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TMI Blog2025 (3) TMI 1458X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. On the facts and circumstances of the case & in law, the Ld. AO erred in' assessing the total income of the Appellant at INR 68,20,29,190 as against the returned income of INR 53,49,66,390. 3. On the fads and circumstances of the case & in law, the final assessment order under section 143(3) r.w.s. 144C(13) of the Act dated July 30, 2024 and Ld. DRP's directions under section 144C(S) of the Act dated June 26, 2024 are barred by limitation provided under section 153 of the Act and hence, deserves La be held as void-ab-initio, bad in 1m.V' and time-barred. 4. On the facts and circumstances of the case & in law, the Ld, Assessing Officer/ TPO/ DRP erred in making an adjustment of INR 14,64,48,168 pertaining to provision of CAD/ engineering design services, provision of software development services and provision of IT enabled services and in doing so have grossly erred in: 4.1 disregarding the TP documentation maintained by the Appellant in accordance with section 92D of the Act read with Rule l0D of the Income tax Rules, 1962 ('the Rules'); 4.2 not appreciating that none of the conditions set out in section 92C(3) of the Income tax Act, 1961 ('the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this stage. The relevant facts of the case are, the assessee started its operations from 1st October 2006 as a global technology captive centre for Stryker Group in India and the assessee is engaged in rendering Computer Aided Designing ('CAD')/ engineering design, contract software development, and IT enabled back-office support services to the Stryker Group entities under the direction and supervision of the Associated Enterprises (AEs). During the year, the assessee was also engaged in trading of certain medical equipment purchased locally which is unrelated to its international transaction of provision of support services to AEs. The assessee undertook various international transactions with its AEs in the Financial Year (FY) 2019-20. The assessee has benchmarked its international transaction of Provision of CAD/ engineering design services, Provision of contract software development services and Provision of IT enabled services selecting Transactional Net Margin Method ('TNMM') as the Most Appropriate Method (MAM) with Operating Profit/Total Cost as the relevant Profit Level Indicator ('PLI').: Nature of international transaction Name of the tested party Most appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w product development and testing to maintenance engineering for Broadcast, Consumer Electronics, and Communications. It's services include the below: (i) Embedded product design - Provides technology consulting, new product design, development, and testing services etc. (ii) Industrial Design and Visualization - Provides consumer research and strategy, branding and graphics, product design, service design, user experience design, transportation design, visualization, and manufacturing support. (refer page 1616 of ARC) As per company's website, it is engaged in premium engineering services right from advanced R&D in new technology and system architecture exploration to actual development, validation, and deployment. 2. Non-availability of segmental information (refer page 1721 of ARC) 3. Owns Brands/Intangibles - Tata Elxsi also makes use of its highly innovative and IP led technology to provide its service offerings and solutions to its customers. Undertaking R&D on own account including the owning of IP would mean that this entrepreneurial company is engaged in performing additional functions over and above the routine functions, namely assuming high risks and devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering that the Assessee is a low-risk captive service provider. (refer Page 1769 of the ARC) 2. Non-availability of segmental information (refer page 1769 of ARC) 3. Owns IP - Wipro has a rich portfolio of 60+ enterprise-grade products, platforms and frameworks and has been actively investing in strengthening, enhancing and refreshing the portfolio (Virtual Desk, Wipro HOLMES). (refer Page No. 1793 and 1907 of the ARC) 4. High Turnover- INR 50,380 crores (page 1885 of ARC) 5. Tangible Assets- INR 5047 crores 6. Intangible Assets- INR 319 crores (page 1883 of ARC) 7. Incures marketing & brand building expenses - INR 222 crores (Page 1885 of ARC) It is submitted that the diversified activities performed by the comparable cannot be equated to provision of routine CAD / engineering design, contract software development services and IT enables services provided by the Assessee." 7. Ld. AR of the assessee relied on the following decisions :- 1. Delhi High Court in the case of Agnity India Technologies Pvt. Ltd.- ITA No. 1204/2011 2. Delhi High Court in the case of M/s Avaya India Pvt Ltd- ITA 532/ 2019 3. Open Text Corporation India Pvt Ltd (earlier known as Cordys S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies are mentioned in para 5 of the impugned order. 