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2024 (8) TMI 1167 - AT - Income TaxTP Adjustment towards software developments services and related support services - Comparable selection - assessee has benchmarked this transaction by selecting Transaction Net Margin Method (TNMM) with PLI of OP/OC - HELD THAT -Deselection of comparables on the basis of functional dissimilarity. Accordingly, we direct the TPO to exclude Cadsys (India) Ltd., Cygnet Infotech Pvt. Ltd., Dun Bradstreet Technologies Data Services Pvt. Ltd., E-Infochips Ltd., Interglobe Technology Quotient Pvt. Ltd., Cybage Software Pvt. Ltd. , Nihilent Ltd. InfoBeans Technologies Ltd. (Formerly known as InfoBeans Systems India Pvt. Ltd.). T.P. Adjustment towards interest on receivables - HELD THAT - As decided in own case 2024 (1) TMI 26 - ITAT MUMBAI Charging of interest by the TPO on the closing balance without looking into delay of each and every invoice is incorrect. Therefore, we direct the TPO to compute the amount and number of days outstanding beyond the grace period for each and every invoice. The assessee shall provide complete information in this regard to the TPO. Also, turning to the number of days of grace period, there is no thumb rule that grace period of 30 days, 60 days or 90 days should be allowed AR submitted that the assessee is a captive service provider and there are no comparable transactions with the Non-AEs. Thus, we are left with no choice but to remand this issue to the file of the TPO to examine if there are any agreements with the AE and what is the grace period in those agreements. If there are no agreements with the AEs, the TPO should consider the market practice in the relevant sector and then grant the grace period. Respectfully following the above decision of the Co-ordinate Bench in assessee's own case we direct the AO to re-compute the interest on receivable with similar directions. Disallowance of employee contribution to PF in the intimation under section 143(1) - HELD THAT - Respectfully following the decision rendered by in case of Checkmate Services P. Ltd. 2022 (10) TMI 617 - SUPREME COURT we are of the considered view since the assessee has failed to comply with the condition precedent for depositing the employees contribution on account of PF ESI before the due date prescribed under the Act, the assessee is not entitled for any deduction - Decided against assessee. Addition on account of accretion to reserves under LTCG - assessee has merged with VMSS pursuant to which the shares of the assessee were allotted to the shareholders of VMSS - HELD THAT - The plain reading of the provisions of section 47(vi) also leads as to the conclusion that the amount recorded as part of amalgamation scheme is not to be treated as transfer and therefore does not result in capital gains. In view of these discussions, we hold that the addition made towards amount credited to capital reserve account as part of merger of assessee and VMSS cannot be treated as LTCG and the addition made in this regard is hereby deleted. This ground is held in favour of the assessee. AO while preparing the computation statement of assessed income has considered the addition sustained by the DRP twice - We have already held that the addition of Rs. 1.26 crores is not tenable and that the same does not result in capital gains. We therefore direct the AO examine the issue of double addition claimed to be made in the statement of computation and to give relief to the assessee accordingly. Disallowance of Finance Cost u/s 37(1) - AO based on the information furnished by the assessee with regard to the amount reflected as outstanding from the AEs disallowed the finance cost incurred by the assessee by adopting SBI Prime Lending Rate at 11% - HELD THAT - AO levied interest by applying SBI Prime Lending Rate on the amount outstanding from Varian Medical Systems International AG and Varian Medical Systems Inc. The DRP gave relief to the assessee stating that no interest is leviable on the amount outstanding from Varian Medical Systems International AG and sustained the interest on amount outstanding from Varian Medical Systems Inc. However from the above extracted observations of the TPO, we noticed that the TPO did not propose any TP Adjustment towards interest on amount receivable from Varian Medical Systems Inc. for the reason that the aging of amount outstanding is less than 20 days. Therefore, we see merit in the contention of the AR that the interest levied by the AO as sustained by the DRP on the amount outstanding from Varian Medical Systems Inc. is not correct. Accordingly, we delete the interest charged on the amount receivable from Varian Medical Systems Inc. This ground of the assessee is allowed. Short grant of advance tax credit and credit towards TDS - AR submitted that the AO failed to give credit towards advance tax paid by VMSS, which merged with assessee and that the AO did not consider the TDS deducted in the name of VMSS. Our attention in this regard was drawn to the relevant evidences to substantiate the claim. Accordingly, we issue direction to the AO to consider the claim of the assessee based on the documentary evidences and give credit in accordance with law.
