9911796707
TMI Blog2022 (12) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 92 B of the Act We deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. For those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points which is in accordance with the principles laid down in case of CIT vs. Cotton Naturals (I) Pvt. Ltd. [ 2015 (3) TMI 1031 - DELHI HIGH COURT] by considering a credit of 90 days. Disallowance u/s. 40(a)(ia) - salary cost reimbursed to Applied Material Inc. on an at cost basis - non-deduction of TDS on reimbursement of salary expenses made on behalf of the seconded employees as fee for technical services - HELD THAT:- We remand this issue to the Ld.AO to consider the claim in accordance with the decision of M/s. Flipkart Internet Pvt. Ltd. [ 2022 (6) TMI 1251 - KARNATAKA HIGH COURT] and M/s. Toyota Boshoku Automotive India Pvt. Ltd. [ 2022 (4) TMI 1443 - ITAT BANGALORE] , Gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software development services Rs. 429,81,72,137/- Reimbursement of expenses Reimbursement of travel expenses Rs. 3,06,70,299/- Reimbursement of expat salary related expenses Rs. 5,24,18,236/- Reimbursement of expenses for employee stock purchase plan Rs. 1,80,66,453/- Reimbursement of software expenses Rs. 2,08,70,149/- Reimbursement of training expenses Rs. 1,15,98,967/- Reimbursement of employees contribution to employee stock purchase plan Rs. 4,97,22,765/- Reimbursement of repairs and maintenance Rs. 12,41,012/- Recovery of expenses Recovery of expenses at cost Rs. 2,12,68,240/- Recovery of travel expenses Rs. 2,83,70,976/- Recovery of CSR expenses Rs. 37,63,400/- Reimbursement of training expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as being at arm s length. 2.6 It was also submitted by the assessee that the third-party service providers, being Tier I and Tier II companies in India, were marking-up their costs by a significant margin and it was thus submitted that the aforesaid subcontracting charges included the profit element which was earned by such third-party service providers. It was submitted that applying a further markup on such already marked-up charges would lead to a duplication of mark-up, which would be wholly unreasonable. In that view of the matter, it was submitted that the said subcontracting charges were merely pass-through costs and thus ought to be excluded from both the Assessee s operating revenue and cost base while determining its effective NCP margin for provision of the software development services. 2.7 However, the Ld.TPO was of the view that, the subcontracting charges formed a part of the operating cost of the assessee for provision of SWD services and thus cannot be excluded from either its cost base or operating revenue as it would not give a correct picture of the profit margin earned by it. The Ld.TPO thus computed assessee s margin at 10.02% as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.91 10. Persistent Systems Ltd. 31.69 11. Nihilent Technologies Ltd. 32.21 12. Aspire Systems (India) Pvt. Ltd. 34.18 13. Inteq Software Pvt. Ltd. 37.90 14. Infosys Ltd. 38.59 15. Thirdware Solution Ltd. 41.12 16. Cybage Software Pvt. Ltd. 66.27 35th Percentile 20.55% Median 27.37% 65th Percentile 37.90% 2.10 Out of the 7 comparables selected by the Assessee, the Ld.TPO accepted one comparable, viz. R SSoftware (India) Ltd., and rejected the other 6. The Ld.TPO thus proposed the shortfall at Rs.67,80,39,190/- as adjustment. 2.11 The Ld.TPO also computed interest on delayed receivables at Rs.3,10,32,759/- by using 6 Month LIBOR rate computed at 4.6386%. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to produce details of the receivables invoice wise, their dates of realization and the number of days delay in realization. The said details were sought for the receivables forming part of the opening balance as well. The DRP further directed the Ld.TPO to apply the rate of interest applicable to short term deposits as opposed to PLR adopted by the TPO. 2.17. On receipt if directions from the DRP, the Ld.AO passed the final assessment order in which the TP adjustment came to be reworked and the total income of the Assessee came to be recomputed after making certain disallowances. 2.18 Aggrieved by the final assessment order, the Assessee has preferred the above before this Tribunal. 3. At the outset the Ld AR submitted that assessee wish to contest Ground nos.4.1, 5.11, 5.11(a), Ground Nos. 5.10 and additional ground no. 5.13(a) and Ground nos.10 to12. She submitted that remaining grounds are either general in nature and do not require adjudication. 3.1. Assessee has also raised following additional grounds vide applications dated 12/10/2021 and 16/09/2022 respectively. 