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TMI Blog2024 (3) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of learned counsel for the assessee, ground nos. 1, 2, 7 and 8 are dismissed. 3. Qua ground no. 3, which is on the issue of transfer pricing adjustment to the Arm's Length Price (ALP) of Contract Software Development (CSD Segment), learned counsel submitted that he will be restricting his submissions for exclusion of three comparables viz. Infobeans Technologies Ltd., Exilant Technologies Pvt. Ltd. and Cybage Software Pvt. Ltd. Whereas, he will be canvassing for inclusion of two comparables viz. Rheal Software Pvt. Ltd. and DCIS.com Solution India Pvt. Ltd. He submitted, as far as other comparables are concerned, appearing in various sub-grounds, the issues have become academic, hence, he will not argue them. 4. In view of the aforesaid submissions of learned counsel for the assessee, we will restrict our decision to above mentioned five comparables. 5. Before we proceed to deal with the issue, it is necessary to briefly narrate relevant facts. 6. The assessee is a resident corporate entity. As stated by the Transfer Pricing Officer (TPO), assessee is primarily engaged in distribution and sale of digital switching equipments, cellular exchange equipments and other telecommun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company as comparable in case no appeal has been preferred against the decision of the Tribunal. 10. Per contra, learned Departmental Representative submitted, as per the information available in the annual report of the company, it is engaged in software development services. Therefore, it is functionally similar to the assessee. He submitted, there are decisions of the Tribunal wherein the company has been accepted as a comparable to software development service provider. In this context, he drew our attention to the following decisions: i) Agilent Technologies (International) Pvt. Ltd. Vs. DCIT - ITA No.6727/Del/2019 dated 16.06.2023; ii)Velocity Tech-Sol India Pvt. Ltd. - ITA No.1694/Pune/2018 dated 30.05.2022; 11. Having considered rival submissions, we find, while dealing with comparability of this company, the Tribunal in assessee's own case in assessment year 2014-15 in ITA No.4706/Del/2018 dated 29.11.2019 has rejected the company as a comparable observing as under: "15. The last concern which is under adjudication is Infobeans Technologies Ltd. The Annual report of the said concern is at pages 261 to 282 of the Paper Book of Annual Report Compilation. At page 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company with Quest Global Engineering Co, Pvt. Ltd. w.e.f. 15.02..2018, the company cannot be treated as a comparable as the amalgamation must have impacted the profitability of the company. He further submitted that the financial statements of the company are drawn up till 14.02.2018, hence, not available for the entire financial year. He further submitted that the company operates in various segments such as global software development business, IT services, application development and maintenance, business process management, business technology consulting, cloud and product engineering etc. However, segmental informations are not available. Thus, he submitted, the company has to be rejected. In support, he relied upon a decision of ITAT, Pune Bench in case of Octiva India Technology Pvt. Ltd. vs. ACIT - ITA No.194/Pune/2021. 13. Learned Departmental Representative submitted, though, there is a proposal for amalgamation, however, whether such amalgamation was approved and attained finality is not known. He submitted, assessee has failed to demonstrate the impact of amalgamation on profitability. 14. Drawing our attention to the annual report of the company, learned Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not contest the issue in assessment year 2017-18, as there was no adjustment to the ALP. 22. We have considered rival submissions and perused material on record. 23. On perusal of the TP Study Report of the assessee, a copy of which is placed in the paper book, it is observed that in so far as CSD segment is concerned, the assessee is a purely captive service provider. The design and overall guidance relating to the specific software is provided by the AEs. The assessee only has to do the coding and testing as per the design provided by the AE. Thus, not only the assessee doesn't bear any risk but the work executed is limited in its scope. Whereas, from the annual report of the comparable, it is observed that it has incurred sales promotion and marketing expenses and also owns plant, equipment and other intangible assets which presupposes that it is a full risk bearing entity unlike the assessee which is more or less a no risk-entity. Therefore, in our considered opinion, the company cannot be selected as a comparable. 