M/s. Zynga Game Network India Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle- 7(1)(2), Bangalore

ITA 2573/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9109 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-02-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 19-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction; Question of law; Working capital adjustments; Bad and doubtful debts; Notional interest; Set aside
• Section: 143(3); 92D; 234B; 133(6); 144C; 143(2); 13; 22; 92CA; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. B.R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2573/BANG/2019 ASSESSMENT YEAR : 2015-16 M/S ZYNGA GAME NETWORK INDIA PVT. LTD., 4 TH & 5 TH FLOOR, PRESTIGE FALCON TOWERS, NO.19, PRESTIGE FALCON TOWER, BRUNTON ROAD, RICHMOND ROAD, BENGALURU. PAN AAACI 3937 G VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-7(1)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI SHARATH RAO, C.A REVENUE BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 18-02-2021 DATE OF PRONOUNCEMENT : 23-03-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST FINAL ASSESSMENT ORDER PASSED BY LD.DCIT DATED 30/10/2019 UNDER PAGE 2 OF 23 ITA NO.2573/BANG/2019 SECTION 143 (3) READ WITH SECTION 144C (13) OF THE ACT ON FOLLOWING GROUNDS OF APPEAL: A. TRANSFER PRICING GROUNDS: THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1. GROUNDS IN RELATION TO ADJUSTMENT MADE IN THE SOFTWARE DEVELOPMENT SEGMENT: 1.1. THE LEARNED ASSESSING OFFICER ('LD AO'), LEARN ED TRANSFER PRICING OFFICER ('LD TPO') AND THE HON'BLE DISPUTE RESOLUTI ON PANEL ('HON'BLE DRP') (TOGETHER REFERRED TO AS 'LOWER AUTHORITIES') HAVE ERRED IN FACTS AND IN LAW IN DETERMINING TRANSFER PRICING ('TP) ADJUST MENT OF RS 7,76,58,654/- WITH RESPECT TO THE INTERNATIONAL TRA NSACTION RENDERED BY THE APPELLANT IN THE SOFTWARE DEVELOPMENT SEGMENT; 1.2. THE LOWER AUTHORITIES ERRED IN INVOKING PROVIS IONS OF SECTION 92C(3) OF THE INCOME-TAX ACT, 1961 ('ACT') AND REJECTING C OMPARABILITY ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TP DOCUMENTATION MAINTAINED UNDER SECTION 92D OF THE ACT; 1.3. THE LOWER AUTHORITIES HAVE ACTED IN AN ARBITRA RY MANNER IN SELECTING COMPARABLE COMPANIES ONLY IF THE DATA PERTAINING TO FY 2014-15 WAS AVAILABLE; 1.4. THE LOWER AUTHORITIES ERRED IN NOT CONSIDERING COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I.E., NOT MARCH 31 ) WITHOUT APPRECIATING THAT THE RELEVANT DATA FOR THE CONCERNED FINANCIAL YEAR COULD BE DEDUCED FROM THE CORRESPONDING QUARTERLY FINANCIALS>,7 1.5. THE LOWER AUTHORITIES ERRED IN FACTS AND IN LA W IN CONSIDERING FOREIGN EXCHANGE GAIN / LOSS AS OPERATING