TMI Blog2022 (12) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... the total turnover of the assessee. In view of the above and respectfully following the decision of Kusum Health Care [ 2017 (4) TMI 1254 - DELHI HIGH COURT] we restrict the levy of interest on outstanding receivables to Libor plus 250 points. The other arguments raised by the Revenue supporting the charging of bank rate interest on the short term deposit is left open to be decided in appropriate case. Accordingly, these grounds are partly allowed. - ITA No.254/Hyd/2021 - - - Dated:- 10-8-2022 - Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member Assessee by: Shri H. Srinivasulu Revenue by: Shri Rajendra Kumar, CIT-DR O R D E R Per Laliet Kumar, J.M. This appeal is filled by the assessee feeling aggrieved with the order dt.30.03.2021 passed by the National e-Assessment Centre, Delhi u/s 143(3) r.w.s. 144C(13) and 144C(13) r.w.s. 143(3A) and 143(3B) of the Income Tax Act, 1961 for the assessment year 2016-17. The assessee had filed a letter dated 12.07.2022, as per which the following grounds were pressed by the assessee : 4. Incorrect Selection of comparable companies a. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Presence of brand 7. A leading provider of consulting technology, Out sourcing next generation services 8. Onsite revenue 9. No segmental available 10. Deferred consideration for acquisition debited to profit and loss account 11. Excluded by Hon ble ITAT in AY 2016-17, AY 2015-16 and AY 2014-15 in case of ADP Private Ltd. e. Thridware Solutions Ltd. 1. Functionally different 2. No segmental details between software services, and consultancy services 3. Segmental details between India overseas has unallowable expenses, computation of correct margin is not possible. 4. Revenue from purchase of goods 5. Revenue from subscription and training 6. Revenue from sale of licenses 7. Excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. and Harbinger Systems Private Ltd. have not been pressed by the assessee. Accordingly, the inclusion of these three comparables are rejected. IV. On the other hand, ld.DR has raised no objection for not pressing the grounds mentioned in the letter dt.12.07.2022 of the assessee. V. Hence, the same are dismissed as not pressed. 2. The captioned appeal filed by the assessee is found to be barred by 26 days delay in filing. It has moved a petition requesting the bench to condone the delay. We heard the party on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing. 2.1. The brief facts of the case are that assessee is a company engaged in the business of providing software development and support services. 2.2. The profile of the assessee as per the TPO order is as under : M/s. Indeed India Operations Pvt. Ltd. is engaged in providing Software Development Support services to Indeed US and provision of software development and support services and Marketing sales support services to Indeed Ireland. Indeed India also operates as non-exclusive reseller of Job Listing Space for the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that they are not in dispute with the other international transactions. 5. First of all with respect to exclusion of five comparables companies mentioned in the letter of the assessee vide ground No.4, ld.AR has drawn our attention to the order passed by the co-ordinate Bench of the Tribunal in the case of ADP Ltd. Vs. DCIT in ITA 227 and 228/Hyd/2021 whereby the co-ordinate Bench of the Tribunal has decided the issue in favour of the assessee therein. L T INFOTECH LTD (Segmental): 6. Ld.AR for the assessee submitted that the first comparable namely, L T Infotech Ltd is required to be excluded, as the said company is not having brand value which is clear from page 478 of the paper book and also in view of the happening of extra ordinary event i.e., amalgamation during the year under consideration which is clear from page 551. In fact, on account of the amalgamation of Information Systems Resource Center (P) Ltd. (ISRC) from 04.09.2015 and also GDA Technologies Limited into the assessee company, the profitability of the assessee company had been affected. On this aspect, the finding of the TPO is that L T is functionally different and it was into computer p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated September 04, 2015, Information Systems Resource Centre Pvt. Ltd. (ISRC) was amalgamated with the Company with effect from September 21, 2015. The appointed date for the Scheme was October 17, 2014. Consequently, the entire business, assets, liabilities, duties and obligations of ISRC have been transferred to and vested in the Company with effect from October 17, 2014. ISRC was engaged in the business of software services with respect to application development, information technology support and maintenance service to OTIS Elevator Company, USA and other companies of UTC group and was acquired by the Company on October 16, 2014. 