Issues Involved:
1. Erroneous levy of income tax and interest thereon. 2. Transfer Pricing - General. 3. Transfer Pricing - provision of software development services and related support services. 4. Transfer Pricing - interest on outstanding receivables. 5. Disallowance of employee contribution to PF in the intimation under section 143(1). 6. Addition on account of accretion to reserve treated as LTCG. 7. Disallowance of Finance Cost under section 37(1) of the Act. 8. Short grant of advance tax credit. 9. Short grant of TDS credit. 10. Incorrect calculation of interest under section 234B of the Act. 11. Levy of additional interest under section 234C. 12. Initiation of penalty under section 270A of the Act. Detailed Analysis: 1. Erroneous Levy of Income Tax and Interest Thereon: - Ground No.1 (1.1): The Tribunal found no need for separate adjudication on this ground. 2. Transfer Pricing - General: - Ground No.2 (2.1 to 2.3): This was also found to be general and did not warrant separate adjudication. 3. Transfer Pricing - Provision of Software Development Services and Related Support Services: - Ground No.3 (3.1 to 3.8): The assessee rendered software development and related support services to its AE for Rs. 105,28,58,960/-. The TPO rejected five comparables from the assessee's list and added twelve new comparables, resulting in a TP Adjustment of Rs. 3,03,99,153/-. The Tribunal excluded four companies (Sonata Software Ltd., Dynamic Digital Technology Pvt. Ltd., Endeavour Software Technologies Pvt. Ltd., and Gislen Software Pvt. Ltd.) due to failing the RPT filter. Eight other companies were excluded based on functional dissimilarity, following the Co-ordinate Bench's decision for AY 2017-18. The TPO was directed to re-compute the ALP. 4. Transfer Pricing - Interest on Outstanding Receivables: - Ground No. 4 (4.1 to 4.6): The TPO initially made a TP Adjustment of Rs. 98,89,700/-, which was reduced to Rs. 35,49,775 by the DRP. Following the Co-ordinate Bench's decision, the Tribunal directed the AO to re-compute the interest on receivables, considering the grace period and applying Libor + 200 bps. 5. Disallowance of Employee Contribution to PF in the Intimation Under Section 143(1): - Ground No. 5 (5.1 to 5.3): The Tribunal upheld the disallowance of Rs. 27,58,890/- for delayed payment of employee contributions to PF/ESI, citing the Hon'ble Supreme Court's decision in Checkmate Services Pvt. Ltd. Vs. CIT (2022) 448 ITR 518 (SC). 6. Addition on Account of Accretion to Reserve Treated as LTCG: - Ground No.6 (6.1 to 6.6): The Tribunal deleted the addition of Rs. 1,26,00,000/- made towards capital reserve on account of merger, as it was not considered a transfer under section 47(vi) and thus did not result in capital gains. The AO was also directed to examine the issue of double addition in the computation. 7. Disallowance of Finance Cost Under Section 37(1) of the Act: - Ground No.7 (7.1 to 7.3): The Tribunal deleted the interest charged on the amount receivable from Varian Medical Systems Inc., as the TPO had already accepted that no interest was attributable due to the credit period being less than 20 days. 8. Short Grant of Advance Tax Credit: - Ground No. 8 (8.1 & 8.2): The Tribunal directed the AO to consider the claim of the assessee based on documentary evidence and give credit accordingly. 9. Short Grant of TDS Credit: - Ground No. 9 (9.1 & 9.2): Similar to the advance tax credit, the AO was directed to consider the claim based on documentary evidence. 10. Incorrect Calculation of Interest Under Section 234B of the Act: - Ground No. 10 (10.1 to 10.3): This was found to be consequential and did not warrant separate adjudication. 11. Levy of Additional Interest Under Section 234C: - Ground No.11 (11.1 to 11.3): This was also found to be consequential and did not warrant separate adjudication. 12. Initiation of Penalty Under Section 270A of the Act: - Ground No. 12 (12.1 & 12.2): This was found to be consequential and did not warrant separate adjudication. Conclusion: The appeal of the assessee was partially allowed, with specific directions given to the AO for re-computation and consideration of claims based on documentary evidence. The Tribunal upheld some disallowances and deletions based on previous judicial precedents and functional dissimilarities.
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