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TMI Blog2024 (10) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises ("AEs") and for the purpose of this appeal provision of software services and provision of IT enabled services are relevant. Assessee carried out the economic analysis and summarized the same to state that the volume of the provision of software services was about Rs. 19.91 crores and the provision of IT enabled services was about Rs. 6.96 crores. Assessee adopted TNMM as the most appropriate method and taking OP by OC as PLI, calculated its margin at 17.95% in respect of provision of software services and 20.25% in respect of provision of IT enabled services. Assessee selected 22 comparables in respect of provision of software services and determined the margin of the comparables at 17.54% whereas it selected 11 comparables and determined the margin at 19.05% in respect of the provision of IT enabled services. 3. Learned Assessing Officer rejected the taxpayer's TP study conducted fresh search finally proposed 13 comparables, which the assessee objected apart from proposing some more comparables by the assessee. It could be seen from the impugned order that the assessee pleaded before the Learned Transfer Pricing Officer (TPO) that the company is with the turnover filter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accepted only one entity namely, InfoBeans Technologies Limited needs to be considered. He further submitted that in respect of Sagar Soft India Ltd, the learned DRP prima facie felt that this entity is functionally comparable but directed the learned TPO to examine whether it satisfies the other filters adopted by him and in such case to consider this entity as a comparable. Grievance of the assessee on this aspect, learned AR submitted that the learned TPO did not give effect to this direction. 7. So also, in respect of the ITeS services, learned AR submitted that the upper filter of Rs. 200 crores may be considered in respect of the ITeS services also, and in that case only one entity, namely, MPS Ltd needs to be considered for exclusion on the ground of functional dissimilarity. According to the learned AR, MPS Ltd is engaged in high-end the activity, namely, typesetting, data digitization, content and product development for learners which falls in the domain of knowledge processing outsourcing service, and therefore is not a good comparable to the assessee. He placed reliance on the findings of a coordinate Bench of Pune Tribunal in the case of Symantec software India Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this case. 11. We have gone through the record in the light of the submissions made on either side, in the light of the decided case law. Insofar as the turnover filter is concerned, Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. vs. DCIT [2015] 56 taxmann.com 417 (Delhi), held that huge profit or a huge turnover, ipso facto does not lead to its exclusion; whereas in the case of CIT vs. M/s. Pentair Water India Pvt. Ltd. (2016) 69 taxmann.com 180, the Hon'ble Bombay High Court held that turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. Hon'ble Karnataka High Court, however, in the case of PCIT vs. M/s. Obopay Mobile Technology India Private Ltd., in ITA No. 586/2016, dated 23/07/2018, having noticed the view taken by the Hon'ble Delhi High Court in the case Chryscapital Investment Advisors (India) (P.) Ltd. (supra), and also the decision of the Hon'ble Bombay High Court in the case of M/s. Pentair Water India Pvt. Ltd. (supra), upheld the Tribunal order excluding certain entities from the list of comparables on the ground of huge turnover, while following the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the entries in the sub notes forming part of notes to financial statements to be found at page No.970 of the paper book to show that sales tax deposits would show that this company is into sale of products. Basing on the said increase it is difficult to reach a conclusion that apart from the software services this InfoBean Technologies India is into the sales of certain products also. Software as a service or software is a product has to be looked into before reaching a final conclusion. Since the learned DRP recorded that though the assessee claimed to have given certain information in CD about this company, on verification learned DRP did not find any such information was furnished in CD. Such information must be considered for reaching a conclusion as to comparability of this entity. We, therefore, restore this issue to the file of the learned Assessing Officer/learned TPO to verify whether the software services and software is a product or integral part of the same service and also consider the information to be furnished by the assessee on this aspect and take a plausible view. 16. Coming to the request of the assessee to exclude MPS Ltd in the ITeS segment, according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in one segment of outsourced publishing services like typesetting and data digitisation services, which are to be classified only as IT enabled services. Nowhere in the annual report MPS Ltd. claimed to have been providing product or content development activity took place in the category of knowledge processing activity. Merely an entry in the Balance Sheet to show that certain inventory is there, will not automatically make this entity as not comparable to other ITeS companies. Apart from this the learned TPO categorically observed that the contention of the assessee that the outsourced publishing solutions is different from operation of ITeS, cannot be countenanced. According to the learned TPO it should not matter how many types of ITeS services are provided by each company. Both the authorities have carefully gone through the financials of this company, combat the same with the functional profile of the assessee and reached a right conclusion that MPS Ltd. is functionally comparable to the assessee and there are no reasons to exclude the same. We do not find any material to come to a different conclusion. MPS Ltd. is not a publisher on its own. MPS Ltd. only provides outsour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational transaction relating to interest on overdue receivables from the AE by way of analysis of functions, assets and risks. 22. We have considered the submissions on either side. In the case of the DCIT vs. McKensey knowledge Centre India Pvt. Ltd [2018] 96 taxmann.com 237 (Delhi) Hon'ble Delhi High Court and in the case of Bhatia Airtel services Ltd vs. DCIT, [2021] 126 taxmann.com 315 (Delhi - Trib.) the Co-ordinate Bench of the Delhi Tribunal it was held that with the introduction of the explanation to section 92B of the Act by Finance Act, 2012 it is a determinable that if there is any delay in the realization of credit arising from the sale of goods or services rendered in the course of carrying on the business, it is liable to be visited with the transfer pricing adjustment on account of interest income short charged/uncharged. It is, therefore, not open for the assessee to agitate this question as to whether or not the interest on outstanding receivables is an international transaction requiring separate benchmarking. 23. Lastly turning to the credit period, the learned TPO allowed only 30 days as reasonable credit period and levied interest for the remaining peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance a grant of loan to the Associated Enterprise (AE) so as to enjoy the funds which the AE would otherwise have to pay within the time, and interest thereon shall be computed at LIBOR rates as prevailing in the country where such loan was received/consumed. For the sake of completeness, we reproduce the relevant observations of the Hon'ble High Court hereunder,- "...... In cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher then the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extending of credit beyond the normal period of 60 days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of 60 days. The aforesaid finding of ours also finds support from the question of law at Sr. No.2 as proposed by the Revenue. Thus, in these circumstances, in the facts of this case order of the Tribunal computing interest at LIBOR rates as the rate prevailing in country where the loan is received/consum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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