4.4 From the above observations, which were extracted from the financial statements, the company named ISRC amalgamated with the company (Larsen Toubro) and profitability with this amalgamation will impact. Therefore, If an extraordinary event has taken place by way of amalgamation in a company, that company cannot be considered as a comparable as held by the coordinate bench of ITAT, Pune, in the case of Entercoms Solutions (P.) Ltd. v. Assistant Commissioner of Income-tax [2022] 134 taxmann.com 59 (Pune - Trib.). Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by existence of inventory in P L statement about Rs. 2.89. He, therefore, submitted that this company may be excluded as comparable in the comparable list for determining ALP. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-1515 wherein this company is excluded as comparable. 5.1 The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that this company Tata Elxsi is engaged in rendering of software services and, hence, functionally comparable to the assessee company. 5.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this Tribunal in assessee's own case in ITA No. 2233/Hyd/2018, for AY 2014-15 , directed the AO/TPO to exclude this company from the list of comparables for determining ALP by observing as under: 27. As regards Persistent Systems Ltd, the objections of the assessee are as under: a) The Company is functionally not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as comparable company to the assessee. It has earned revenue from product at Rs.238.80 crore and that it has research and development approval by CSIR. He, therefore submitted that this company may be excluded as comparable to the assessee company for determining the ALP. He relied on various decisions of ITAT including the decision of this co-ordinate Bench in ITA Nos.227 and 228/Hyd/2021 (supra). 10.2. On the other hand, ld.DR supported the order of lower authorities and submitted that this company is not a product based company. 10.3. We have heard the rival submissions and perused the material on record. The co-ordinate Bench of this Tribunal in ITA Nos.227 228/Hyd/2021 (supra) directed the AO/TPO to exclude this company from the final list of comparables holding that this company is functionally different and engaged in diversified activities. Since the Revenue could not controvert the said decision nor brought any contrary decision, following this decision, we direct the AO/TPO to exclude this company from the final list of comparables. The relevant portion of this Tribunal s order in ITA No.227 228/Hyd/2021 (supra) is reproduced below : 6. Persi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from the final list of ITA No 2233 of 2018 ADP Private Ltd Hyderabad comparables. Thus, assessee's ground of appeal No.2 is partly allowed. 6.3 In the said decision, it has been held that the company is functionally different and engaged in diversified activities and since the revenue could not controvert the said decision nor brought any contrary decision, following the same, we direct the AO/TPO to exclude this company from the final list of comparables. 10.4. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as comparable from the list of comparable. 11. INFOSYS LIMITED. 11.1 With respect to exclusion of Infosys Limited company as comparable, the Ld.AR submitted that it has huge turnover of Rs.53,983/- crore whereas the turnover of the assessee is 8.66 millions and that it is functionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the geographical location and size of the markets the laws and govt orders in force, cost of labour and capital in the markets, the laws and government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 9.1 He further submitted that this company offers end to end business solutions including product support, product engineering and lifecycle solutions, artificial intelligence, software products, business platforms and solutions. Further, he submitted that it has a turnover of Rs. 53,983 crores whereas assessee's turnover is Rs. 437 crores and the turnover of this company is 123 times more than assessee. He, therefore, submitted that this company cannot be compared as the different in its size and scale of operations have a direct impact on their profitability. He relied on various decisions of ITAT including the decision wherein this company is excluded as comparable. 9.2 On the other hand, ld. DR submitted that under TNMM comparable transactions needs to be broadly similar with this company and significant product diversity and some functional diversi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts are available. In view of the above observations, the coordinate bench in assessee's own case for AY 2014-15 directed to exclude this company as comparable. Respectfully following the said decision, we direct the AO/TPO to exclude this company as comparable from the list of comparables. 11.3. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as comparable from the list of comparable. 