9911796707
TMI Blog2023 (1) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... ] to the extent prejudicial to the Appellant are bad in law and liable to be quashed. [Ground of appeal no. 1(a) - Grounds of appeal filed on 22 June 2021] 2. The Deputy Commissioner of Income Tax, Circle-6(1)(1) (the then Learned Assessing Officer) has erred in making a reference to Deputy Commissioner of Income-tax Transfer Pricing, Circle - 2(2)(1) (the then Learned Transfer Pricing Officer) for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The Hon'ble DRP has erred in confirming the action of the Deputy Commissioner of Income Tax, Circle-6(1)(2) ('Learned Assessing Officer' or 'Ld. AO'). [Ground of appeal no. 1(b) - Grounds of appeal filed on 22 June 2021] 3. The lower income tax authorities have erred in making an adjustment under section 92CA of the Income-tax Act, 1961 ('the Act') without appreciating that a) there is no amendment to the definition of "income" and charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X; and b) passing the orders without considering all the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 8.33%); (b) CG-VAK Software & Exports Limited (FY 2013-14: 9.38%; FY 2014-15: 13.42% and FY 2015-16: 13.06%); (c) Larsen & Toubro Infotech Limited (FY 2013-14: 24.07%; FY 2014-15: 24.21% and FY 2015-16: 23.46%); (d) Nihilent Analytics Limited (FY 2013-14: 33.12%; and FY 2015-16: 15.82%); (e) Persistent Systems Limited (FY 2015-16: 26.85%); and (f) Thirdware Solutions Limited (FY 2013-14: 42.24%). Further, the Ld. TPO did not provide any basis for computation of the NCP mark-up. The Appellant has provided above the rectified NCP mark-up from the annual reports available in the public domain. [Grounds of appeal no. 4(u) - Grounds of appeal filed on 22 June 2021; and Ground of appeal no. 2 - First additional grounds of appeal filed on 6 October 2021] 10. The lower income tax authorities erred in including the following companies, even though they are not functionally comparable to the Appellant: (a) Rheal Software Pvt. Ltd.; (b) C G Vak Software & Exports Ltd.; (c) Infobeans Technologies Ltd.; and (d) Inteq Software Pvt. Ltd. [Grounds of appeal no. 4(i), 4(j), 4(m) and 4(q) - Grounds of appeal filed on 22 June 2021] 11. The lower income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t term deposit interest rate prevailing w.e.f. 8 June 2015 and the Ld. TPO adopted the weighted average rate; (e) Computing notional interest on receivables collected in 1 day from the due date of receipt of outstanding receivables; (f) Without prejudice, should interest be levied on the delayed receivables, LIBOR should be applied as the interest rate to compute the transfer pricing adjustment. Further, the interest rate should be restricted only to the LIBOR rate without adding any further basis points; and (g) Without prejudice, no separate adjustment for interest on delayed receivable is required where the NCP mark-up of the international transaction is held to be at arm's length price. [Grounds of appeal no. 7 and 8 - Grounds of appeal filed on 22 June 2021; and Grounds of appeal no. 3 and 4 - First additional grounds of appeal filed on 6 October 2021] 2. The brief facts of the case are that the assessee filed original return of income on 30/11/2016 declaring loss of Rs.82,68,35,113/-. The case was selected for scrutiny under CASS and statutory notices were issued to the assessee. During the assessment proceedings, it was observed by the assessing officer (AO) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Software Development Services segment (SWS). The assessee submitted details on 27/06/2019 and information were also received as per sec. 133(6) of the Act from the companies proposed as comparables. On the determination of ALP, certain defects were observed by the TPO in the Transfer Pricing Report , thereafter, the TP study report was rejected and the final list of comparables considered by the TPO was also furnished to the taxpayer. 3. The TPO adopted following filters for selection of companies which are as under:- 1) Companies whose income was more than Rs.1 crore were excluded 2) Companies who have more than 25% related party transaction were excluded 3) Companies who have export service income less than 75% of the sales were excluded.' 4) Companies with employees cost less than 25% turnover were excluded 5) Use of current year data where available. 6) Companies whose Software Development Service income is less than 75% of its total operating revenue were excluded. 7) Companies having positive net worth. 3.1 The ld.TPO after applying above filters, rejected the following companies :- 3.2 As the 5 comparables selected by the assessee failed filers applied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the above judgments, the TPO observed as under:- "23.26 Further. the Hon'ble Delhi High Court in Cotton Naturals have held that the interest rate used would depend on the currency of the transaction. Therefore, following the Hon'ble High Court decision. interest rate is being computed as under: if receivables are to be paid to the taxpayer in Indian Rupees, interest shall be computed taking the SBI base rate as on 30th June of the previous year plus ISO basis points if the receivables do not exceed Rs,50 Cr, and 300 basis points if the receivables exceed Rs,50 Cr, This is as per the Safe Harbour Rules and is in conformity with the decision in Cotton Naturals. This rate of interest shall also be applied lithe foreign exchange risk is borne by the AE, and