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2022 (7) TMI 1512 - AT - Income TaxTP Adjustment - comparable selection - as submitted high amount of turnover companies cannot be compared to the assessee company as assessee s turnover is very low compared to those companies - HELD THAT - As relying on Barracuda Networks India Pvt. Ltd. 2022 (5) TMI 322 - ITAT BANGALORE we direct the AO to exclude those high turnover companies from the list of comparables. Tata Elxi Ltd. - We have already directed the AO/TPO to exclude this comparable from the list of comparables on the basis of turnover filter while adjudication in ground No.1(iii). Persistent Systems Ltd. company is predominantly engaged in the business of providing outsourced software product development services to customers across the Globe from following industries verticals infrastructure and systems telecom and wireless Life Science and Health care and finance services. However the present assessee before us is in the business of computer radiated designing and development of commercial vehicle systems. The company is developing specific software for associated enterprises. It is also subsidiary of the ultimate holding company. The software development is used enhanced integrating the same with the main produce. Finally what is being marketed is a final product by the ultimate holding company. The role of company has been that it is a contract software development support services provider. Being so it cannot be considered as functionally comparable to assessee. Accordingly on the basis of functionality we direct the AO/TPO to exclude this company from the list of comparables. Infobeans Technologies Ltd is providing wide range of services under four verticals i.e. services automation enterprise and industries and under the automation services verticals the company is providing advanced robotic process automation services. Since Infobeans is into diversified activities it cannot be a suitable comparable vis- -vis the taxpayer which is a routine software development services provider. Thus we direct the AO/TPO to exclude this company from the list of comparables. Thirdware Solutions - As decided in M/S BORQS SOFTWARE SOLUTIONS PVT. LTD. 2021 (10) TMI 1351 - ITAT BANGALORE this comparable has been excluded on the basis of turnover filter but before us the assessee stated that it has to be excluded on the basis of non-matching of margin. In our opinion this has to be examined by the AO/TPO. Accordingly we remit this issue to the file of AO/TPO for fresh consideration. Cybage Software Ltd. - as submitted this company having super profit in immediate two financial years and also having huge turnover of Rs. 722.25 crores in the assessment year under consideration - If the functionality of the Cybage Software Pvt. Ltd. is not similar to the assessee and if the turnover was Rs. 722.25 crores in the assessment year under consideration it has to be excluded on any one of the above reasons. The issue is remitted back to the file of AO/TPO for fresh consideration. Exclusion of Sagar Soft India Ltd - According to the Ld. A.R. this company is having persistent loss and only in assessment year 2016-17 it was declared profit - If there is loss consistently in immediate previous 3 years then only it would have excluded. On the other hand if the loss is only in one assessment year out of 3 immediate previous assessment years this company is to be considered as comparable. Accordingly this issue is remitted to the AO/TPO for fresh consideration. Include M/s. S.K. Mile Software Solutions Pvt. Ltd. and stated that the segmental data may be obtained by TPO after calling information u/s 133(6) - We accede to the request of assessee s counsel and set aside the matter to the file of AO/TPO to procure the relevant data by issuing notice u/s 133(6) of the Act and decide it afresh. Non-following the direction of Ld. DRP regarding comparable company M/s. ASM Technology Ltd. wherein Ld. DRP has given specific direction to verify the claim of the assessee that company does not fail in export turnover criteria and the TPO has passed the final order without any verification rejecting the comparable - The issue has to be reconsidered by TPO in accordance with the direction given by the Ld. DRP. Ordered accordingly. Adjustment of notional interest on outstanding receivables - international transaction or not? - HELD THAT - As similar issue came up for consideration in the case of MetricStream Infotech (India) Pvt. Ltd. 2020 (4) TMI 883 - ITAT BENGALURU as held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE. hence it is an international transaction as per explanation to section 92 B of the Act. Also following the earlier decision in Kusum Healthcare 2017 (4) TMI 1254 - DELHI HIGH COURT it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision (supra) the Hon ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions - thus we deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment - ground raised by assessee stands allowed for statistical purposes.
Issues Involved:
1. Determination of Arm's Length Price & Adjustment 2. Natural Justice Detailed Analysis: 1. Determination of Arm's Length Price & Adjustment: Ground 1(iii): The appellant contested the inclusion of high-turnover companies like L&T Infotech Ltd., Infosys Ltd., and Tata Elxsi Ltd. as comparables, arguing that their turnovers were significantly higher than the appellant's. The Tribunal agreed, citing precedents where high-turnover companies were excluded from comparables due to their disproportionate size. The Tribunal directed the AO to exclude these companies. Ground 1(vi): The appellant sought the exclusion of Tata Elxsi Ltd., Persistent Systems Ltd., Infobeans Technologies Ltd., Thirdware Solutions Ltd., and Cybage Software Ltd. based on functionality. Tata Elxsi Ltd. was already excluded due to the turnover filter. Persistent Systems Ltd. was excluded as it was engaged in product development services, which differed from the appellant's services. Infobeans Technologies Ltd. was excluded due to its diversified activities and lack of segmental details, as supported by various Tribunal decisions. Thirdware Solutions Ltd. and Cybage Software Ltd. were remitted to the AO/TPO for fresh consideration based on specific issues raised by the appellant. Ground 1(vii): This ground was deemed infructuous as the comparable Tata Elxsi Ltd. was already excluded. Ground 1(viii): The appellant argued that Sagar Soft India Ltd. should not have been rejected for persistent losses as it reported profits in the relevant financial year. The Tribunal remitted this issue to the AO/TPO for fresh consideration. Ground 1(ix): The appellant sought the inclusion of 8k Miles Software Solutions Ltd., arguing that the TPO should have obtained segmental data. The Tribunal remitted this issue to the AO/TPO to procure relevant data and decide afresh. Ground 1(x): The appellant contended that the TPO did not follow the DRP's direction to verify the export turnover criteria for ASM Technologies Ltd. The Tribunal remitted this issue to the TPO for reconsideration as per the DRP's directions. Ground 1(xi): The appellant's general objections regarding functionality, diversified activity, and presence of intangibles for certain comparables were noted but did not require specific adjudication. Grounds 1(xii), (xiii), (xiv), and (xv): These grounds related to adjustments for interest on alleged delays in receivables. The Tribunal referred to the decision in MetricStream Infotech (India) Pvt. Ltd., which emphasized the need for a detailed inquiry into the impact of receivables on working capital. The Tribunal remitted these issues to the AO/TPO for fresh consideration, ensuring conformity with the relevant judicial precedents. 2. Natural Justice: Ground 2(i): The appellant argued that the TPO and DRP did not consider all submissions and failed to justify the rejection of certain comparables. The Tribunal's detailed analysis and remittances for fresh consideration addressed these concerns. Ground 2(ii): The appellant claimed that information collected under section 133(6) was not furnished, violating principles of natural justice. The Tribunal's directions for fresh consideration and obtaining relevant data aimed to rectify this procedural lapse. Ground 2(iii): The appellant contended that the TPO's selection process was arbitrary. The Tribunal's directions for re-examination and adherence to judicial precedents ensured a fairer process. Conclusion: The appeal was partly allowed for statistical purposes, with several issues remitted to the AO/TPO for fresh consideration in line with the Tribunal's detailed directions and relevant judicial precedents. The Tribunal emphasized the importance of functional comparability, appropriate turnover filters, and adherence to principles of natural justice.
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