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TMI Blog2023 (2) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and reimbursement expenses u/s. 37 of the Act. (c) Levy of interest u/s. 234B and 234C of the Act and Advance tax paid not considered. 3. The assessee company is a wholly owned subsidiary of Veveo Inc., USA. Subsequent to the acquisition of Veveo Inc. USA by Rovi Corporation, the assessee also forms part of Rovi Group. It provides IT, ITES and MSS services to Associated Enterprise [AE] offered by Rovi Group. The Assessee filed the return of income for the assessment year 2016-17 on 29.11.2016 declaring a total income of Rs.8,03,16,570. The case was selected for scrutiny through CASS and a notice u/s.143(2) was duly served on the assessee. In view of the large international transaction carried out by the assessee, a reference was made to the Transfer Pricing Office (TPO). The TPO aggregated the ITE services rendered by the Assessee along with its SWD services and determined a TP adjustment of Rs. 4,49,24,168/- towards the SWD segment. Additionally, the TPO determined a TP adjustment in respect of interest on delayed receivables of Rs. 2,91,451/-. A draft assessment order dated 16.12.2019 was passed by the AO incorporating the aforesaid TP adjustment. The AO also made the bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f OP/OC of the comparable companies were as follows:- Sl. No. Name of the company Weighted average (in %) 1. Akshay Software Technologies Ltd. 0.04 2. Evoke Technologies Pvt Ltd. 5.47 3. Sasken Communication Technologies Ltd. 6.35 4. C G Vak Software & Exports Ltd. 10.30 5. Intense Technologies Ltd. 10.47 6. Mindtree Ltd. 19.89 7. R S Software (India) Ltd. 21.36 8. R Systems International Ltd. - IT Services and Products 22.40 35th Percentile 6.35 Median 10.38 65th Percentile 19.89 9. The financials of the of the assessee as per the TP study is as given below - Operating Income Rs. 57,93,47,456/- Operating Cost Rs. 49,69,96,104/- Operating Profit (Op. Income - Op. Cost) Rs. 8,23,51,352/- Operating/Net mark-up (OP/OC) 16.57% 10. The weighted average of the comparable companies is in the range of 6.35 percentile to 19.89 percentile and therefore the assessee concluded that the international transactions are within arm's length. 11. TPO rejected 6 of the above comparable companies selected by the assessee. The TPO applied new filters and selected 17 comparables against 8 selected by the assessee and the median of the weighted average of PLI o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry also enjoys benefits of certain other market drivers and cost arbitrages. It is submitted that the turnover of the Assessee from rendering SWD services is Rs. 57,20,14,832/-. This being so, the TPO ought to have applied the upper turnover filter while selecting companies comparable to the Assessee. The ld AR placed reliance on the decision of the Bangalore Bench of this Hon'ble Tribunal in Autodesk India (P) Ltd. V. DCIT (2018) 96 taxmann.com 263 (Bang Trib) and Razorpay Software Pvt. Ltd. (order dated 27.12.2021 passed in IT(TP)A No. 190/Bang/2021). The ld AR further submitted that on application of the turnover filter on 1- 200 crores, the following the companies would be excluded: (a) Infosys Ltd. (b) Larsen & Toubro Infotech Ltd. (c) Persistent Systems Ltd. (d) Aspire Systems (India) Pvt Ltd. (e) Thirdware Solution Ltd. (f) Cybage Software Pvt Ltd. (g) Nihilent Ltd. 15. We have considered the rival submissions and perused the material on record. The Tribunal in the case of Autodesk India Pvt.Ltd(supra) took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding coordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Penta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at -2.09% ought to be considered. 20. We have considered the rival submissions and perused the material on record. The comparability of R S Software in similar circumstances was also considered by this Tribunal in Barracuda Networks India Private Limited Vs. CIT, (2022) 95 ITR (Trib) 0350 (Bangalore) wherein it was held as under:- "20. The submission of the learned Counsel for the Assessee was that as per the proviso to Rule 10CA(2) of the Rules, R.S.Software (India) Ltd., cannot be regarded as comparable company for Financial Year 2013-14 and 2014-15 because in those years, the turnover of this company was more than Rs.200 crores. Therefore as per the first and second proviso to Rule 10CA(2) of the Rules, the profit margin of this company for Financial year 2013-14 & 2014-15 has to be ignored and the profit margin of the financial year 2015-16 alone should be taken. If one looks at Rule 10CA(2) in isolation, we have to reject this argument because the 1st and 2nd proviso to Rule 10CA(2) of the Rules refers to only R.S.Software (India) Ltd., (i.e., "where the comparable uncontrolled transaction has been identified on the basis of data relating to the current year and the enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in relation to the international transaction [or the specified domestic transaction]; ............................. (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the transactions being compared for the current year and hence have to be ignored. On a harmonious reading of the provisions of Rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly." 21. The facts of the present case are identical to the case of Barracuda Networks India Private Limited decided by the Tribunal and respectfully following the same, we hold that if R S Software Ltd. if at all to be considered as comparable the margins for AY 2014-15 & 2015-16 have to be ignored and not to be considered as comparable. Interest on delayed receivables (Ground No.7) 22. The TPO considered the delay in realisation of receivables as separate international transaction and for the purpose of arriving at the TP adjustment, the TPO called for the invoice wise details. Based on the details furnished the TPO computed the notional interest od Rs.2,91,451 by applying the interest rate of 4.