IN NATURE; 1.6. THE LOWER AUTHORITIES ERRED IN NOT CONSIDERING PROVISION OF BAD AND DOUBTFUL DEBTS AS OPERATING IN NATURE WHILE COMPUTI NG THE OPERATING MARGIN OF THE APPELLANT AND THE COMPARABLE COMPANIE S; 1.7. THE LOWER AUTHORITIES ERRED IN APPLYING THE FO LLOWING FILTERS FOR THE COMPARABILITY ANALYSIS: 1.7.1 EXCLUDING COMPANIES WHOSE SERVICE INCOME WAS LESS THAN 75 PERCENT OF TOTAL SALES; 1.7.2 EXCLUDE COMPANIES WHOSE EXPORT EARNING WAS LE SS THAN OF 75 PERCENT OF TOTAL SALES; 1.7.3 EXCLUDE COMPANIES WHOSE EMPLOYEE COST WAS LES S THAN 25 PERCENT OF TOTAL SALES; 1.8. THE LOWER AUTHORITIES ERRED IN NOT REJECTING C OMPANIES HAVING ABNORMAL PROFITS; 1.9. THE LOWER AUTHORITIES ERRED IN NOT APPLYING 'O NSITE FILTER' TO EXCLUDE COMPANIES ENGAGED IN ONSITE ACTIVITIES; PAGE 3 OF 23 ITA NO.2573/BANG/2019 1.10. THE LOWER AUTHORITIES WHILE APPLYING A CAP ON THE LOWER LIMIT ON TURNOVER ERRED IN NOT APPLYING UPPER LIMIT ON SALES TURNOVER FILTER WHILE SELECTING THE COMPARABLE COMPANIES; 1.11. THE LOWER AUTHORITIES ERRED IN NOT ALLOWING W ORKING CAPITAL ADJUSTMENT TO ACCOUNT FOR DIFFERENCE IN THE WORKING CAPITAL OF THE APPELLANT VIS--VIS THE COMPARABLE COMPANIES; 1.12. THE LOWER AUTHORITIES ERRED IN NOT ALLOWING A PPROPRIATE ADJUSTMENT TOWARDS THE RISK DIFFERENCE BETWEEN THE APPELLANT V IS--VIS THE COMPARABLE COMPANIES; 1.13. THE LOWER AUTHORITIES HAVE ERRED IN INCLUDING THE FOLLOWING COMPANIES AS COMPARABLE TO THE APPELLANT IN THE SOF TWARE DEVELOPMENT SEGMENT, DESPITE THE SAME FAILING THE LEGALLY ACCEP TED CRITERIA FOR COMPARABILITY: (1) TATA ELXSI LIMITED (2) R S SOFTWARE INDIA LIMITED (3) MINDTREE LIMITED (4) PERSISTENT SYSTEMS LIMITED (5) INFOBEANS TECHNOLOGIES LIMITED (6) NIHILENT TECHNOLOGIES LIMITED (7) ASPIRE SYSTEMS INDIA PRIVATE LIMITED (8) INFOSYS LIMITED (9) THIRDWARE SOLUTION LIMITED (10) CYBAGE SOFTWARE PRIVATE LIMITED (11) LARSEN & TOUBRO INFOTECH LIMITED (12) RHEAL SOFTWARE PRIVATE LIMITED (13) INTEQ SOFTWARE PRIVATE LIMITED 1.14 THE LOWER AUTHORITIES HAVE ERRED IN NOT CONSID ERING THE FOLLOWING COMPANIES AS COMPARABLE TO THE APPELLANT, DESPITE B EING FUNCTIONALLY COMPARABLE AND QUALIFYING THE LEGALLY ACCEPTED CRIT ERIA FOR COMPARABILITY: (1) INGENUITY GAMING PRIVATE LIMITED (2) INDIAGAMES LIMITED (3) R SYSTEMS INTERNATIONAL LIMITED (4) AKSHAY SOFTWARE TECHNOLOGIES LTD. (5) TVS INFOTECH LIMITED (6) EVOKE TECHNOLOGIES LTD. (7) 12T2 INDIA LTD. (8) FCS SOFTWARE SOLUTIONS LIMITED (9) ORION INDIA SYSTEMS PRIVATE LIMITED (10) DCIS DOT CORN SOLUTIONS PRIVATE LIMITED (11) HARBINGER PRIVATE LIMITED 2. GROUNDS IN RELATION TO ADJUSTMENT OF NOTIONAL INTEREST ON OUTSTANDING DEBTORS: 2.1 THE LOWER AUTHORITIES HAVE