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TMI Blog2023 (8) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... ntellectual properties. It is also noted that there is no segmental details available in respect of the various systems of revenue earned by this company. Under such circumstances, we do not find it appropriate to be included in the final list. Accordingly we direct the Ld.AO/TPO to exclude this company. Tata Elxsi Ltd. - Admittedly this company is into research and development activities and has developed various product design, industrial design etc. It is also noted that though this company is into software development services, in the process has developed various products that has been sold and revenue has been generated from sale of products. The segmental details in respect of software services rendered and product sale is not available in the financials of this company. It is noted that in case of Infor (India) Pvt. Ltd. [ 2023 (3) TMI 597 - ITAT HYDERABAD ] for similar reason has excluded this company from the final list. We therefore direct this comparable to be excluded from the final list as it is not comparable with a captive service provider like that of assessee. Infobeans Technologies Ltd. - As relying on case of case of Airlinq [ 2022 (8) TMI 1283 - ITAT BA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are as under: 2.1 The assessee is a wholly owned subsidiary of Mitel Mobility Inc. The assessee is engaged in the business of development of software and support activities with respect to broadband and voice over internet technology. 2.2 The Ld. AO observed that assessee had international transaction with the associated enterprises exceeding Rs. 15 Crores and accordingly the case was referred to the transfer pricing officer to determine the arms length price of such international transactions. On receipt of the reference, the Ld. TPO called for economic details of the international transaction between assessee and the AE. The details are as under: Particulars Amount in Rs. Receipt towards provision of software development support services Rs. 2,50,05,79,788/- Recovery of expenses Rs. 1,90,02,567/- Reimbursement of expenses Rs. 4,09,87,160/- OTHER TRANSACTIONS REFLECTED IN THE TP STUDY Other Payables Rs. 2,66,38,856/- Oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l year ending (i.e. not March 31,2017) or data of the company which does not fall within 12-month period i.e. 01-04-2016 to 31-03-2017-rejected. 2. Companies whose income was less than Rs. 1 Crore rejected. 3. Companies whose SWD service income is less than 75% of its total operating revenues rejected. 4. Companies who have more than 25% related party transactions of the sales rejected. 5. Companies who have export service income less than 75% of the sales rejected. 6. Companies with employee cost less than 25% of turnover rejected. 2.5 Comparables selected by TPO Sl. No. Name of the Company weighted average (in %) 1. Rheal Software Pvt. Ltd. -1.85 2. Kals Information Systems Ltd. 3.62 3. Infomile Technologies Ltd. 10.43 4. Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,77,44,28,363/- Price received Rs. 2,52,09,28,788/- Shortfall being adjustment u/s. 92CA Rs. 25,34,99,575/- 2.7 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 02.06.2021 incorporating the proposed TP adjustment. On receipt of the draft assessment order, the assessee filed objections before the DRP. The DRP accepted the contentions of assessee in respect of inclusion of Sagarsoft India Ltd. and Isummation Technologies Ltd. And directed the TPO to reconsider the margins of certain companies. 2.8 The DRP however rejected the submissions of the assessee in respect of exclusion of comparables sought by the assessee. Post the DRP directions, the Ld.AO following were the comparables that remained. Sl. No. Name of the Company 1. Kals Information Systems Ltd. 2. Rheal Software Pvt. Ltd. 3. Isummation Technologies Pvt. Ltd. 4. Sagarsoft India Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. (Ground No. 1.6) c. The TPO erred in computing the margins of certain comparable companies. (Ground No. 1.7) d. That the lower authorities erred in computing an adjustment towards notional interest on outstanding receivables (Ground No. 2) 2.10 Before we undertake the comparability analysis it is sine qua non to understand the FAR of the assessee for the year under consideration, which is as under: 2.11 Based on the above, we shall carry out the comparability in respect of the comparables sought for inclusion / exclusion by the assessee. 3. Ground no. 1.5 raised by the assessee seeking the following comparables to be excluded. a) Larsen Toubro Infotech Ltd., b) Great Software Laboratory Pvt. Ltd., c) Mindtree Ltd., d) R Systems International Ltd., e) Persistent Systems Ltd., f) Tata Elxsi Ltd., g) Infobeans Technologies Ltd., h) Aptus Software Labs Pvt. Ltd., i) Nihilent Ltd., j) OFS Technologies Ltd., k) Cygnet Infotech Pvt. Ltd., l) Infosys Ltd., Cybage Software Pvt. Ltd., and m) Consilient Technologies Pvt. Ltd. 3.1 The Ld.AR submitted that from the above list, if following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17; 3. Hon ble High Court of Delhi in the case of PCIT v. Saxo India P. Ltd. (reported in (2016) 74 taxmann.com 88)), and 4. Hon ble Hyderabad Bench of this Tribunal in the case of Infor (India) Pvt. Ltd. v. ACIT (order dated 25.08.2022 passed in ITA-TP No. 228/Hyd/2022) for the assessment year 2017-18. II. Infosys Ltd. (a) The Ld.AR 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, the company offers software products and platforms. She submitted that despite rendering diverse services, there are no segmental details in respect of the services rendered. The company also heavily focuses on research and development activity for developing new functionalities and patenting innovative technologies and incurred significant expenditure for this account, amounting to around Rs. 351 Crore during FY 2016-17. The Ld.AR thus submitted that the services rendered by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary objection raised by the DR is that the assessee is a product company. However from the TP transfer pricing order, we note that the Ld.TPO has not categorised assessee to be a product company. We refer to page 44 of the TP order wherein the TPO himself prays the distinction between a software product company and a software service company and has concluded by observing that a product company should have off the shelf products which are commercially saleable. Further, the Ld.TPO himself has observed in page 41 that website is not a proper source of information and is only a tool being used by the company to attract new clients and customers. Further, the Ld.TPO referring to the annual reports of the comparables selected the companies that mentioned its activities to be in the nature of software development. We therefore do not find it appropriate to go by the website search carried out by the DR that is filed before us. (h) Coming to the decision of Coordinate Bench of this Tribunal in case of Blue Coat Network (India) Pvt. Ltd. vs. DCIT (supra), we note that L T Infotech Ltd. was remanded to the Ld.TPO in the said decision by placing reliance on the decision of Goldman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystems was rejected by the TPO from the list of comparables for the assessment year 2012-13 on the ground that the financial year end that it follows differs from the financial year of the assessee. Submissions are placed at pages 154- 155 of the appeal set and 222-223 of the paperbook. (c) Pertinently, it is submitted that the extrapolated details of the company are not available, and therefore the margin of the company cannot be computed for the financial year ending March 31, and therefore the company ought to be excluded from the final list of comparables (d) Reliance in this regard is placed on the decision of this Hon ble Tribunal in the case of ACI Worldwide Solutions Pvt. Ltd. v. ACIT reported in [2022] 140 taxmann.com 594. (e) The Ld.DR on the contrary relied on the observations of the DRP. We have perused the submissions advanced by both sides in the light of records placed before us. (f) This Tribunal in the above referred decision has restored R Systems International Ltd. with the direction to verify if the said company has prepared the financials for financial year ending on March 31 or if it could be reasonably extrapolated. We accordingly remand t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar to the Appellant and cannot be accepted as a comparable. The company is engaged in providing high end services in the nature of technology consulting, product design, development and testing services, design and technology services for consumer goods sector, high-end content development and 3D animation services for media and entertainment industry. It is submitted that the services rendered in the SWD segment are in the nature of embedded product design, industrial design and visual computing labs, which are not comparable to the services rendered by the Appellant. Further, it is submitted that the company renders services in niche areas as opposed to routine SWD services rendered by the Appellant. (b) Further, it is submitted that Tata Elxsi is focused on research and development activities and incurs expenses for developing new functionalities and patenting innovative technologies. (c) Detailed submissions are placed at pages 188-190 of the appeal set and 260-261 of the paperbook. (d) Reliance was placed on the decision of the Hon ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. v. ACIT by order dated 25.08.2022 passed in ITA-TP No. 228/Hyd/2022 for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n IT(TP)A No. 261/Bang/2021) ii) this Hon ble Tribunal in the case of Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon ble Tribunal in IT(TP)A No. 235/Bang/2021); iii) this Hon ble Tribunal in Airlinq (Order dated 28.07.2022 passed by this Hon ble Tribunal in IT(TP)A No. 231/Bang/2021); iv) Hyderabad Bench of the Hon ble in ADP Pvt. Ltd. v. DCIT [Order dated 03.02.2022 in ITA Nos. 227 228/Hyd/2021 at para 7]; v) of the Delhi Bench of the Hon ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17, and vi) the decision of the Mumbai Bench of this Hon ble Tribunal in Red Hat India Pvt. Ltd.g v. NFAC (order dated 25.02.2022 passed in ITA No. 1379/Mum/2021). (e) We note that for the above submitted objections by the Ld.AR, this company has been excluded by Coordinate Bench of this Tribunal in case of Airlinq (supra) by observing as under: Accordingly, we direct the Ld.AO/TPO to exclude this company from the final list. In respect of the remaining comparables, we grant liberty to the assessee to argue in an appropriate circumstances as submitted by the Ld.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed for statistical purposes. 6. Ground no. 2 is related to the transfer pricing adjustment with respect to outstanding receivables. Primarily the Ld.AR has objected by submitting that no interest is attributable as the same was not charged by the AEs on any delayed payment by the assessee. However, assessee submitted that only two invoices payment were delayed to be paid by the AE with respect to 15 days and one day. In any event, if at all any interest is to be computed, LIBOR rate is to be applied as submitted by the Ld.AR. The Ld.DR relied on the order passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. Admittedly attributing interest to the delayed payment is an international transaction. 6.1 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 rate and CUP as the most appropriate method. The Ld.TPO thus proposed adjustment at 5.8749% amounting to Rs. 3,37,183/-. 6.2 The Assessee wishes to submit that the delayed/ outstanding receivables should not be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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;....' . 6.6 Ld. CIT DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 observed that: There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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