moong Inc and was incorporated with the sole intention of supporting its parent company for the manufacturing of servo products. The assessee manufactures components of servo control mechanism for its parent company and group worldwide. 5. The assessee filed its return of income for the subjected AY offering total income to tax to the tune of Rs. 13,02,34,290/- only. The case of assessee was selected for complete scrutiny under CASS. To verify the international transactions carried out by the assessee, the case was referred to the jurisdictional TPO to compute ALP of the international transactions entered by the assessee. 6. The Ld. TPO passed the order under section 92CA(3) of the Act by making upward adjustments which were subsequently incorporated by....
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....ware Laboratory Private Ltd 265.2 10. On the other hand, the Ld. DR before us vehemently supported the order of the authorities below. 11. We have heard the rival submissions of both the parties and perused the materials available on record. The issue for our consideration is whether companies having substantially higher turnover than that of the assessee can be retained as comparables in the software development segment. 11.1 It is an undisputed fact that the turnover of the assessee in the SWD segment is Rs. 7.55 crore, whereas several companies included in the final set of comparables have turnover running into hundreds and thousands of crores. Such a wide disparity in turnover clearly impacts economies of scale, brand value, market positioning and risk profile, which in turn materially affects the margins. 11.2 The Hon'ble ITAT Bangalore have consistently held that application of an upper turnover filter is justified in the case of captive software service providers. In the decisions relied upon by the assessee, namely Dotgo (P.) Ltd., Concur Technologies (India) (P.) Ltd. and ConnectWise India (P.) Ltd., it has been categorically observed that inclusion of giant....
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....e case of Dotgo (p.) Ltd. v. Deputy Commissioner of Income-tax reported in 177 taxmann.com 450 (Bangalore - Trib.) wherein it has been categorically held that: "company engaged in diversified business segments including testing and quality assurance services cannot be held as a comparable for a company which is a captive service provider providing SWD services to its AEs" 13.3 Regarding Consilient Technologies - Upon going through the functional profile of this company which is enclosed at Pages 479 to 482 of the Factual PB, it is noted that, this company is engaged in providing optimized software algorithms involved in voice, data, fax, solutions of speech processing, digital communication and video signal processing, high performance loud-based solutions, performance optimization services. Thus, it is not exclusively into software development, and the provision of its services is diversified than the SWD services provided by the assessee. This company is thus not functionally comparable. In view of the above detailed discussion, we direct the TPO to work out the PLI of the assessee, after excluding the above two companies as discussed above and workout the arm length ....
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.... healthcare private ltd. reported in TS-412-HC-2017(Del)-TP wherein the Hon'ble Delhi HC held as follows: "The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign associated enterprises would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case-to-case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way." 16.4 The assessee also placed reliance on a plethora of judicial precedents wherein it has been con....
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.... foreign currency. In cases involving foreign currency receivables or advances, the appropriate benchmark must reflect international lending conditions. Consistent with the judicial view taken in similar matters (supra), an arm's length rate of interest is reasonably determined at LIBOR plus 200 basis points, after granting a standard credit period of thirty days or such period as stipulated in the relevant agreement or invoice. Regarding the issue in respect of the rate of interest, the Hon'ble Bombay High Court in the case of Pr. CIT v. Tecnimont (P.) Ltd. reported in [2018] 96 taxmann.com 223 (Bombay) wherein it was observed that: "in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher, then the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extending of credit beyond the normal period of sixty days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of sixty days. On this pre....