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2021 (11) TMI 1090 - AT - Income TaxTP Adjustment - comparable selection - Functional dissimilarity - HELD THAT:- LARSEN & TOUBRO INFOTECH LTD. (L&T) - In view of the facts inter alia that L&T is into various segments having no segmental financials, having huge brand value and intangibles is not a suitable comparable vis-à-vis taxpayer which was working as a captive entity and that contention raised by the DR that under TNMM minor dissimilarities do not affect the overall comparability is not sustainable because though it is a taxpayer’s own comparable but there being no estoppel against statute and that taxpayer can rectify its mistake at any stage of the proceedings. Secondly, it is not a case of minor dissimilarities rather it is a case of functional dissimilarity and non-availability of segmental financials to provide the clear picture qua profit earned by the company from provisions of SDS. L&T is a big brand having ownership of huge intangibles which ought to provide competitive advantage to the taxpayer in the form of premium pricing and huge volume of business ultimately leading to the higher profitability. So, we are of the considered view that L&T is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. Tata Elexi - We are of the considered view that on account of functional dissimilarity and having ownership of internally generated intangibles in the form of technical know-how for rendering services to its customers make Tata Elexi not a suitable comparable vis-à-vis the taxpayer who is a routine software development service provider working on cost plus markup model having no intangibles of its own, hence we direct to exclude Tata Elexi from the final set of comparables. Cybercom Datamatics leads to the conclusion that it is into diversified services and is also a product company providing software development to its associated enterprises and also selling developed software product whereas the taxpayer is a routine software development services provider working on a cost plus mark-up model and as such its margin cannot be compared with Cybercom Datamatics, hence Cybercom Datamatics is ordered to be deleted as a comparable. Cigniti has been excluded in a number of cases by the coordinate Bench of the Tribunal vis-à-vis the routine software development service provider on account of functional dissimilarity as it provides specialized services in the field of software testing, hence we find Cigniti not a suitable comparable vis-à-vis the taxpayer. Accordingly, it is ordered to be excluded. Kelton is not a suitable comparable vis-à-vis the taxpayer being into diversified nature of services having no financial segmental to arrive at the proper margin, also being into development of various products and mobile apps and having own intangibles and softwares giving it edge over other players in the field as against the taxpayer who is a routine software development services provider working on cost plus mark-up, hence ordered to be excluded. Thirdware is functionally dissimilar vis-à-vis the taxpayer as it has been deriving income from sale of licence and software services export from SEZ unit and revenue from subscription and training etc. and it is also into sale of licence and its segmental financials are not available. Infobeansis providing wide range of services under four verticals i.e. services, automation, enterprise and industries and under the automation services verticals, the company is providing advanced robotic process automation services. Since Infobeans is into diversified activities it cannot be a suitable comparable vis-à-vis the taxpayer which is a routine software development services provider. Inteq is not a suitable comparable vis-à-vis the taxpayer which is a routine software development service provider working on cost-plus mark up model, hence ordered to be excluded from the final set of comparables. Adjustment on account of outstanding receivables - Delay in receipt of the receivables qua transactions undertaken with unrelated parties - TPO recharacterized the delay in receipt of receivables as unsecured loans advanced to the AE and attributed a notional interest @ 4.485% being Libor + 400 BPS on the period of delay exceeding 30 days - HELD THAT:- Since the taxpayer has not incurred any interest cost nor has availed of any loan from AE or unrelated third parties, as is evident from audited financials at pages57 & 66 of the paper book, proposed adjustment on account of delay in receipt of receivables by the TPO/DRP is not sustainable, hence ordered to be deleted. Consequently, grounds determined in favour of the taxpayer. Non granting credit of Tax Deducted at source (TDS) in respect of amalgamating companies - HELD THAT:- When TDS has been deducted AO has no option but to grant the credit thereof to the taxpayer. So, we direct the AO to give credit of TDS deducted in respect of amalgamating companies, namely, IP Unity Communications Ltd. and GL Software Ltd. after due verification. Consequently, ground determined in favour of the taxpayer in accordance with law.
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