not the taxpayer, because such an agreement results in the receivables being effectively denominated in Rupees, and not in a foreign currency. If receivables are to he paid to the taxpayer in foreign currency, the arm's length price shall be determined considering the following factors: The RBI Master Circular on External Commercial Borrowings and Trade Credits (No.l2/20l5-16 dated 01 .07.15), specifies a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is appropriate towards the additional currency risk arising from fluctuations in the foreign exchange rate, borne by the taxpayer. This mark-up must he added to the interest rate discussed in para (i) above. (iv) Considering these facts and judicial decisions oil subject, 6 month LIBOR plus 450 basis points is the most appropriate CUP. As discussed in para (iii) above, a mark-up of IOU basis points is appropriate towards the currency risk arising from fluctuations in the foreign exchange rate, borne by the taxpayer. The LIBOR plus 450 basis points rate discussed in para (i) above compensates the remaining costs. (v) The 6 months LIBOR rate in March 2016 was 0.985% (Source: https://www.globalrates.com/interestrates/ libor/american-dollar/ therefore the benchmarking rate of interest shall be 4.985% (vi) The period for which interest has been calculated has been limited to the year under consideration as interest accrued in other years cannot be taxed this year. Similarly. interest accrued during the year under consideration, in respect of' invoices raised in earlier years which remained unpaid has also been charged." The ld. TPO considered in details in regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bench, are as follows: (i) Ground of appeal with respect to turnover filter The lower income tax authorities erred in including the following companies, even though they fail the higher threshold limit of INR 200 crores for turnover filter: a) Infosys Ltd.; b) Larsen & Toubro Infotech Ltd.; c) Persistent Systems Ltd.; d) Aspire Systems (India) Pvt. Ltd. (for Financial Year ('FY') 2015-16); e) Thirdware Solution Ltd.; f) Cybage Software Pvt. Ltd.; g) Nihilent Ltd.; and h) R S Software (India) Ltd. (for FY 2013-14 and FY 2014-15) [Ground of appeal no. 4(g) - Grounds of appeal filed on 22 June 2021; and Ground of appeal no. 2 - Second additional grounds of appeal filed on 3 December 2021] The Appellant seeks for exclusion of the aforementioned companies since the same fails the higher threshold limit of INR 200 crores turnover filter. The Appellant submits that companies having varied turnovers cannot be compared to each other as the difference in their size and scale of operations have a direct impact on their profitability. As per Dun and Bradstreet analysis, software companies can be categorized as follows: "The IT industry has been lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India (P.) Ltd. vs DCIT, Circle 11(1) [IT(TP) Appeal Nos. 540, 541, 616, & 617 (BANG) of 2013, AY 2005-06 and AY 2008-09] "17.8....We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." * M/s Baracudda Networks India Private Limited vs DCIT, Circle 1(1)(1) [IT(TP) Appeal No. 229(Bang.) of 2021, AY 2016-17], wherein it has been held that the companies whose turnover in the current year is more than INR 200 crores should be excluded from the list of comparable companies. The relevant extract f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it was held that Persistent Systems Ltd. is predominantly engaged in outsourced software product development and was accordingly excluded as a comparable. The relevant extract from the case law has been provided below: "'17.2 ......submitting that this company is functionally different and also that there are several other factors on which this company cannot be taken as a comparable. In this regard, the learned Authorised Representative submitted that :(i) This company is engaged in software designing services and analytic services and therefore it is not purely a software development service provider as is the assessee in the case on hand.(ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in 'Outsourced Software Product Development Services' for independent software vendors and enterprises.(iii) Website extracts indicate that this company is in the business of product design services... 17.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions, however the same has to be read with Rule 10B(3) of the Income-tax Rules, 1962 which clearly emphasizes the necessity of undertaking adjustments. Hence, in case appropriate adjustments cannot be made to the uncontrolled transaction, due to lack of data, then the adjustments should be made on the tested party. This proposition was also accepted by the Hon'ble Bench in case of M/s Atmecs Technologies Private Limited vs ITO, Ward - 1(1)(1) [IT(TP)A No. 187 (BANG.) of 2021. The relevant extract from the case law has been provided below: "26... While the Indian transfer pricing regulations refer to the adjustments on uncontrolled transactions, however the same has to be read with Rule10B(3) of the Rules which clearly emphasizes the necessity and compulsion of undertaking adjustments. Hence in case appropriate adjustments cannot be made to the uncontrolled transaction, due to lack of data, then in order to read the provisions of transfer pricing regulations in harmony, the adjustments should be made on the tested party." "27. We are of the view that it would be just and appropriate to set aside this issue to the AO/TPO by directing the assessee to furnish required deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm's length price under Section 92C of the Act. In this regard, the Appellant has relied on the decision of Hon'ble Bench in the case of Avnet India P Ltd v DCIT [2016] 65 taxmann.com 187 (Bangalore - Trib.); the relevant extract from the case law has been provided below: "8....we hold that there can be no separate international transaction of 'interest' in the international transaction of sale. Early or late realization of sale proceeds is only incidental to transaction of sale, but not a separate transaction in nature." The Appellant also relies on the additional case laws captured in the briefing chart shared with the Hon'ble Bench during the course of hearing on 12 July 2022. The same is attached herewith this synopsis again. Without prejudice, it is submitted that even if delayed realisation of trade receivables were to be considered as an international transaction, the average realisation period of the trade receivables of the Appellant as on 31 March 2016 (viz. 53 days) should be compared with the average realisation period of the trade receivables of the final companies selected as comparables and adjustment should be made accordingly, if warranted. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 200.00/- may not be considered as good comparables. If the comparables selected by the lower authorities which are otherwise functionally comparable, it should be considered as a good comparable. In respect of interest receivables, the lower authorities have rightly treated the receivables which are not recovered beyond the prescribed time limit. As per the agreement, it is a findings of the AE's and interest calculation done by the lower authorities are correct and they have applied correct rate as per RBI guide lines for the libor plus 450 bias points which is very clearly considered from the order of the TPO. The TPO and DRP has made detailed analysis of the case laws rendered in this regard. He further submitted in respect of capacity utilization that the lower authorities have rightly rejected and he pointed out that in the TP study report there was no reference made for justification given for capacity utilization. In software industries it would not be of any risk towards capacity utilization and the case law relied by the DRP is squarely applicable in the present facts of the case. and finally he submitted that the case law relied by the ld.AR are distinguishable on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Assessee was that there would be effect on profitability wherever there is high or low turnover and therefore companies with high turnover should also be excluded from the list of comparable companies. The DRP rejected the contention of the assessee by analyzing the turnover vs the profitability of one of comparables Infosys Ltd for prior years, to conclude that there is no direct impact on margin on account of turnover. The DRP also relied on several Tribunal decision and also the decision of the Delhi High Court in the case Chryscapital Investment Advisors India (P.) Ltd. v. Dy. CIT [2017] 82 taxmann.com 167, wherein it was held that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. 8.2 We notice that the coordinate bench of the Tribunal in the case of Barracuda Networks India (P.) Ltd. v. Dy. CIT [2021] 131 taxmann.com 337 (Bang. - Trib.) has dealt in detail the application of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 42. The Assessee's turnover was around Rs. 110 Crores. Therefore the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5-8-2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 171.41 crores, leading to loss of - 2.09%. Therefore it was submitted that there is an apparent wide fluctuation in the margin of the company. The relevant details as computed by the TPO is extracted hereunder: *figures in crores FY 2015- 16 FY 2014- 15 FY 2013- 14 Operating revenue 171.41 345.50 351.89 Operating cost 175.07 260.26 283.47 Operating profit -3.66 85.24 68.42 OP/OC -2.09% 32.75% 24.14% The ld AR argued that the wide fluctuations in profit suggest the existence of a peculiar economic circumstance, for which no appropriate adjustment could be made to mitigate the impact on the margin of the company and therefore the company cannot be selected as a comparable. 17. Without prejudice to the above submission the ld AR submitted that if the company were to be retained in the final list of comparables, the company's turnover for the financial years 2013-14 and 2014-15 is in excess of Rs. 200 crores, and therefore the margins for the said years ought to be excluded, and the margin of the company at -2.09% ought to be considered. In this regard reliance was placed on the decision of this Hon'ble Tribunal in the case of BO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The range concept will be applicable in certain cases for determining the price and will begin with the 35th percentile and end with the 65th percentile of the comparable prices. Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made. The use of multiple year data allows for yearly variations to be averaged out and would therefore add value to transfer pricing analysis. The Amended Income-tax Rules, 1962 ('Rules') via Notification 83 of 2015 which is the 16th amendment to the originally drafted Indian Tax Rules, 1962, are applicable for transactions undertaken on or after 1 April 2014 (i.e. from FY 2014-15 and onwards). These amended provisions are applicable only when the determination of 'ALP' is done under the MAM being resale price method ('RPM'), cost plus method ('CPM') or transactional net margin method ('TNMM'). The relevant provisions of Rule 10CA of the Rules, in so far as it relates to choice of comparable companies, read as follows: Computation of arm's length price in certain cases. 