Infor (India) Private Limited , Hyderabad V. Asst. Commissioner of Income Tax, Circle-2(1), Hyderabad

ITA 1689/Hyd/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4640 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 10-09-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 19-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SRINIVAS REDDY
• Keywords: Related party transaction; Transfer pricing; Principle of natural justice; International transaction; Application of stay; Bad and doubtful debts; Royalty expenses; Set aside
• Section: 143(3); 92B; 201; 144C; 13; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES , HYDERABAD (T HROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) . , . . , BEFORE SMT. P. MADHAVI DEVI, HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HONBLE ACCOUNTANT MEMBER ./ I . T . A . NO. 1689 / H YD / 2019 ( / ASST. YEAR: 20 1 5 - 1 6 ) M/S. INFOR (INDIA) PVT. LTD., 4 TH FLOOR, BLOCK - B, Q - CITY, SURVEY NO. 109, 110, 111/2, NANAKRAMGUDA (VS.), SERILINGAMPALLY (M), R.R. DISTRICT, HYDERABAD VS. AC IT, CIRCLE - 2( 1 ) , HYDERABAD . [ PAN : AAACB 6197 Q ] ( / APPELLANT ( / RESPONDENT STAY APPLICATION NO.98/HYD/2020 (ARSING OUT OF I.T.A. NO.1689/HYD/2019) ( / ASST. YEAR: 2015 - 16) M/S. INFOR (INDIA) PVT. LTD., 4 TH FLOOR, BLOCK - B, Q - CITY, SURVEY NO. 109, 110, 111/2, NANAKRAMGUDA (VS.), SERILINGAMPALLY (M), R.R. DISTRICT, HYDERABAD ACIT, CIRCLE - 2(1), HYDERABAD. ( / APPELLANT ( / RESPONDENT / APPELLANT BY : SHRI SUNIL M. LALA, AR. / RESPONDENT BY : SHRI SRINIVAS REDDY, DR / DATE OF HEARING : 10.09.2020 / DATE OF P RONOUNCEMENT : 19 .10. 20 20 2 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF DEPUTY COMMISSIONER OF INCOME TAX , HYDERABAD , DATED 31 . 1 0 . 201 8 PASS ED U/S 1 4 3(3) R.W.S 144C OF THE I NCOME T AX A CT FOR THE ASSESSMENT YEAR 20 1 5 - 1 6 AND STAY APPLICATION IS FILED BY THE ASSESSEE. SINCE THE MAIN APPEAL IS TAKEN UP FOR HEARING, THE STAY APPLICATION FILED BY THE ASSESSEE IS DISMISSED IN LIMINE. THE ASSESSEE FILED APPEAL RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE L D . TRANSFER PRICING OFFICER I.E THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE - 2(1), HYDERABAD (HEREINAFTER REFERRED TO AS THE LD. TPO') AND THE L D. AO UNDER THE DIRECTIONS ISSUED BY H ON'BLE D R P , ERRED IN MAKING AN ADDITION TO THE APPELLANT'S TOTAL INCOME OF IN R 4,60,53,538 (BASED ON THE PROVISIONS OF CHAPTER X OF THE INCOME - T AX ACT, ('THE ACT') AND THE SAID ADDITIONS BE ING WHOLLY UNJUSTIFIED ARE LIABLE TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE L D. TPO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING/ CONFIRMING THE ACTION OF THE LD. TPO IN INCORRECTLY INCLUDING / SELECTING THE FOLLOWING COMPANIES AS COMPARABLES, WITHOUT APPRECIATING THAT THE SAID COMPANIES WERE FUNCTIONALLY DISSIMILAR TO THE APPELLANT, WHICH OUGHT TO HAVE BEEN EXCLUDED FOR THE FOLLOWING REASONS WHICH ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER I.E. THE SAID COMPANIES WERE ENGAGED IN PRODUCT DEVELOPMENT, DO NOT HAVE REQUIRED SEGMENTAL INFORMATION, HAVE HUGE TURNOVER, PRESENCE OF BRAND AND INTANGIBLES, HAVE INCURRED HUGE R & D EXPENDITURE, HAVE SIGNIFICANT ONSITE EXPENSES, HOLD SIGNIFICANT INVENTORY, HAVE ABNORMAL PROFITS, HAVE INSUFFICIENT INFORMATION IN PUBLIC DOMAIN, HAVE SIGNIFICANT RELATED PARTY TRANSACTIONS, PECULIAR ECO NOMIC CIRCU M STANCES, AND EARN FLUCTUATING MARGINS: I) I NFOSYS LIMITED II) LARSEN & TOUBRO INFOTECH LIMITED III) MINDTREE LIMITED IV) TATA ELXSI LIMITED (SEG) 3 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD V) PERSISTENT SYSTEMS LIMITED VI) THIRDWARE SOLUTION LIMITED VII) CYBAGE SOFTWARE PRIVATE LIMITED VIII) ASPIRE SYSTEMS (INDIA) PRIVATE LIMITED IX) NIHILENT TECHNOLOGIES LIMITED X) INTEQ SOFTWARE PRIVATE LIMITED XI) RHEAL SOFTWARE PRIVATE LIMITED XII) R.S.SOFTWARE (INDIA) LIMITED XIII) INFOBEANS TECHNOLOGIES LIMITED 3. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TP 0 IN INCORRECTLY REJECTING THE FOLLOWING COMPANIES WHICH OUGHT TO HAVE BEEN INCLUDED AS THEY ARE ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AS COMPARABLES, WITHOUT APPRECIATING THAT THE SAID COMPANIES FULFILLED A LL THE FILTERS AND WERE FUNCTIONALLY COMPARABL E TO THE APPELLANT: I) EVOKE TECHNOLOGIES PRIVATE LIMITED II) INFOMILE TECHNOLOGIES LIMITED III) 12T2 INDIA LIMITED IV) KIREETI SOFT TECHNOLOGIES LIMITED V) SUGARSOFT INDIA LIMITED VI) AKSHAY OFTWARE TECHNOLOGIES LIMITED VII) HARBINGER SYSTEMS PRIVATE LI MITED 4. WITHOUT PREJUDICE TO THE ABOVE GROUNDS ON REJECTION OF FUNCTIONALLY DISSIMILAR COMPARABLE COMPANIES, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO ERRED BY INCORRECTLY COMPUTING THE MARGIN OF THE FOLLOWING COMPARABLE CO MPANIES I.E. (I) NIHILENT TECHNOLOGIES LIMITED, (II) THIRDWARE SOLUTION LIMITED III) SASKEN COMMUNICATION TECHNOLOGIES LTD. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD TPO ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD TPO IN REJECTING THE TRANSFER PRICING ANALYSIS / STUDY PREPARED BY THE APPELLANT FOR THE SOFTWARE DEVELOPMENT SEGMENT, WITHOUT APPRECIATING THAT NONE OF THE CONDITIONS MENTIONED IN CLAUSES (A) TO (D) OF SECTION 92C(3) OF THE ACT WERE SATISFIED. THE LD. TPO FURTHER ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTIO N OF THE LD. TPO IN APPLYING INAPPROPRIATE FILTERS AND CONDUCTING A FRESH BENCHMARKING WHICH WAS ERRONEOUS AND LIABLE TO BE REJECTED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD TPO ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD TPO IN NOT ALLOWING RISK ADJUSTMENT IN ACCORDAN CE WITH THE PROVISIONS OF RULE 10 B OF THE INCOME - TAX RULES, 1962 TO ACCOUNT FOR DIFFERENCES BETWEEN THE 4 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT, BEING A CAPTIVE UNIT, AND THOSE UNDERTAKEN BY THE COMPARA BLES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD TPO ERRED IN AND TH E HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE L D. TPO IN CO NSIDERING BAD DEBTS, PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR WARRANTY AS NON OPERATING EXPENDITURE WHILE COMPUTING THE PLI OF THE COMPARABLE S. 8. ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE L D TPO ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LEARNED TPO IN NOT ALLOWING WORKING CAPITAL ADJUSTMENT IN ACCORDANCE WITH THE PROVISIONS O F RULE 10 B OF THE INCOME - TAX RULES. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD TPO ERRED IN AND THE HON'BLE DRP F U RTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD TPO IN: (I) CONSIDERING THE RECEIVABLES FROM ASSOCIA TED ENTERPRISE (AE) AS A SEPARATE INTERNATIONAL TRANSACTION, (II) MAKING AN ADJUSTMENT WITH RESPECT TO INTEREST ON THE RECEIVABLES FROM AE. 10. WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD TPO ERRED IN AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD TPO WITHOUT APPRECIATING THE FACT THAT ONCE THE WORKING CAPITAL ADJUSTMENT IS GRANTED, NO FURTHER ADJUSTMENT ON ACCOUNT OF INTEREST ON DELAYED TRADE RECEIVABLES IS WARRANTED 11. WITHOUT PREJUDICE TO WHAT HAS BEEN STATED ABOVE, THE LD. TPO ERRED IN NOT FOLLOWING HIS ORDER FOR AY 2012 - 13 AND THE DIRECTIONS OF HON'BLE DRP FOR AY 20 11 - 12 IN THE APPELLANT'S OWN CASE, WHEREIN THE HON'BLE D R P OPINED THAT ONCE RECEIVABLES AND PAYABLES ARE CONSIDERED IN COMPUTING THE WORKING CAPITAL ADJUSTMENT A FURTHER SEPARATE ADJUSTMENT IN THE NATURE OF INTEREST ON RECEIVABLES IS NOT WARRANTED. 12. WITHOUT PREJUDICE TO WHAT HAD BEEN STATED ABOVE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD TPO ERRED IN AND THE HON'BLE DRP FUR THER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD TPO IN CONSIDERING THE STATE BANK OF INDIA'S ('SBI') SHORT TERM DEPOSIT RATES AS THE COMPARABLE UNCONTROLLED PRICE (CUP) TO BENCHMARK THE IMPUGNED INTEREST ON DELAY IN RECEIPT OF OUTSTANDING RECEIVABLES INSTEAD OF LIBOR RATE. 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO / LD.TPO AND THE HONBLE DRP ERRED IN PASSING IMPUGNED ORDERS WITHOUT PROVIDING THE APPELLANT WITH SUFFICIENT AND ADEQUATE OPPORTUNITY AND IN BREACH OF THE PRINCIPLES OF NATURAL JUSTICE AND IN ARRIVING AT CONCLUSIONS THEREIN BASED ON INCORRECT FACTUAL AV ERMENTS / ALLEGATIONS / LEGAL INFERENCES WITHOUT CONSIDERING 5 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD / APPRECIATING THE FACTS OF THE CASE AND, THE SUBMISSIONS MADE BY THE APPELLANT AND THEREFORE, THE SAID IMPUGNED ORDERS, BEING BAD IN LAW ARE LIABLE TO BE QUASHED OR ALTERNATIVELY SET ASIDE . THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE AND OR AMEND THE ABOVE GROUNDS OF APPEAL (WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER) AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL SO AS TO ENABLE THE HONORABLE MEMBERS TO DECIDE TH IS APPEAL ACCORDING TO LAW. 3. GROUND NO.1 , 5 AND 13 ARE GENERAL IN NATURE, HENCE NO SEPARATE ADJUDICATION IS CONSIDERED NECESSARY. 4. GROUND NO. 6, 7 AND 8 ARE NOT PRESSED BY THE LD.A.R DURING THE APPEAL HEARING AND HENCE GROUND NO.6,7 AND 8 ARE DISMISSED AS NOT PRESSED. 5 . BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF SALE OF USER LICENSE OF ENTERPRISE APPLICATION SOFTWARE, SOFTWARE DEVELOPMENT AND RENDERING SOFTWARE RELATED SERVICES TO THE GROUP COMPANIES AND EXTERNAL PARTIES . FOR THE A.Y. 2015 - 16 , THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME ON 27. 