3.1.1 It has been submitted that no new facts needs to be considered in order to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations of the Tribunal are as follows: 7. We have considered the rival submissions as well as the relevant material on record. Undisputedly, the assessee is charging a mark up on the software development services provided to the AE being captive service provider. Therefore the assessee is not acting as an agent or distributor of the AE but is a provider of services of its own. It is not the case of rendering services of an agent without any value addition but the assessee is providing software development services to the AE and charging margin on the same. Therefore the cost on the software development activity is incurred by the assessee and charging the AE on the said services with a mark up of 10% on cost. The cost of sub-contracting in software development services is also charged with 10% mark up to the AE. When the margin on the cost of sub-contracting charges is part of the operating revenue of the assessee then only the cost of sub-contracting activity cannot be excluded as pass through. It would amount to artificially inflate the margins of the assessee on the other revenue from the services other than sub-contracting activity. In any case, pass through cost can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3 It is submitted that none of the comparables sought for exclusion could be eliminated on turnover filter as assessee has a turnover of more than Rs.200 crs. The Ld AR thus submitted that these are to be considered on functionality as under: A. Tata Elxsi Ltd.: A.1 The Assessee sought exclusion of this company inter alia for the reasons that: (i) it performs diverse dissimilar functions and segmental details regarding the same are not available; (ii) there is presence of intangibles and inventory; and (iii) it performs onsite activities. A.2 The Ld.AR submitted that the TPO rejected the contentions of the Assessee and the DRP upheld the same. The Ld.AR submitted that this company provides product design and engineering services. It also provides digital content creation for media and entertainment industry. She submitted that the operations of the company are classified into two business segments., i.e., software development services and systems integration support. It is submitted that the company operates in the segments of software development services which comprises of embedded product design services, industrial design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote that in the case of Telcordia Technologies Pvt. Ltd. (supra), the Mumbai Bench of the Tribunal vide its order dated 11.5.2012 in para 9.7 has held as under:- 7.7 From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable parties. 33. No contrary view has been brought to our notice regarding comparability of this company with that of a pure software development service provider. Accordingly, in view of the decision of the Mumbai B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions filed by the assessee. In the event, this comparable does not satisfy the filters applied by the Ld.TPO, the same may be excluded. Needless to say that proper opportunity of being heard must be granted to assessee. C. Infobeans Technologies Ltd.: C.1 It is submitted that the company is a software services company specializing in business applications development for web and mobile. The company provides software engineering services primarily in Custom Application Development, Content Management Systems, Enterprise Mobility, Big Data Analytics. These are KPO services for which no segmental details are available. The above services rendered by the company are vastly different from the routine low end software development services rendered by the Assessee, and therefore the company ought to be excluded as being functionally different. Further, the segmental details of these diverse services are not available and therefore the company cannot be selected as a comparable. C.2 It is submitted that this company is consistently excluded from the final list of comparables in cases of assessees placed similar to the Assessee. She also relied on decision of coordinate bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve perused the submission advanced by both sides in light of records placed before us. 6. We note that coordinate bench of this Tribunal in case of M/s.SanDisk India Device Design Centre Pvt. Ltd. vs. JCIT (supra) observed and held as under: 17.3 At the outset, the Ld.AR submitted that the above comparables have been considered by Coordinate Bench of this Tribunal, Hon ble Hyderabad Tribunal as well as Hon ble Mumbai Tribunal in other cases having similar facts it is also been submitted by Ld.AR that these comparables do not satisfy the turnover filter that has been applied by the Ld.TPO and at the outset deserves to be eliminated. The Ld.AR referring to the annual reports, placed in the paper books filed before this Tribunal reveals that turnover is more than Rs.200 crores and does not match even 10 times the turnover of assessee. The Ld.AR thus submitted that applying either the turnover filter of Rs. 1 crore to Rs. 200 crores or 10 times the assessee s turnover to 1/10th , these comparables deserves to be excluded. 17.4 It is also submitted that these comparables are not functionally similar with that of the assessee as has been observed by Coordinate Bench of this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Triology E Business Software India P Ltd (ITA No. 1054/Bang/2011) was followed and it was held that M/s Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of revenue from software services and software product is not available. 6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Infosys Ltd. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. We also notice that in AY 2008-09, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40. The assessee sought exclusion of Aspire from the final set of comparables for benchmarking SDS segment on the ground that it fails Related Party Transaction (RPT) filters as its RPT/ sales ratio is more than 25%. The assessee computed the significant related party transactions at 37.58% whereas the Ld. TPO computed it at 23.55%. The TPO is directed to recalculate the RPT/sales ratio by providing opportunity of being heard to the assessee. So this comparable is remitted back to the Ld. TPO to decide afresh. Nihilent Analytics Ltd. (Nihilent) 44. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis- -vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No.405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of the disclosure of enterprise s reportable segment explanatory available at page No.A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without which it is difficult to compute the correct profit margin of the relevant segment. So Infobeans is also ordered to be excluded as a comparable being not a comparable to the assessee. 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set. 7. We also note that the Ld.DR placed reliance on the decision of Coordinate Bench of this Tribunal in the case of BORQS Software Solutions Private Limited v. ACIT (supra). 8. We have heard rival submissions and perused the material on record. On perusal of the financial of Infobean Technologies Limited placed at pg 1676 of AR, it is clear that the said company is engaged in providing software engineering services primarily in Custom application developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence is made to the following orders of the ITAT :- (i) SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (Order dated 30.06.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 288/Bang/2021 for AY 2016-17)- at para 17.9 and 17.10 (on account of functional dissimilarity as company renders diverse services and lack of segmental details); (ii) ADP Pvt. Ltd. v. DCIT [Order dated 03.02.2022 in ITA Nos. 227 228/Hyd/2021 for A Y 2016-17]- at para 7.4 (on account of functional dissimilarity as company earns revenue from export of goods and segmental details are unavailable). (iii) GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35- for AY 2016-17) (on account of functional dissimilarity as the company is into diversified activities which are not comparable to routine SWD service provider) (iv) Red Hat India Pvt. Ltd. v. ITO, NFAC (Order dated 25.05.2022 passed by the Mumbai Bench of this Hon'ble Tribunal in ITA No. 1379/Mum/2021 for AY 2016-17)- at paras 49 and 50 (on account of functional dissimilarity as company renders diverse services and lack of segmental details). (v) Skillnet Solutions India Pvt. Ltd. v. DCIT (Order dated 24.02.2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally comparable to that of the assessee, we follow the orders of the ITAT referred in para 9 (supra) and direct the Ld.AO / TPO to exclude Infobean Technologies Limited from comparable list. It is ordered accordingly. C.4 No contrary view has been brought to our notice regarding comparability of this company with that of a pure software development service provider. Respectfully following the above view we direct exclusion of Infobean Technologies Ltd., from the final list. D. Nihilent Technologies Ltd.: D.1 It is submitted that the company is engaged in rendering software services, business consulting in the area of enterprise transformation. The company is focused on providing end to end software product development services and is also involved in product design and architecture. Segmental details are not available. Also, the company has significant onsite expenditure and the expenditure constitute 37.47% of the total sales. D.2 Further it is submitted that the company has acquired a business intelligence and analytics company and has also acquired 51% of shareholding in Intellect Bizware Services Private Limited (Mumbai, India) specializing in ERP and enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations of the DRP/TPO. We have perused the submission advanced by both sides in light of records placed before us. F.3 We note that the above comparables have been considered by coordinate bench of this Tribunal in case of ARM Embedded Technologies Pvt. Ltd. v. DCIT(supra) by observing as under: 22. Aspire Systems (India) Pvt. It is submitted that, this company is functionally not comparable with the assessee as it earns income from power generation. The Ld.AR placed reliance on page 127 of Annual Report. The Ld.AR submitted that, the company owns significant intangibles in form of goodwill, customer contracts. He placed reliance on page 2077 2087 of annual report paper book in support. It is submitted that Applied Development Software (India) Pvt.Ltd., and Pure Apps Consulting Services Pvt. Ltd., amalgamated with the company that lead to acquisition of assets. He placed reliance on page 2056 of annual report paper book. The Ld.AR placed reliance on following decisions in support: Decision of Hon ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT reported in (2022) 136 taxmann.com 52 Decision of Hon ble Hydrabad Tribunal in case of Inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of onsite services. And that, during the FY relevant to assessment year under consideration, this company acquired GNet Group LLC, a business intelligence and analytical company, and Intellect Bizware Services Pvt. Ltd., specialising in ERP and enterprise innovation. The Ld.AR submitted that, these acquisitions are bound to have a significant impact on the financials of the company. The