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TMI Blog2022 (9) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment and related services to its AEs. Symphony Teleca Corp. USA. is the ultimate holding company of the assessee. 4. During the previous year relevant to the assessment year 2014-15, one of the international transactions that took place between the assessee and its AEs was the provision of SWD services by the assessee at a price of Rs.462, 11,32,409/-, for which a TP adjustment was made by the TPO to an extent of Rs.44,17,80,037/-. There is no dispute that the aforesaid transaction was an international transaction and the income from the same had to be determined having regard to ALP in terms of section 92 of the Act. Initially, a draft assessment order dated 28.12.2017 came to be passed by the Assessing Officer ('AO' for short) upon incorporating the aforesaid TP adjustment. The AO also proposed to restrict the depreciation on networking equipment. Aggrieved, the assessee filed its objections before the Dispute Resolution Panel (DRP) which, vide its directions dated 12.09.2018, granted margin relief to the Assessee in respect of the TP adjustment, while upholding the adjustments made in the corporate tax front. The AO passed the final assessment order dated 30.10.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D services segment was reworked to Rs. 53,30,88,819/-. Aggrieved by the same, the assessee has filed the present appeal raising grounds 1 to 16 before the Tribunal. 10. The grounds in the appeal which are being pressed are as follows: i. The lower authorities erred in not rejecting Infosys Ltd., Persistent Systems Ltd., Larsen and Toubro Infotech Ltd., and Thirdware Solutions Ltd. (Ground No.14) ii. The lower authorities erred in rejecting Akshay Software Technologies Ltd., Maveric Systems Ltd., and I2T2 India Ltd. (Ground No. 16) 11. In so far as ground No.14 raised by the assessee is concerned, the assessee is seeking the exclusion of Infosys Ltd., Persistent Systems Ltd., Larsen and Toubro Infotech Ltd., and Thirdware Solutions Ltd. from the list of comparables. We will deal with each of the comparables sought to be excluded by the Assessee. (a) Infosys Ltd. ("Infosys"): As far as exclusion of Infosys is concerned, it was submitted that this company earns income from both rendering software services and development of products. The company provides end-to-end business solutions like business consulting, technology, engineering and outsourcing services. In addition, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice providers such as the Assessee. The annual report of the company also discloses a significant amount of capital work-in-progress which indicates that the company is into development of products. The company is a market leader and thus enjoys significant benefits on account of ownership of marketing intangibles, intellectual property rights and business rights. Also, in addition to the above, Further, L&T enjoys significant brand value. As a result of this high brand value, the company enjoys a high bargaining power in the market. Further, during the year under consideration, the product engineering services business of the company was transferred to its subsidiary and its wholly owned subsidiary GDA Technologies Inc. which was a part of the aforesaid business was wound up. It is submitted that no adjustment can be made to eliminate the material effects of the said differences between it and the assessee. The company also incurred subcontracting expenses, demonstrating that the business model adopted is different from that of the assessee's. It was submitted that this company is consistently excluded from the final list of comparables in cases of assessees placed similar to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above reasons. (d) Thirdware Solutions Ltd. ("Thirdware"): It was submitted that this company is engaged in rendering software development, implementation and support services. The company is also engaged in development of software products and earns revenues from sale of user licenses for software applications. These diverse services are reported under one segment without any details being available as regards these services. The company also purchased stock-in-trade during the year. The company also owns intangibles. Further, the margins of the company fluctuate on a year-on-year basis due to the different revenue recognition model that the company follows. Due to this, the company had extraordinary growth during the year under consideration. The company initiated the process of liquidation of Thirdware Solution Singapore Pte. Ltd., which is its subsidiary. Further, a perusal of the annual report shows that the income from rendering services during the year was 'Nil' and therefore the company fails many of the filters applied by the TPO himself and therefore ought to be excluded. In this regard, it was submitted that this company was directed to be excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. 