9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (8) TMI 1160 - AT - Income TaxTPA - selection of comparable - Held that - E Infochips Bangalore Ltd. - as when the segmental data is not available we cannot keep the company as comparable. Kals Information Systems Ltd. company is to be omitted from the list of comparable companies as this company was developing software products and not purely or mainly software development service provider. Tata Elxsi Ltd. (Seg.) be omitted from the list of comparable companies as it operates in the segments of software development services which comprises of embedded product design services industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin from software services activity only could be computed. Amounts received after the credit period - Charge of interest - DRP given partial relief by directing TPO to adopt LIBOR 250 bps instead of 12% - Held that - It is a fact that the assessee is a captive developer functions on the directions of AE and depends on AE on functionally and financially. The business runs on the mutual agreement. Unless there is mutual agreement on the terms of payment or any bench mark available in the industry which can be considered. Revenue authorities cannot presume unless there is any written agreement or agreed terms in the industry or any comparables available on the record. We find that the assessee has allowed the credit period of 79 days which is much below the industry average of 112 days as submitted by the ld. AR. The same was not disputed by the ld. DR. In our considered view the credit period extended by the assessee to its AE is reasonable particularly when there is no bench mark available. Accordingly this ground is allowed.
Issues Involved:
1. Selection of comparables for Transfer Pricing analysis. 2. Imputation of interest on receivables from Associated Enterprises (AEs). Detailed Analysis: 1. Selection of Comparables for Transfer Pricing Analysis: Issue: The assessee objected to the selection of certain companies as comparables by the Transfer Pricing Officer (TPO). Specifically, the companies in question were E Infochips Bangalore Ltd., KALS Information Systems Ltd., and Tata Elxsi Ltd. (Seg.). Analysis: - E Infochips Bangalore Ltd.: The assessee argued that this company is functionally different and lacks segmental information. The ITAT had previously rejected this company as a comparable in several cases, including Pegasystems Worldwide India Pvt. Ltd., CNO IT Services (India) Pvt. Ltd., and Allscripts (India) Pvt. Ltd. The Tribunal found that this company is engaged in both software development and ITES, and segmental information is not available. As a result, it was concluded that this company should be excluded from the list of comparables. - KALS Information Systems Ltd.: The assessee contended that this company is functionally different as it deals with software products. The ITAT had rejected this company in cases like Pegasystems Worldwide India Pvt. Ltd., CNO IT Services (India) Pvt. Ltd., and Planet Online Pvt. Ltd. The Tribunal noted that this company is engaged in the development of software and software products, and its inventory indicates the use of readymade libraries for sales. Consequently, the Tribunal directed the exclusion of this company from the list of comparables. - Tata Elxsi Ltd. (Seg.): The assessee argued that this company's business is of a complex nature, functionally different, and lacks segmental information. The ITAT had rejected this company in cases such as Pegasystems Worldwide India Pvt. Ltd., CNO IT Services (India) Pvt. Ltd., and Planet Online Pvt. Ltd. The Tribunal found that this company is engaged in multiple segments, and the segmental information necessary for comparability is not available. Therefore, the Tribunal directed the exclusion of this company from the list of comparables. Conclusion: The Tribunal directed the Assessing Officer (AO) and TPO to determine the Arm's Length Price (ALP) excluding the aforementioned companies from the list of comparables. If the price charged by the assessee for its international transactions is found to be within the arm's length, no adjustment is required. 2. Imputation of Interest on Receivables from AEs: Issue: The TPO proposed to charge interest on the amount receivable from AEs, assuming a credit period of 30 days and an interest rate of 12% per annum. The assessee contested this imputation, arguing that the receivables from AEs are on account of services rendered and do not fall within the definition of international transactions. Analysis: - The TPO observed that the assessee received payments after the unspecified credit period and proposed to charge interest at 12% per annum after allowing a credit period of 30 days. The Dispute Resolution Panel (DRP) provided partial relief by directing the TPO to adopt LIBOR + 250 basis points instead of 12%. - The assessee argued that it is a captive developer, fully funded by the AE for all working capital requirements, and the business operates based on mutual agreements. The assessee also provided a working of the average Debtors ratio of 18 companies, which was 112 days, whereas the assessee's ratio was 79 days, significantly below the industry average. Conclusion: The Tribunal concluded that the credit period extended by the assessee to its AE is reasonable, particularly when there is no benchmark available. The Tribunal allowed the ground in favor of the assessee, stating that the revenue authorities cannot presume terms of payment without any written agreement or industry benchmark. Final Judgment: The appeal of the assessee was partly allowed for statistical purposes. The Tribunal directed the AO/TPO to rework the ALP determination, excluding the disputed comparables, and to consider the reasonable credit period extended by the assessee to its AE.
|
