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2023 (7) TMI 1406 - ITAT BANGALORETP Adjustment - notional interest computed by applying the SBI short term deposit rate - amounts outstanding have been settled by the AE on an on-going basis in the normal course of business having regard to economic and commercial factors - HELD THAT:- We referred to decision of Special Bench of this Tribunal in case Instrumentation Corpn. Ltd. [2016 (7) TMI 760 - ITAT KOLKATA] as held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act. As argued working capital adjustment subsumes sundry creditors - In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. We deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points which is in accordance with the principles laid down in case of Cotton Naturals (I) Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT] by considering a credit of 90 days. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Comparable selection - inclusion of Rheal Software Ltd. and Evoke Technologies Pvt. Ltd. - HELD THAT:- As the authorities have not disputed these comparables are functionally not similar, it is directed that the objections of the assessee may be verified having regards to their annual reports and then to consider the claim for inclusion of these comparables in accordance with law. In the event, the contentions of the assessee are found to be true, the two comparables are directed for inclusion. Assessee is directed to file all the relevant documents in support of the claim. Needless to say that proper opportunity of being heard must be granted to assessee. Exclusion of 11 comparables on application of upper turnover filter - We note that the Ld.TPO erred in not applying a cap on upper limit on the turnover while selecting the companies comparable. In this regard, we note that, application of turnover filter is a relevant criterion in choosing comparable companies. The difference in the scale of operations has a direct impact on the profitability. The concept of economies of scale wherein, an increase in the size and scale of the operations leads to a decrease in the long run average cost of each unit or each service project delivered. Therefore, the per unit fixed cost of a small-scale company would be much higher than that of a medium/large size organisation. As relying on the case of Autodesk India Pvt Ltd., [2018 (7) TMI 1862 - ITAT BANGALORE] we hold that the listed 11 companies whose turnover in the current year is more than Rs. 200 crores should be excluded from the list of comparable companies. Threesixty Logica Testing Services Pvt. Ltd. be excluded from the final list for lack of segmental information and functional dissimilarities with assessee. Elveego Circuits Pvt. Ltd. company is in the business of Chip and semiconductor design services where as the assessee before us is into basic SWD services of coding an documentation, Testing and quality assurance, software patches and maintenance. There is no similarity between the functions performed by the assessee vis-à-vis that of this company. We therefore at the threshold reject this company being functionally not similar with that of the assessee. Great Software Laboratory Pvt. Ltd. company works in a different horizontal and this company has been retained by the Ld.TPO only because it renders services under the category SWD. It is also noted by the Ld.TPO that the operations of this comparable is from SWD segment without there being any segmental details, which according to the Ld.TPO is irrelevant. In our considered opinion, this Tribunal has been consistently rejecting the comparables whether there are no segmental information available in order to compare “an apple with an apple”. Therefore the services rendered by the assessee under a contract with its AE cannot be compared with a company that renders various services under SWD segment. We do not find any reason to include this comparable in the final list. Acewin Agriteck Ltd. (formerly known as OFS Technologies) fails the functionality test and this company OFS Technologies Ltd. is not functionally similar and deserves to be excluded. Appeal filed by assessee stands partly allowed
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