Ld.AR thus submitted that, for all the above reasons this company cannot be considered to be comparable with. He relied on the decision of Hon ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. v. ACIT (supra) On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis- -vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No. 405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the Ld.AO/TPO to exclude Nihilent Technologies Ltd from the final list. 24. Cybage Software Pvt.Ltd. It is submitted that this company is engaged in the provision of diversified services which include product engineering, testing quality assurance services, specialized services, support services, etc. It is submitted that this company is engaged in product development and has developed a product called excelshore apart from providing spectrum of services including ITeS and BPO services and that segmental information of the diverse business functions undertaken by the company is not available. The Ld.AR submitted that this company is making super normal profits and that it is not reflective of the performance of the industry in which it operates. Particulars FY 2013-14 FY 2014-15 FY 2015-16 OP/OC 68.82% 67.75% 62.04% Reliance in this regard is placed on the decision of the Hon ble Hyderabad Tribunal in Infor (India) Pvt. Ltd. v. DCIT (supra). On the contrary, the Ld.DR relied on the orders passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available at pages 848 to 909 of the annual reports paper book does not provide segmental profitability earned from software development services, outsourced product development services and Healthcare BPO services. 47. When we examine profit loss account at page 873 of the annual report paper book, software development and service charges are shown in composite manner with no segmental profitability. In these circumstances, we are of the considered view that Inteq is not a suitable comparable vis- -vis the taxpayer which is a routine software development service provider working on cost-plus mark up model, hence ordered to be excluded from the final set of comparables. G.4 No contrary view has been brought to our notice regarding comparability of this company with that of a pure software development service provider. Respectfully following the above view we direct exclusion of Inteq Software Ltd., from the final list. H. Mindtree Ltd: H.1 It is submitted that this company is engaged in diversified activities such as analytics and information management application development and maintenance, business process management, business technology consulting, could, di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uated to the routine SWD services rendered by the Assessee. The Ld.AR submitted that this company is also engaged in trading IT related products, and owns proprietary software products like Unitrax , Accurusi and Scriptor TM which are developed in-house. The company is also engaged in activities such as cloud computing, infrastructure management, analytics information management etc., and no segmental details are available in respect of the variety of services rendered by this company. The Ld.AR submitted that this company ownes huge marketing intangibles, intellectual property rights and business rights and brand value, as a result of this high brand value, and the company enjoys a high bargaining power in the market. I.3 It is submitted that this company is consistently excluded from the final list of comparables in cases of assessees placed similar to the Assessee. Also, the company came to be excluded from the final list of comparables in the assessee s own case for the assessment year 2014-15. The Ld.AR relied on following decisions: decision of coordinate bench of this Tribunal in assessee s own case for AY 2014-15 reported in (2022) 141 taxmann.com 142; decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new product brand Accelerite . Further, the company develops in-house software products such as eMee and Enterprise Content Search Connector. K.2 Further, it is submitted that, this company made significant investments towards research and development activities in the relevant previous year. The company has incurred significant expenses in foreign currency amounting to 15.03% of its total revenue which suggests that is engaged in provision of onsite services. Persistent has established persistent labs which focuses on latest technologies viz., gesture computing, machine learning etc. Using the innovations of Persistent labs. The company has developed SimplEye an innovative mobile app which helps visually impaired use smart phones. K.3 It is submitted that this company is consistently excluded from the final list of comparables in cases of assessees placed similar to the Assessee. Also, the company came to be excluded from the final list of comparables in the assessee s own case for the assessment year 2014-15. The Ld.AR relied on following decisions: decision of coordinate bench of this Tribunal in assessee s own case for AY 2014-15 reported in (2022) 141 taxmann.