TMI Blog2023 (3) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... ces which means rendering software development service, and the assessee is in software development service, naturally the Persistent Systems Ltd., which is into Outsourced Software Product Development is not a comparable because of functional dissimilarity. Interest on receivables - We are of the considered opinion that the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points. We accordingly uphold the findings of the learned DRP on this aspect and direct the learned Assessing Officer / learned TPO to adopt the same. - ITA No. 148/Hyd/2015 - - - Dated:- 7-9-2022 - SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER For the Assessee : Shri Utpalsen, Shri Aliasgar Rampurwala Shri Pratik Shah, ARs For the Revenue : Ms. D. Komali Krishna, CIT-DR ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 30/12/2014 passed under section 143(3) read with section 144C of the Income Tax Act, 1961 (for short the Act ) by the Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad ( the learned Assessing Officer ) pursuant to the directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be provided as interest free period and no interest should be calculated for such period beyond which the interest has to be charged. On this count, Ld. TPO proposed adjustment of Rs. 78,92,870/-. He, therefore, by order dated 24/9/2013 passed under section 92 CA (3) of the act proposed a total adjustment of Rs. 4,52,55,968/-. 5. Basing on the orders passed by the Ld. TPO the learned Assessing Officer issued draft assessment order dated 28/2/2014 proposing to determine the total income of the assessee at Rs. 9,10,77,658/-. Assessee filed objections before the Ld. DRP and the Ld. DRP by the directions dated 31/10/2014 directed the Ld. TPO to exclude Infosys and M/s Zylog systems Ltd from the final list of comparables and decline to interfere with the other comparables. In respect of the interest on receivables, learned DRP held that in view of the amendment to Section 92B of the Act by the Finance Act, 2012 with retrospective effect from 01/04/2002 to include such receivables or any other debt arising during the course of business as international transaction and directed the learned Assessing Officer to apply LIBOR+2% as notional interest to benchmark the international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom page No. 664 of the paper book. In the Annexure to Directors report at page No. 666, this company is engaged in development of software as per the specific requirements of clients. In the profit and loss account at page No. 671, this company is earning the revenues from software services only. Even under sales and other income it is stated that revenue from software services is recognised. It is so stated at Clause-9 of Schedule 11 at page No. 678 that the company is engaged in the development and maintenance of computer software. At no place, it is stated that this company is engaged in the business of consultancy services also, except a stray mention at Clause-5 at page No. 678 and also at 679 of the paper book. Even at these two places also, it is stated that the company got Rs. 5,90,78,374/- from a related party under the head Consultancy Charges . As per the profit and loss account, Schedule-7 explains the income from software services. In order to know whether this consultancy to the group companies is also a part of the software development process which is the main source of income to the company. But unfortunately, after Schedules 1 to 6 at page Nos. 673 to 675, on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. Even according to the segmental information, apart from the application software, this company is deriving income from domestic training, translation and interpretation. Learned AR further submitted that in the assessment year 2009-10, this company is excluded from the list of comparables on the ground that it has revenue from both software services as well as products, apart from engaged in providing training services. 15. We have gone through the extracts of the annual report of this company furnished at page Nos. 564 to 569. According to the profit and loss account at page No. 566, the break-up figures relating to the income from sales, services and training to the tune of Rs. 2,30,45,144/- are detailed in Schedule-10. But unfortunately, Schedule-10 is not to be found in these extracts. Insofar as segmental information is concerned, at para 9 of Schedule-14 given at page No. 568, the revenue from application software is Rs. 2,16,92,935/- and the revenue from training is Rs. 13,52,209/- which constitutes about 6% of the total revenue. Segmental information is provided. Earnings from training segment constitute only 6% of the total revenue. There is no revenue from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t outsources software product development is different from IT services and at page No. 579 they have clearly stated that Persistent Systems Ltd., is one of the market leaders in outsources software product development. 19. When there is a difference between Outsourced Software Product Development and the IT services which means rendering software development service, and the assessee is in software development service, naturally the Persistent Systems Ltd., which is into Outsourced Software Product Development is not a comparable because of functional dissimilarity. Further on this very ground, it was excluded in assessee s own case for the assessment year 2013-14. Following the view taken in assessee s own case for the assessment year 2013-14, in the absence of any change in the business model, we hold that Persistent Systems Ltd., is not a good comparable hence the same is directed to be excluded from the list of list of comparables. 20. Now coming to interest on receivables, Learned TPO placed reliance on the decision in Logix Micro Systems Ltd., 42 SOT 525, wherein it was held that a reasonable period should be provided as interest free period and no interest should be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in Patni Computer Systems (supra), on the amendment to Section 92B of the Act by way of Finance Act, 2012 with retrospective effect from 01/04/2002, it is not open for the assessee to agitate the question as to whether or not the interest on outstanding receivables is an international transaction requiring separate benchmarking. Only issue remains to be considered is in respect of the rate of interest. This aspect is no longer res integra and dealt with by the Mumbai Bench of the Tribunal in the case of Tecnimont ICB House Vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.), and confirmed by the Hon'ble Bombay High Court in PCIT Vs. Tecnimont (P) Ltd., (2018) 96 taxmann.com 223. 26. Insofar as the interest on receivable is concerned, Mumbai Bench of the Tribunal, in the case of Tecnimont ICB House vs. DCIT [2015] 60 taxmann.com 143 (Mumbai - Trib.) considered the view taken in Everst Kanto Cylinder Ltd. v. Asst. CIT (LTU) [2014] 52 taxmann.com 395 (Mum.); PMP Auto Components (P.) Ltd. v. [IT Appeal No. 1484 (Mum.) of 2014, dated 22-8-2014]; Hinduja Global Solutions Ltd. v. Addl. CIT [2013] 145 ITD 361/35 taxmann.com 348 (Mum.); Tata Autocomp Systems Ltd. v. Asst. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters; that the interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable; that the currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. While referring to the Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115, the Hon'ble High Court held that the PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate and the PLR rates are not applicable to loans to be re-paid in foreign currency. Hon'ble Court accordingly held that whatever the principle that is applicable to the case of outbound loans, would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs that the parameters cannot be different for outbound and inbound loans, and a similar reasoning applies to both inbound and outbound loans. 28. Respectfully following the judicial opinion stated supra, we are of the considered opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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