ERRED IN FACTS AND IN LAW IN IMPUTING NOTIONAL INTEREST WITH REGARD TO THE TRADE RECEIVAB LES BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISES ('AE') OUTSIDE INDI A WHEN THE APPELLANT PAGE 4 OF 23 ITA NO.2573/BANG/2019 HAS RECEIVED ALL TRADE RECEIPTS FOR FY 2014-15 FROM ITS AE WITHIN THE MUTUALLY AGREED CREDIT PERIOD OF 90 DAYS; 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTH ORITIES HAVE ERRED IN FACTS IN NOT APPRECIATING THAT NO ADJUSTMENT IS WAR RANTED ON ACCOUNT OF NOTIONAL INTEREST EVEN BY ADOPTING THE CREDIT PERIO D 60 DAYS AS CONSIDERED BY THE TPO, AS APPELLANT HAS RECEIVED AL L TRADE RECEIVABLES FOR FY 2014-15, WITHIN A MAXIMUM PERIOD OF 37 DAYS FROM THE DATE OF INVOICE; 2.3 THE LEARNED TPO HAS ERRED IN COMPUTING THE ADJ USTMENT AT RS 121,372 POST THE DRP DIRECTIONS, BY CONSIDERING THE CREDIT PERIOD OF 30 DAYS DESPITE HIMSELF HAVING ADOPTED A CREDIT PERIOD OF 60 DAYS WHILE PASSING THE INITIAL TP ORDER WHICH HAS NOT BEEN MOD IFIED BY THE DRP; 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTH ORITIES HAVE ERRED IN LAW AND ON FACTS IN ARBITRARILY ADOPTING T HE RATE OF LIBOR PLUS 400 BASIS POINTS TO COMPUTE THE NOTIONAL INTEREST O N THE TRADE RECEIVABLES; B. CORPORATE TAX GROUNDS: 3. INTEREST UNDER SECTION 234B OF THE ACT: 3.1 THE LEARNED AO HAS ERRED IN LEVYING INTEREST UN DER SECTION 234B OF THE ACT AMOUNTING TO RS 1,21,70,785/-WHICH IS CONSE QUENTIAL IN NATURE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AN D EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOV E AND ANY OTHER GROUNDS, WHICH MAY BE RAISED AT THE TIME OF HEARING , IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY REGISTERED UNDER THE CO MPANIES ACT 1956 ON 26/11/2009. IT IS A SUBSIDIARY OF ZYNGA LUX EMBOURG U.S ASSESSEE IS STATED TO BE A SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE NATURE OF DEVELOPMENT OF MODULES FO R ONLINE GAMES FOR TESTING AND MAINTENANCE OF ONLINE GAMES, DEVELOPED BY ZINGA INC. 3. ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME FOR YEAR UNDER CONSIDERATION ON 28/11/2015 DECLARING TOTAL INCOME OF RS.12,70,81,983/-. THE CASE WAS SELECTED FOR SCRUTI NY AND NOTICE PAGE 5 OF 23 ITA NO.2573/BANG/2019 UNDER SECTION 143(2) WAS ISSUED TO ASSESSEE IN RESP ONSE TO WHICH REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO. F ROM THE DETAILS FILED BY ASSESSEE, THE LD.AO OBSERVED THAT ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASS OCIATED ENTERPRISES SEEDING THIS RS.15 CRORES. HE THEREFORE REFERRED THE ISSUE TO THE TRANSFER PRICING OFFICER FOR DETERMINI NG ARMS LENGTH PRICE OF THE TRANSACTION. 