TMI Blog2021 (11) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... ately leading to the higher profitability. So, we are of the considered view that L T is not a suitable comparable vis- -vis the taxpayer, hence ordered to be excluded. Tata Elexi - We are of the considered view that on account of functional dissimilarity and having ownership of internally generated intangibles in the form of technical know-how for rendering services to its customers make Tata Elexi not a suitable comparable vis- -vis the taxpayer who is a routine software development service provider working on cost plus markup model having no intangibles of its own, hence we direct to exclude Tata Elexi from the final set of comparables. Cybercom Datamatics leads to the conclusion that it is into diversified services and is also a product company providing software development to its associated enterprises and also selling developed software product whereas the taxpayer is a routine software development services provider working on a cost plus mark-up model and as such its margin cannot be compared with Cybercom Datamatics, hence Cybercom Datamatics is ordered to be deleted as a comparable. Cigniti has been excluded in a number of cases by the coordinate Bench of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Non granting credit of Tax Deducted at source (TDS) in respect of amalgamating companies - HELD THAT:- When TDS has been deducted AO has no option but to grant the credit thereof to the taxpayer. So, we direct the AO to give credit of TDS deducted in respect of amalgamating companies, namely, IP Unity Communications Ltd. and GL Software Ltd. after due verification. Consequently, ground determined in favour of the taxpayer in accordance with law. - ITA No.868/Del./2021 - - - Dated:- 12-11-2021 - SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER Assessee by: Shri Neeraj Jain, Advocate And Shri Abhishek Aggarwal, Advocate Revenue by: Shri Surender Pal, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. GlobalLogic India Pvt. Ltd. (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order dated 30.03.3021 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C (13) and 144C(13) read with sections 143(3A) 143(3B) of the Income-tax Act, 1961 (for short the Act ) qua the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment of Rs.5,30,71,340 to the arm's length price of alleged 'international transactions' of accounts receivable undertaken with the associated enterprise, on the basis of the order passed by the TPO/DRP. 2.1 That the DRP/TPO erred on facts and in law in recharacterizing the alleged transaction of delay in receipts of receivables as unsecured loans advanced to the associated enterprises. 2.2 That the DRP/TPO erred on facts and in law in not appreciating that delay in receipt of receivable is not an 'international transaction', per se, under section 92B of the Act but is a consequence of an 'international transaction' undertaken in the form of services rendered to the associated enterprise. 2.3 That the DRP/TPO erred on facts and in law in not appreciating that the appellant has received receivables from unrelated parties with similar delay of period and accordingly the delay in receipt of receivables from unrelated parties should be considered as a valid internal CUP for the purpose of benchmarking. 2.4 That the DRPI TPO erred on facts and in law in not accepting that in any case the transaction of delay in respect of receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The taxpayer has offices in Noida, Bangalore and Nagpur. The services delivered by the taxpayer include future planning, platform selection/adoption strategy, development, test engineering, development, delivery integration of specialized items, product testing, migration porting, product maintenance support and product extensions. 3. During the year under assessment, the taxpayer entered into international transactions as per transfer pricing document, with its Associated Enterprises (AEs) as under :- No. Nature of transactions Method Applied Value of transaction (in Rs.) 1. Provision of software development services TNMM 260,02,47,347 2. Recovery of expenses by AE Other Method 9,86,05,927 4. The taxpayer in its TP study to benchmark its international transactions qua provision of software development services, applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with Operating Profit/Operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO.1, 1.1, 1.2, 1.4 1.5 10. Undisputedly, TNMM with OP/OC as a PLI applied by the taxpayer to benchmark its international transactions has been accepted by the ld. TPO/ld.DRP. Ld. TPO, after applying various filters, otherwise acceptable to the taxpayer, has come up with final set off of comparables consisting of 13 companies with mean margin of 24.37% in order to benchmark the international transactions qua software development services entered into by the taxpayer with its AEs which are as under :- S.No. Name of Company OP/OC 2014 OP/OC 2015 OP/OC 2016 Weighted Average 1 Akshay Software Technologies Ltd. 0.09 0.05 -5.24 -1.90 2 Sagar Soft India Limited 0.09 -0.17 10.64 3.82 