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2023 (9) TMI 379 - AT - Income TaxTP Adjustment - comparable selection - Functional similarity - HELD THAT:- Acropetal Technologies Ltd. is not a good comparable to the assessee as it is into different business model being engaged in onsite development of software and it does not pass the filter applied by TPO of 75% export turnover and that ratio of onsite to total employee related expenses comes to 86.2%. E-Zest Solutions Ltd. company is engaged in product engineering services which is in nature of high end knowledge process outsourcing having expertise in emerging technologies such as Saas, mobility and business intelligence. For this reason it was found that this company, was found not a suitable comparable - See Symantec Software & Services India Pvt. Ltd. [2017 (1) TMI 1388 - ITAT CHENNAI] ICRA Techno Analytics Ltd., is engaged in diversified business activities and therefore functionally not comparable with that of pure software development services. in view of this specific finding we hold that this company is functionally not comparable with that of pure software development services provider like assessee. Igate Global Solutions Ltd. -TPO clearly found that though the terms used are generic in nature giving an impression that the company is engaged in diversified activities, the core activity of the assessee is only SWD services. In the absence of any information to show that such diversified activities constitute a sizeable portion of its business so as to render it not comparable to the assessee, we are not inclined to accept the findings of the learned DRP that in the absence of any segmental information, this company cannot be retained in the list of comparables. Such a logic will not hold good if the other activities constitute a miniscule proportion to the core activity. We, therefore, direct that the Igate Global Solutions Ltd., shall be retained in the list of comparables. Infosys Ltd. and L&T Infotech Ltd. - As in assessee's own case for assessment year 2013-14 [2018 (11) TMI 1710 - ITAT HYDERABAD] it was found that on the grounds of huge intangibles and no availability of segmental information between software service and products, L&T Infotech Ltd. was found not suitable to be compared with assessee. It is not the case of the revenue that there is any change in the functional profile of assessee or Infosys Ltd. and L&T Infotech Ltd. We, therefore, in tune with the findings of the Tribunal for the earlier assessment years, hold that Infosys Ltd. and L&T Infotech Ltd., are not good comparables. Sankhya Infotech Ltd. - As the purpose and the target users of Sankhya Infotech Ltd. are different from other receivers of SWD services, but it does not alter the core activity of Sankhya Infotech Ltd. being a software developing company. Even the products referred to in the annual report are software products and developing the same is within the realm of SWD services. This is not a ground to exclude Sankhya Infotech Ltd. from the list of comparables and we, therefore, do not agree with the learned DRP and direct the inclusion of this company in the list of comparables. Zylog Ltd - There is no reference to any closing stock, inventories or work in progress so as to infer that other than software development, this company is involved into some manufacturing products. Software product is also the result of software development only. Merely because the use of generic terms, a software development entity cannot be held as a non-comparable. Unless it is established that substantial portion of its work is outsourced, the off-site or in-house development of software will not impact the margins. We, therefore, direct the retention of this entity in the list of comparables. Persistent Systems Ltd., and Sasken Communication Technologies Ltd. - As in assessee’s own case for the assessment year 2013-14 [2018 (11) TMI 1710 - ITAT HYDERABAD] Persistent Systems Ltd., was directed to be excluded on the ground of its engagement in both software product, services and technology innovation, but without disclosing the segmental details. Since no change of circumstances is brought to our notice, we deem it necessary to follow the view taken and accordingly, direct the learned TPO to exclude this company. Sasken Communication Technologies Ltd. - As except stating that this company is involved in products also, as in the case of Zylog Ltd., no reference to any closing stock, inventories or work in progress is brought to our notice suggesting that other than software development, this company is involved into some manufacturing products. As held already, software product is also the result of software development only, and merely because the use of generic terms, a software development entity cannot be held as a non-comparable. We, therefore, direct the retention of this entity in the list of comparables. Computing notional interest on the outstanding receivables - Assessee contented that no transfer pricing adjustment need be made in respect of the notional interest on delay in collection of dues from the associated enterprise, because it is not an international transaction and secondly contending that if at all such an adjustment has to be made only such dues which are outstanding for more than 180 days shall be considered and the rate of interest shall be restricted to LIBOR +1.5% - HELD THAT:- The coordinate benches of this Tribunal followed the above view, and in the cases of Zeta Interactive Systems (India) (P) Ltd. [2022 (6) TMI 1383 - ITAT HYDERABAD], Satyam ventures [2022 (6) TMI 1386 - ITAT HYDERABAD] and Apache Footwear India Pvt. Ltd [2023 (4) TMI 521 - ITAT HYDERABAD] held that outstanding receivables is an international transaction, any extra credit in excess of 30 days requires a separate benchmarking and notional interest at 6% is a fair and reasonable one As interest at 6% is reasonable and accordingly direct AO to compute the interest on the outstanding receivables for more than 30 days at 6% per annum. Ground No 2 of Revenue’s appeal and the appeal of the assessee accordingly allowed in part.
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