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2023 (4) TMI 58 - AT - Income TaxTP Adjustment - Comparable selection - application of upper turnover filter - HELD THAT:- We notice that the coordinate bench of the Tribunal in the case BORQS Software Solutions Pvt. Ltd [2021 (10) TMI 1351 - ITAT BANGALORE] has considered the issue of TPO failing to apply upper turnover filter and has excluded the following comparable companies on this ground. We notice that in the above decision the Hon’ble Tribunal has excluded all the seven comparable companies from the upper turnover filter. Respectfully following the decision of the coordinate bench of the Tribunal we direct the TPO to exclude the above listed companies based on upper turnover filter and recomputed the ALP accordingly. Inclusion of R S Software Ltd., the margins for the assessment years in which the upper turnover filter would fail should be ignored and should not be regarded as comparable. It is ordered accordingly. Exclusion of Rheal Software Pvt Ltd. - We notice that the coordinate bench of the Tribunal in the case of Barracuda Network India Pvt. Ltd [2022 (5) TMI 322 - ITAT BANGALORE] has considered exclusion of companies on the ground that related party transactions are more than 15% and has also held that the RPT filter is to be considered on the upper threshold limit of 15% by relying on the decision of the Hon'ble Karnataka High Court in the case of PCIT and Anr. Vs. M.s YODLEE INFOTECH PVT LTD. [2018 (6) TMI 1783 - KARNATAKA HIGH COURT] Thus we remit the issue back to the TPO with a direction to verify the RPT transaction of Rheal Software Pvt Ltd and decide the comparability of the company considering the decision above. Exclusion of CG VAK Software and Exports Ltd. - We notice that the coordinate bench of the Tribunal in the case of 3DPLM [2014 (12) TMI 612 - ITAT BANGALORE] has held that in the absence of segmental information or details the companies cannot be taken for comparable analysis. As noticed that the assessee has not contended the exclusion of this company before the TPO/DRP - we remit the issue back to the TPO/AO with a direction to consider the issue of exclusion of C G VAK Software and Exports Ltd., afresh. Inclusion of I2T2 India Limited rejected stating that the company fails the turnover filter - We notice that in the case of Huawei Technologies [2021 (7) TMI 1401 - ITAT BANGALORE] relied on by the assessee I2T2 was included on that ground that the non-availability of Related Party Transaction (RPT) in the annual report cannot be a reason for exclusion. It is also noticed that in the current year, the turnover of the company is less than Rs.1crore and fails the lower turnover filter. We therefore uphold the exclusion of I2T2. Computation of net margin at the entity level by the TPO - TPO rejected the segmental financials of the assessee and worked out the entity level margins of the assessee while arriving at the TP adjustment for the reason that the cost allocated are not proportionate to the revenue reported in each of the segments - HELD THAT:- TPO had stated that the head count of cost allocation basis has resulted in skewed results and that the assessee has not furnished the details of nature of employees under each segment. Considering the decision of the coordinate Bench and the facts of the present case, we remit the issue back to the TPO/AO for considering the issue afresh keeping in mind the ratio laid down by the coordinate Bench in the case of Cisco Systems India Pvt. Ltd. [2014 (11) TMI 849 - ITAT BANGALORE] The assessee is directed to furnish required details and cooperate with the proceedings. Interest on delayed receivables - TPO considered the outstanding receivable as a separate international transaction and charged notional interest using 6 months LIBOR + 450 basis points which worked out to 5.386% and arrived at TP adjustment - HELD THAT:- As decided in case of Barracuda [2022 (5) TMI 322 - ITAT BANGALORE] determination of ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down, after affording Assessee opportunity of being heard - the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid. Thus we remit the issue back to the TPO/AO for bench marking of the transaction of interest on delayed receivables and recomputation of ALP.
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