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2022 (9) TMI 1473 - AT - Income TaxTP Adjustment - 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) - comparable selection - HELD THAT - Rejection of comparables as functionally dissimilar with that of assessee. Infosys Ltd. Larsen and Toubro Infotech Ltd. Persistent Systems Ltd. and Thirdware Solutions Ltd. need to be deselected accordingly. Akshay Software Technologies ltd. and Maverie Systems Ltd. ( Maverie ) - As relying on decision of this Tribunal rendered in the case of EMC Software and Services (India) Pvt. Ltd. ( 2019 (12) TMI 1279 - ITAT BANGALORE the comparability of this company should be remanded to the AO/TPO for fresh consideration. 12T2 India Limited - This issue with regard to the comparability of this company has to be remanded to TPO/AO for fresh consideration as the submissions made above were neither considered by the TPO nor by the DRP. We hold and direct accordingly. 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 transactions with Non-AE. We hold and direct accordingly. Depreciation on computer servers software and networking equipment - @ 15% by considering it as plant and machinery OR computers at 60% - HELD THAT - We find that the issue raised herein is no longer res-integra and has been decided in the case of Mphasis Ltd. 2021 (3) TMI 1072 - KARNATAKA HIGH COURT wherein held that computer accessories such as switches and routers form part of peripherals of computer system and hence entitled to depreciation at 60%. Ground raised by the assessee. Short credit of TDS - as submitted that the AO erred in not granting appropriate credit of tax deducted at sourc-HELD THAT - AO will verify the claim of the assessee and allow relief if found correct. Non-grant of advance tax credit - as submitted that the AO erred in not granting the advance tax credit amounting paid by Teleca Software Solutions India Pvt. Ltd. which was merged with the assessee w.e.f. 01 April 2013 - HELD THAT - We are of the view that a direction to the AO to verify the claim of the assessee and allow relief if found correct would be sufficient. We hold and direct accordingly. Non-grant of MAT credit - as submitted that the AO erred in not granting relief of MAT credit to the extent of difference between assessed tax computed under normal provisions of the Act and MAT computed even after having sufficient MAT credit - HELD THAT - We direct the AO to verify the claim of the assessee and allow relief in accordance with law. Charging of Interest u/s 234A - as submitted that the AO erred in levying interest without considering that the assessee has filed return of income within the due date prescribed u/s 139 - HELD THAT - We are of the view that a direction to the A0 to verify the claim of the assessee and allow relief as per law would be sufficient. We direct accordingly. Assessee appeal is partly allowed.
Issues Involved:
1. Determination of Arm's Length Price (ALP) for Software Development Services (SWD services). 2. Exclusion and inclusion of comparable companies for ALP determination. 3. Addition of notional interest on outstanding receivables. 4. Restriction of depreciation on networking equipment. 5. Short credit of TDS. 6. Non-grant of advance tax credit. 7. Non-grant of MAT credit. 8. Charging of interest under section 234A of the Act. Detailed Analysis: 1. Determination of Arm's Length Price (ALP) for Software Development Services (SWD services): The assessee, engaged in rendering software development services to its Associated Enterprises (AEs), reported an international transaction with a Transfer Pricing (TP) adjustment made by the TPO. The TPO and the assessee both adopted the Transaction Net Margin Method (TNMM) with Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI). The TPO selected additional comparables leading to a TP adjustment of Rs. 44,17,80,037/-. 2. Exclusion and Inclusion of Comparable Companies: The assessee contested the inclusion of Infosys Ltd., Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., and Thirdware Solutions Ltd. as comparables, arguing they were not functionally similar due to diversified services, significant brand value, and proprietary products. The Tribunal, following precedents, directed the exclusion of these companies. The assessee also sought the inclusion of Akshay Software Technologies Ltd., Maveric Systems Ltd., and I2T2 India Ltd. The Tribunal remanded the comparability of these companies to the AO/TPO for fresh consideration, citing the need for further verification. 3. Addition of Notional Interest on Outstanding Receivables: The AO/TPO added notional interest on delayed receivables from AEs. The assessee argued that such receivables were not a separate international transaction and highlighted that no interest was charged on receivables from non-AEs. The Tribunal directed the AO/TPO to consider outstanding payables to AEs and delayed receivables from non-AEs as comparable uncontrolled transactions when computing ALP. 4. Restriction of Depreciation on Networking Equipment: The AO restricted depreciation on networking equipment to 15%, treating it as "plant and machinery" instead of "computers" eligible for 60% depreciation. The Tribunal, following the Karnataka High Court's decision in Mphasis Ltd., allowed 60% depreciation on networking equipment, recognizing it as part of computer peripherals. 5. Short Credit of TDS: The assessee claimed short credit of TDS amounting to Rs. 90,55,039/-. The Tribunal directed the AO to verify the claim and grant appropriate relief if found correct. 6. Non-grant of Advance Tax Credit: The assessee claimed non-grant of advance tax credit of Rs. 2,55,00,000/- paid by a merged entity. The Tribunal directed the AO to verify and allow the claim if found correct. 7. Non-grant of MAT Credit: The assessee claimed non-grant of MAT credit. The Tribunal directed the AO to verify the claim and allow relief in accordance with the law. 8. Charging of Interest under Section 234A: The AO charged interest under section 234A amounting to Rs. 54,65,476/-. The assessee contended that the return was filed within the due date. The Tribunal directed the AO to verify the claim and allow relief as per law. Conclusion: The Tribunal provided detailed directions on the exclusion and inclusion of comparables for ALP determination, remanded certain issues for fresh consideration, and directed the AO to verify and grant relief on various claims, including TDS credit, advance tax credit, MAT credit, and interest under section 234A. The appeal was partly allowed.
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