11 . 2015 ADMITTING TOTAL INCOME OF RS. 8,6 3,65,260/ - . THE CASE WAS SELECTED FOR SCRUTINY AND FROM THE AUDIT REPORT IN FORM 3CEB , THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRAN SACTIONS WITH THE ASSOCIATED ENTERPRISES (AE) TO THE EXTENT OF RS. 267,28,58,059/ - , HENCE, REFERRED THE ISSUE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE(ALP) OF THE INTERNATIONAL TRANSACTIONS. THE TPO PROPOSED FOR ADJUSTME NT OF 6 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD RS. 9,82,73,154/ - IN RESPECT OF THE FOLLOWING SEGMENTS OF THE ASSESSEE - COMPANY: - S.NO. DESCRIPTION AMOUNT (INR) 1 PROVISION OF SDS 4,82,45,245 2 PROVISION OF ITES 3,17,70,722 3 SOFTWARE DIST RIBUTION AND RELATED SERVICES NIL 4 INTEREST ON RECEIVABLES 1,82,57,187 TOTAL 9,82,73,154 5 .1 . THE AO ISSUED DRAFT ASSESSMENT ORDER ON WHICH THE ASSESSEE FILED A PETITION U/SEC. 14 4C OF THE A CT , BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AND THE DRP HA D PASSED THE ORDER U/SEC. 144C(5) ON 16 . 08 . 2019. SUBSEQUENTLY, THE AO PASSED THE ASSESSMENT ORDER U/SEC. 143(3) R.W.S. 144C ON 26 . 09 . 2019 AND MADE THE ADJUSTMENT OF RS. 4,60,53,538/ - RELATING TO SOFTW ARE DEVELOPMENT AND INTEREST ON RECEIVABLES . ON WHICH THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL . 5 .2 . T HE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE AS UNDER: - NATURE OF TRANSACTION AMOUNT (RS.) SOFTWARE DISTRIBUTION AND RELATED SERVICES (PRODUCT SUPPLY FEE, ONE POINT SUPPORT, PSO RECHARGES, ROYALTY EXPENSES, CUSTOMER SUPPORT, MANAGEMENT FEE AND ANNUAL MAINTENANCE FEE) 30,04,53,550 SOFTWARE DEVELOPMENT SERVICES 46,69,84,481 RELATED IT SERVICES 87,99,18,654 SHARED SERVICES 29,77,48,104 REIMBURSEMENT OF EXPENSES 1,22,99,059 RECOVERY OF EXPENSES 23,14,792 7 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 5 . 3 . THE ASSESSEE CARRIED THE ECONOMIC ANALYSIS AND HAS SUMMARIZED THE INTERNATIONAL TRANSACTIONS AS UNDER: - NATURE OF INTERNATIONAL TRANSACTION AMOUNT (RS.) MAM PLI MARGIN OF TAXPAYER MARGIN OF COMPARABL ES SOFTWARE DISTRIBUTION AND RELATED SERVICES 30,04,53,550 RPM GPM 50.70% 6.94% SOFTWARE DEVELOPMENT SERVICES 46,69,84,481 TNMM OP/OC 15.43% 10.70% RELATED IT SERVICES 87,99,18,654 TNMM OP/OC 15.32% 10.70% SHARE SERVICES ITES 29,77,48,104 TNMM OP/OC 11.32% 9.05% REIMBURSEMENT OF EXPENSES 1, 22,99,059 NA NA NA NA RECOVERY OF EXPENSES 23,14,792 NA NA NA NA 5 . 4 . NOW THE DISPUTE IS WITH REGARD TO ADJUSTMENTS ON ACCOUNT OF SOFTWARE DEVELOPMENT SERVICES (SDS) AND THE INTEREST ON RECEIVABLES . THE ASSESSEE HAS MADE THE TURNOVER OF RS. 46.69 CRORES IN SDS AND HELD THAT TNMM IS THE MOST APPROPRIATE METHOD AND ARRIVED AT THE MARGIN 15.43% I.E. OP/ OC AGAINST THE MARGIN OF COMPARABLES AT 10.70% , HENCE , HELD THAT THE ASSESSEES MARGIN IS AT ARMS LENGTH AND HAS PROPOSED NIL ADJUSTMENTS IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES (SDS) . THE TPO REJECTED THE TRANSFER PRICING STUDY IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES DUE TO DEFECTS IN FIL TERS AS DISCUSSED IN PARA 7.1.1 OF THE TPOS ORDER WHICH READS AS UNDER: 8 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 7.1.1. REJECTION OF TP STUDY IN THE CASE OF TAX PAYER, THE TPO IS MAINLY CONCERNED ABOUT WHETHER THE INFORMATION OR DATA USED IN THE COMPUTATION OF THE ARMS LENGTH PRICE IS RELIABLE AND CORRECT. IT IS CLEAR FROM THE PROVISIONS OF SEC.92C(3)(C) READ WIT H SEC.92CA THAT ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS IN THE POSSESSION OF TPO, IF HE IS OF THE OPINION THAT THE INFORMATION OR DATA USED IN COMPUTATION OF THE ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT, THE TPO MAY PROCEED TO DETERMINE T HE ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WITH SEC.92C(1) AND 92C(2) ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. THE SEARCH CRITERIA AND THE ACCEPTANCE / REJECTION MATRIX APPLIED B Y THE COMPANY FOR SCREENING THE INITIALLY IDENTIFIED CASES FOR ARRIVING AT A FINAL COMPARABLE SET ARE AS UNDER : S.NO. PARTICULARS REMARKS OF THE TPO 1. COMPANIES WITH NET SALES MORE THAN 1 CR. THIS IS AN APPROPRIATE FILTER 2. COMPANIES WITH MANUFACTURING INCOME PLUS TRADING INCOME LESS THAN 50% OF SALES A SUBJECTIVE FILTER. TO BE SEEN ON A CASE TO CASE BASIS. 3. COMPANIES WITH POSITIVE NET WORTH APPROPRIATE FILTER. 4. COMPANIES UNDERTAKING SIGNIFICANTLY DIFFERENT FUNCTIONS COMPARED TO THE TAXPAYER - EXCLUDED A SUBJECTIVE FILTER. TO BE SEEN ON A CASE TO CASE BASIS. 