TaxTMI 
TaxTMI 
2026 (9) TMI 1311
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.... circumstances of the case and in law, the Learned Assessing Officer ("Ld. AO")/Learned Transfer Pricing Officer ("Ld. TPO") erred in law and in fact in proposing an adjustment of INR 2,92,81,096 to the value of international transactions, after giving effect to the directions issued by Learned Dispute Resolution Panel ("Ld. Panel"), thus assessing total income of INR 5,92,41,406/- as against the returned income of Rs. 2,99,60,310/- of AY 2021- 22. * Out of the total proposed adjustment, INR 2,59,93,151 pertains to Provision of Services by the Assessee to its Associated Enterprise ("AE") and INR 32,87,945 pertains to interest on outstanding trade receivables. (Please refer page 50 of Final AO Order). * The proposed adjustment was made by the Ld. AO/TPO by rejecting the analysis undertaken by the Assessee to determine the arm's length price of its international transactions. The Ld. AO erred in understanding the facts and circumstances of the case and disregarding the submissions made by the Assessee. * The Ld. TPO has erred in law by not providing a step-bystep detailed search process carried out including the accept/reject matrix for arriving at the ....
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.... and also didn't provide any proper justification for not accepting the same even after being directed by the DRP stating that the same should be considered after re-verification. (Please refer page no. 25 of Final AO Order) b. Issumation Technologies Pvt. Ltd.: The company passes RPT filter in 2 out of 3 years under consideration. c. E-Zest Solutions Pvt. Ltd: The company passes RPT filter in 2 out of 3 years under consideration. (Please refer page no. 24 ofFinal AO Order) B. Rejection on the basis of Persistent Loss: The Ld. AO/TPO has erred in rejecting following companies on the basis of Persistent Loss filter: a. Rheal Software Pvt. Ltd.: The Appellant has contented that the entity.is passing the persistent loss filter alleged by the Ld. TPO/ AO in the SCN, based on which the Assessee contended before the Ld. DRP that this comparable is passing the persistent loss filter. However, the Ld. DRP ered in passing the direction to Ld. TPO/ AO to review the FAR similarity & passing all filters. The Ld. TPO/ AO, erred in rejecting the comparable on functional profile & not commenting on the actual fact for which it was earlier rejected i.e. on p....
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....nd in law to direct the deletion of Quantitative filter related to Significant Intangible Assets thereby disregarding the contentions of the Appellant. C. Companies earning abnormally high profit margin The Ld. TPO has erred in selecting the following companies earning abnormally high profit margin: a. Cybage Software Pvt. Ltd. The company earns abnormally high profit margin of 48.16%. (Please refer page no. 21 of Final AO Order) b. Envecon Global Solutions Pvt. Ltd. The company earns abnormally high profit margin of 43.23%. (Please refer page no. 22 of Final AO Order) The Ld. Panel has erred in facts by directing the Ld. TPO to accept companies earning supernormal profits (abnormal profits), thereby disregarding the contentions of the Appellant. D. Companies with high turnover The Ld. TPO has erred in selecting the following company with high turnover: a. Cybage Software Pvt. Ltd. The company has a turnover which is 20 times more than of the appellant. (Please refer page no. 20 of Final AO Order) In this regard, the Ld. Panel has erred in facts by directing that comparables cannot be rejected....
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....on the directions given by the respective DRP panel stating that the Panel Upholds 6-month LIBOR Plus 400 basis points, i.e. 1.85% as the appropriate CUP instead of SBI PLR applied by the TРО. However, the Ld. TPO in it's order giving effect to DRP direction has erred on applying the an interest of 4.465%. This led to an increase in the interest on the trade receivables. (Please refer page no. 35 & 48 of Final Assessment Order) Ground No. 7: Ground related to Levy of Interest u/s 234 of the Act The Ld. AO has erred in levy of interest under Section 234A, 234B and 234C of the Act which has been wrongly charged on the assessed income of Rs. 18,79,126/, after making the addition of Rs. 2,92,81,096/- and giving effect to the directions of Ld. Panel. Ground No. 8: Ground related to penalty proceedings u/s 274 of the Act. In view of the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under Section 274 read with Section 270A of the Act for under reporting of income. The Appellant further craves leave to add, alter, modify or delete one or more grounds of appeal before or at ....
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.....f. 01.04.2020 as evident from a perusal of page 2757 of the paperbook herein. Learned TOP is accordingly directed to exclude this second entity from the assessee's comparables. 8. Learned counsel next does not press for the assessee ground nos. (c) & (e) against inclusion of M/s Great Software Laboratory Private Limited and M/s Envecon Global Solutions Private Limited subject to a rider that the same is not treated as a precedent. Rejected in very terms therefore. 9. We now advert to the assessee's ground no. 4 "d" seeking to exclude M/s Orion India Systems Private Limited. It emerges from a perusal of a case record i.e., Page 703 of the paperbookB that its segmental date is not available. Learned DRP also finds in Para 2 at page 18 that this entity is engaged in computer programming and consultancy etc than software development services segment. We thus direct exclusion of M/s Orion India Systems Limited from the assessee's list of comparables in very terms therefore. 10. Learned counsel comes to the assessee's ground no. 4(f) that M/s Athena Global Technologies Ltd. has already been directed to be excluded in DRP's directions dated 29.09.2025 in its own case in the succ....
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.... that the respondent/assessee is debt free is not contested. Given this position, the question is as to whether adjustment on account of notional interest on receivables could have been made. 6.3 This issue stands clearly covered by the decision of a coordinate bench of this court in the case of Pr. CIT v. Boeing India (P.) Ltd. [2023] 146 taxmann.com 131/457 ITR 84 (Delhi), in which after traversing through various judicial precedents, the court held that the assessee company being a debt free company the question of receiving any interest on receivables did not arise so the adjustment made by the Assessing Officer on account of interest on outstanding receivables was liable to be deleted. 6.4 Earlier, in similar circumstances, the issue came up before the Income Tax Appellate Tribunal in the case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxmann.com 6 (Delhi - Trib.) and the Tribunal held that the assessee being a debt free company, it would not be justifiable to presume that the borrowed funds have been utilized to pass on the facilities to its AEs and the revenue also had not brought on record that the assessee had been found paying interest to its credi....
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....he 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." (Emphasis is Ours) 6.6 That being so, in our view the questions 2.3 and 2.4 proposed by the appellant/revenue cannot be treated as substantial question of law for present purposes." 13. Be it as it may, we notice that there is yet another equally important issue as well as so far as the impugned adjustment on the assessee's trade receivables is concerned. There could hardly be any dispute that such the same indeed amounts to international transaction as per section 92B r.w explanation (c) thereto inserted by the Finance Act, 2012 with retrospective effect from 01.04.2002. There is further no quarrel between the parties that going by the learned DRP's direction contained in Para 9.11 page 32, the Transfer Pricing Officer had simply adopted SBI landing rate which has been converted to LIBOR + 400 basis points and in tune with "CUP" i.e., comparable uncontroll....