TaxTMI 
TaxTMI 
2026 (7) TMI 1577
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....omprehensive solutions for measuring and monitoring transaction value, enabling tighter control on profitability. The assessee leverages on its extensive domain experience and successfully defines designs and delivers cost effective solutions. 3. For the year under consideration, the assessee filed its return of income on 15.02.2021 declaring total income of Rs. 13,70,56,520/- under the normal provisions of the Act, and book profit of Rs. 13,81,60,684/- u/s. 115JB of the Act. The case of the assessee was selected for complete scrutiny. A reference was made for determination of arm's length price ('ALP') in respect of international transactions entered into by the assessee with its associated enterprises (hereinafter referred to as 'AEs'), as reported in Form 3CEB filed by the assessee, after providing an opportunity of being heard to the assessee and approval from the competent authority. The Transfer Pricing Officer ("TPO") passed an order u/s. 92CA(3) of the Act in the case of the assessee on 12.04.2023 making the TP Adjustment in respect of Sale of Software Product and Services segment and further made a downward adjustment in respect of the Salary expenditure incurred by the....
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.... that the TPO/DRP have erred in not applying the upper turnover filter to reject high turnover companies, while on the other hand, have rejected companies with lower turnover of less than one (1) Crore. The ld.AR submitted that the assessee in its TP study (Page 105 of PB Vol-1) selected 9 comparable companies in respect of Software Development Services segment. 8. The TPO applied certain filters and selected 13 comparable companies in the SWD Services segment. The list of the final set of comparables selected by the TPO is provided in page 20-21 of the TP order. 9. Accordingly, the TPO determined the 35th Percentile at 15.09 percent based on the profit margins computed for the 13 comparable companies in SWD Services segment. A summary of the margin computed and ALP determined is provided in the table below (Page 14-16 of TPO Order): Particulars As per TP Officer As per OGE to DRP* Total Operating Revenue (INR) 1,44,96,05,149 1,44,96,05,149 Total Operating Expenses (INR) 1,35,05,43,356 1,35,05,43,356 Operating Profit (INR) 9,90,61,793 9,90,61,793 35th Percentile 15.09% 13.24% Taxpayers PLI 7.33% 7.33% Adjustment Require....
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....all company. 15. The Ld.DR argued that the turnover range 01/10thx - 10x times turnover filter should be applied instead of the Rs. 1 cr - 200 cr and >Rs.200 cr range as per Dun & Bradstreet study. 16. The ld.AR submitted that the Tribunal has discussed both the methods (1/10th-10x and 1- Rs. 200 cr range) in the case laws of Autodesk (Supra) and Galax E Solutions India Pvt Ltd (2022) 140 taxmann.com 579 (Bang-Trib.) and held that the Rs. 200 crore criteria should be followed. The same approach has been followed in the Assessee's own case for AY 2016-17 and AY 2017-18. Therefore, the ld.AR submitted that the Rs. 200 turnover range methodology should be followed. 17. In addition to the above, the ld.AR relied on following judicial precedents which have upheld that companies with significantly higher turnover cannot be compared to companies with very small turnover: a. Genesys Telecom Labs India Pvt. Ltd. IT(TP)A No.38/Chny/2024 for the same AY 2020-21 b. Motorola Mobility India (P.) Ltd. [2023] 147 taxmann.com 444 (Bangalore - Tribunal) c. Fiserv India (P.) Ltd. [2015] 60 taxmann.com 345 (Delhi - Tribunal) 18. In case the said ground 4.5 is all....
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....ed through a series of judicial pronouncements that turnover is a relevant factor for determining comparability in the software development services sector. Companies possessing substantially higher turnover enjoy significant economies of scale, stronger market presence, diversified customer base, greater bargaining power, brand value, access to resources and risk-bearing capacities which materially influence their profitability. Such companies cannot ordinarily be compared with captive service providers operating on a limited-risk model and rendering services exclusively to their Associated Enterprises. 24. We further note that the Cochin Bench of the Tribunal in the assessee's own case for Assessment Years 2016-17 and 2017-18 (supra), after considering the decision of the Bangalore Bench in Autodesk India (P.) Ltd. and other judicial precedents, accepted the applicability of an upper turnover threshold of Rs. 200 crores and directed exclusion of companies exceeding the said limit. The Revenue has not brought on record any contrary decision in the assessee's own case or any distinguishing feature warranting a departure from the view already taken by the Coordinate Bench....
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....llocated to the group entities without any mark-up, in proportion to revenues of the entities in view of their services being utilized by all the group entities. The assessee submitted the following documents before the lower authorities substantiate the cost allocation and demonstrate the evidence of service as well as the need-benefit: Document Page No. of the Paper Book Sample Debit note for the cross charge received from Suntec GMBH 215 - 216 Sample Pay slip of employee, portion of which is cross charged to Suntec India 214 Details of strategic win due to the efforts of global sales personnel 428 - 429 Working of allocation between various group entities 430 30. However, the submissions of the assessee in respect of evidence of benefit were disregarded by the TPO and the ALP of the said transaction was determined as NIL. 31. In this regard, the ld.AR submitted that the Chennai Tribunal has ruled in favor of the Assessee in respect of the subject issue in the Assessee's own case for the A.Y.2021-22 vide ITA No.3252/Chny/2024 (at paras 8 to 11). The ld.AR further submitted that the aforementioned salary cost forms part of the AE segment as the ....