6. REJECTED COMPANIES REPORTING RELATED PARTY TRANSACTIONS LESS THAN 25% APPROPRIATE FILTER 5 . 5. THE TPO AFTER REJECTING TP STUDY OF THE TAX PAYER, HAS ADOPTED THE FOLLOWING FILTERS : - A) USE OF CURRENT YEAR DATA WHERE AVAILABLE. B) COMPANIES HAVING DIFFERENT FINANCIAL Y EAR ENDING (I.E. NOT MARCH 31, 2015) OR DATA OF THE COMPANY WHICH DOES NOT FALL 9 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD WITHIN 12 MONTH PERIOD I.E. 01 . 04 . 2014 TO 31.03.2015, W ERE REJECTED. C) COMPANIES WHOSE INCOME WAS LESS THAN RS. 1 CRORE, WERE EXCLUDED. D) COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE I NCOME IS LESS THAN 75% OF ITS TOTAL OPERATING REVENUES WERE EXCLUDED. E) COMPANIES WHO HAVE MORE THAN 25% RELATED PARTY TRANSACTIONS OF THE SALES WERE EXCLUDED. F) COMPANIES WHO HAVE EXPORT SERVICE INCOME LESS THAN 75% OF THE SALES WERE EXCLUDED. G) COMPANIES WITH EMPLOYEE COST LESS THAN 25% OF TURNOVER WERE EXCLUDED. 5. 6 . THE T P O REJECTED THE 11 COMPARABLES SELECTED BY THE TAXPAYER AND UNDERTAKEN FRESH SEARCH AND FINALLY SELECTED 16 COMPARABLES AS PER PAGE NO.40 OF THE TPOS ORDER AND ARRIVED AT MARGIN OF 20.5 5 % AT 3 5 TH PERCENTILE AND 37.90% AT 65 TH PERCENTILE AS UNDER: - S. NO. COMPANY NAME F INANCIAL YEAR WISE OP/OC (%) 2014 - 15 2013 - 14 2012 - 13 AVERAGE 1 KALS INFORMATION SYSTEMS LTD., 5.77 16.94 13.51 11.88 2 E - ZEST SOLUTIONS LTD., 12.59 15.80 - 14.05 3 CG - VAK SOFTWARE & EXPORTS LTD. 19.87 13.81 22.07 18.50 4 TATA ELXSI LTD., (SEG) 23.33 22.02 11.24 19.34 10 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 5 RHEAL SOFTWARE PVT. LTD. 2.76 36.64 - 19.88 6 MINDTREE LTD., 20.55 21.18 19.75 20.55 7 LARSEN & TOUBRO INFOTECH LTD. 24.22 23.54 25.10 24.21 8 R.S. SOFTWARE (INDIA LTD.,) 32.66 24.14 17.44 24.82 9 INFOBEANS TE CHNOLOGIES 20.70 41.95 29.22 29.91 10 PERSISTENT SYSTEMS LTD., 31.11 35.44 28.20 31.69 11 NIHILENT TECHNOLOGIES LTD., 29.19 35.72 - 32.21 12 ASPIRE SYSTEMS (INDIA) PVT. LTD., 30.98 38.04 - 34.18 13 INTEQ SOFTWARE PVT. LTD., 31.16 45.00 - 37.90 14 INFOSYS LTD., 40.29 36.28 29.25 38.59 15 THIRDWARE SOLUTIONS LTD., 43.69 44.68 32.65 41.12 16 CYBAGE SOFT WARE PVT. LTD., 68.17 68.82 60.81 66.27 35 TH PERCENTILE 20.55% MEDIAN 27.37% 65 TH PERCENTILE 37.90% 5.7 . THE TPO COMPUTED THE ALP ADOPTING THE MEDIAN MARGIN OF 27.37% AS UNDER: SOFTWARE DEVELOPMENT SEGMENT PARTICULARS FORMULA AMOUNT (IN RS.) TAXPAYERS OPERATING REVENUE OR 46,44,04,588 TAXPAYERS OPERATING COST OC 40,42,15,932 TAXPAYERS OPERATING PROFIT OP 6,23,88,656 TAXPAYERS PLI PLI = OP/OC 15.43% 35 TH PERCENTILE MARGIN OF COMPARABLE SET 20.55% ADJUSTMENT REQUIRED (IF PLI < 35 TH PERCENTILE YES MEDIAN MARGIN OF COMPARABLE SET M 27.37% ARMS LENGTH PRICE ALP =(I+M)*OC 51,48,49,833 PRICE RECEIVED OR 46,66,04,588 SHORTFALL BEING ADJUSTMENT ALP OR 4,82,45,245 11 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD ACCORDINGLY THE TPO SUGGESTED FOR ADJUSTMENT OF RS.4,82,45,245/ - ON ACCOUNT OF SHORTFALL. 5.8. THE LD.DRP ALLOWED PART RELIEF AND CONSEQUENTLY ADJUSTMENT OF RS.3,54,72,020/ - WAS MADE IN THE FINAL ASSESSMENT ORDE R PASSED U/S 143(3) R.W.S. 144C IN RESPECT OF SDS. 6 . GROUND NO.2 IS RELATED TO EXCLUSION OF COMPARABLE COMPANIES FROM FINAL LIST OF COMPARABLES SELECTED BY THE TP O/AO. T HE ASSESSEE HAS REQUESTED FOR EXCLUSION OF 13 COMPANIES FROM THE FINAL LIST OF COMPARABLES, HOWEVER DURING THE APPEAL HEARING, LD.AR HAS NOT PRESSED THE COMPARABLES LISTED IN SERIAL NOS. ( V III) TO (XIII) AS UNDER : V III ) ASPIRE SYSTEMS (INDIA) PVT. LTD., I X ) NIHILENT TECNOLOGIES LTD., X ) INTEQ SOFTWARE PVT. LTD. XI ) RHEAL SOFTWARE PVT. LTD., XII ) R.S. SOFTWARE (INDIA) LTD., AND XIII ) INFOBEANS TECHNOLOGIES LTD., T HEREFORE THE ASSESSEES APPEAL FOR EXCLUSION OF SIX COMPARABLES LISTED ABOVE FROM THE FINAL LIST OF COMPARABLES IS DISMISSED AS NOT PRESSED. 12 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 6 . 1 . IN RESPECT OF THE REMAINING COMPARABLES IN GROUND NO.2 , I.E. INFOSYS LTD., LARSEN & TOUBRO INFOTECH LTD., MINDTREE LTD., TATA ELXSI LTD. (SEG), PERSISTENT SYSTEMS LTD., THIRDWARE SOLUTION LTD., THE L D.AR ARGUED THAT EXCLUSION OF THE ABOVE COMPANIES ARE COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CAS E AND OTHER CASES DECIDED BY THE ITAT, HYDERABAD F OR THE A.Y S . 2013 - 14 & 2014 - 15 ON IDENTICAL FACTS . T HEREFORE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. T HE COMPARABL E COMPANIES COVERED FOR EXCLUSION BY THE ORDER OF THIS TRIBUNAL ARE DISCUSSED AS UNDER : 1) INFOSYS LTD. 2) LARSEN & TOUBRO INFOTECH LTD. 3) MINDTREE LTD., TATA ELXSI LTD. (SEG) 4) PERSISTENT SYSTEMS LTD. AND 5) THIRDWARE SOLUTION LTD. 6 . 