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2022 (8) TMI 1428 - AT - Income TaxTP Adjustment - Comparable selection - Infosys BPO Limited (Exclusion) - HELD THAT - The Bangalore Bench of the ITAT in the case of M/s.Fulcrum Fund Services (India) Private Limited 2019 (4) TMI 2095 - ITAT BANGALORE has directed exclusion of this comparable for the assessment year in question. Thus we direct to exclude this company from the list of comparable companies. Microland Limited (Exclusion) - The Bangalore Bench of the ITAT in case of M/s.Brady Company India (P) Ltd. (supra) had excluded Microland Limited from the list of comparables on functional incompatibility with ITES segment. The profile of the assessee in the instant case and profile of the assessee in case of M/s.Brady Company India (P.) Ltd. are similar, thus we direct the TPO to exclude Microland Limited as comparable. Accordingly, the appeal of the assessee is allowed on this ground. Crossdomain Solutions Private Limited (Exclusion) - The Bangalore Bench of the Tribunal in the case of M/s.Vee Technologies Private Limited v. PCIT 2022 (3) TMI 1533 - ITAT BANGALORE had excluded the above company from the comparable list on account of functional incompatibility - we direct the TPO to exclude Crossdomain Solutions Pvt. Ltd. from the comparable list. Accordingly, the appeal of the assessee is allowed on this ground. Jindal Intellicom Private Limited (Inclusion) -The Bangalore Bench of the Tribunal in the case of M/s.Brady Company India (P) Ltd. 2022 (3) TMI 1528 - ITAT BANGALORE had held Jindal Intellicom Private Limited is comparable company to ITES segment. Thus we direct the TPO to include Jindal Intellicom Limited in the list of comparables. Accordingly, the appeal of the assessee is allowed on this ground. Interest on delayed receivables - Tribunal has considered only the receivables as may be due beyond the credit period allowed under the agreement between the assessee and its AE as an international transaction, we are of the considered opinion that the same is a tainted transaction and therefore cannot be considered as a benchmark. We find merit in the submission of the learned DR that the period mentioned in the agreement between the assessee and AE should not be considered for the purpose of benchmarking and even to determine whether trade receivable constitutes an international transaction. The very purpose of undertaking benchmarking exercise is to compare the tainted transaction, i.e., the transaction between two related parties / AEs, with that of transactions that are carried out by independent parties on arm s length basis. If we consider the period allowed in the agreement to benchmark the transaction which is also the subject matter of the same agreement, it will lead to absurd results. We accordingly direct the AO / TPO to determine the credit period allowed by the comparable companies and treat only such trade receivables that are outstanding beyond the arm s length credit period, as international transactions. Once the above exercise has been done, we direct computation of interest for the delayed realization of trade receivable over and above the arm s length credit period till the date of its realization or the financial year end, whichever is earlier. TP adjustment on interest on outstanding receivables - With respect to the mark-up that has been charged over and above LIBOR, it is well accepted that such arbitrary numbers cannot be adopted without it being backed by a benchmarking exercise, which is a mandate of the law. We note from the TP order that benchmarking has been undertaken to find ALP rate i.e. 300 basis points has been considered as mark-up and the same represents ceiling rate on ECB and Trade Credits as per RBI Circular. AR is seeking consideration of 2% benchmark merely on the basis of the rulings cited during the course of hearing and no benchmarking exercise has been carried on by the assessee. The ruling in the case of CIT v. Aurionpro Solutions Ltd. 2017 (6) TMI 1087 - BOMBAY HIGH COURT has been rendered for assessment year 2007- 2008 and the mark-up have been arrived considering the facts relevant to that assessment year. Hence, the same cannot be considered relevant to the assessment year in question as seven years have elapsed. Given the variability of interest rate on a time-to-time basis and in the interest of natural justice, we direct the TPO to provide a fresh opportunity to the assessee to justify 2% mark-up and determine the appropriate mark-up to be charged over and above the LIBOR rate. It is ordered accordingly. In the result, ground is allowed for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment in ITES Segment 2. Interest on Receivables Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment in ITES Segment: Grounds 3, 5 & 6: The assessee contended that the AO/DRP/TPO erred in rejecting the transfer pricing study, using arbitrary filters, and selecting inappropriate comparable companies. The Tribunal adjudicated on the exclusion and inclusion of specific companies based on turnover filter and functional compatibility. Infosys BPO Limited (Exclusion): The Tribunal noted that the turnover of Infosys BPO Limited was significantly higher (21 times) than the assessee's turnover. Citing the decision in M/s. Fulcrum Fund Services (India) Private Limited v. ITO, the Tribunal held that companies with turnover above Rs. 200 crores are not comparable to those with turnover less than Rs. 200 crores. Consequently, Infosys BPO Limited was excluded from the list of comparables. Microland Limited (Exclusion): The Tribunal found that Microland Limited was engaged in infrastructure management services, which are distinct from ITES. Referring to the ruling in M/s. Brady Company India (P) Ltd. v. ITO, the Tribunal excluded Microland Limited due to functional incompatibility and failure to meet the service income filter. Crossdomain Solutions Private Limited (Exclusion): The Tribunal noted that Crossdomain Solutions provided Knowledge Processing Outsourcing (KPO) services, which are different from ITES. Based on the decision in M/s. Vee Technologies Pvt. Ltd. v. PCIT, the Tribunal excluded Crossdomain Solutions due to functional differences. Jindal Intellicom Private Limited (Inclusion): The Tribunal held that Jindal Intellicom, engaged in call center services, was functionally comparable to the assessee's ITES segment. Referring to the ruling in M/s. Brady Company India (P) Ltd. v. ITO, the Tribunal directed the inclusion of Jindal Intellicom in the list of comparables. 2. Interest on Receivables: Ground 15: The assessee argued that the credit period of 90 days as per the agreement should be considered for computing interest on outstanding receivables. The Tribunal, referring to its own decision in the assessee's case for AY 2011-2012, directed the AO/TPO to determine the credit period allowed by comparable companies and compute interest for delayed realization of trade receivables over the arm's length credit period. Ground 16: The assessee contended that the notional rate of 4.3836% for imputing interest was excessive and proposed a markup of LIBOR+2%. The Tribunal noted that the assessee had not conducted a benchmarking exercise to justify the 2% markup. The Tribunal directed the TPO to provide a fresh opportunity to the assessee to justify the 2% markup and determine the appropriate rate over LIBOR. Conclusion: The appeal was partly allowed, with directions to exclude Infosys BPO Limited, Microland Limited, and Crossdomain Solutions from the list of comparables, include Jindal Intellicom, and reassess the interest on receivables based on the arm's length credit period and appropriate markup over LIBOR.
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