TMI Blog2022 (9) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly. Adding Notional interest on outstanding receivables - HELD THAT:- The fact remains that the transaction with Non-AE is non-realization of receivables beyond the credit period and not charging interest on such delayed receivables becomes a comparable uncontrolled transaction. Hon'ble Delhi High Court in the case of MC. Kinley Knowledge Centre (I) Pvt. Ltd.[ 2021 (10) TMI 751 - DELHI HIGH COURT] took the view that wherever payments are received in advance that cannot be ignored. By the same analogy, the outstanding payable that was paid beyond the due date should also be considered when determining ALP of extended / delayed realization of outstanding receivable. Without going into the question whether the delay in realization of outstanding receivables would be an international transaction or not, on which there are conflicting decisions prior to amendment of section 92B of the Act, we are of the view that the calculation of ALP has to be remanded to the AO/TPO to compute ALP, after considering (i) outstanding payable to AE which was paid belated by the assessee and (ii) delay in realization of outstanding receivables beyond the credit period as transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter called 'the Act ') in relation to Assessment Year 2014-15. 2. Ground 1 to 16 raised by the assessee are in relation to determination of Arm's Length Price (ALP) in respect of an international transaction of rendering of Software Development Services (SWD services) by the assessee to its Associated Enterprise (AE). 3. The assessee is a company registered under the Companies Act 1956, and is engaged in the business of rendering software development and related services to its AEs. Symphony Teleca Corp. USA. is the ultimate holding company of the assessee. 4. During the previous year relevant to the assessment year 2014-15, one of the international transactions that took place between the assessee and its AEs was the provision of SWD services by the assessee at a price of Rs.462, 11,32,409/-, for which a TP adjustment was made by the TPO to an extent of Rs.44,17,80,037/-. There is no dispute that the aforesaid transaction was an international transaction and the income from the same had to be determined having regard to ALP in terms of section 92 of the Act. Initially, a draft assessment order dated 28.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cigniti Technologies Ltd. 27.62 7. SQS India BFSI Ltd. 22.37 8. Thirdware Solution Ltd. 44.68 Arithmetic mean 29.40 7. The TPO computed ALP of the international transaction as follows: Computation of arm's length price by the TPO and adjustment made: Arm's Length Mean Mark-up 29.40% Operating Cost Rs. 625,40,26,1101- Arm's Length Price - 129.40% of Operating Cost Rs. 809,27,09,786/- Price Received Rs.765,09,29,749/- Shortfall being adjustment u/s. 92CA Rs.44,17,80,037/- 8. The assessee filed objections under section 144C of the Act before the Disputes Resolution Panel (DRP) against the Draft Order of Assessment wherein the AO added the shortfall in ALP as suggested by the TPO. The DRP directed the exclusion of Cigniti Technologies Ltd. and SQS India BPSI Ltd. All other contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged with its wholly owned subsidiary Infosys Consulting India Ltd. It is submitted that no adjustment can be made to eliminate the material effects of the said differences between it and the assessee. Reliance is placed on the decisions of this Hon'bIe Tribunal in the cases of LG Soft India Pvt. Ltd. v. DCIT (Order dated 28.05.2019 passed by this Hon'ble Tribunal in IT(TP)A No. 3122/Bang/2018 for the assessment year 2014-15) and EMC Software and Services India Pvt. Ltd. v. lCIT [2020] 115 taxmann.com 293 (Bangalore - Trib), wherein in the case of assessees placed similar to the assessee, the company was directed to be excluded. In view of the above, it was submitted that this company ought to be excluded from the final list of comparables. (b) Larsen and Toubro Infotech Ltd. ('L T') - It was submitted that this company is engaged in diversified business. Company's business segments are divided into service cluster, industrial cluster and telecom business, and the company has unallocable expenses to the tune of Rs. 2,05,80,17,445/- and therefore it is not possible to ascertain the segmental profit of the relevant business segment. The company owns prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent made significant investments towards research and development activities in the relevant previous year. The company also made significant investment in intellectual property led solutions and also had a dedicated team for research and IP developments. The company also owns several IP solutions, and during the year under consideration it acquired four products. Persistent Systems, Inc. which is a subsidiary of the company acquired Cloud Squads, Inc during the year under consideration. The company established new branches in Germany and South Africa. These constitute peculiar economic circumstances for which no adjustment can be made to Persistent's mark-up to eliminate the material effects thereof. It was submitted that this company is consistently excluded from the final list of comparables in cases of similarly placed assesses. Reliance is placed on the decision of this Hou'ble Tribunal in LG Soft India Pvt. Ltd. v. DCIT (Order dated 28.05.2019 passed by this Hon'ble Tribunal in IT(TP)A No. 3122/Bang/2018 for the assessment year 2014-15) and in EMC Software and Services India Pvt. Ltd. v. JCIT [2020] 115 taxmann.com 293 (Bangalore - Trib) wherein in the cases of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same. The Tribunal excluded the aforesaid 4 companies from the list of comparable companies observing as follows: 4. The assessee seeks exclusion of following comparable companies selected by the TPO:- (a) Infosys Ltd (b) L T Infotech Ltd (c) Persistent Systems Ltd (d) Cigniti Technologies Ltd (e) SQS India BFSI Ltd (f) Thirdware Solutions Ltd. 5. The Ld A.R submitted that Mis Infosys Ltd, Mis Persistent Systems Ltd and Mis Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No.1673/Bang/2012. 