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2024 (6) TMI 647 - AT - Income TaxTP adjustment - provision of software development services to AE - Comparable selection - L T Infotech as comparable - HELD THAT - The appellant is making a vague argument without assigning any reason as to how the above company is functionally different from the assessee company. Even otherwise on broad analysis of profile of the assessee company with that of L T Infotech, in our considered opinion, both are engaged in software development services. Since the company is comparable with the assessee s profile, in our considered opinion, application of other filters are irrelevant, more so when the appellant itself has considered L T Infotech as comparable to the assessee company. Therefore, we are of the considered opinion that there is no error in the reasons given by the learned TPO/DRP to include L T Infotech in the final set of comparable. Thus, we reject the argument of assessee and upheld the reasons given by the TPO/DRP for inclusion of L T Infotech Ltd. Exclusion of Persistent Systems Ltd - Once again we find that the said company is in the list of final comparable selected by the assessee in their TP study on the ground that the functions carried out by the Persistent Systems Ltd are similar to the appellant company. But, the appellant is now seeking exclusion of Persistent Systems Ltd on two grounds. First reasons given by assessee is that the above company is functionally different and had insufficient segmental information. The argument of assessee is fallacious for the simple reason that when the company is functionally different and insufficient information available in their annual report with regard to the comparison of data, then how and why the appellant company has selected the above company in the final list of comparable is not explained. Further, on broad analysis of the profile of the appellant company, on comparison with the Persistent Systems Ltd, in our considered opinion, both are functionally similar except for the reason that the Persistent Systems Ltd is having higher turnover when compared to appellant company. Since the appellant itself has included the above company in the final set of comparables, the argument of the learned Counsel for the assessee that on turnover filter, this company should be excluded cannot be accepted. In so far as various case law relied upon by the assessee, although there are divergent views on this issue, but the fact remains that when the appellant is not able to offer any explanation for exclusion of Persistent Systems Ltd when it was part of their TP study and finds place in final set of comparables, in our considered opinion, the ratio relied upon by the assessee in support of their argument from certain decisions cannot be accepted. Thus, we reject the argument of the assessee and upheld the inclusion of Persistent Systems Ltd by the TPO/DRP. Imputing interest on outstanding receivables - In case the outstanding receivable is denominated and payable in Indian Rupee, then the prevailing rate of interest in India needs to be adopted for bench marking the outstanding receivables. This has been further strengthened by the safe harbor rules notified by the CBDT and as per the said rules the advance or intra group loan referred to item No.(iv) of Rule 10C, where the amount of loan is denominated in Indian rupee, then the SBI PLR rate should be adopted. Where advance or intra group loan referred to in item (iv) of Rule 10C where the amount of loan is denominated in foreign currency, then 6 months LIBOR rate with appropriate mark up should be considered. This is further fortified in the case of CIT vs. Cotton Naturals India (P) Ltd 2015 (3) TMI 1031 - DELHI HIGH COURT has clearly explained the circumstances in which the different rates of interest should be adopted for bench marking receivable from AE. The Court further held that the interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Therefore, in our considered opinion, the TPO/DRP is not correct in adopting SBI PLR for computing interest on interest receivables. However, the fact remains that the assessee could not furnish necessary evidence and also failed to explain these facts.The matter should go back to the file of the TPO/Assessing Officer for further consideration. Thus, we set aside the issue to the file of TPO/Assessing Officer and direct the TPO to reconsider the issue in light of our discussion herein above and adopt appropriate rate of interest by considering the currency in which the outstanding receivable is denominated by the assessee and its AEs. Disallowance of employee contribution to PF u/s 36(1)(va) r.w.s. 2(24)(x) - We find that this issue is squarely covered by the decision in the case of Checkmate Services (P) Ltd 2022 (10) TMI 617 - SUPREME COURT where it has been clearly held that the belated remittance of employees contribution to PF ESI is not deductible u/s 36(1)(va) r.w.s. 2(24)(x) even if such contribution has been deposited on or before the due date for filing return of income u/s 139(1) - DRP after considering the relevant facts has rightly disallowed the belated remittance of employees contribution and thus, we are inclined to uphold the orders of the learned Assessing Officer/DRP and reject the grounds taken by the assessee.
Issues Involved:
1. Transfer Pricing Adjustment for Software Development Services 2. Imputing Interest on Outstanding Receivables 3. Disallowance of Employee Contribution to Provident Fund Detailed Analysis: 1. Transfer Pricing Adjustment for Software Development Services The primary issue under consideration was the transfer pricing adjustment amounting to Rs. 1,36,52,580/- for software development services provided to the Associated Enterprise (AE). The assessee contested the inclusion of L&T Infotech Ltd and Persistent Systems Ltd as comparables, arguing that these companies were functionally dissimilar. However, it was noted that the assessee had originally included these companies in their transfer pricing study. The Tribunal upheld the inclusion of L&T Infotech Ltd, stating that the assessee did not provide sufficient reasons for its exclusion and that both companies were engaged in software development services. Similarly, Persistent Systems Ltd was also retained as a comparable, as the assessee failed to justify its exclusion despite having initially selected it. The Tribunal dismissed the other grounds related to transfer pricing adjustments. 2. Imputing Interest on Outstanding Receivables The assessee challenged the imputation of interest on outstanding receivables from AE, which the Transfer Pricing Officer (TPO) calculated using the SBI PLR rate of 14.75%. The Dispute Resolution Panel (DRP) scaled down the interest after allowing a 30-day credit period. The Tribunal found that outstanding receivables from AE constitute an international transaction under the amended section 92B of the I.T. Act. The Tribunal ruled that the appropriate interest rate should be based on the currency in which the receivables are denominated. For receivables in foreign currency, the LIBOR rate plus an appropriate markup should be used. The Tribunal remanded the issue back to the TPO/Assessing Officer for reconsideration, directing them to adopt the appropriate interest rate based on the currency of the receivables. 3. Disallowance of Employee Contribution to Provident Fund The assessee disputed the disallowance of Rs. 51,06,702/- for the belated remittance of employee contributions to the Provident Fund under section 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act. The Tribunal referenced the Supreme Court's decision in Checkmate Services (P) Ltd vs. CIT, which held that belated remittances are not deductible even if deposited before the due date for filing the return of income. Consequently, the Tribunal upheld the disallowance. Conclusion: The appeal was partly allowed for statistical purposes, with the Tribunal upholding the inclusion of L&T Infotech Ltd and Persistent Systems Ltd as comparables, remanding the issue of interest imputation on receivables for reconsideration, and maintaining the disallowance of the employee contribution to the Provident Fund.
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