TMI Blog2023 (3) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- When the parties entered into an agreement in respect of the credit period to be allowed, the interest relatable to such allowable credit period will be subsumed into the price of the goods or services, which are subject to the ALP examination. It is only the period subsequent there to has to be considered for calculation of deemed interest. While respectfully following the view taken by the Co-ordinate Bench of the Tribunal in assessee s own case for the assessment year 2014-15 [ 2019 (9) TMI 973 - ITAT HYDERABAD ] we set aside the assessment order on this aspect and restore the issue to the file of learned Assessing Officer/ Ld. TPO, for considering the credit period allowed by way of agreement and in the absence of any such agreed credit period, to consider 90 days or the industry average credit period, as the case may be, for calculating the interest. Grounds No. 8 to 10 are treated as allowed for statistical purposes. Allowability of management fee - as submitted that for this assessment year, the details were submitted and available before the Ld. DRP but the Ld. DRP missed this aspect and did not consider the material available before them - HELD THAT:- Consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. TPO by order dated 29/01/2021 suggested certain adjustments in respect of the provision of software development services, allocation of management fee, provision of ITeS, interest on receivables, related IT services and purchase of assets and liabilities taken over and goodwill. Learned Assessing Officer, pursuant thereto passed draft assessment order on 31/03/2021 under section 143(3) of the Act making addition of Rs. 26,53,85,887/- on account of the international transactions and assessed the income of the assessee at Rs. 67,34,39,310/-. 4. Aggrieved, the assessee filed objections before the DRP. Ld. DRP by order dated 29/12/2021 issued certain directions pursuant to which the learned Assessing Officer revised the adjustment on account of international transactions to Rs. 15,15,20,300/-. Giving effect to the same, learned Assessing Officer passed the order dated 28/02/2022 under section 143(3) read with section 144C of the Act making addition of such an amount. Hence the assessee is in appeal before us challenging the final assessment orders pursuant to the directions made by the Ld. DRP. 5. Insofar as this appeal is concerned, grievance of the assessee is directed aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fact, in assessee s own case for earlier years, seven of these entities, namely, Infosys Limited, Larsen Toubro Infotech Limited, Tata Elxsi Limited (seg), Persistent Systems Limited, Mindtree Ltd, Cybage Software Private Limited and E-Info Chips Pvt. Ltd, were found to be non-comparable. He submitted that if such entities which were found to be non-comparable with the assessee in the earlier years, are excluded from the list of comparables then the margins of the assessee and the comparables will be within the acceptable range and no adjustment would be necessary. He further submitted that in such case it would not be necessary for the assessee to insist the inclusion of Evoke Technologies Private Ltd. and Sasken Technologies Limited also. 8. Per contra, learned DR submitted that each assessment year has to be considered independently and the comparability of entities being a fact driven issue, the findings relating to the earlier years will not be ipso facto applicable to this year. He heavily relied upon the findings of the authorities below. Learned DR, however, did not dispute the fact that in the earlier assessment years, in assessee s own case, Co-ordinate Benches of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15, 2015-16 and 2016-17 the Co-ordinate Benches of this Tribunal considered the issue in depth and found that Infosys Ltd., is not at all a good comparable to the assessee. 12. The second entity pleaded to be excluded from the list of comparables is Larsen Toubro Infotech Limited. Before the Ld. TPO, apart from bringing it to the notice of the Ld. TPO that this company was excluded from the list of comparables in assessee s own case for the assessment years 2014-15, 2015-16 and 2016-17, assessee objected inclusion of this from the list of comparables on the grounds of functionally not comparable product company, diversified activities, lack of segmental information, brand profits, significant research and development activities, presence of intangibles, exclude in assessee s own case, non-contemporaneous data and peculiar economic circumstances. 13. Insofar as Tata Elxsi is concerned, before the Ld. TPO assessee raised objections for its inclusion in the list of comparables, basing on functionally dissimilar, significant research and development activities, significant inventory, presence of intangibles and non-contemporaneous data. Ld. TPO, however, did not agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of assessee and while referring to the annual report of Persistent Systems Limited, observed that the ratio of related party income to operating income in case of Persistent Systems Limited is 24.42% and ratio of related party expense to operating expense is 12.37% and concluded that the said company perfectly qualifies related party filters. Ld. TPO also observed that the annual report mentions products at several places, but at most of the places, it refers to product development services being offered for its clients. It has few products of its own. However, the same are very limited and license revenue