6. We notice that the co-ordinate bench has excluded Mis Infosys Ltd in AY 2008-09 by following the decision rendered by another coordinate bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No.1303/ Bang/ 2012 dated 28.11.2013, wherein the decision rendered in the case of Triology E Business Software India P Ltd (ITA No.1054/Bang/2011) was followed and it was held that Mis Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the record. We notice that Mis L T Infotech Ltd has been excluded by the coordinate bench in the case of Metric Stream Infotech P Ltd (supra) for AY 2013-14 and also in the case of Electronics for Imaging India P Ltd (supra) for AY 2011-12. The Ld A.R submits that there is no change in facts prevailing in the current year vis-a-vis the years considered by the co-ordinate benches in the above said cases. Accordingly, following the above said decisions, we direct exclusion of Mis L , T Infotech Ltd. 13. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid 4 companies from the list of comparable companies. 14. In ground No.16, the assessee is seeking inclusion of Akshay Software Technologies Ltd., Maveric Systems Ltd., and I2T2 India Ltd. (a) Akshay Software Technologies ltd. ( Akshay ): (i) As far as inclusion of Akshay Software Technologies Ltd., is concerned, this company was selected by the assessee and came to be rejected by the TPO for the reason that the company is engaged in providing professional services, procurement, installation, implementation, support and maintenance of ERP products and services. The exclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was rejected by the TPO without any basis. Subsequently, in the order under Section 92CA of the Act passed by him, he excluded the company on the ground that information regarding its related party transactions was not available in the annual report. The DRP upheld its exclusion on the ground that the company is rendering ITE services and renders transaction processing services, which are not comparable to the services rendered by the assessee. (ii) In this regard, it was submitted that the action of the DRP in upholding the exclusion of the company on an altogether new basis without first putting the assessee on notice of the same is wholly erroneous and unsustainable. It was submitted that firstly, the DRP erred in relying on the Director's statement without analysing the financial statement of the company to arrive at the conclusion that the company is into ITE services and transaction processing services. It was submitted that a perusal of the schedule to the revenue from operation reflected in the statement of profit and loss makes it clear that the company is rendering SWD services and there is no other service rendered by the Company. Further, it was submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the lower authorities in rejecting the company for incurring R%D expenses, without first applying an appropriate filter is wholly erroneous and arbitrary. Therefore, this company ought to be included in the final Est of comparables. (iii) Reliance was placed on the decision of this Hon'ble Tribunal in EMC Software and Services India Pvt. Ltd. v. JCIT [2020] 115 taxmann.com 293 (Bangalore - Trib), wherein in identical circumstances, the company came to be remanded to the TPO. We are of the view that comparability of this company has to be remanded to AO/TPO for fresh consideration on the lines indicated in the decision cited by the learned AR. 15. The other grounds raised in its appeal in relation to its international transaction of provision of SWD services were not pressed at this stage and the learned counsel for the assessee has sought liberty to urge the said grounds in any future proceeding, appellate or otherwise, and in these proceedings at a future point in time if required. The prayer so sought is accepted. The TPOIAO is directed to compute ALP of the SWD segment after affording assessee opportunity of being heard and on the lines indicated in this order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as an independent international transaction. Further, it was submitted that the said amounts were outstanding with the AEs as well as Non-AEs for a period exceeding the credit period purely because of business reasons. It was submitted that the assessee has not charged any interest for the receivables outstanding even from Non-AEs, which is demonstrated by way of the additional evidence. Reliance in this regard is placed on the decision of the Hon'ble Bombay High Court in case of CIT V. Indo American Jewellery Ltd. (order dated 08.01.2013 passed by the Hon'ble High Court of Bombay in ITA(L)No. 1053/2012) wherein the Hon'ble High Court upheld the decision of Hon'ble Tribunal in deleting the notional interest on trade receivables considering the fact that the taxpayer has not charged the interest in case of trade receivables from both AEs as well as Non-AEs. It was submitted that the assessee had outstanding payables to its AEs, the impact of which the lower authorities failed to consider. It was submitted that the interest on delayed receivables, if any, ought to be computed after taking into consideration the outstanding payables. Reliance in this regard is plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO to compute ALP, after considering (i) outstanding payable to AE which was paid belated by the assessee and (ii) delay in realization of outstanding receivables beyond the credit period as transactions with Non-AE. We hold and direct accordingly. 20. In ground No.25, the assessee has projected its grievance against he action of the Revenue in restricting depreciation on computer servers, software and networking equipment at 15% by considering it as plant and machinery instead of computers at 60%. 21. In this regard, it was submitted that the networking equipment broadly comprises of servers, routers, server hard disk and other network accessories. These form an essential part of computer and function as an input processor, storage and output devices, and cannot operate independent of a computer system. Therefore, it was submitted that the said items are eligible for depreciation at the rate of 60%. Reliance in this regard was placed on the following decisions: - PCIT v. Mphasis Ltd. (reported in (2021) 128 taxmann.com l38 (Kar.)); - CIT v. BSES Yamuna Powers Ltd. (reported III (2013) 40 taxmann.com 108 (Delhi)); and - OnMobile Global Limited v. ACIT (reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