2 . IN RESPECT OF INFOSYS LTD. , LARSEN & TOUBRO INFOTECH LTD. AND MINDTREE LTD., THIS TRIBUNAL HAS CONSIDERED THE ISSUE IN ASSESSEES OWN CASE FOR THE A.Y.2013 - 14 TO 2014 - 15 AND EXCLUDED THE COMPARABLES WITH A FINDING THAT THESE COMPANIES ARE GIANT COMPANIES I N THE AREA OF DE VELOPMENT OF SOFTWARE . FOR THE SAKE OF CLARITY AND CONVENIENCE , WE EXTRACT PARAS 7.3 TO 13 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 7.6 IN ASSESSEES OWN CASE FOR THE A.Y S . 2013 - 14 & 2014 - 15 IN ITA NOS. 161 & 2307/HYD /2018 DATED 06/08/2019 WHICH READS AS UNDER: - 7 . 4 AS REGARDS EXCLUSION OF INFOSYS LTD, LARSEN & TOUBRO INFOTECH LTD AND MINDTRE E LTD, THE COMMON GROUND OF THE ASSESSEE IS THAT THEY HAVE HUGE TURNOVER OF RS.42,531 CRORES, RS.4,648.38 CRORES AND RS.3,031.6 CRORES RESPECTIVELY AS AGAINST THE ASSESSEES TURNOVER OF RS.116.00 CRORES ONLY. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO ARGU ED THAT THEY ARE FUNCTIONALLY DISSIMILAR AND OWN INTANGIBLES ETC. 7 . 5. THE LEARNED DR ARGUED THAT UNLESS THE ASSESSEE DEMONSTRATES AS TO HOW THE HUGE TURNOVER IMPACTS THE MARGIN OF THE SAID COMPANIES, THEY SHOULD NOT BE EXCLUDED FROM THE FINAL LIST OF CO MPARABLES. 7 . 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES (P) LTD(2013) 36 TAXMANN.COM 289 (DELHI H.C) HAS HELD INFOSYS LTD AS NOT COMPARAB LE AS IT IS A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE. THE SAME RATIO APPLIED TO BOTH L&T AND MINDTREE AS WELL. THUS, WE DIRECT EXCLUSION OF ALL THESE THREE COMPANIES ON ACCOUNT OF HUGE TURNOVER. 6 . 2 . 1. BOTH THE L D.AR AND THE L D.DR HAVE AGREED THAT THERE IS NO CHANGE IN THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION . THE ASSESSEES TURNOVER WAS RS. 46.69 CRORES WHEREAS THE TURNOVER IN THE ABOVE COMPANIES IS HUGE AND UNCOMPARABLE. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE (SUPRA), WE HOLD THAT THE ABOVE COMPANIES ARE NOT COMPARABLES AND DIRECT THE TPO /AO TO DELETE THE ABOVE COMPANIES FROM THE LIST OF FINAL C OMPARABLES. 14 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 6 . 3 . WITH REGARD TO TATA ELXSI LTD., THIRDWARE SOLUTIONS LTD. AND PERSISTENT SYSTEMS LTD. , ARE CONCERNED FOR THE A.YS. 2013 - 14 & 2014 - 15 , THIS TRIBUNAL DIRECTED THE TPO (AO) TO EXCLUDE THE 03 COMPANIES FROM THE LIST OF FINAL LIST COMPARABLES FOR NON - AVAILABILITY OF SEGMENTAL DETAILS. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT PARA NOS. 7 . 7 & 7 . 8 WHICH READS AS UNDER: - 7 . 7. AS REGARDS TATA ELXSI LTD, THIRDWARE SOLUTIONS LTD AND PERSISTENT SYSTEMS LTD ARE CONCERNED, WE FIND THAT THEIR COMPARABILITY TO THE ASSESSEE HAS BEEN CONSIDERED IN THE ASSESSEES OWN CASE FOR THE A.Y 2007 - 08 AND IT IS SUBMITTED THAT THERE IS NO CHANGE OF ACTIVITIES OF EITHER THE ASSESSEE OR THE COMPARABLES DURING THE RELEVANT A.Y BEFORE US I.E. A.Y 2014 - 15. 7 . 8. THE LEARNED DR HAS NOT REBUTTED THIS CONTENTION OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AT MUMBA I IN ITA NO.520/MUM/2012 DATED 4.12.2018, IN THE CASE OF INFOR GLOBAL SOLUTIONS INDIA (P.) LTD. V.DEPUTY COMMISSIONER OF INCOME TAX, WE DIRECT THE EXCLUSION OF THESE THREE COMPANIES FROM THE FINAL LIST OF COMPARABLES. FOR THE SAKE OF READY REFERENCE, THE R ELEVANT PARAS ARE REPRODUCED HEREUNDER: 29 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THE PRIMARY AND FUNDAMENTAL REASON ON THE BASIS OF WHICH ASSESSEE SEEKS REJECTION OF THE AFORESAID COMPARABLE IS, IT IS ALSO ENGAGED IN THE D EVELOPMENT OF PRODUCT AND SEGMENTAL DETAILS ARE NOT AVAILABLE. NOTABLY, IN CASE OF LSI TECHNOLOGIES INDIA (P.) LTD. (SUPRA), THE CO - ORDINATE BENCH WHILE EXAMINING THE COMPARABILITY OF THE AFORESAID COMPANY TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, HAS R EJECTED THIS COMPANY AS A COMPARABLE CONSIDERING THE FACT THAT IT IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES. THE SAME VIEW HAS BEEN REITERATED BY THE TRIBUNAL IN THE OTHER DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE. SINCE , MANY OF THESE DECISIONS PERTAIN TO THE IMPUGNED ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 35 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. ON A PERUSAL OF THE DOCUMENTS PLACED IN THE PAPER BOOK IT APPEARS THAT THIS COMPANY IS ENGAGED IN VARIOUS ACTIVITIES INCLUDING DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES. TH US, THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. CONSIDERING THE AFORESAID ASPECT, THE CO - ORDINATE BENCH IN CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LTD. (SUPRA), WHICH IS FOR THE VERY SAME ASSESSMENT YEAR, HAS EXCLUDED THIS COMPANY AS A 15 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD COMPA RABLE. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN THE OTHER DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE. THUS, KEEPING IN VIEW THE DECISIONS OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE. 38 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THOUGH, IT MAY BE A FACT THAT THE ASSESSEE MAY NOT HAVE OBJECTED TO SELECTION OF THIS COMPANY BEFORE THE TRANSFER PRICING OFFICER, HOWEVER, THE ASSESSEE RAISED OBJECTIONS AGAINST SEL ECTION OF THIS COMPANY BEFORE THE DRP AS WELL AS BEFORE US. THE GRIEVANCE OF THE ASSESSEE IS, THE COMPANY BEING INVOLVED IN DEVELOPMENT OF PRODUCTS AND SINCE NO SEGMENTAL DETAILS ARE AVAILABLE IN THE ANNUAL REPORT, IT CANNOT BE TREATED AS COMPARABLE. TH E CO - ORDINATE BENCH IN TECH MAHINDRA LTD. (SUPRA) HAVING FOUND THIS COMPANY TO BE INVOLVED IN DEVELOPMENT OF SOFTWARE PRODUCT AND TRADING IN SOFTWARE LICENSES HAS HELD THAT IT CANNOT BE A COMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER. SIMILAR VIEW HAS BEEN EXPRESSED IN THE OTHER DECISIONS CITED BEFORE US BY THE LEARNED AUTHORISED REPRESENTATIVE. SINCE, MANY OF THESE DECISIONS RELATE TO VERY SAME ASSESSMENT YEAR, FOLLOWING THE RATIO LAID DOWN IN THESE DECISIONS, WE HOLD THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE. 6 . 3 .1 . I N RESPECT OF THIRDWARE SOLUTIONS LTD. , THE ASSESSEE ALSO RELIED ON THE DECISION OF THE ITAT, PUNE BENCH IN THE CASE OF APOORVA SYSTEMS PVT. LTD., VS. DCIT , CIRCLE - 1(1), PUNE TS 40 ITAT 2017 (PUNE) WHEREIN THE COORDINATE BENCH OF THE TRIBUNAL HELD THAT THE COMPANIES ARE FUNCTIONALLY DIFFERENT HENCE IT IS TO BE E XCLUDED FROM THE LIST OF FINAL COMPANIES . 6 . 3.2. BOTH THE L D.AR AND L D.DR SUBMITTED THAT THERE IS NO CHANGE IN THE FACTS EITHER IN THE CASE OF ASSESSEES COMPAN Y OR IN THE CASE OF COMPARABLES . N O MAJOR CHANGES IN THE ACTIVITIES OF THE COMPARABLES OF THE ASSESSEES HAVE BEEN BROUGHT TO OUR NOTICE . T HEREFORE , RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COO RDINATE BENCH OF THE TRIBUNAL IN THE EARLIER YEAR S , WE DIRECT THE 16 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD TPO (AO) TO EXCLUDE THE TATA ELXSI LTD., THIRDWARE SOLUTIONS LTD. AND PERSISTENT SYSTEMS LTD. FROM THE FINAL LIST OF THE COMPARABLES. 6 . 4 . LD.AR REQUESTED FOR EXCLUSION OF CYBAGE SOFTWARE PVT. LTD. FROM THE FINAL LIST OF COMPARABLES AND ARGUED THAT THOUGH CYBAGE SOFTWARE PVT. LTD. IS COMPARABLE FUNCTIONALLY , THE PROFIT MARGIN IS VERY H IGH AS MUCH AS 60.81 TO 68.17% WHICH IS NOT POSSIBLE IN NORMAL CONDITIONS. LD.AR SUBMITTED THAT THE ASSESSEE COMPANY S MARGIN IS 15.32% AGAINST THE AVERAGE MARGIN OF COMPARABLES SELECTED BY THE ASSESSEE AT 10.70% . THEREFORE, REQUESTED TO EXCLUDE THE CYBAG E SOFTWARE PVT. LTD. FROM THE FINA L LIST OF COMPARABLES . THE L D.AR ARGUED THAT THE AVERAGE MARGIN OF OTHER COMPANIES IS RANGING FROM 11.88% - 41.12% AS EVIDENCED FROM THE FINAL LIST OF COMPARABLES SELECTED BY TPO AND AVERAGE OF CYBAGE SOFTWARE PVT. LTD. WORKED OUT TO 66 .27 % WHICH IS MORE THAN 1/3 RD AVERAGE OF THE REST OF THE COMPANIES. THEREFORE, ARGUED THAT CYBAGE SOFTWARE PVT. LTD. IS NOT A COMPARABLE IN VIEW OF HIGHEST MARGIN S . THE ASSESSEE ALSO OBJECTED BEFORE THE AO FOR TA KING CYBAGE SOFTWARE PVT. LTD. AS COMPARABLE STATING THAT IT IS FUNCTIONALLY DISSIMILAR AND DIVERSI FIED ACTIVITIES ENGAGED IN PRODUCT DEVELOPMENT AND INSUFFICIENT INFORMATION AVAILABLE IN THE PUBLIC DOMAIN. BOTH THE LD.TPO AND THE LD.DRP REJECTED THE CONTENTIONS OF THE ASSESSEE. THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 17 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 6.4.1 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND OBSERVE THAT CYBAGE SOFTWARE PVT. LTD. , THOUGH COMPARABLE COMPANY, THE MARGIN DECLARED BY THE CYBAGE SOF TWARE PVT. LTD. IS ABNORMALLY HIGH WHICH IS AS MUCH AS 68.17% IN THE YEAR UNDER CONSIDERATION AND AVERAGE MARGIN IS AT 66.27%. THE L D. TPO HAS EXCLUDED THE LOSS COMPANIES AND ALSO THE COMPANIES WHICH ARE WITH LOWEST MARGIN S AS ARGUED BY THE LD.AR AND WHICH WAS NOT DISPUTED BY THE DEPARTMENT. F OLLOWING THE SAME ANALOGY CYBAGE SOFTWARE PVT. LTD. REQUIRED TO BE EXCLUDED. THE TPO OR DRP HA S NOT GONE INTO THE REASONS FOR SUCH HUGE MARGIN S . W ITHOUT HAVING COMPLETE INFORMATION W E ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD. TPO AND DRP TO INCLUDE CYBAGE SOFTWARE PVT. LTD. AS COMPARABLE, THEREFORE WE DIRECT THE TPO / AO TO EXCLUDE CYBAGE SOFTWARE PVT. LTD. FROM THE FINAL LIST OF COMPARABLES. 