10CA. (1) Where in respect of an international transaction or a specified domes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applied to determine the price of the comparable uncontrolled transaction undertaken in the financial year immediately preceding the current year; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the aforesaid period of two years shall be included in the dataset instead of the price referred to in sub-rule (1) : Provided also that where the use of data relating to the current year in terms of the proviso to sub-rule (5) of rule 10B establishes that,- (i) the enterprise has not undertaken same or similar uncontrolled transaction during the current year; or (ii) the uncontrolled transaction undertaken by an enterprise in the current year is not a comparable uncontrolled transaction, then, irrespective of the fact that such an enterprise had undertaken comparable uncontrolled transaction in the financial year immediately preceding the current year or the financial year immediately preceding such financial year, the price of comparable uncontrolled transaction or the weighted average of the prices of the uncontrolled transactions, as the case may be, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables of TPO given in paragraph-4 of this order, the profit margins of the Company R.S. Software (India) Ltd., for the three financial years were 2013-14 to 2015-16 were 24.14%, 32.75% and -2.09% respectively and the weighted average margin of 24.83% has been considered by the TPO. 18. The second proviso to Sec.10CA(2) of the Rules provides for a situation where R.S. Software (India) Ltd., has undertaken comparable uncontrolled transaction only in Financial year 2014-15 & 2015-16, then the weighted average of the two financial year 2014-15 and 2015-16 has to be computed in the manner laid down in Rule 10CA(3) of the Rules and the margin so arrived at has to be included in the dataset. 19. The third proviso to Sec.10CA(2) of the rules provides that if in the current year i.e., financial year 2015-16 if R.S. Software (India) Ltd., has not undertaken any uncontrolled comparable transaction then that company can never be considered for inclusion in the dataset. 20. The submission of the learned Counsel for the Assessee was that as per the proviso to rule 10CA(2) of the Rules, R.S. Software (India) Ltd., cannot be regarded as comparable company for Financial Year 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in subclause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction]; ** ** ** (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of two years prior to the current year may also be considered but with a rider that "if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared". If by application of any filter an enterprise undertaking uncontrolled transaction similar to an international transaction is regarded as not being comparable in the earlier two years immediately preceding the current year and thereby attracting the provisions of rule 10B(2) or 10B(3) then the data for those years will not have any influence on the determination of transfer prices in relation to the transactions being compared for the current year and hence have to be ignored. On a harmonious reading of the provisions of rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly. 19. Respectfully following the decision of the coordinate bench of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. IT is engaged in a different activities, which is clear from the annual report produced by the assessee. The assessee company is engaged in the cloud service activity whereas the Akshay Software is providing only services. IT is not in the I T Infrastructure Service , therefore, functionally not comparable and he further submitted that the case law referred by the ld.AR is for the assessment year 2013-14 and which is not the same assessment year as per the assessee. Therefore, the case law relied by the ld.AR is not applicable. Further in case of remaining two companies he submitted that before the TPO the assessee has not produced any data and did not argue for inclusion of these companies. Therefore, at this stage, it can be ascertained that the company is functionally comparable and passes all the filters applied by the TPO. 10.2 After considering rival submissions in case of Akshay Software Technologies Ltd., we observe that the assessee is engaged in various activities as noted by the DRP/TPO and the assessee company is engaged in cloud service providing to its AEs. We do not find any infirmity on the observations of ld.DRP. For the sake of convenience we are reproducing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionally comparable to the assessee. Accordingly, the exclusion this company is upheld." 