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2020 (4) TMI 883 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT:- Referring to software development service provided by assessee companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. TPO applied filter of more than ₹ 1 crore - We direct Ld. AO/TPO to exclude Tata Elxi Ltd (Seg.), Mindtree Ltd., Larsen and Toubro Infotech Ltd., RS Software (India) Ltd., Persistent Systems Ltd., Nihilent Technologies Ltd., Infosys Ltd., Cybage software Pvt.Ltd. for having high turnover as compared to a captive service provider like assessee. Rheal Software Pvt.Ltd. - No clear picture of activity performed by this company under software development service. Admittedly, there is a trend of diminishing revenue from financial year 2010-11 to financial year 2014-15 for which, reason is not known from details available and placed on record. In our view this diminishing revenue should have further triggered investigation by Ld. AO/TPO. set aside comparable back to Ld.AO/TPO to call for information is from this company under section 133 (6) to understand the reasoning behind the fall in revenue. In the event, diminishing revenue indicates the level of risk undertaken by this company which cannot be compared with absolutely no risk company like assessee, the same should be excluded. Aspire Systems (India) Pvt.Ltd. - Authorities below has not verified the statistics advanced by Ld.AR in respect of the percentage of related party sales this company had, it would be just and proper to direct Ld.AO/TPO to examine submissions advanced in this regard. We also direct that if RPT is found to be more than 15% of the total revenues, then this comparable should be excluded from the finalist. Accordingly we set aside this comparable back to Ld.AO/TPO Infobeans Technologies Ltd. - As the annual report of this company categorises the diversify services provided by this company under software development segment. We also note that this company is basically into application development for web and mobile and provides customised services to its offshore clients comprising. Entire revenue received by this comparable ease under one single segment of sale of software. This company also owns software licenses - this comparable cannot be considered to be functioning in 100% risk mitigated environment and is a full-fledged enterprise. Such a comparable cannot be compared with a captive service provider like assessee. Accordingly we direct this comparable to be excluded from finalist Inteq Software Pvt. Ltd - As noted that DRP did not verified this aspect having regard to the annual report filed by assessee. In fact DRP notes that this company fulfils RPT filter adopted by Ld.TPO. We refer to our observations while deciding the comparability of aspire systems (India) private limited in preceding paragraphs. Applying the same observation mutatis mutandis in the present comparable, we direct Ld. AO/TPO to verify the RPT filter having regard to the annual report. We also direct that if RPT is found to be more than 15% of the total revenues, then this comparable should be excluded from the finalist. Accordingly we set aside this comparable back to Ld.AO/TPO. Functional similarities test - Set aside this issue back to Ld.AO/TPO for reconsideration of Sankhya Infotech, Athena Global Technologies, Evoke Technologies Pvt.Ltd., Harbinger Systems Pvt.Ltd., Isummation Technologies Pvt.Ltd and Maveric Systems Ltd. Sales and Marketing Support service segment - Ugam Solutions Pvt.Ltd is into managed analytical services and provides solutions to global market research firms, retailers, leading brands as has been observed by DRP in para 8.2.1. A fit comparable the functions rendered by assessee to the associated enterprise this company cannot be a fit comparable due to functional dissimilarities and risk assumed by this company. Accordingly we direct this comparable to be excluded from the final list. Axience Consulting Pvt.Ltd. is in financial analysis and research, business intelligence, business and market research, strategic human capital services as recorded by DRP in para 8.3.1. Further we also note page 1428 that there is no segmental details available in respect of revenues earned under each segment. Annual report at page 1431 records that this company is knowledge solution business intelligence and consulting firm providing high-quality solutions. In our considered opinion functions performed by this company cannot be compared with Ltd back-office support provided by assessee to its associated enterprises under sales and marketing segment. Thus excluded from final list. Platinum Advertising Pvt. Ltd. - As authorities below has summarily included this comparable without analysing the functional profile assets owned and risks assumed by this comparable having any similarity with assessee before us. We accordingly direct Ld.AO to carry out FAR analysis having regard to the annual report available on public domain. In the event further information is required Ld.AO/TPO shall call for it under section 133 (6) of the act. Needless to say that proper opportunity of being heard shall be granted to assessee as per law.Accordingly this comparable is set aside to Ld.AO/TPO for verification afresh. Priya International Ltd (Seg) - As both sides submitted that DRP in its order has some really rejected the comparables without considering the submissions advanced by assessee. Thus we set aside this issue back to Ld.AO/TPO for reconsideration of Priya International Ltd (Seg.) Adjustment of notional interest on outstanding receivables - HELD THAT:- This Bench referred to decision of Instrumentation Corpn. Ltd. [2016 (7) TMI 760 - ITAT KOLKATA] 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. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. Alternatively, argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to associated enterprise would amount to double taxation - as relying on ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD. VERSUS DCIT, CIRCLE-3, GURGAON [2018 (2) TMI 1151 - ITAT DELHI] e deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law. Disallowance towards service tax paid on expenses - HELD THAT:-We note that expenditure was incurred but could not be adjusted against input credit which was subsequently written off as part of business expenditure. It has been submitted that assessee has received refund in subsequent year and offered the same to tax in the relevant year. We direct Ld.AO to verify these details and consider the claim of assessee in accordance with law.
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