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TMI Blog2020 (2) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn to pages 2397 and 2395 to show that the export income as per financial statement was 79.60%. In the light of the above statements, we are of the view that it would be just and appropriate to remand the issue for fresh consideration by the AO/TPO in accordance with law, after due opportunity to the assessee. Maverick Systems Ltd. - Since the R D filter of 3% of revenue was not satisfied, this company deserved to be excluded. The ld. counsel for the assessee submitted before us that this was never a filter applied by the TPO in his TP analysis. Apart from the above submissions, it was also submitted that incurring of R D expenses excluding capital expenditure was only ₹ 95.25 lakhs and that constituted 1.12% of turnover. We are of the view that this aspect also needs to be looked into afresh by the TPO/AO and accordingly we set aside the order of the DRP on this issue and remand the question of comparability of this company to the TPO/AO for fresh consideration in accordance with the law, after due opportunity to the assessee. Determination of ALP in respect of an international transaction whereby interest income was attributed by the TPO/AO on the delayed recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of comparison of the assessee s profit margin with the comparable companies is OP/OC. 3. The TPO did not accept the comparables chosen by the assessee in its TP study and the TPO on his own chose 8 comparables and the arithmetic mean of profit margin of those companies was as follows:- Amounts in Rs. Lakh S NO NAME OF TAX PAYER OR/SALES OC OP OP/OC (in % 1 Infosys Ltd. 46,91,700 32,77,700 11,84,200 36.13% 2 Larsen Toubro Infotech Ltd. 4,54,360 3,64,619 89,741 24.61% 3 Mindtree Ltd. 2,99,010 2,48,290 5,072 20.43% 4 Persistent Systems Ltd. 1,18,412 87.649 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by assessee in the grounds of appeal filed by the assessee, at the time of hearing the ld. counsel for the assessee pressed for adjudication of only exclusion of 5 comparable companies chosen by the TPO and has prayed for inclusion of 3 companies. The 5 comparables sought to be excluded by the assessee in this appeal are; (1) Infosys Ltd., (2) L T Infotech Ltd., (3) Mindtree Ltd., (4) Persistent Systems Ltd. and (5) Thirdware Solutions Ltd. The assessee seeks inclusion of 3 companies viz., Sagarsoft India Ltd., Evoke Technologies P. Ltd. Maverick Systems Ltd. 7. As far as inclusion of 5 companies listed above which are part of the final comparable companies chosen by the TPO are concerned, we find that the turnover of these companies is 10 times greater than the turnover of the assessee which is only a sum of ₹ 18,79,48,280. The turnover of Infosys Ltd. is ₹ 44,431 crores, that of L T Infotech Ltd. is ₹ 4,644 crores, Mindtree Ltd. 3032 crores, Persistent Systems Ltd. 1084 crores Thirdware Solutions Ltd. 207 crores. It has been held by the Hon ble Karnataka High Court in the case of Acusys Software (I) P. Ltd. v. ITO in ITA No.223/2017, judgment date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company for FY 2014-15 in which there is a reference to the revenue of this company for the year 2014-15 to be ₹ 55,60,87,264 and the export turnover, out of this to be ₹ 55,44,99,764. Attention was also drawn to pages 2397 and 2395 to show that the export income as per financial statement was 79.60%. In the light of the above statements, we are of the view that it would be just and appropriate to remand the issue for fresh consideration by the AO/TPO in accordance with law, after due opportunity to the assessee. 11. The next company which the assessee seeks inclusion in the list of comparable companies is Maverick Systems Ltd. On this comparable chosen by the assessee in its TP study, the TPO has not discussed the reasons for excluding it from the list of comparable companies. In its objections before the DRP, it was contended by the assessee that the software testing services is a wing of software development services and is functionally similar. The entire revenue is from export of software development and this company satisfies all these filters. The DRP, however, observed that from the annual report this company had incurred substantial expenses to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t calculated 8,08,957 13. On appeal by the assessee, the DRP confirmed the order of TPO by observing as follows:- Panel: All the above grounds relate to the same issue and hence considered together. it was noted by the TPO that substantial amounts were pending as receivables beyond the allowable credit period and TPO charged arm's length interest on the same @ 6 months LIBOR plus 400 basis points (4.3836%). Before DRP assessee contended that the outstanding receivable cannot be considered as international transaction. Having considered the submissions. we find that in view of the amendment inserted by way of Explanation to sec.92B with retrospective effect from 1-4-2002; international transaction would specifically include within its ambit. 'deferred payment or receivable or any other debt arising during the course of business and hence non-charging or under-charging of interest on the excess period of credit allowed to the AE for the realization of invoices would amount to an international transaction. This view finds support in the latest decision of the Honourable ITAT Delhi in the case of Bechtel India Pvt Ltd (in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued before the TPO that interest on receivables is not an international transaction. At this stage, it would he apposite to note that the Finance Act, 2012 has inserted Explanation to section 9211 with retrospective effect from 1.4.2002. Clause (i) of this Explanation. which is otherwise also far removal of doubts, gives meaning to the expression 'international transaction' in an inclusive manner. Sub-clause (c) of clause (0 of this Explanation. which is relevant for our purpose, provides as under:- Explanation- For the removed of doubts, it is hereby clarified then-(i) the expression international transaction shall include- (a) . (b) .. (c) capital financing, including any type of long-term or short-term borrowing. lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business: 22. On going through the relevant part of the Explanation inserted with retrospective effect from 1.4.2002, thereby also covering the assessment year under consideration, there remains no doubt that apart from any long-term or short- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislative amendment. 25. The foregoing discussion discloses that non-charging or under- charging of interest on the excess period of credit allowed to the AF, for the realization of invoices amounts to an international transaction arid the ALP of such an international transaction is required to be determined. 18. In view of the above observations. the reliance placed by the ld. counsel for the assessee on earlier decisions cannot be accepted. Similarly, in the case of BT e Serv (TS-849-ITAT-2017(DEL)-TP) the Hon'ble ITAT Delhi held that undoubtedly the receivable or any other debt arising during the course of the business is included in the definition of 'capital financing' as an 'international transaction' as per explanation 2 to section 92B of the Act w.e.f. 01.04.2002 inserted by the Finance Act 2012. Therefore, even the outstanding receivable partake the character of capital financing and consequently. overdue outstanding is an international transaction . The natural corollary would be of imputing interest on such capital financing if same is not charged at arm's length. The 17`AT concluded that if outstanding receivables a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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