4. ON RECEIPT OF REFERENCE UNDER 92CA, THE LD.TPO C ALLED UPON ASSESSEE TO FILE ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION IN FORM 3 CEB. THE LD. TPO FROM THE DETAILS FILED NOTE D THAT ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIONAL T RANSACTION: PARTICULARS AMOUNT RECEIVED AMOUNT PAID METHOD USED PROVISION OF SOFTWARE DEVELOPMENT SERVICES 961,414,277 TNMM REIMBURSEMENT OF EXPENSES PAID 15,199,390 TNMM TAXES ON EQUITY PLANS PAID ON BEHALF OF THE AE 12,788,057 OTHER TRADE RECEIVABLES 137,516.837 TNMM TRADE PAYABLES 2.315,295 TNMM UNBILLED REVENUE 6.173,066 TNMM TOTAL 1,117,892,237 17,514,685 1,135,406,92 2 5. THE LD.TPO NOTED THAT ASSESSEE RENDERS SOFTWARE DEVELOPMENT SERVICES FOR THE GAMES TO ITS ULTIMATE PARENT COMPANY BEING ZYNGO US AND NOT TO ANY OTHER INDEPEN DENT 3 RD PARTIES IN INDIA OR OUTSIDE INDIA. HE NOTED THAT AS SESSEE COMPUTED ITS MARGIN AT 15.54% BY USING TNMM AS MOST APPROPRIATE METHOD AND OP/OC AS PLI. ASSESSEE USED 9 PAGE 6 OF 23 ITA NO.2573/BANG/2019 COMPARABLES WITH MEDIAN MARGIN OF 10.06%. FOLLOWING WERE THE COMPARABLES WERE SELECTED BY ASSESSEE IN THE TP STU DY: S NO 1 COMPARABLE WEIGHTED AVERAGE OP/OC INGENUITY GAMING PRIVATE LIMITED 23.14 2 INDIAGAMES LTD 5.28 3 TVS INFOTECH LTD 3.26 4 AKSHAY SOFTWARE TECHNOLOGIES LTD 3.28 5 EVOKE TECHNOLOGIES LIMITED 6.13 6 CG - VAK SOFTWARE & EXPORTS LTD 10.06 7 KALS INFORMATION SYSTEMS LIMITED 14.72 8 IDEAVATE SOLUTIONS PRIVATE LIMITED 19.24 9 R S STEMS INTERNATIONAL LTD 21.67 DATA PLACE RANGE 35TH PERCENTILE OP/OC 6.13 MEDIAN 10.06 65TH PERCENTILE 14.72 6. THE LD.TPO ACCEPTED THE MAM USED BY ASSESSEE, HO WEVER HE REJECTED THE TP STUDY TO BE UNRELIABLE DUE TO AP PLICATION OF IN APPROPRIATE FILTERS. THE LD.TPO ALSO COMPUTED THE O PERATING MARGIN OF ASSESSEE AT 15.54% BY CONSIDERING FOREIGN EXCHANGE GAIN/LOSS AS OPERATING IN NATURE. 7. THE LD.TPO THEREAFTER APPLIED FOLLOWING FILTERS WHICH INCLUDED 14 NEW COMPARABLES ALONG WITH 2 COMPANIES PROPOSED BY ASSESSEE DURING TRANSFER PRICING PROCEEDINGS. TH E DETAILS OF THE FILTERS APPLIED BY THE LD.TPO AND THE COMPARABL ES SELECTED ARE AS UNDER 8. FILTERS APPLIED BY THE LD. TPO S NO FILTER 1 USE OF CURRENT YEAR DATA WHERE AVAILABLE 2 COMPANIES HAVING DIFFERENT FY ENDING (IE, NOT MARCH 31, 2014) OR DATA OF THE COMPANY DOES NOT FALL WITHIN 12 MONTH PERIOD IE, AP RIL 1, 2013 TO MARCH 31, 2014, WERE REJECTED PAGE 7 OF 23 ITA NO.2573/BANG/2019 3 COMPANIES WHOSE INCOME WAS < 1 CRORE WERE EXCLUDED 4 COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE IS LES S THAN 75% OF ITS TOTAL OPERATING REVENUES WERE EXCLUDED 5 RELATED PARTY TRANSACTION ('RPT') GREATER THAN 25 P ERCENT OF THE SALES WERE EXCLUDED 6 EXPORT SALES LESS THAN 75 PERCENT OF SALES WERE E XCLUDED 