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite activities as they generate higher revenue when compared to services performed at their own facilities. The company also heavily focuses on research and development activity and incurs significant expenditure for this account. For the concerned financial year the company has incurred research and development expenses of Rs. 605 crores. The company for the relevant financial year has earned abnormally high profit with margin of 38.61%, which makes it incomparable to the Assessee. In any event, the turnover of the company is much higher when compared to the Assessee s, and hence it ought to be excluded from the list of comparables. Detailed submissions in this regard are placed at pages 638-661 and 1140-1159 of the paperbook. In view of the above difference, the company ought to be excluded from the final list of comparables. L.3 It is submitted that this company is consistently excluded from the final list of comparables in cases of assessees placed similar to the Assessee. Also, the company came to be excluded from the final list of comparables in the assessee s own case for the assessment year 2014-15. The Ld.AR relied on following decisions: decision of coordinate ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee. The company also invests in products which helped the company establish itself as a credible IP Owner. Also, the company has significant intangibles as a part of its fixed assets in the nature of intellectual property. It company owns seven Edge products/platforms and six other product based solutions. It leverages on its premium banking solution 'Finnacle ', owns significant brand value and focuses immensely on brand building. For this purpose it incurs significant brand building expenses, which goes to help the company have a premium pricing for its services. IT derives more than 51% of its revenue from onsite activities and places high reliance on the onsite activities as they generate higher revenue when compared to services performed at their own facilities. Since the company adopts a business model different from that of the Assessee who renders services offshore, the company ought to be excluded. The company also heavily focuses on research and development activity and incurs significant expenditure for this account. For the concerned financial year the company has incurred research and development expenses of Rs. 873 crores. The company for the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discloses significant amount of capital work-in-progress which indicates that the company is into development of products. (c) Persistent Systems Ltd. : It is submitted that this company ought to be excluded from the final list of comparables inter alia for the reasons that it is functionally not comparable to the Assessee and as there exists peculiar economic circumstances for which no appropriate adjustment can be made to its mark-up to eliminate the material effects thereof. It is functionally dissimilar as it is engaged in rendering IT services and in the development of software products without there being separate segmental information disclosed in its Annual Report for such activities. The company focuses mainly on product development and during the year under consideration launched a new product brand 'Accelerite'. Further, it made significant investments towards research and development activities in the relevant previous year. The company has incurred significant expenses in foreign currency amounting to 13.14% of its total revenue which suggests that is engaged in provision of onsite services. The company also made significant investment in intellectual prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot comparable as engaged in the product development. The segmental information for services and product is not available. Further, the assessee has also pointed out that there was an acquisition and restructuring during the year under consideration. 25. The DRP has noted the fact that this company has reported the entire receipt from sales and software services and product. Therefore, no segmental information was found to be available for sale of software services and product. Further, the DRP has noted that as per Note 1 of Schedule 15, this company is predominantly engaged in outsource software development service. Apart from the revenue from software services, it also earns income from licence of products, royalty on sale of products, income from maintenance contract, etc. These facts recorded by the DRP has not been disputed before us. 26. Therefore, when this company is engaged in diversified activities and earning revenue from various activities including licencing of products, royalty on sale of products as well as income from maintenance contract, etc., the same cannot be considered as functionally comparable with the assessee. Further, this company also earns income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore this company has to be retained as comparable. 63. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. The ld. AR has submitted that this company is having 18.66% RPT and further this company earns revenue from both services and products. Thus, the ld. AR submitted this company is also in the software products and therefore cannot be considered as good comparable. He has further contended that in a series of decisions, the Tribunal has applied 15% RPT filter and since this company is having more than 15% RPT, the same cannot be considered as a good comparable. 64. On the other hand, the ld. DR has submitted that TPO has applied RPT filter of 25% and therefore only for this company, the RPT cannot be reduced to 15%. Further, the DRP has examined annual report of this company and found that this company earns revenue from software development services and accordingly is comparable. 