12. THIRDWARE SOLUTIONS LIMITED : 12.1 The next company sought for exclusion as comparable is Thirdware Solutions Limited. With respect to the same, ld.AR submitted that this company is functionally different to assessee company and that it is engaged in diversified activities that are not similar to the software development services rendered by the assessee. Ld.AR pointing to annual report submitted that this company has earned revenue from sale of software products. Ld.AR further submitted that no segmental details between software services and consultancy services was provided and that its unallocable expenses are Rs.2.16 crore and that the same has not possible to calculate the same. It got revenue from subscription training at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 2268 of the paper book of assessee vide volume 3. 10.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this :- Tribunal in assessee's own case for AY 2014-15 in ITA No. 2233/Hyd/2018 vide order dated 18/12/2020 directed the AO/TPO to exclude this company as comparable for determining ALP by observing as under: 16. Having regard to the rival contentions and the material on record, we find that in the cases relied upon by the learned Counsel for the assessee, the assessees therein had also raised similar objections and the Tribunal has held Thirdware Solutions to be not comparable to the assessee. We find that the assessee before us is carrying on similar activities as the companies in those cases and therefore, the decisions taken by the Tribunal in those cases are applicable to the assessee before us. For the sake of ready reference, the relevant paras of the Tribunal orders are reproduced hereunder: (1) ITA No.520/Mum/2012 - Infor Global Solutions Ltd vs. Dy.CIT xi) THIRDWARE SOLUTIONS LTD. 36. This company was selected by the Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Similar view has been expressed in the other decisions cited before us by the learned Authorised Representative. Since, many of these decisions relate to very same assessment year, following the ratio laid down in these decisions, we hold that this company cannot be a comparable to the assessee . 12.4. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as comparable from the list of comparable. 12.5. Thus, Ground No.4 is partly allowed. 13. Ground Nos. 5 and 6 - Sought for inclusion of companies to the list of comparables. (i) EVOKE TECHNOLOGY (P) LIMITED. 13.1. As regards to ground No.5, the ld.AR of the assessee had requested for inclusion of two companies namely, Evoke Technology (P) Limited and Sagarsoft (India) Limited to the list of comparables. 13.2. With respect to inclusion of Evoke Technology (P) Limited, assessee had submitted that it is functionally comparable with it and that it was accepted in earlier years as comparable and also submitted that as per Directors report, there is no change in nature of business and engaged in IT design and development services. He further submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only. 13.5 it is noticed from the order passed by the TPO , that this company was excluded by the TPO on account of the nonavailability of the current year data at the time of preparation of the TP study by the assessee .DRP has rejected the inclusion of this company, on account of the fact that various companies were excluded only on account of nonavailability of the information at the relevant time . Though it is correct that the tribunal in the above cited order had directed to include Evoke Technologies, as comparable however in the present case there is no examination of the profile of the Evoke Technologies on the parameters laid down by Rule 10 B of Income Tax Rules 1962, with the assessee. In the light of the above we deem it appropriate to remand back the inclusion of evoke technologies to the file of TPO with the direction to consider whether this company is functionally similar on the touchstone of the parameters laid down in the rule 10 B of the Rule or not. However, in case the assessing officer / TPO had rejected the inclusion of other similarly situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction to consider whether this company is functionally similar on the touchstone of the parameters laid down in the rule 10 B of the Rule or not. However, in case the assessing officer / TPO had rejected the inclusion of other similarly situated companies while connecting the TP study on the ground of nonavailability of the current year data in prowess data base, then it will be open for the TPO /assessing officer to examine any other company for the purposes of benchmarking the international transaction. With the above said directions, the ground raised by the assessee is allowed for statistical purposes. 14.5. Thus, Ground Nos. 5 and 6 are partly allowed. 15. Ground 10 to 12 are with respect to interest on outstanding receivables : 15.1 The ld.AR for the assessee had submitted that interest computed by the lower authority on the outstanding receivable was Rs.9,50,811 as against the trade receivables from AE as on 1.4.2015 was Rs.1,47,99,409-/. The ld.AR submitted that the DRP had bench marked the international transaction by taking the Short Term deposit rate of SBI. 15.2 The learned AR had submitted that instead of SBI Short Term deposit rate, LIBOR Plus is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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