2015 (10) TMI 2495 - ITAT HYDERABAD

Transfer pricing adjustment - selection of comparable - Held that:- E infochips Bangalore Ltd. company is functionally different from Assessee’s activities and in the absence of segmental information, we direct AO/TPO to exclude the above while working out the comparability analysis. We uphold the plea of Assessee in this regard.

Comp-U-Learn Tech India Ltd. - the issue of selection of this company is a comparable should be restored to the file of AO/TPO to examine the available data in public domain/or obtaining information U/s. 133(6) of the Act for segmental information pertaining to software development services and then decide after giving due opportunity to Assessee whether the said company can be selected as comparable.

Kals Information Systems Ltd comparable was not objected to earlier by Assessee, therefore, there is no discussion on Assessee’s objections either in TPO’s order or in DRP’s order. Since there is no analysis on the objections of Assessee by TPO as Assessee has not objected earlier, we are of the opinion that Assessee’s objections require re-examination by TPO. Therefore, without giving any opinion, whether the company can be selected as comparable or not issue of selection of this company as comparable is restored to the file of TPO to re-examine afresh. Therefore, it is restored to the file of TPO for fresh examination.

Tata Elxsi Ltd (Seg) - Since no segmental data is available, considering the software development services as a segment by TPO cannot be considered as segmental data, unless the services rendered by that company are similar to the services rendered by Assessee. In view of this, we are of the opinion that this company cannot be selected as comparable. AO is directed to exclude the same.

Sasken Communication Technologies Ltd - since AO/TPO did not have the opportunity to analyse the objections of Assessee as they have not objected earlier, we are of the opinion that inclusion of this company as comparable company is to be analysed afresh by taking the objections from Assessee and then after due analysis, TPO should consider whether the same can be included as a comparable company. Therefore, without expressing any opinion or finding in this regard, we remit the issue relating comparability of this company for fresh adjudication by TPO.

L&T Infotech Ltd. cannot be selected as a comparable company. AO/TPO is directed to exclude the same from the list of comparables.

Akshay Software Technologies Ltd - there is no segmental data of software services and products and since the above company is also into products, the company cannot be selected as a comparable.

CG VAK Software and Exports Ltd - we cannot give any finding whether the company is comparable or not? As seen from the annual report placed on record, it shows income from software development services and products both the overseas the domestic, whereas in schedule-XII, the income is shown only from software services. Whereas the Director’s report indicate that Assessee has software services comprising 84% of revenue, BPO services at 15% and training at 1%. This indicates that Assessee has different activities, therefore, it is difficult to analyse whether the company is strictly comparable to Assessee’s software development services. However, to give a fair opportunity to Assessee, we remit the matter to the file of TPO to obtain necessary information if required and take Assessee’s objections and analyse whether the company can be selected as comparable or not?

Interest on outstanding receivables - incorrect computation of interest - Held that:- Addition on account of notional interest relating to alleged delayed payment in collection of receivables from the AEs is uncalled for on the facts of the present case. We were informed that no such addition was made in the later year on Assessee’s receivables. As rightly pointed out by the Ld. Counsel, the outstanding receivables on account of services cannot be equated with capital financing as provided for in the Explanation by the amendment by Finance Act, 2012 retrospectively. We are of the opinion that both on the facts of the case and principles of law, there is no need for bringing to tax the notional interest on the outstanding receivables

Addition towards communication expenses by AO invoking the Explanation 2 to Section 10A - Held that:- tThe communication cost does not have the element of profit and hence it is necessarily required to be excluded both from the total turnover and export turnover. Accordingly, AO is directed to reduce communication cost not only from export turnover but also from the total turnover for the purpose of computation of deduction U/s. 10AA