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.37% Arm s Length margin (%) 62,84,65,301 Arm s Length Price 3,20,73,13,480 Price charged by assessee 3,04,13,53,391 Difference between ALP and price charged by assessee 16,59,60,089 Total Transaction with AE related to software service 2,60,02,47,347 % of Transaction 85.50 Proportionate Adjustment 14,18,95,876 12. Ld. AR for the taxpayer in order compress the controversy raised by filing the present appeal sought exclusion of 9 companies, namely, (i) Mindtree Ltd., (ii) Cigniti Technologies Ltd., (iii) Inteq Software Limited, (iv) Tata Elxsi Limited, (v) Larsen Toubro Infotech Ltd., (vi) Infobeans Technologies Ltd., (vii) Kelton Tech Solutions Ltd., (viii) Thirdware Solutions Ltd. (ix) Cybercom Datamatics Information Solutions Ltd. out of 13 companies chosen as comparables by the ld. TPO and sought to include 2 companies viz. E-Zest Solutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hi Tech and Consumer Electronics, Consumer Retail Pharma, Energy Process, Automobile Aerospace, Plant Equipment Industrial Machinery, Utilities and E C. But aforesaid various segments do not indicate profit earned from provisions of SDS. Apart from it, L T is a huge brand having ownership of significant intangibles to the tune of Rs.7.42 millions, as is evident from its financials at page 8 and 103 of the paper book. 18. Coordinate Bench of the Tribunal rejected L T in taxpayer s own case for AY 2014-15 (supra), available at pages 61 to 63 of the case law paper book, by returning following findings :- 6.6 The next objection of the assessee is regarding multiple segments. From segment reporting on page S-1258 of the Annual Report (page 129 of PB-2) , we find that the assessee has reported three business segments. The first segment is service cluster which includes banking, financial services, insurance, media and entertainment, travel and logistics and healthcare. The second segment industry cluster which includes Hi Tech and consumer electronics, consumer, retail and Pharma, energy and process, auto Mobile and aerospace, plant equipment and industrial machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 , the company is held to be not valid comparable on account of extraordinary events. Thus, In view of the extraordinary event in the year under consideration also, this company is liable to be excluded from the set of the comparable. 19. In taxpayer s own case in ITA No.8726/Del/2019 for AY 2015-16 order dated 29.06.2020, L T was excluded by the coordinate Bench of the Tribunal by returning following findings :- Para 20 available at pages 89-90 of the paper book 20. The Tribunal in assessee's own case in ITA No.4740/Del/2018 relating to Assessment Year 2014-15 vide order dated 01.05.2020 has directed the exclusion of the said concern from the final list of comparables while benchmarking the ALP of the international transaction by the assessee with its AE. Before parting, we may also refer to an extraordinary event under which Larsen Toubro Infotech Ltd. initiated and completed transfer of its Product Engineering Services Business (PES) Unit to L T Technology Services Ltd. w.e.f. January 1, 2014 as part of the business restructuring undertaken within the Larsen Toubro group. Though the initiation started from 01.01.2014 but the whole effect of the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghted in the financials of Tata Elexi goes to prove that Tata Elexi is into system integration support and software development services. Software development services segment further constitutes three major sub-segments viz. embedded product design, industrial design and visual computing labs whereas taxpayer is a routine software development services provider working on cost plus mark-up model. 23. Furthermore, when we examine Note 9 - Fixed Assets forming part of the financial statement, available at page 643 of the annual reports paper book, it shows that Tata Elexi is having intangibles in the form of internally generated technical know-how and acquired intangibles computer software which certainly gives edge to Tata Elexi over other players operating in software development services provisions. 24. Moreover, when undisputedly taxpayer has not undergone any change in its business model vis- -vis AYs, 2007-08, 2014-15 2015-16 in ITA Nos.5809/Del/2011, 4740/Del/2018 8726/Del/2019 respectively, Tata Elexi was held to be noncomparable by the Tribunal. 25. In view of the matter, we are of the considered view that on account of functional dissimilarity and having owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcom Datamatics has already been examined by the Tribunal in AY 2015-16 (supra) and since then its business model has not undergone any change vis- -vis year under consideration. 