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2022 (8) TMI 1449 - AT - Income TaxTP Adjustment - Interest on receivables - adoption of the LIBOR rate - TPO held hat CUP is being applied and therefore interest that would be charged by an unrelated party for lending a loan in open market is being applied - submissions was limited to the adoption of the LIBOR rate against Indian interest rates (14.47% being return on BBB rate Bonds), as trade receivables where USD-denominated - HELD THAT:- Adoption of LIBOR plus appropriate markup is considered appropriate benchmark for international transaction of USD-denominated trade receivables as against the use of the rate of interest prevalent in India. With respect to the mark-up that has been charged over and above LIBOR, it is well accepted that such arbitrary numbers cannot be adopted without it being backed by a benchmarking exercise, which is a mandate of the law. Ruling in the case of M/s. Bioplus Life Sciences Private Limited [2022 (2) TMI 1402 - ITAT BANGALORE] pertains to the different financial year. Moreover, during the course of the TP assessment, the assessee has pressed for mark up of 300 to 400 basis points over and above the LIBOR rate and the same cannot be brought down to 200 basis points merely on the basis of the strength of ruling given in different case considering the facts of that case. Given the variability of interest rate on a time-to-time basis, we direct the TPO to determine the appropriate mark up to be charged over and above the LIBOR rate. Interest has been imputed for the entire year on the receivables instead of the remaining delayed beyond six months - We find merit in the submission of the learned DR that the period mentioned in the agreement between the assessee and AE should not be considered for the purpose of benchmarking and even to determine whether trade receivable constitutes an international transaction. The very purpose of undertaking benchmarking exercise is to compare the tainted transaction, i.e., the transaction between two related parties/AEs, with that of transactions that are carried on by independent parties on arm’s length basis. If we consider the period allowed in the agreement to benchmark the transaction which is also the subject matter of the same agreement, it would lead to absurd results. We accordingly direct the AO / TPO to determine the credit period allowed by the comparable companies and treat only such trade receivables that are outstanding beyond the arm’s length credit period, as international transactions. Once the above exercise has been done, we direct computation of interest for the delayed realization of trade receivable over and above the arm’s length credit period till the date of its realization or the financial year end, whichever is later. Transfer pricing adjustment relating to ITES segment - Comparable selection - HELD THAT:- TCS E-Serve Limited is to be de-selected on the basis of application of high turnover filter. Companies with turnover of above Rs. 200 crores cannot be compared with companies with turnover of less than Rs. 200 Crores. Infosys BPO Limited - company with a turnover of Rs. 1290 crore cannot be comparable to the assessee company, which has a turnover of Rs. 79 crore. Respectfully following the ruling of the coordinate Bench of the Tribunal in the case of M/s. Fulcrum Fund Services (India) Private Limited [2019 (4) TMI 2095 - ITAT BANGALORE] we direct the AO/TPO to exclude this company from the list of comparables. Universal Print Systems Limited - TPO has selected the pre-press BPO segment - We note that the AO / TPO has selected the BPO segment. ITAT in the case of M/s. XL Health Corporation India Private Limited [2018 (4) TMI 82 - ITAT BANGALORE] has not considered / adjudicated the availability of segment information. In the interest of natural justice, we deem it appropriate to remand the matter back to the file of AO /TPO to examine the applicability of the ruling as referred above in the view of the availability of segment information. If the segment information is not reliable or if the company fails employee / any filter at a segment level, we direct the TPO to exclude this as comparable. It is ordered accordingly. Excel Infoways Limited (Segment) - As submission of the learned AR that the company Excel Infoways Limited fails the employees filter and has unreliable data. This contention of the assessee, which is elaborated at para 21 (supra) was not raised before any of the authorities. Therefore, for necessary verification of the matter, the issue of exclusion of Excel Infoways Limited is restored to the files of the TPO. The TPO is directed to examine the contentions raised, which mentioned supra, and shall verify whether Excel Infoways Limited satisfies the employees cost filter. Negative Working Capital Adjustment - assessee is a captive service provider, which is entirely funded by the AE and it does not have any borrowings - HELD THAT:- The nature of the assessee, its arrangement with its AE and financial particulars to allow the relief on the basis of which the above rulings have been rendered, are not forthcoming from the documents available on records. There is no whisper in the orders of the lower authorities with respect to these factual aspects. As the issue requires examination of various facts, we direct the AO/TPO to consider the same in the light of the jurisdictional rulings on negative working capital adjustment in the case of captive service providers and allow the relief to the assessee. Accordingly, ground 9.5 is allowed for statistical purposes.
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