7 . IN GROUND NO.3 , THE ASSESSEE HAS REQUESTED FOR INCLUSION OF THE FOLLOWING COMPANIES AS COMPARABLES. I) EVOKE TECHNOLOGIES PVT. LTD., II) INFOMILE TECHNOLOGIES LTD., III) I2T2 INDIA LTD., IV) KIREETI SOFT TECHNOLOGIES LTD., V) SAGARSOFT INDIA LTD., VI) AKSHAY SOFTWARE TECHNOLOGIES LTD., VII) HARBINGER SYSTEMS PVT. LTD. 18 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 7.1. THE LD. AR R EQUESTED FOR INCLUSION OF THE ABOVE COMPANIES WHO FULFILL ALL THE FILTERS AND WERE FUNCTIONAL LY SIMILAR TO TH AT OF THE ASSESSEE - COMPAN Y . D URING THE APPEAL HEARING , L D.AR DID NOT PRESS FOR INCLUSION OF AKSHAY SOFTWARE TECHNOLOGIES LTD. AND HARBINGER SYSTEMS PVT. LTD., THE REFORE THE ASSESSEES GROUND FOR INCLUSION OF COMPARABLES IN RESPECT OF AKSHAY SOFTWARE TECHNOLOGIES LTD. AND HARBINGER SYSTEMS PVT. LTD. IS DISMISSED AS NOT PRESSED . 7 . 2 . IN RESPECT OF EVOKE TECHNOLOGIES PVT. LTD. , KIREETI SOFT TECHNOLOGIES LTD. , INFOMILE TECHNOLOGIES LTD. 12T2 INDIA LTD., L D.AR DID NOT MAKE ANY ARGUMENT FOR INCLUSION OF COMPANIES, THEREFORE ASSESSEES GROUND FOR INCLUSION OF THE SAID COMPANIES AS COMPARABLES IS DISMISSED AS N OT PRESSED. 7 . 3 . THE ASSESSEE VEHEMENTLY ARGUED FOR INCLUSION OF SAGARSOFT INDIA LTD. AS COMPARABLE IN THE FINAL LIST OF COMPARABLES . H OWEVER, WE OBSERVE THAT SAGARSOFT INDIA LTD. IS PERSISTENT LOSS COMPANY AND THE DRP HAS REJECTED THE ASSESSEES REQUEST FOR INCLUSION OF THE SAID COMPANY FOR THE FOLLOWING REASONS : - 2.25.1 HAVING CONSIDERED THE SUBMISSIONS AND ON PERUSAL OF THE ANNUAL REPORT, WE NOTE THAT AS PER THE INFORMATION IN THE PROFIT & LOSS ACCOUNT , THE COMPANY HAS REVENUE FROM SOFTWARE DEVELOPMENT SERVICES. THE TPO REJECTED DUE TO PERSISTENT LOSSES . WE NOTE THAT THIS COM PANY HAS PERSISTENT LOSSES AT OPERATING LEVEL AS EVIDENT FROM THE ANNUAL REPORTS AND ALSO IN THE ASSESSEES SUBMISSIONS IN PAGE NO. 313 OF THE APPLICATION. CONSISTENTLY , WE 19 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD ARE UPHOLDING THE APPLICATION OF PERSISTENT LOSS FILTER AND ACCORDINGLY, WE UPHOLD THE ACTION OF THE TPO. 7 . 3 . 1. THE ASSESSEE HAS REQUESTED FOR EXCLUSION OF CYBAGE SOFTWARE PVT. LTD. SINCE , THE MARGIN OF CYBAGE SOFTWARE PVT. LTD. I S PERSISTENTLY ABNORMAL AND VERY HIGH WHICH IS CONSIDERED IN FAVOUR OF THE ASSESSEE IN THIS ORDER. F OLLOWING THE SAME REASON , SINCE , SAGARSOFT INDIA LTD , . IS PERSISTENT LOSS COMPANY, THE ASSESSEES REQUEST FOR INCLU SION OF SAGARSOFT INDIA LTD. AS COMPARABLE COMPANY DESERVES TO BE REJECTED. T HEREFORE, FOLLOWING THE REASON GIVEN IN THE CASE, CYBAGE SOFTWARE PVT. LTD., THE ASSESSEE S GROUND FOR INCLUSION OF SAGARSOFT INDIA LTD. BEING PERSISTENT LOSS COMPANY IS DISMISSED. 8 . GROUND NO.4 IS IN RESPECT OF INCORRECT COMPUTATION OF MARGIN S IN RESPECT OF NIHILENT TECHNOLOGIES LTD., THIRDWARE SOLUTION LTD. AND SASKEN COMMUNICATION TECHNOLOGIES LTD. 8 . 1. WE HAVE HEARD BOTH THE PARTIES . WE HAVE DIRECT ED THE AO TO DELETE THE THIRDWARE SOLUTION LTD. FROM THE FINAL LIST OF COMPARABLES IN GROUND NO 2 IN THIS ORDER , THEREFORE, NO SEPARATE ADJUDICATION IS NECESSARY IN RESPECT OF MARGIN OF THIRDWARE SOLUTION LTD. W ITH REGARD TO COMPUTING THE CORRECT MARGIN IN RESPECT OF NIHILENT TECHNOLOGIES LTD. AND SASKEN COMMUNICATION TECHNOLOGIES LTD. THE ISSUE 20 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD IS REMITTED BACK TO THE FILE OF THE TPO (AO) TO COMPUTE CORRECT MARGIN S OF COMPARABLE COMPANIES AFTER GIVING OPPORTUNITY TO THE ASSE SSEE. ACCORDINGLY, THE ISSUE IN RESPECT OF NIHILENT TECHNOLOGIES LTD. AND SASKEN COMMUNICATION TECHNOLOGIES LTD. IS REMITTED BACK TO THE FILE OF TPO (AO) FOR LIMITED PURPOSE OF COMPUTING THE CORRECT MARGINS AND THIS GROUND IS ALLOWED FOR STATISTICAL PURPOS E . 9 . GROUND NO S . 9 TO 12 ARE RELATED TO CHARGING OF INTEREST ON RECEIVABLES . THE AO /TPO/DRP MADE THE ADJUSTMENT OF RS.1,05,81,517/ - ON ACCOUNT OF INTEREST ON RECEIVA BLES. THE LD.AR DURING THE APPEAL HEARING ARGUED THAT SINCE , THE ASSESSEE HAS ADOPTED TNMM AS MOST APPROPRIATE METHOD , NO SEPARATE ADJUSTMENT IS REQUIRED IN RESPECT OF INTEREST ON RECEIVABLES . ACCORDING TO THE LD.AR, THE TNMM METHOD ITSELF TAKE S CARE OF ALL SUCH ADJUSTMENTS. WITHOUT PREJUDICE TO THE ARGUMENT OF NO SEPAR ATE INTEREST ADJUSTMENT IS REQUIRED IN THE CASE OF TNMM, T HE LD.A.R ARGUED THAT CREDIT PERIOD OF 150 DAYS NEED TO BE ALLOWED IN ASSESSEES CASE , SINCE , THE INDUSTRY AVE R AGE IS 150 DAYS AS AGAINST THE AVERAGE PERIOD ALLOWED BY THE AO FOR 3 0 DAYS. FURTHER, THE L D.AR ARGUED THAT THE AO/ TPO /DRP HAS TAKEN S BI DEPOSIT RATE FOR WORKING THE INTEREST ON RECEIVABLES . S INCE THE ACTIVITIES ARE EXPORT ACTIVIT IES , L D.AR REQUESTED FOR L IBOR RATE . 