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dl./Jt./Dy./Asst.Commissioner of Income Tax/ITO, National Faceless Assessment Centre (Order dated 21.01.2022 passed in IT(TP)A No. 397/Bang/2021). The ld AR also prayed that a credit period of 90 days is a reasonable period and if the same is granted, there is no delay in realising any of the invoices by placing reliance on the decision of the coordinate bench of the Tribunal in the case of Applied Materials India Pvt. Ltd. v. ITO (Order dated 08.06.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 3403/Bang/2018). 26. We have considered the rival submissions and perused the material on record. We have heard the rival submissions and perused the material on record. The impugned issue is squarely covered by the decision of the coordinate Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) wherein it was held as under:- "35. The only other issue that remains for adjudication is ground No.15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 23.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include- . . . . . (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;. . . . ' 23.5. Ld.CIT.DR submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing-up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol. - Trib.), held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per Explanation to section 92B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to international transactions and accordingly proceeded to take into account interest rate in terms of London Inter Bank Offer Rate [LIBOR] and it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly" 27. In view of the above discussion and considering the decision of the of the coordinate bench of the Tribunal and the judgment of the Hon'ble High Court of Karnataka in the case of AMD (India) Pvt. Ltd. (supra), we hold that the treatment of interest on deferred receivables is rightly considered as an independent international transaction and benchmarked separately by the revenue authorities. With regard to calculation of interest, respectfully following the above decision we hold that it would be appropriate to take the LIBOR rate + 2%. For this purpose, we place reliance on the judgment of the Bombay High Court in the case of CIT v. Aurionpro Solutions Ltd., 99 CCH 0070 (Mum HC). It is ordered accordingly. 28. The rest of the grounds raised with regard to TP adjustment have become academic in view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for certain details vide notice dated 23.03.2021 which were to be submitted by the Assessee on or before 30.03.2021. Since the Assessee was unable to collate the required details in time, the Assessee filed a letter dated 30.03.2021 before the AO seeking additional time till 13.04.2021 to collate the required documents. However, the AO proceeded to pass the final assessment order holding that the Assessee failed to submit the required details. Subsequently, the Assessee filed an application for rectification requesting the AO to consider the details submitted therein and the same is pending consideration. Details of the same are available at page 802-1058 of the paperbook. (ii) With respect to rent expenses, as the Assessee had furnished the proof of payment of TDS, the DRP directed the AO not to disallow 30% on account of rent expenses. (iii) As regards the disallowances of legal and professional, it is submitted that the Assessee has produced the party-wise details for the ledger and professional expenses (page 809-810 of the paperbook), copies of Form 16A (page 811-932 of the paperbook) and challan copies evidencing that the Assessee had deducted TDS appropriately under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would lead to double disallowance. 31. Further, the ld AR is submitted that all the above mentioned expenses were incurred by the Assessee in normal operations of the business and were incurred exclusively for the purpose of business and ought to be allowed as a business expenditure. It is submitted that the Assessee has filed the relevant details before the DRP and also subsequently before the Assessing Officer to substantiate its claim. Therefore, it is submitted that the said expenses ought to be allowed as a deduction under Section 37 of the Act. 32. We have considered the rival submissions and perused the material on record. The DRP has given directions to the AO to allow expenses after considering whether the tax is deducted at source or not. It is also noticed that the assessee has submitted various details before the lower authorities which have not fully considered. We also notice that the rectification petition filed by the assessee u/s.154 with the details have not been disposed off by the lower authorities. In view of this we remit the issue back to the AO with a direction to verify the details as per the directions of the DRP and the additional details filed throu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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