contribute less than 0.73% of total revenue. This means that the percentage contribution of product revenue to total revenue is 0.73%, which is insignificant and the entire revenue from operations is derived from software development services. It was also observed by the Ld. TPO that because the company is independent company, any intangibles getting created in the process of business are getting reflected in the financials as against the controlled cost plus which refuses to recognize the intangible in its own hands and rather gives opportunity to its AE to create such int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country. But, this argument as rightly pointed out by the Ld. CIT-DR does not support the case of higher margin in case of onsite work because dead hours would mean less output with the same employee cost, which would in fact reduce the margin. No material has also been placed before us to show that the margin in case of on-site work is higher. Basing on the same, Ld. TPO rejected Mindtree Ltd., as comparable. Ld. TPO also observed that the assessee has not stated as to how the approach of the assessee to the operating margin and that would there be a possibility of any comparables left, which are not controlled. It was also observed by the Ld. TPO that the assessee did not demonstrate as to how the R D expenditure being incurred by this company is the reason for the higher profit margins, earned. Although the company may be incurring expenditure on R D. It does not change the fact that the core business is SWD. Ld. DRP after going through the annual report, judicial precedents and considering the contentions of the assessee, observed that the company is engaged in international information technology consulting and implementation delivering business solutions through global softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment Advisors (India) Private Limited (the appellant), emphasised functional analysis as the key comparability criterion, and inter alia held that mere earning of high profits/losses could not be a reason to exclude a company as a comparable. In view of the above, Ld. DRP did not find merit in the plea of exclusion of certain companies on the ground of its high profit margin and uphold the selection of Cybage Software Private Limited as a comparable. 17. Insofar as E-Infochips Pvt. Ltd., is concerned, before the Ld. TPO, assessee raised objections for its inclusion in the list of comparables basing on functionally not comparable diversified activities, lack of segmental details, presence of intangibles and non-contemporaneous data. Ld. TPO after going through the annual report, did not think it proper to accept the contentions of assessee and observed that E-Infochips Pvt. Ltd., is engaged in software development services and entire revenue from operations is derived from software development services. Further, Ld. TPO following on the CBDT Notification No. 83/2015 (F.No.142/25/2015-TPL) rejected the contentions of assessee. Ld. DRP considering the contentions of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, Larsen Toubro Infotech Limited and Mindtree Ltd., were excluded. 20. In the assessment year 2015-16, by order dated 19/10/2020 in ITA No. 1689/Hyd/2019, the Co-ordinate Bench excluded Infosys Limited, Larsen Toubro Infotech Limited, Mindtree Ltd, Tata Elxsi Limited (seg), Persistent Systems Limited, and Cybage Software Private Limited on the ground that such entities were considered to be un-fit for comparison with the assessee in assessee s own case for the assessment years 2013-14 and 2014-15 and there was no change in the factual matrix of the case. 21. In ITA No. 198/Hyd/2021 the Co-ordinate Bench of the Tribunal took the view that Infosys Limited, Larsen Toubro Infotech Limited, Tata Elxsi Limited (seg), Persistent Systems Limited and Cybage Software Private Limited are not at all comparable with the assessee while referring to the orders of the Co-ordinate Bench for the assessment years 2014-15 and 2016-17. 22. A perusal of the orders in Infor (India) Private Limited Vs. DCIT in ITA No. 2307/Hyd/2018 for the AY. 2014-15, Infor (India) Private Limited Vs. ACIT in ITA No. 1689/Hyd/2019 for the AY. 2015-16 and Infor (India) Private Limited Vs. DCIT in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st only on the period exceeding the credit period stipulated in the agreement and it there is no agreement as to such period of credit, then to consider the credit period of 90 days or the industry average credit period. There is no denial of this fact from the side of Revenue. 25. On this aspect, we are of the considered opinion that when the parties entered into an agreement in respect of the credit period to be allowed, the interest relatable to such allowable credit period will be subsumed into the price of the goods or services, which are subject to the ALP examination. It is only the period subsequent there to has to be considered for calculation of deemed interest. While respectfully following the view taken by the Co-ordinate Bench of the Tribunal in assessee s own case for the assessment year 2014-15 vide paragraph No. 87, we set aside the assessment order on this aspect and restore the issue to the file of learned Assessing Officer/ Ld. TPO, for considering the credit period allowed by way of agreement and in the absence of any such agreed credit period, to consider 90 days or the industry average credit period, as the case may be, for calculating the interest. Grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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