21 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 9 . 1. ON THE OTHER HAND, L D.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9.2. WE HAVE HEARD RIVAL CONTENTIONS AND FIND THAT THIS ISSUE CAME UP FOR ADJUDICATION IN THE ASSESSEES OWN CASE FOR THE A.Y S . 2013 - 14 & 2014 - 15 . A FTER THE AMENDMENT OF LAW INSERTING EXPLANATION TO SECTION 92B OF THE ACT, THE INTEREST ON TRADE RECEIVABLES ALSO BEC A ME AN INTERNATIONAL TRANSACTION AND THEREFORE , THE ALP ADJUSTMENT IS REQUIRED TO BE MADE IN RESPECT OF TRADE RECEIVABLES ALSO . ACCORDINGLY ITAT HAS DECIDED THE ISSUE AGAINST THE ASSESSEE IN THE EARLIER YEARS IN ASSESSEES OWN CASE FOR THE A.Y.2013 - 14 AND 2014 - 15 (SUPRA) . FOR THE SAKE OF CLARITY AND CONVENIENCE , WE EXTRACT THE RELEVANT PART OF THE ORDER OF TH IS TRIBUNAL IN PARA 86 & 87 WHICH READS AS UNDER: - 86. THE COMMON GROUNDS OF APPEAL FOR THE A.YS 2013 - 14 AND 2014 - 15 ARE AGAINST THE ALP ADJUSTMENT OF INTEREST ON TRADE RECEIVABLES. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE ASSESSEES OWN CASE FOR THE A.Y 2011 - 12, WE FIND THAT AFTER THE A MENDMENT TO SECTION 92B OF THE ACT, THE INTEREST ON TRADE RECEIVABLES HAS BECOME AN INTERNATIONAL TRANSACTION AND THEREFORE, THE ALP ADJUSTMENT IS REQUIRED TO BE MADE. THE ASSESSEES CONTENTION THAT IT HAS NOT PAID ANY INTEREST ON OUTSTANDING PAYABLES AND THEREFORE, THE INTEREST SHOULD NOT BE CHARGED ON THE TRADE RECEIVABLES IS NOT SUSTAINABLE FOR THESE A.YS. THE ARGUMENT THAT IT IS A DEBT FREE COMPANY AND THEREFORE, NO INTEREST IS ALSO TO BE CHARGED IS NOT ACCEPTABLE. 87. THE LEARNED COUNSEL FOR THE ASSES SEE HAS PLACED RELIANCE UPON VARIOUS CASE LAW. HOWEVER, WE FIND THAT THEY ARE RELATING TO THE A.YS PRIOR TO THE AMENDMENT OF SECTION 92B OF THE ACT. HOWEVER, THE INTEREST ON TRADE RECEIVABLES SHOULD BE CALCULATED AT THE INTEREST RATE APPLICABLE FOR THE REL EVANT PERIOD AS IS CHARGED BY SBI ON THE SHORT TERM DEPOSITS. THE AO HAS ALLOWED THE CREDIT PERIOD OF 60 TO 90 DAYS AS PER THE AGREEMENT FOR A.Y 2013 - 14 BUT FOR THE A.Y 2014 - 15 HE HAS ALLOWED ONLY 30 DAYS AS CREDIT PERIOD. THIS 22 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD ACTION OF THE AO CANNOT BE U PHELD. IF THERE IS A CLAUSE IN THE AGREEMENT ABOUT CREDIT PERIOD, THE INTEREST SHOULD BE CALCULATED ONLY ON THE PERIOD EXCEEDING SUCH CREDIT PERIOD IN THE AGREEMENT, BUT IF THERE IS NO CREDIT PERIOD SPECIFIED IN THE AGREEMENT, THEN THE CREDIT PERIOD OF 90 DAYS OR THE INDUSTRY AVERAGE CREDIT PERIOD SHOULD BE CONSIDERED WITH THE ASSESSEES OWN CREDIT PERIOD AND ANY DEVIATION ALONE SHOULD BE CONSIDERED FOR ALP ADJUSTMENT. THE AO/TPO IS DIRECTED ACCORDINGLY. THE ASSESSEES GROUNDS OF APPEAL FOR BOTH THE A.YS 2013 - 14 AND 2014 - 15 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES ACCORDINGLY. 9.2.1 . SINCE THERE ARE NO CHANGES IN THE FACTS, WE HOLD THAT THIS ISSUE SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL. ACCORDINGLY, WE DIRECT THE TPO (AO) TO ALLOW CREDIT PERIOD OF 90 DAYS OR THE INDUSTRY AVERAGE AND ONLY IN RESPECT OF THE DEVIATION , THE INTEREST TO BE CONS IDERED FOR ALP ADJUSTMENT. 9.2.2 . WITH REGARD TO INTEREST WHETHER TO BE CHARGED AS PER LIBOR OR SBI INTEREST RATE , THE ISSUE HAS ALREADY BEEN CONSIDERED BY TH E TRIBUNAL IN THE EARLIER YEAR AND HELD TH A T INTEREST TO BE CHARGED AS PER SBI SHORT TERM DEPOSIT RATES. SINCE THERE ARE NO CHANGES IN THE FACTS, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN ASSESSEES OWN CASE, WE HOLD THAT INTEREST IS TO BE CHARGED AT THE RATES OF SHORT TERM DEPOSITS OF SBI AS DECIDED BY T HE ITAT IN ITS EARLIER YEAR ORDERS. ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO THE FILE OF TPO (AO) TO RE COMPUTE THE INTEREST. APPEAL OF THE ASSESSEE ON THIS GROUND IS TR E ATED AS ALLOWED FOR STATISTICAL PURPOSE S . 23 ITA NO. 1689/HYD/2019 AND S.A.NO.98/HYD/2020 , A.Y.2015 - 16 M/S INFOR (INDIA) PRIVATE LIMITED, HYDERABAD 10 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND STAY APPLICATION IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON TH IS 19 TH DAY OF OCTOBER , 2020 . SD/ - SD/ - ( . ) ( . . ) ( P. MADHAVI DEVI ) (D.S. SUNDER SINGH) / JUDICIAL MEMBER / ACCOUNTANT MEMBER DATED : 19 TH OCTOBER , 20 20 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. INFOR (INDIA) PVT. LTD., 4 TH FLOOR, BLOCK - B, Q - CITY, SURVEY NO. 109, 110, 111/2, NANAKRAMGUDA (VS.), SERILINGAMPALL Y (M), R.R. DISTRICT, HYDERABAD. 2. THE REVENUE ACIT, CIRCLE - 2(1), HYDERABAD. 3. THE PR. CIT - 2 , HYDERABAD . 4. THE CIT(A) , 5. THE D.R . , 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY, ITAT, HYDERABAD .