TMI Blog2023 (2) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, and these were included as comparables by the assessee and filed financial statements also, therefore, considering the totality of facts, the issue is remitted back to the AO/TPO/DRP for a fresh consideration. The assessee is given liberty to file necessary documents for substantiating its case. The AO/TPO/DRP is directed to decide the issue as per law. Transfer pricing adjustment relating to notional interest on outstanding trade receivables - assessee has raised that the interest on receivable should not be made adjustment because the TPO himself allowed 90 days credit period and all the receivables were received within the period of 90 days then why the TPO has made adjustment under this head and he also submitted that this company is a debt free company, therefore, the adjustment should not be made - HELD THAT:- We noted from the documents of the assessee that the TPO has allowed 90 days period in all the invoices are received within the 90 days of the period no adjustment can be made but the TPO has applied 6 months LIBOR + 450 basis points as per many decision of the Tribunal with the interest on receivable beyond he credit period is an international transaction and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit of turnover of Rs. 1 crore and not restricting the upper limit of turnover at Rs. 200 crores. 5. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily selecting comparable companies based on incorrect appreciation of functional, asset and risk profile, and arbitrary filters. 5.1 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily selecting companies namely. Tech Mahindra Business Services Limited, lnfosys BPM Limited, SPI Technologies India Pvt. Ltd. and Eclerx Services Limited, based on incorrect appreciation of functional, asset and risk profile, arbitrary filters and without appreciating that the said companies have significantly high turnover in comparison to the Appellant i.e. the said companies fail 5.2 That on the facts and circumstances of the case and in law, the AO / TPO have erred in arbitrarily dropping the comparable company namely. E-Zest Solutions Ltd., from the final comparable set, without giving any cogent reasons and without appreciating that the same was proposed by the TPO himself in the show-cause notice and was duly accepted by the Appellant. The DRP, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case and in law, the AO / DRP / TPO have erred in not appreciating that international transaction of ITeS and outstanding receivable being inter-connected and intertwined should be benchmarked on an aggregate basis. 11.1. That on the facts and circumstances of the case and in law, the A0 / DRP / TPO further erred in not appreciating that if the two functions are segregated and benchmarked, then the same would result in over taxation and is contrary to the provisions of the Act. 12. Notwithstanding and without prejudice, that on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily adopting SBI short term deposit interest rate for imputing interest, which is arbitrary and unreasonable. 13 That on the facts and circumstances of the case and in law, the education cess ( EC ) and secondary and higher education cess ( SHEC ) on Income Tax is an allowable expenditure for computing total income as per the provisions of the Income-tax Act, 1961, 14 That on the facts and circumstances of the case and in law, the A0 has erred in computing interest under section 234B and 2340 of the Act. 15 That on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was less than 1 crore were excluded. 4) Companies whose IT enable services income is less than 75% of its total operating revenue were excluded 5) Companies who have more than 25% related party transactions were excluded 6) Companies who have export service income less than 75% of the sales were excluded 7) Companies with employee cost less than 25% of the turnover were excluded. 4. Applying certain filters as noted above only 2 companies were accepted out of 13 comparables selected by the assessee. The TPO made fresh search using Prowess Database extracted 2215 companies and selected 10 companies and calculated median @ 23.92% . The assessee was issued show cause notice. The assessee filed detailed objections before the TPO and finally the TPO selected 6 companies as comparables and calculated median @ 23.44% as under:- 5. The TPO calculated arms length price for adjustment towards international transactions as under:- 6. The TPO further observed that the assessee has receivable on which no interest has been charged for delay realisatios. The TPO after discussing the issue details in his order, upheld that the interest on outstanding on receivables is an international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as under:- Name of the Companies Turnover(Rs. in (Cr.) 1. Tech Mahindra Business Services Ltd. 722.70 2. Infosys BPM Ltd 2849.00 3 SPI Technologies India Pvt. Ltd 336.00 4 Eclerx Service Ltd 1105.70 9.1. The ld. AR of the assessee further submitted that the assessee s turnover is Rs. 171.38 Crores which is less than the Rs. 200.00 crores. Once the lower turnover filter is applied then there should be upper turnover limit. The above four companies cannot be considered as a comparables because of having high turnover, therefore, this companies should be excluded as per the various decisions of coordinate benches of the Tribunal to which the ld.AR relied. He further submitted that in assessee s own case for the three assessment year i.e 2008-09, 2012-13 2014-15 in IT(TP)A No. 1609/Bang/2012, 173/Bang/2017 3230/Bang/2018 respectively the Hon ble Tribunal has excluded on the basis of high turnover, therefore the same ratio should be applied for the impugned assessment year. In support of his argument he also relied on many judgment which are as under:- 1. Mindteck India Ltd. vs. DCIT (IT(TP)A No.252/Bang/2021 2. TE Connectivity Services India Ltd vs.ITO IT(TP)A No. 300/Bang/2021 3.Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Harton Communication Ltd., 13. The assessee submitted that in respect of these above three comparable companies selected by the assessee, the TPO has excluded that only because these companies are fails persistent loss filter. The TPO was in wrong premises that the persistent loss company cannot be considered as comparable if the company is continuously making loss for three years, however, the companies have earned profit in the financial year 2016 as well as in any one of the years which is evident from the companies financials statements. The break-up of the Trading Profit Loss accounts have been given in the chart submitted by the AR. of the assessee. In support of his contention he relied on the following judgments. 1. NTT Data Information Process Services Pvt. Ltd., vs. DCIT reported in [2022]142 taxmann.com 452. 2. Swiss Re Global Business Solutions India (P) ltd. vs CIT NFAC reported in [2022] 137 taxmann.com 417 3. Sterling Commerce Solutions India Private Ltd. vs DCIT in IT(TP)A 1410/Bang/2015 4. DCIT vs. Quark Systems P. Ltd. [42 DTR414] 414, ITA No. 100/CHD/2009 14. On the other hand, the ld. DR relied on the order of the lower authorities and he further submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antiating its case. The AO/TPO/DRP is directed to decide the issue as per law. 17. Regarding transfer pricing adjustment relating to notional interest on outstanding trade receivables. This ground has been raised by the assessee in ground No.7 to 12. In this ground the assessee has raised that the interest on receivable should not be made adjustment because the TPO himself allowed 90 days credit period and all the receivables were received within the period of 90 days then why the TPO has made adjustment under this head and he also submitted that this company is a debt free company, therefore, the adjustment should not be made. He further submitted that the AO/TPO/DRP have erred in computation of interest using SBI short term interest rate. The TPO is not justified in applying interest rate of 4.985% by using libor rate of six months + 450 basis points, whereas RBI circular sated that it is for external commercial borrowing rate which is a excessive and un reasonable. He further submitted that in case of assessee s own case for the assessment year 2011-12, 2012-13 2014-15 the LIBOR rate has been accepted by the Tribunal. We noted from the documents of the assessee that the TPO has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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