30. Aforesaid profile of Cybercom Datamatics leads to the conclusion that it is into diversified services and is also a product company providing software development to its associated enterprises and also selling developed software product whereas the taxpayer is a routine software development services provider working on a cost plus mark-up model and as such its margin cannot be compared with Cybercom Datamatics, hence Cybercom Datamatics is ordered to be deleted as a comparable. CIGNITI TECHNOLOGIES LTD. (CIGNITI) 31. The taxpayer sought exclusion of Cigniti on the grounds inter alia that it is functionally dissimilar; that it is owner of Cigniti generated intangibles and relied upon the decisions of M/s. FIS Solutions (India) Pvt. Ltd. vs. DCIT in ITA No.1695/Pun/2018, M/s. Microsoft Research Lab India Pvt. Ltd. vs. DCIT in ITA No.3131/Bang/2018, US Technology International Pvt. Ltd. vs. ACIT in ITA No.592/Coch/2018, M/s. Mercedes-Benz Research Development India Pvt. Ltd. vs. DCIT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of complimentary competencies. 37. Perusal of its financials, available at pages 295, 297 300 of annual reports paper book, shows that it had evolved various products and mobile apps such as KL Game and mSehat . But, at the same time, when we examine its profit loss account, available at page 391 of the annual reports paper book, it has no segmental financials qua its diversified services being provided under head digital transformation, enterprise solution and consulting. In these circumstances, the revenue earned from software services which is considered as comparable vis- -vis the taxpayer, cannot have tangible results being income earned from each services segment not available in its financials. 38. Perusal of Note 13 Fixed Assets, available at page 398.1 of the annual reports paper book, shows that Kelton is having goodwill amounting to Rs.973,687,128 along with software of Rs.29,742,247. 39. So we are of the considered view that as discussed in the preceding paras, Kelton is not a suitable comparable vis- -vis the taxpayer being into diversified nature of services having no financial segmental to arrive at the proper margin, also being into devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprise Mobility, Big Data Analytics, UX UI, Automation Engineering Services, as is evident from its financials, available on page 123 of the annual report paper book. 45. The taxpayer also brought on record profile of the Infobeans at pages 58 to 60 of the appeal memo wherein it is claimed by the Infobeans that it is providing wide range of services under four verticals i.e. services, automation, enterprise and industries and under the automation services verticals, the company is providing advanced robotic process automation services. Since Infobeans is into diversified activities it cannot be a suitable comparable vis- -vis the taxpayer which is a routine software development services provider. Infobeans has been excluded as a comparable on account of functional dissimilarity vis- -vis routine software development service provider by the coordinate Bench of the Tribunal in case of PubMatic India (P) Ltd. vs. ACIT in ITA No.655/Pun/2017. So, in view of the matter, we order to exclude Infobeans from the final set of comparables. INTEQ SOFTWARE LTD. (INTEQ) 46. The taxpayer sought exclusion of Inteq again on account of functional dissimilarity being into providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned under Explanation (i), (a) (c) of section 92B have been analyzed by Hon ble Delhi High Court in case cited as Pr. CIT-V vs. Kusum Health Care Pvt. Ltd. in ITA 765/2016 order dated 25.04.2017, wherein it is held that the expression added in Explanation to section 92B does not mean that de hors the context, every item of receivables appearing in the accounts of an entity, which may have dealing with foreign AE, would automatically be characterized as an international transaction and decided the issue in favour of the taxpayer by returning following findings :- 10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression receivables does not mean that de hors the context every item of receivables appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re when the taxpayer is undisputedly a debt free company, as it is not the case of the ld. TPO that borrowed funds have been appropriated enabling the AE to make the delayed payment on receivables. So when outstanding receivables is not a separate international transaction, the delay in realization of the sale proceeds is incidental to the transaction of sale and as such no notional interest can be levied by treating the same as unsecured loan. 18. Furthermore it is the case of the taxpayer that when the taxpayer is not charging interest from unrelated third party / non-AE, in case of such delay, no adjustment on interest in case of AE can be made and drew our attention towards the details of invoices raised qua unrelated parties available at page 183A of the paper book wherein delay in realization of the receivables is also up to 218 days for AY 2010-11 and up to 417 days qua AY 2012-13 as per detail of invoices raised on unrelated parties qua AY 2012-13, available at page 236 of the paper book. 52. Moreover, the interest can be charged only on loan and borrowing of money and not in case of sale, particularly when there is no penal provision in the agreement entered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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