9. In view of the aforesaid position, we do not think that any substantial question of law arises for consideration. The appeal is dismissed." "M/s. Avaya India Pvt. Ltd. "18. On the aspect of exclusion of comparables that have a high economic upscale viz., Infosys, TCS and Wipro, particular reference may be made to the decision of this Court in PCIT v. BC Management Services Pvt. Ltd. (supra) where a particular reference was made to TCS E-serve as under: "13. ...The third comparable that the AO/TPO excluded is TCS E-serve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value: that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld." 19. The same decision also noted that one reason fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases excluding these two comparables and its decisions have been upheld by this Court. Illustratively reference may be made to the decision of the Tribunal in Vertex Customer Services India Private Limited v. DCIT (2017) 88 Taxmann.Com 286 (DelTri), Stryker Global Technology Centre Private Limited v. DCIT (2017) 87 Taxmann.com 43 (Del-Tri), Samsung Heavy Industries Private Limited v. DCIT (2017) 84 Taxmann.com 154 (Del-Tri) and Equant Solutions India Private Limited v. DCIT (2016) 66 Taxmann.com 192 (Delhi-Tribunal). 24. All of these decisions pertained to AY 2010-2011. What weighed invariably is the fact that both companies had huge turnovers when compared to the tested entity. Both entities had close connection of the Tata Group of Companies and TCS EServe International had given a huge amount to TCS towards brand equity. Further there was no segmental bifurcation between the transaction processing and technical services. The assets employed by TCS E-Serve along with huge intangibles in the form of brand value were found to have a definite considerable effect on its PLI. These factors vitiated its comparability under the FAR analysis with the tested company, which could be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee that both entities have been leveraging TCSs scale and large client base to increase their business in a significant way. The submission that the two comparables offer an illustration of "an identical transaction being conducted in an uncontrolled manner" overlooks the effect of the Tata brand on the performance of the impugned comparables. The question was not merely whether the margins earned by the Tata group in providing captive service to the Citi entities were at arm's length. The question was whether they offered a reliable basis to re-calibrate the PLI of the Assessee whose scale of operations was of a much lower order than the two impugned comparables. The mere fact that the transactions were identical was not, in terms of the law explained in the above decisions, either a sole or a reliable yardstick to determine the apposite choice of comparables. 29. For all of the aforementioned reasons, the Court finds merit in the contention of the Assessee that both the impugned comparables viz., TCS EServe Limited and TCS E-Serve International Limited ought to be excluded from the list of comparables for the purposes of determining the ALP of the international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Bombay High Court. 22. Thus, given the fact that the receivables per se do not fall within the ambit of the definition of "international transaction", the Appellant contends that there is no need to impute an interest on the overdue receivables and thus the entire adjustment has to be nullified. 23. In the current context, the Hon'ble Hyderabad ITAT in the case of Pegasystems Worldwide India Pvt. Ltd vs ACIT, [ITA No. 1758/Hyd/2014] has considered the use of the rule of the ejusdem generis in the context as to whether deferred receivables constitute an international transaction, considering the amended definition of the international transaction as laid down under the Finance Act 2012 and held that "deferred receivables" would not constitute an international transaction. 24. It was submitted that debit balance relates to the occurrence of a principal transaction. It is not an independent transaction in the sense that they are not undertaken on a standalone basis unlike a loan or advance. 25. In view of the aforesaid, it was respectfully submitted that, even if the Appellant has received receivables from its associated enterprise with time lag, no interest can be charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air treating the international transaction relating to provision of services as loan transaction. Accordingly, computation of interest on the said transaction may not be appropriate. 14. Further he brought or our notice Ground No.5 of the grounds to submit that assessee is a debt free entity, therefore, no addition can be made relating to interest on outstanding receivables. 15. On the other hand, ld. DR of the Revenue relied on the orders of the authorities below. 16. Considered the rival submissions and material available on record. We observed that it is a fact on record that there is outstanding balance declared in financial statements due from its AEs. We cannot agree with the argument to the ld. AR that it is not an international transaction. However, as per the amended provisions of section 92B, it falls within the ambit of international transaction. However, each transaction has to be considered based on the relevant facts on record. We observed that ld. AR submitted that the assessee is a debt free entity, therefore, no adjustment can be made in its case. However, assessee has not filed any Balance Sheet or any financial statement to support its contention. However, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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