TMI Blog2020 (12) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the earlier years in assessee s own case for the A.Y.2013-14 and 2014-15 - Accordingly, we direct the TPO (AO) to allow credit period of 90 days or the industry average and only in respect of the deviation, the interest to be considered for ALP adjustment. Interest to be charged as per Libor or SBI interest rate - HELD THAT:- The issue has already been considered by the Tribunal in the earlier year and held that interest to be charged as per SBI short term deposit rates. Since there are no changes in the facts, respectfully following the view taken by this tribunal in assessee s own case, we hold that interest is to be charged at the rates of short term deposits of SBI as decided by the ITAT in it s earlier year orders. Accordingly, this issue is remitted back to the file of TPO (AO) to recompute the interest. Appeal of the assessee on this ground is treated as allowed for statistical purposes. - I.T.A.No.1689/Hyd/2019, Stay Application No.98/Hyd/2020 (Arsing out of I.T.A. No.1689/Hyd/2019) - - - Dated:- 19-10-2020 - Smt. P. Madhavi Devi, Hon ble Judicial Member And Shri D.S. Sunder Singh, Hon ble Accountant Member Appellant by : Shri Sunil M. Lala, AR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Limited 3. On the facts and in the circumstances of the case and in law, the Ld. TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TP0 in incorrectly rejecting the following companies which ought to have been included as they are engaged in software development services as comparables, without appreciating that the said companies fulfilled all the filters and were functionally comparable to the Appellant: i) Evoke Technologies Private Limited ii) Infomile Technologies Limited iii) 12T2 India Limited iv) Kireeti Soft Technologies Limited v) SugarSoft India Limited vi) Akshay oftware Technologies Limited vii) Harbinger Systems Private Limited 4. Without prejudice to the above grounds on rejection of functionally dissimilar comparable companies, on the facts and in the circumstances of the case and in law, the Ld. TPO erred by incorrectly computing the margin of the following comparable companies i.e. (i) Nihilent Technologies Limited, (ii) Thirdware Solution Limited iii) Sasken Communication Technologies Ltd. 5. On the facts and in the circumstances of the case and in law, the Ld TPO erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut prejudice to what has been stated above, the Ld. TPO erred in not following his order for AY 2012-13 and the directions of Hon'ble DRP for AY 201112 in the Appellant's own case, wherein the Hon'ble DRP opined that once receivables and payables are considered in computing the working capital adjustment a further separate adjustment in the nature of interest on receivables is not warranted. 12. Without prejudice to what had been stated above: on the facts and in the circumstances of the case and in law, the Ld TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the Ld TPO in considering the State Bank of India's ('SBI') short term deposit rates as the Comparable Uncontrolled Price (CUP) to benchmark the impugned interest on delay in receipt of outstanding receivables instead of LIBOR rate. 13. On the facts and in the circumstances of the case and in law, the Ld.AO/ Ld.TPO and the Hon ble DRP erred in passing impugned orders without providing the Appellant with sufficient and adequate opportunity and in breach of the principles of natural justice and in arriving at conclusions therein based on incorrect factual av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.08.2019. Subsequently, the AO passed the assessment order u/sec. 143(3) r.w.s. 144C on 26.09.2019 and made the adjustment of ₹ 4,60,53,538/- relating to software development and interest on receivables. On which the assessee filed appeal before the Tribunal. 5.2. The international transactions entered by the assessee as under:- Nature of transaction Amount (Rs.) Software distribution and related services (product supply fee, one point support, PSO recharges, royalty expenses, customer support, management fee and annual maintenance fee) 30,04,53,550 Software development services 46,69,84,481 Related IT services 87,99,18,654 Shared services 29,77,48,104 Reimbursement of expenses 1,22,99,059 Recovery of expenses 23,14,792 5.3. The assessee carried the economic analysis and has summarized the international transactions as under:- Nature of International Transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial or information or document available with him. The search criteria and the acceptance / rejection matrix applied by the company for screening the initially identified cases for arriving at a final comparable set are as under : S.No. Particulars Remarks of the TPO 1. Companies with Net sales more than 1 Cr. This is an appropriate filter 2. Companies with manufacturing income plus trading income less than 50% of sales A subjective filter. To be seen on a case to case basis. 3. Companies with positive net worth Appropriate filter. 4. Companies undertaking significantly different functions compared to the taxpayer-excluded A subjective filter. To be seen on a case to case basis. 6. Rejected companies reporting related party transactions less than 25% Appropriate filter 5.5. The TPO after rejecting T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.44 24.82 9 Infobeans Technologies 20.70 41.95 29.22 29.91 10 Persistent Systems Ltd., 31.11 35.44 28.20 31.69 11 Nihilent Technologies Ltd., 29.19 35.72 - 32.21 12 Aspire Systems (India) Pvt. Ltd., 30.98 38.04 - 34.18 13 Inteq Software Pvt. Ltd., 31.16 45.00 - 37.90 14 Infosys Ltd., 40.29 36.28 29.25 38.59 15 Thirdware Solutions Ltd., 43.69 44.68 32.65 41.12 16 Cybage Software Pvt. Ltd., 68.17 68.82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix) Nihilent Tecnologies Ltd., x) Inteq Software Pvt. Ltd. xi) Rheal Software Pvt. Ltd., xii) R.S. software (India) Ltd., and xiii) Infobeans Technologies Ltd., Therefore the assessee s appeal for exclusion of six comparables listed above from the final list of comparables is dismissed as not pressed. 