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2020 (7) TMI 621 - AT - Income TaxTP Adjustment - addition on account of provision of Software Development Services by the assessee to its AE - Comparability selection - HELD THAT:- Assessee is engaged in provision of Software Development Services to its AE. For benchmarking aforesaid international transaction, Transactional Net Margin Method (in short TNMM) is applied. Where TNMM method is applied, it takes care of certain marginal differences between the functioning of the tested party and the finally selected comparables. However, if the module of working is different, then such a concern cannot be held to be functionally comparable and cannot be selected in the final list of comparables. The Hon’ble Delhi High Court in Rampgreen Solutions vs. CIT [2015 (8) TMI 931 - DELHI HIGH COURT] while adjudicating similar issue of application of TNMM method and whether functionality being same was sufficient held that the comparable transaction/entities must be selected on the basis of similarity with the control transaction/entity. The comparability of controlled and uncontrolled transactions had to be judged inter alia, with reference to comparability factors as indicated under Rule 10B(2) of I.T. Rules. Whether a concern which fails service revenue filter applied by the TPO, can this be excluded from final list of comparable? - We find that the TPO had mentioned the same to be at 74% whereas the learned AR for the assessee claims that it is 75% and on the other hand the learned DR for the Revenue points out that the employee service revenue filter comes to 84.93%. In view of the dis-similarity in the figures proposed by the AO / TPO, the learned AR for the assessee and learned DR for the Revenue, we remit this issue to the file of AO / TPO to verify the stand of the assessee and in case it fails to service revenue filter, which is proposed by the TPO himself then the said concern is to be excluded from the final list of comparable. Exclusion of Persistent Systems Limited - As in assessee’s own case, relating to assessment year 2007-08 and pointed out that the said concern was held to be functionally similar to the assessee. The learned AR for the assessee fairly pointed out that the issue was decided against the assessee by the Tribunal. Accordingly, we find no merit in the plea of the assessee and the said concern i.e. Persistent Systems Limited is to be included in the final list of comparable. Wipro Technology Services Limited concern having such huge brand value and owning intangibles cannot be compared with the concern providing BPO services. The Delhi Bench of the Tribunal in Bechtel India (P.) Ltd.[2016 (9) TMI 196 - DELHI HIGH COURT]had excluded Wipro Technology Services Limited on the ground of high related party transaction. We further find that the said concern was also engaged in sale of software products. In these facts and circumstances, we direct the exclusion of Wipro Technology Services Ltd,. Sasken Communication Technologies Limited is not functionally comparables to the assessee and same needs to be excluded from the final list of comparable. Thirdware Solutions Limited - we look at the annual report of the concern i.e. Thirdware Solutions Limited, we find that it was engaged in implementation and consulting services of software and business intelligence. It has also declared Revenue from sale of license, Software Services, export from SEZ and STPI. However, the segmental details are not available and the same is to be excluded from the final list of comparable. Adjustment made on account of receivables from AE - case of the Revenue is that as the assessee has not received the amount due from the AEs, within the stipulated period then interest adjustment needs to be made on account of interest due on Receivables, as this was an International Transaction - HELD THAT:-The assessee during the year under consideration had not avail any loan from AEs or unrelated third parties and was not incurring any interest cost. There was similar delay in receipt of receivables from others and the assessee was not charging any interest on delay in receipt of receivables against services rendered to unrelated third parties. Following the ratio laid down in Kusum Healthcare Ltd.. [2017 (4) TMI 1254 - DELHI HIGH COURT] and also in line with the findings of the Tribunal in M/s. Global Logic India Ltd. (supra), we find no merit in making any adjustment on account of interest due on receivables from its AE. Appeal of assessee allowed.
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