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2024 (6) TMI 1135 - AT - Income TaxIssues Involved: 1. Adjustment under section 92CA(3) 2. Rejection of Transfer Pricing Study 3. Selection and exclusion of comparables 4. Treatment of outstanding receivables as international transactions 5. Application of interest rate on outstanding receivables 6. General grounds related to profit shifting and tax exemption claims Detailed Analysis: 1. Adjustment under section 92CA(3): The assessee contested the adjustment of Rs. 2,17,38,030/- made by the AO/TPO/DRP to the price received from its Associated Enterprise (AE). The assessee argued that its profit margin of 11.57% complied with the arm's length principle. However, the TPO rejected the assessee's Transfer Pricing (TP) study and selected 15 comparables, arriving at a median margin of 26.36%. 2. Rejection of Transfer Pricing Study: The TPO rejected the TP study prepared by the assessee without providing cogent reasons. The TPO applied various filters and selected 15 comparables, which the assessee contended were functionally dissimilar or had high turnovers. The Tribunal noted that the TPO's rejection lacked sufficient justification and directed a re-evaluation. 3. Selection and exclusion of comparables: The assessee sought the exclusion of several companies due to functional dissimilarity, high turnover, and other reasons. Specifically, the Tribunal directed the exclusion of companies like Larsen & Toubro Infotech Ltd., Tata Elxsi Ltd., Persistent Systems Ltd., Aspire Systems (India) Pvt. Ltd., and Infosys Ltd. due to their high turnover compared to the assessee's meager turnover of Rs. 16.12 crores. The Tribunal also upheld the exclusion of Cigniti Technologies Ltd. as directed by the DRP, noting that it failed the export revenue filter. 4. Treatment of outstanding receivables as international transactions: The assessee argued that outstanding receivables arose in the normal course of business and should not be treated as loans for the levy of interest. The Tribunal, however, held that outstanding trade receivables constitute international transactions requiring benchmarking. The Tribunal consistently held that interest on delayed outstanding payments should be benchmarked. 5. Application of interest rate on outstanding receivables: The TPO applied an interest rate of 7.5% on the receivables from its AE, proposing an adjustment of Rs. 32,52,061/-. The Tribunal, following its own decisions, directed the AO/TPO to compute the interest at 6% of the SBI rate, granting some relief to the assessee. 6. General grounds related to profit shifting and tax exemption claims: The assessee contended that the adjustment was unwarranted as it claimed exemption under section 10AA and had no intention to shift profits outside India. The Tribunal did not find it necessary to adjudicate on these general grounds separately. Conclusion: The Tribunal provided detailed directions on the selection and exclusion of comparables, emphasizing the need for functional similarity and appropriate turnover filters. It also clarified the treatment of outstanding receivables as international transactions, directing a lower interest rate for benchmarking. The appeal was partly allowed for statistical purposes, with specific instructions for re-evaluation by the AO/TPO.
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