10.3 We also observe from the financial statement that the company is earning revenue from services of Rs.23,99,90,764/- and sale of software license is Rs.84,75,868/-. On observation of the note No.25, the foreign branch expenditures incurred by the comparable company on accrual basis is Rs.20,36,14,768/-, which will materially affect to the profit of the above company and this issue has not been examined by any of the authorities below, the AR of the asseseee relied on the decision cited supra, which is for the assessment year 2013-14 & 2014-15 of the coordinate bench of the Tribunal, which is not a impugned assessment year. As per director's report the Technology Absorption (i) The assessee company does not import any technology during the year under review (ii) The company is a service provider and therefore has not set up a formal Research and Development unit whereas in the case of assessee company the Research and Development activity is done at the entity level as noted supra. As per director's report the Akshay Software is a service provider. The assessee company is engaged for prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat incurring of R&D expenditure does not change the fact that for business software development. The ld.DR also referred to the order of the ld.DRP. The ld.DR submitted that the case law relied by the ld.AR is for the assessment year 2013-15 but the impugned case for the impugned assessment year 2015-16, therefore the case law relied on by the ld.AR is not applicable in the present facts of the case. 11.2 After hearing the rival submissions and examining the order of the authorizes below we do not find any substance on the submissions of ld.AR and we uphold that the lower authorities has rightly selected this company as good comparable company. The assessee has himself accepted in his TP study report that assessee is software development company and working on one segment for IT infrastructure service as per page no.239 and the assessee himself stated at para No.7; selection of comparables based on the new filters. SWD segment and as per para no.3.1 in which the company has stated business profile of the company at page no.3.1.1 at page no.234. 11.3 On going through the financial results of the CG Vak, the financial results are as under for three years. Financial Year 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspired as a company comparable to the assessee. On going through the paper book page no.787 the activates narrated by the assessee does not match from the annual reports, therefore, the objections in regard to diversified activities need verification. For the sake of convenience we are reproducing the order of the DRP, in which he has upheld that the CG Vak is functionally comparable. The findings of the DRP is as under:- "16.2 Having considered the submission of the assessee, we note that the company is predominantly engaged in SWD services. Less than one percent of the revenue is derived from ITes segment. As it derives revenue from predominantly software segment, segmental details discussed in para 11.2 above. The intangibles referred in the asset Schedule represent the computer software and a such does not refer to any IPR or licence owned by the said purposes. Therefore, such intangibles cannot be equated to have rights of software for coding by the assessee to provides specific enduring benefit. Also, the assessee has failed to establish that such differences have material effect on the margin of the above company. In terms of clause (i) of such-rule (3) of Rule 10B, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and technology - from nanotechnology and future systems, to big data analytics, secure clouds and advancing the world's first cognitive computing platform, IBM Waston. The company continues to actively seek IP protection for its innovations, while increasing emphasis on other initiatives deigned to leverage its IP leadership, some of IBM's technological breakthroughs are used exclusively in IBM products, while others are licensed and may be used in IBM products and/or the products of its success, IBM believes its business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. IBM owns or is licensed under a number of patents, which vary in duration, relating to its products." On further perusal of the page no.111 we observe as under:- "4.1 Activates undertaken by IBM US Specific functions of IBM U.S in support of its non-US Subsidiaries 4.1.1 Research and Development IBM US is the legal owner of technology-related intangibles arising from R&D activities undertaken throughout the IBM organization. R&D is performed both by IBM US as well as by certain non-US subsidiaries. For contract R&D activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No. 274/2018 dated 31.08.2018 ( TS- 993-HC-2018-Kar-TP ), therefore, it requires separate bench are also rejecting marking. We also reject the arguments of the ld.AR that the interest on receivables is not international transactions. On going through the order of DRP we noted that the principles of natural justice have been violated since no opportunity of being heard was provided when DRP directed to adopt SBI short term deposit rate instead of Libor plus 450 basis points adopted by the TPO. Since the tax payer has not complied the notice issued by the ld.TPO on 27/05/2019 and the assessee has filed detailed chart in the case of delay receivables from the debtors. therefore, the matter needs reconsideration. We, also placed reliance on the recent order of the jurisdictional Tribunal in the case of Verifone India Technology (P.) Ltd. v. ACIT [IT (TP)A No. 290/Bang/2021, dated 25-4-2022] wherein the Tribunal has directed the lower authorities to benchmark the transactions by following any one of the methods prescribed under the Income-tax Rules. We are inclined to follow the same and direct the AO/TPO to benchmark the transaction as per the provisions of the Act and Rules fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