6.1. In respect of the remaining comparables in ground No.2, i.e. Infosys Ltd., Larsen Toubro Infotech Ltd., Mindtree Ltd., Tata Elxsi Ltd. (Seg), Persistent Systems Ltd., Thirdware Solution Ltd., the Ld.AR argued that exclusion of the above companies are covered by the order of this Tribunal in assessee s own case and other cases decided by the ITAT, Hyderabad for the A.Ys. 2013-14 2014-15 on identical facts. Therefore submitted that the issue is squarely covered in favour of the assessee. The comparable companies covered for exclusion by the order of this Tribunal are discussed as under : 1) Infosys Ltd. 2) Larsen Toubro Infotech Ltd. 3) Mindtree Ltd., Tata Elxsi Ltd. (Seg) 4) Persistent Systems Ltd. and 5) Thirdware Solution Ltd. 6.2. In respect of Infosys Ltd., Larsen Toubro Infotech Ltd. and Mindtree Ltd., this tribunal has considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solutions Ltd and Persistent Systems Ltd are concerned, we find that their comparability to the assessee has been considered in the assessee s own case for the A.Y 2007-08 and it is submitted that there is no change of activities of either the assessee or the comparables during the relevant A.Y before us i.e. A.Y 2014-15. 7.8. The learned DR has not rebutted this contention of the assessee. Therefore, respectfully following the decision of the Coordinate Bench at Mumbai in ITA No.520/Mum/2012 dated 4.12.2018, in the case of Infor Global Solutions India (P.) Ltd. v.Deputy Commissioner of Income Tax, we direct the exclusion of these three companies from the final list of comparables. For the sake of ready reference, the relevant paras are reproduced hereunder: 29. We have considered rival submissions and perused materials on record. The primary and fundamental reason on the basis of which assessee seeks rejection of the aforesaid comparable is, it is also engaged in the development of product and segmental details are not available. Notably, in case of LSI Technologies India (P.) Ltd. (supra), the Co-ordinate Bench while examining the comparability of the aforesaid company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee also relied on the decision of the ITAT, Pune Bench in the case of Apoorva Systems Pvt. Ltd., Vs. DCIT, Circle-1(1), Pune TS 40 ITAT 2017 (Pune) wherein the coordinate bench of the tribunal held that the companies are functionally different hence it is to be excluded from the list of final companies. 6.3.2. Both the Ld.AR and Ld.DR submitted that there is no change in the facts either in the case of assessee s company or in the case of comparables. No major changes in the activities of the comparables of the assessee s have been brought to our notice. Therefore, respectfully following the view taken by the coordinate bench of the tribunal in the earlier years, we direct the TPO (AO) to exclude the Tata Elxsi Ltd., Thirdware Solutions Ltd. and Persistent Systems Ltd. from the final list of the comparables. 6.4. Ld.AR requested for exclusion of Cybage Software Pvt. Ltd. from the final list of comparables and argued that though Cybage Software Pvt. Ltd. is comparable functionally, the profit margin is very high as much as 60.81 to 68.17% which is not possible in normal conditions. Ld.AR submitted that the assessee company s margin is 15.32% against the average margin of compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee s ground for inclusion of comparables in respect of Akshay Software Technologies Ltd. and Harbinger Systems Pvt. Ltd. is dismissed as not pressed. 7.2. In respect of Evoke Technologies Pvt. Ltd., Kireeti Soft Technologies Ltd., InfoMile Technologies Ltd. 12T2 India Ltd., Ld.AR did not make any argument for inclusion of companies, therefore assessee s ground for inclusion of the said companies as comparables is dismissed as not pressed. 7.3. The assessee vehemently argued for inclusion of SagarSoft India Ltd. as comparable in the final list of comparables. However, we observe that SagarSoft India Ltd. is persistent loss company and the DRP has rejected the assessee s request for inclusion of the said company for the following reasons:- 2.25.1 Having considered the submissions and on perusal of the annual report, we note that as per the information in the profit loss account, the company has revenue from software development services. The TPO rejected due to persistent losses. We note that this company has persistent losses at operating level as evident from the annual reports and also in the assessee s submissions in page No. 313 of the Application. Consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed by the AO for 30 days. Further, the Ld.AR argued that the AO/TPO/DRP has taken SBI deposit rate for working the interest on receivables. Since the activities are export activities, Ld.AR requested for LIBOR rate. 9.1. On the other hand, Ld.DR supported the orders of the authorities below. 9.2. We have heard rival contentions and find that this issue came up for adjudication in the assessee s own case for the A.Ys. 2013-14 2014-15. After the amendment of law inserting Explanation to section 92B of the Act, the interest on trade receivables also became an international transaction and therefore, the ALP adjustment is required to be made in respect of trade receivables also. Accordingly ITAT has decided the issue against the assessee in the earlier years in assessee s own case for the A.Y.2013-14 and 2014-15 (supra). For the sake of clarity and convenience, we extract the relevant part of the order of this tribunal in para 86 87 which reads as under:- 86. The common grounds of appeal for the A.Ys 2013-14 and 2014-15 are against the ALP adjustment of interest on trade receivables. Though the learned Counsel for the assessee has relied upon the assessee s own case for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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