24. Rheal Software Pvt. Ltd.: Seeking inclusion of this company, learned counsel for the assessee submitted, the only reason for which the TPO has excluded the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as unsecured loan given to the AE and interest should not be imputed on such loan as per prevailing average SBI database rate. In response to the show-cause-notice, assessee furnished its reply submitting that no notional interest can be imputed. The Assessing Officer, however, was not convinced with the submissions of the assessee. After verifying the invoices raised by the assessee and the payment received, the TPO noticed that, invariably, there is delay in receiving payment after allowing normal credit period of 30 days. Being of the view that the assessee would not have allowed such benefit to a unrelated party, the TPO proceeded to impute interest by applying SBI prime lenders rate of 16.68%. In the process, he proposed an adjustment of Rs. 16,37,20,896. While deciding assessee's objections on the issue, learned DRP relying upon its directions in assessee's case in assessment year 2017-18 upheld the adjustment. 32. Before us, learned counsel appearing for the assessee submitted, since, learned DRP has allowed working capital adjustment, no notional interest can be computed on outstanding receivable as it has already been subsumed in the working capital adjustment. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1248 & 2337/Del/2022 dated 13.10.2023. 34. We have considered rival submissions and perused the material available on record. 35. Undisputedly, the financial statement of the assessee reflects outstanding receivables of Rs. 288,16,76,621 from the AEs at the end of the year. Perusal of the order passed by the TPO reveals that the TPO has examined the invoices raised by the assessee during the year and has worked out the invoice-wise delay after allowing credit period of 30 days. From the facts discussed by the TPO, it is observed that the assessee has entered into international transaction only with its AE. It is further observed, invoice-wise delay worked out by the TPO varies from 27 days to 365 days. Thus, by allowing AEs to retain the money beyond credit period of 30 days and in some instances for a year, certainly amounts to extending benefit to the AE in utilizing the money without paying interest to the assessee. The question one needs to ask is whether the assessee would have extended such benefit to an unrelated party? In our view, the answer would be in negative. 36. Explanation 1(c) to section 92B, which defines international transaction, takes within its ambit receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angement which reflects international transactions intended to benefit the Associated Enterprises. (3) Whether the assessee has already factored the impact of outstanding receivables on the working capital adjustment. 38. If we examine the facts of the present case in the context of the principles laid down by the Hon'ble Delhi High Court (supra), it is to be seen that the factors responsible for the delay have not been brought on record either by the assessee or has been examined by the TPO. Though, the TPO has examined invoice-wise details to work out the delay, however, he has restricted it to the assessment year under dispute. Of course, as seen from the record, in assessment year 2017- 18, as well, adjustment was proposed on account of outstanding receivables. Therefore, prima facie, it appears that there was delay in receivables in the immediately preceding assessment year as well. However, TPO needs to examine the statistics of at least three-four assessment years to discern a pattern which would indicate that the assessee has benefited the AEs through the receivables. We may also observe that in some of the decisions cited by learned Departmental Representative, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the receipts appearing in Form 26AS and as offered in the return of income. He submitted that without properly verifying the details furnished, the Assessing Officer has made the addition and the addition was confirmed by learned DRP without properly verifying the facts. 45. Having considered rival submissions, we find that in response to the query raised by the Assessing Officer, the assessee has furnished reconciliation statement to explain the difference in the income as per the books and as reflected in Form 26AS. 46. On a perusal of the said statement, we find that the differences giving rise to the disputed addition, are in respect of (a) Aircel Ltd., (b) Atria Convergence Technologies Ltd.; & (c) C-DOT Alcatel Lucent Research Centre Pvt. Ltd. and (d) HCL Infosytems Ltd. In case of Aircel Ltd., it is the case of the assessee that the corresponding revenue has already been recognized in preceding year. In case of Atria Convergence Technologies Ltd., the assessee has stated that the books of accounts have correctly stated the revenue exclusive of service tax. However, the customer has inadvertently deducted TDS on the full value of invoice including service tax. In case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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