TMI Blog2023 (5) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 direct the learned Assessing Officer/learned TPO to adopt the same. Grounds are partly allowed accordingly. - ITA-TP No. 1755/Hyd/2019 - - - Dated:- 10-5-2023 - Shri Rama Kanta Panda, Accountant Member And Shri K. Narasimha Chary, Judicial Member For the Assessee : Shri H. Srinivasulu, AR For the Revenue : Shri Rajendra Kumar, CIT DR ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the final assessment order dated 31/10/2019 passed consequent to the directions of Hon'ble Dispute Resolution Panel, Bengaluru ( DRP ), in the case of M/s. iMedX Information Services Private Limited ( the assessee ) for the assessment year 2015-16, under section 143(3) of the Income Tax Act, 1961 (for short the Act ) assessee filed this appeal. 2. Briefly stated relevant facts are that the assessee is engaged in the business of providing medical transcription services and allied software development and support services to its patent company, Imedex Inc. USA. It filed its return of income for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, made an adjustment of Rs. 59,48,346/-. Post learned DRP s directions in the search, learned TPO reached 19 comparables with a median of 24.21% and made an adjustment of Rs. 45,18,888/-. 7. Before us, the assessee is challenging the inclusion of nine comparables stating that such entities with huge turnover render themselves as unsuitable comparables to the assessee. Learned AR submitted such entities and their turnover here under: S.No. Company Name Turnover (In Crs) 1. Infosys Limited 47,300 2. Thirdware Solutions Limited 225 3. Persistent Systems Limited 1,235 4. Tata Elxsi Limited 817 5. Larsen and Toubro Infotech Limited 4,648 6. Mindtree Limited 3,547 7. Cybage Software Private Limited 622 8. Infobeans Technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat turnover is obviously a relevant factor to be considered for comparability and the large and bigger company in the area of development of software cannot be benchmarked or equated with little size companies; whereas the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P) Ltd. (supra) held that turnover filter is an inappropriate filter and when once the company is found functionally comparable, it cannot be rejected from the set of comparables on the ground of the turnover. 12. In this situation, the Co-ordinate Bench of this Tribunal took a view in the case of M/s. Galax E Solutions India Pvt. Ltd. vs. ACIT, (2022) 192 ITD 326 (Bang.)(Trib.) took a view that where two views are available on an issue, the issue favourable to the assessee has to be adopted and, therefore, followed the decisions of the Hon'ble High Court. 13. Even the ICAI TP guidance note on transfer pricing clearly lays down that a transaction entered into by a Rs. 1,000 crore company cannot be compared with the transaction entered into by a Rs. 10 crore company and two most obvious reasons are the size of the two companies and the relative economies of scale under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable company. Therefore, such classification of comparables on the basis of companies selected on turnover basis is not appropriate and acceptable. The turnover, no doubt, is a relevant factor to be taken into account, but there should be some proper and reasonable parameter to apply the difference of turnover between the assessee and the comparable which may be a multiple in the range of 2 times, 3 times, X times or any other number of times which should be applied to all the comparable companies, instead of taking a slab from Rs.1 crore to Rs.200 crores . 15. With this premise, the Co-ordinate Bench of this Tribunal in the case of M/s. Maxim India Integrated Circuit Design Pvt. Ltd. (supra) held that the turnover filter upto ten times can be applied. 16. Hon'ble Karnataka High Court in the case of Acusis Software India (P) Ltd. vs. ITO [2018] 98 taxmann.com 183 (Karnataka) approved the approach of the Tribunal in applying tolerance range of turnover of ten times on both sides of the turnover of the assessee to fix the turnover filter. In the case on hand, it could be seen from the order of the learned TPO that the learned TPO accepted the turnover filter selecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured loan extended by the assessee to its AEs is improper; that the assessee is fully funded by its AEs and does not bear any working capital risks; that the assessee does not chargeable interest on outstanding receivables from third party customers as well; and that the assessee has outstanding payables due to AEs on which no interest has been levied by the AEs as well. 19. Learned AR in the alternative submitted that in the case of Afton Chemical India Private Limited vs. ITO in ITA No. 1467/Hyd/2019, by order dated 05/09/2022 had taken a view that in these sorts of cases, the ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points, and if the Bench comes to the conclusion that the assessee is liable on this aspect, the same view may be adopted in this case also. 20. Learned DR submitted that this aspect does not leave any scope for any discussion in view of the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Patni Computer Systems (2013) 215 Taxmann 108 (Bom), wherein the amendment to Section 92B of the Act by Finance Act, 2012 with retrospective effect from 01/04/2002 was conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Asstt. CIT (LTU) [2015] 56 taxmann.com 361 (Mum.) wherein the Hon'ble Tribunals has upheld use of LIBOR for the purpose of benchmarking loan/advance given to foreign AE's, and held that the notional interest has to be worked out for so called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. This view is affirmed by the Hon'ble Bombay High Court [2018] 96 taxmann.com 223 (Bombay) observing that in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher then the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extending of credit beyond the normal period of sixty days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of sixty days. On this premise the Hon'ble High Court upheld the Tribunal computing interest at LIBOR rates as the rate prevailing in country where the loan is received/consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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