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....ness development and strategic support services for the benefit of all group entities and, therefore, the cost was allocated on a reasonable and scientific basis. The assessee had placed on record the following documents before the lower authorities to substantiate the cost allocation, rendition of services and need-benefit arising from such services. The TPO, however, disregarded the above evidences and held that the assessee had not demonstrated the receipt of actual services and the benefit derived therefrom. On that basis, the arm's length price of the said transaction was determined at NIL. The DRP confirmed the approach of the TPO. The assessee is in appeal before us. 37. We find merit in the submissions of the ld.AR. It is not in dispute that the salary cost was cross-charged without any mark-up. It is also not in dispute that the allocation was made amongst group entities in proportion to their revenues. The assessee has furnished debit notes, employee pay-slip, details of strategic business wins attributable to the efforts of global sales personnel and the allocation working. These documents, in our considered view, constitute relevant evidence to show the nature of cos....
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....en taken in Bostik India (P.) Ltd., (supra) wherein it was held that interlinked and interdependent payments forming part of the main business activity cannot be benchmarked separately when TNMM has been accepted for the aggregated transaction. 41. We also take note of the decision of the Hon'ble Delhi High Court in EKL Appliances Ltd., (supra) wherein it was held that the Revenue authorities cannot question the commercial expediency of the assessee's business expenditure while determining ALP. The TPO may examine whether the price is at arm's length in accordance with law, but he cannot determine the ALP at NIL merely because, in his view, the assessee did not derive sufficient benefit. The same principle has been reiterated in the decisions relied upon by the assessee, including Fosroc Chemicals India (P.) Ltd. and Tudor India (P.) Ltd.(supra). 42. We, further find that the coordinate Bench of this Tribunal, in the assessee's own case for AY 2021-22 in ITA No.3252/Chny/2024, has considered an identical issue relating to salary cost of global sales personnel allocated amongst group entities without mark-up. The coordinate Bench, after examining the debit notes, employee pay-....
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....ard, the ld.AR submitted the below tabulated data of provision for bad debts disallowed and bad debt actually claimed during the prior years: Particulars AY 2019-20 AY 2018-19 AY 2017-18 Provision for bad debts created and disallowed 1,03,79,080 25,81,132 36,23,073 46. Further the ld.AR would like to place reliance on the following judicial precedence: a) Big Bags International (P.) Ltd. V. DCIT Bangalore [2021] 430 ITR 434 b) Commissioner of Income-tax v. ING Vysya Bank Ltd [2022] 448 ITR 94 47. In the case of reversal of provision for disputed indirect taxes amounting to Rs. 57,82,460/-, the ld.AR submitted the following details: (PB page number - 480-482) Particulars AY 2019-20 AY 2018-19 AY 2017-18 Provision for disputed tax disallowed during the year 27,81,737 13,77,440 36,94,105 Total 78,53,282 48. Hence it is evident that, the assessee has already disallowed the provision for disputed taxes at the time of creation (i.e. Rs. 78,53,282/-); which is to be greater than the amount of reversal (Rs. 57,82,460/-). 49 In this regard, he further clarified that the subject disallowance does not pertain ....
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....ear under consideration is admittedly lower than or substantially covered by the aggregate disallowances made in the preceding years. 55. The AO has primarily rejected the claim on the ground that complete returns and supporting records of earlier years were not furnished. In our considered view, once the assessee has placed on record prima facie evidence demonstrating that the provisions had already suffered disallowance in the years of creation, the claim cannot be rejected merely on technical grounds without undertaking verification from departmental records. It is well settled that the Revenue cannot subject the same amount to tax twice merely because the reversal takes place in a subsequent year. 56. The Hon'ble Karnataka High Court in Commissioner of Income-tax v. ING Vysya Bank Ltd. (448 ITR 94) (supra) has recognized that where a provision for bad and doubtful debts had not been allowed as deduction earlier, its subsequent write-back cannot again be brought to tax, as such treatment would result in double taxation of the same amount. Similar principles have been reiterated by the Hon'ble Karnataka High Court in Big Bags International (P.) Ltd. v. DCIT (430 ITR....
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....FTC amount denied are as under: Name of Country/ Specified Territory Income from outside India Tax Paid Relief claimed but denied United States of America 2,28,41,082 49,43,550 49,43,550 United Kingdom of Great Britain and Northern Ireland 77,20,543 14,63,400 14,63,400 Singapore 1,95,84,047 40,11,190 34,21,725 Total relief claimed but denied 98,28,675 (PB Page No.935 for tax relief related to USA and UK income, and page No.936 for computation of tax relief to Singapore income). 61. The AO in the remand report as well as the DRP has erroneously denied the credit on the basis that the tax certificate from concerned tax authorities is not submitted (Para 26.2 and 26.3 of the DRP directions). 62. In this regard, the ld.AR submitted that during the year, the assessee has earned income from the abovementioned overseas countries and had suffered taxes in the overseas countries. Since the said income is also taxed in India, the assessee is eligible to claim of deduction of FTC in India. The relevant extract of Rule 128 - Foreign Tax Credit in this regard is as follows: "...............
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....ence the authorities have rightly disallowed the credit of FTC. 66. We have carefully considered the rival submissions and perused the material available on record. The grievance of the assessee is against the denial of Foreign Tax Credit (FTC) amounting to Rs. 98,28,675/- claimed in respect of taxes paid in the United States of America, United Kingdom and Singapore. The AO, while completing the assessment, denied the claim primarily on the ground that the assessee had not furnished tax certificates issued by the concerned foreign tax authorities. The said action has been affirmed by the DRP. 67. The undisputed facts emerging from the record are that the assessee had earned income from the aforesaid foreign jurisdictions, which was subjected to tax in those countries and has also been offered to tax in India. The assessee had claimed relief u/s. 90/90A of the Act by filing Form No.67 and had furnished the computation of foreign income, details of taxes paid abroad and supporting evidences in the form of online tax payment challans and banking records. 68. The controversy before us is therefore confined to the narrow issue as to whether the claim of FTC can be denied solely....