7. In AY 2008-09, the co-ordinate bench has excluded Mis Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Lid (supra), where in it was held that Mis 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 Mis Persistent Systems Ltd. 8. We also notice that in A Y 2008-09, the co-ordinate bench has excluded Mis Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that Mis Thirdware solutions Ltd is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 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 Thirdware Solutions Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstly, perusal of the functions of the company listed in its annual report shows that the company is functionally similar to the Assessee. The website of the company states that the company is engaged in rendering IT services, which are in the nature of SWD and caters to the needs of corporate bodies, banks and financial institutions. Further, it was submitted that the income from commission and sale of software licenses constitutes a meagre 1.45% of the total revenue, which fact is noted by the DRP, and therefore the same would not have any impact on the profitability of the company. It was submitted that the action of the DRP in upholding the exclusion of this company on the basis that it incurs foreign branch expenses indicating that the business model adopted by it is different is erroneous as firstly, incurring foreign branch expenses do not indicate that the company is rendering onsite services. Secondly, the TPO did not apply the on-site development filter and therefore exclusion of the company on that count is incorrect. In any event, it is submitted that there is no difference in the business model adopted by the company and the assessee, and without prejudice, it is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in report issued by the statutory auditors inviting attention to such non-disclosure. (iii) However, as per the annual report of I2T2 Limited, there is no adverse note/ qualification made by the statutory auditors which implies that the adequately disclosure was made. Therefore, by implication, it can be concluded that I2T2 does not have any related party transactions. Therefore this company is comparable and ought to be included in the final list of comparables. (iv) Reliance was placed on the decisions of this Hon'ble Tribunal in the case of LG Soft India Pvt. Ltd. v. DCII (Order dated 28.05.2019 passed by this Hon'ble Tribunal in IT(TP)A No. 3122/Bang/2018 for the Assessment Year 2014-15 and Order dated 27.09.2019 passed by this Hon'ble Tribunal in M.A. No. 95/Bang/2019 in IT(TP)A No. 3122/Bang/2018) wherein in the case of an assessee placed similar to the Assessee, the company was directed to be included. (v) We have considered the submissions and are of the view that the issue with regard to the comparability of this company has to be remanded to TPO/AO for fresh consideration as the submissions made above were neither considered by the TPO nor by the DRP. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply, the assessee submitted that: * It has not charged interest on delayed receipt from third party customers, and the same ought to considered as comparable, whereby the TPO ought not to have computed interest on delayed receipt of trade receivables from the AEs. * Trade payables for capital goods purchased by the Assessee ought to have been considered for computing the net receivables from the AEs as the same was agreed between the parties to be set of with the trade receivables * A credit period of 90 days was provided by the Assessee to the AEs * Details of invoices raised during FY 2013-14, subsequent realisation as requested by the TPO in relation to the same was submitted. 17. The TPO in his order proceeded to make an adjustment with regard to notional interest on outstanding trade receivables. The DRP confirmed the action of the TPO. The assessee has raised ground Nos.17 to 24 and ground No.20A, as additional grounds. The additional ground sought to be raised is nothing but a facet of argument of the assessee in support of ground Nos.17 to 24. Assessee has also filed application for additional evidence to show details of delay in realization of receivables from N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the applicable interest ought to be adopted at LIBOR+2%. Reliance in this regard is placed on the decision in Applied Materials India Pvt. Ltd. v. ITO (Order dated 08.06.2022 passed by this Hon'ble Tribunal m IT(TP)A No. 3403/Bang/2018). The learned DR relied on the order of the DRP. 19. We have considered the rival submissions. It is seen that the assessee in a letter dated 24.10.2017 addressed to the TPO submitted that the assessee had to make payments to its AE for use of software license to the tune of Rs.194,38,64,718/- and for this outstanding payable to its AE, the AE did not charge any interest. In fact the outstanding payable by the assessee for software license use was to be set off against outstanding receivable from the AE. The outstanding receivables was only Rs.64,63,51,783/-. It is further seen from the additional evidence filed before us that the assessee did not charge interest on outstanding receivables from the Non-AEs also. The period of non-realization of outstanding receivables from the Non-AE is nominal whereas the delay on receivables from the AE is for a greater number of days compared to Non-AEs. Nevertheless, the fact remains that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the issue raised in Ground No.25 is no longer res-integra and has been decided by the Hon'ble Karnataka High Court in the case of Mphasis Ltd., (supra) wherein the Hon'ble Karnataka High Court held that computer accessories such as switches and routers form part of peripherals of computer system and hence entitled to depreciation at 60%. Following the same, we allow ground No.25 raised by the assessee. 23. In Ground No. 26 the Assessee has projected grievance regarding Short credit of TDS. It was submitted that the AO erred in not granting appropriate credit of tax deducted at source amounting to Rs. 90,55,039/. The AO will verify the claim of the assessee and allow relief, if found correct. 24. In Ground No. 27 the Assessee has projected grievance regarding Non-grant of advance tax credit. In this regard, it was submitted that the AO erred in not granting the advance tax credit amounting to Rs. 2.55,00.0001- paid by Teleca Software Solutions India Pvt. Ltd. which was merged with the assessee w.e.f. 01 April 2013. We are of the view that a direction to the AO to verify the claim of the assessee and allow relief if found correct, would be sufficient. We hold and direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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