65. We have considered the rival submissions and relevant material on record. We find that in the normal circumstances the tolerance range of RPT should not be more than 15%. In the case of the assessee, the availability of the comparable is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 6.3 On similar situation, we have remanded the comparable to the Ld.AO/TPO for fresh consideration herein above following the decision of coordinate bench of this Hon ble Tribunal in the case of Prism Networks Pvt. Ltd. reported in (2022) 141 taxmann.com 163. Accordingly, we allow these grounds raised by assessee. 7. Ground No.7: Interest on receivables 7.1 The Ld.AR submitted that the Ld.TPO proposed transfer pricing adjustment in respect of outstanding receivables in respect of trade creditors being the AEs by using 6 months LIBOR + 450 basis points and CUP as the most appropriate method. 7.2 The Assessee wishes to submit that the delayed/ outstanding receivables should not be considered as a separate international transaction. Further, it is humbly submitted that determination of ALP in respect of delayed receivables from inter-company transactions is not required since ALP of intercompany transactions of provision of services has been already determined and no separate adjustment is necessary in this regard. 7.3 The Ld.AR placed reliance on decision of Hon ble Delhi Tribunal in Kusum Healthcare Pvt.Ltd vs. ACIT reported in (2015) 62 Taxmann.com 79, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non- payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble Delhi Bench in this case referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., reported in (2013) 215 Taxmann 108, which dealt with question of law: (c) `Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis- -vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnet Pvt. Ltd. vs. DCIT (IT) in W.P. No. 3619/2021(T-IT) by order dated 24.06.2022 Decision of Hon ble Pune Tribunal in case of M/s. Faurecia Automotive Holding vs. DCIT (IT) in ITA No. 784/PUN/2015 by order dated 08.07.2019 Coordinate Bench of this Tribunal in case of M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT in IT(TP)A No. 1646/Bang/2017 by order dated 13.04.2022 and Coordinate Bench of this Tribunal in the case of Goldman Sachs Services Pvt. Ltd. vs. DCIT in IT(IT)A Nos. 362 to 369 338 to 345/Bang/2020 by order dated 29.04.2022. 8.1.4 It is submitted that identical issue has been considered at length and in detail in the above decisions. The Ld.AR referred to the recent decision of Hon ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) (supra) wherein Hon ble Court observed as under: (viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. S.T.-Bangalore (Adjudication) etc. v. M/s.Northern Operating Systems Pvt. Ltd. 12 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with law. On verification once it is ascertained that the assessee has deducted tax on the entire salary payable to the seconded employee under section 192 of the act, no disallowance is warranted under section 40(a) (i) of the act. Accordingly these grounds raised by assessee stands allowed for statistical purposes. 8.2 Ground no. 11 - Denial of depreciation claimed on leasehold improvements. 8.2.1 In the assessment year under consideration, the Assessee undertook various civil and interior work in the nature of putting up of modular furniture, lab design and installation activities, electrical and cable networking, fire safety systems, etc. Accordingly, during the year an addition of Rs. 6,85,95,212/- was made towards leasehold improvements, falling within the block of Furniture and Fixtures and consequent depreciation on the same was claimed. 8.2.2 The Assessing officer disallowed the claim of depreciation amounting to Rs. 65,65,463 on leasehold improvements pertaining to additions during the year, on the basis that the Assessee failed to submit documentary proof/ evidences substantiating the date of put to use of assets for leasehold improvements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditor in the tax audit report. The ld AR alternatively submitted that, in the event of depreciation claim is disallowed, the disallowance need to be re- worked considering the date in which the relevant new premises started to function as the date of assets being put to use. The ld AR also contended that the depreciation disallowance should be restricted to the additions made during the year under consideration and not on the opening written down value (WDV) on which depreciation is allowed in the earlier years. 56. We have heard the ld. DR and perused the material on record. The AO has denied the depreciation on leasehold improvement since, according to AO, the assessee had not furnished the invoices bills supporting the expenditure and that the assessee had not provided evidence for completion of the work. The break-up of disallowance of depreciation of Rs.25,31,31,220/- is as under which is worked out as per date put to use as certified in the tax audit report (page 1523 of paper book):- i. Depreciation of Rs.2,11,89,432/- claimed on opening WDV as at 1 April 2013 at the rate of 10%. ii. Depreciation of Rs. 4,123,788/- claimed on additions made during FY 2013-14 at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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