2023 (11) TMI 47 - HC - Income Tax

TP Adjustment - comparable selection - HELD THAT - Infobeans Technologies Ltd rejected on functional dissimilarity between the assessee and Infobeans the said comparable. Cybercom is the business of providing technical services. Based on this finding the Tribunal has excluded Cybercom as a comparable. Infosys BPO is a riskbearing entity having diversified activities. The respondent/assessee on the other hand which has a turnover of only Rs. 96 crores in the BPO sector and hence cannot be compared. Clearly the findings returned by the Tribunal above for each comparable are findings of fact and that no question is proposed by the appellant/revenue that the findings are perverse. Therefore in our view Infobeans Cybercom and Infosys were rightly rejected as comparables. Adjustment on account of interest on receivables - as argued by assessee that once working capital adjustment is allowed then no adjustment on account of interest on receivables is required to be made - HELD THAT - Tribunal has noted the assertions made on behalf of the respondent/assessee that it permitted a ninety (90) days credit period. On behalf of the appellant/assessee it had been emphasized that once the credit period exceeded ninety (90) days interest had to be charged. It is on this account that adjustment was ordered with regard to the receivables. Tribunal has relied upon its decision 2021 (11) TMI 1148 - ITAT DELHI and concluded that the said issue needed to be restored to the Assessing Officer (AO) for verifying the respondent/assessee s claim keeping in view its aforementioned decision albeit after providing reasonable opportunity of hearing to the respondent/assessee. 20. In our view on this score as well no interference is called for with the order of the Tribunal. Also in support of her submission that once working capital adjustment is made no further adjustment is required to be made on account of interest received on receivables has correctly relied upon the judgment of Kusum Health Care Pvt. Ltd. 2017 (4) TMI 1254 - DELHI HIGH COURT as held with the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis- -vis that of its comparables any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. No substantial question of law arises

Summary

Issues involved:
1. Condonation of delay in filing the appeal.
2. Exclusion of three comparables - Infobeans Technologies Ltd., Cybercom Datamatics Information Solutions Ltd., and Infosys BPO Ltd.
3. Adjustment made by the Transfer Pricing Officer (TPO) on account of interest on receivables.

Condonation of Delay in Filing the Appeal:
- The appellant/revenue sought condonation of delay of 79 days in filing the appeal.
- The respondent/assessee had no objection to the prayer for condonation of delay.
- The delay of 79 days was condoned, and the application was disposed of accordingly.

Exclusion of Three Comparables:
- The appeal concerned Assessment Year (AY) 2014-15.
- The Tribunal excluded three comparables - Infobeans, Cybercom, and Infosys - based on functional dissimilarity and risk-bearing capacity.
- Infobeans was rejected due to its diversified activities including the sale of products and functional dissimilarity with the assessee.
- Cybercom was excluded for engaging in technical services unlike the respondent/assessee.
- Infosys was discarded for its risk-bearing capacity and significant turnover in the BPO sector compared to the respondent/assessee.
- The Tribunal's findings on the comparables were upheld as findings of fact without any proposed questions of perversity.

Adjustment on Account of Interest on Receivables:
- The Dispute Resolution Panel (DRP) allowed working capital adjustment, contrary to the TPO's directions.
- The Tribunal followed its decision for AY 2015-16 and ordered restoration to the Assessing Officer for verifying the respondent/assessee's claim regarding interest on receivables.
- The appellant/revenue argued for adjustment based on a specific amendment in the Income Tax Act, while the respondent relied on a judgment supporting the working capital adjustment.
- The court found no interference necessary with the Tribunal's order and concluded that no substantial question of law arose for consideration.
- The appeal was disposed of accordingly.