7 EMPLOYEE COST LESS THAN 25 PERCENT OF TURNOVER WERE EXCLUDED 9. COMPARABLES SELECTED BY THE LD.TPO S NO 1 COMPARABLE WEIGHTED AVERAGE OP/OC KALS INFORMATION SYSTEMS LTD 11.88% 2 E-ZEST SOLUTIONS LIMITED 14.05% 3 CG - VAK SOFTWARE & EXPORTS LIMITED 18.50% 4 TATA ELXSI LTD. (SEG) 19.34% 5 RHEAL SOFTWARE PVT. LTD. 19.88% 6 MINDTREE LTD. 20.55% 7 R S SOFTWARE (INDIA) LTD. 24.82% 8 LARSEN & TOUBRO INFOTECH LTD. 24.21% 9 INFOBEANS TECHNOLOGIES LTD. 29.91% 10 PERSISTENT SYSTEMS LTD. 31.69% 11 NIHILENT TECHNOLOGIES LTD. 32.21% 12 ASPIRE SYSTEMS (INDIA) PVT. LTD. 34.18% 13 INTEQ SOFTWARE PVT. LTD. 37.90% 14 INFOSYS LTD. 38.59% 15 THIRDWARE SOLUTION LTD. 41.12% 16 CYBAGE SOFTWARE PVT. LTD. 66.27% 10. THE LD.TPO FURTHER PROPOSED THE TRANSFER PRICIN G ADJUSTMENT OF RS.37,24,095/- WITH RESPECT OF NOTION AL INCOME RECEIVED BY ASSESSEE IN RESPECT OF INTEREST ON DELA YED RECEIVABLES. 11. IN VIEW OF THE ABOVE, THE LD.TPO DETERMINED THE PROPOSED ADJUSTMENT AS UNDER: 12. THE LD.TPO DID NOT GRANT WORKING CAPITAL ADJUST MENT IN THE HANDS OF ASSESSEE AS UNDER: S.NO DESCRIPTION ADJUSTMENT U/S 92CA(IN RS.) PAGE 8 OF 23 ITA NO.2573/BANG/2019 1 SOFTWARE DEVELOPMENT SEGMENT 9,89,92,432/- 2 INTEREST ON DELAYED RECEIVABLES 37,24,095/- TOTAL ADJUSTMENT WS 92CA 10,27,16,527/ - 13. AGGRIEVED BY PROPOSED ADJUSTMENT, ASSESSEE RAIS ED OBJECTIONS BEFORE DRP. 14. DRP REJECTED ASSESSEES ARGUMENTS WITH RESPECT TO THE COMPARABLE COMPANIES. IT IS SUBMITTED THAT THE DRP EXCLUDED ONE COMPARABLE, BEING DAFFODIL SOFTWARE LTD. THAT W AS PROPOSED AS AN ADDITIONAL COMPARABLE BY ASSESSEE IN THE TRAN SFER PRISING STUDY WHICH THE LD.TPO DID NOT CONSIDER. THE LD.TPO REJECTED THIS COMPARABLE AS IT FAILED EXPORT FILTER OF 75%. THE DRP OBSERVED FROM THE ANNUAL REPORTS THAT THE EXPORT RE VENUE OF THIS COMPARABLE WAS 24.63 CRORES OUT OF TOTAL REVENUE OF RS.30.16 CRORE WHICH AMOUNTS TO 81.65%. 15. IN RESPECT OF NOTIONAL INTEREST COMPUTED BY THE LD.TPO, THE DRP UPHELD THE REASONING GIVEN BY THE LD.TPO BY HOL DING THAT THE DEFERRED REVENUE RECEIVABLES IS A SEPARATE INTE RNATIONAL TRANSACTION. THE DRP UPHELD THE ACTION OF THE LD.TP O AS A JUSTIFIED, EXAMINING SHORT CHARGING OR NON-CHARGING OF INTEREST ON DEFERRED RECEIVABLES FROM AE. 16. IT ALSO DID NOT CONSIDER THE CLAIM OF ASSESSEE FOR WORKING CAPITAL ADJUSTMENT AND UPHELD THE NOTIONAL INTEREST COMPUTED BY THE LD.TPO AGAINST DELAYED RECEIVABLES BASED ON ACT UAL REALISATION ON EACH INVOICES. 17. ON RECEIPT OF THE DIRECTIONS BY THE DRP, THE LD .AO PASSED FINAL ASSESSMENT ORDER BY MAKING ADDITION IN RESPEC T OF TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.7,77,80,026/-. PAGE 9 OF 23 ITA NO.2573/BANG/2019 18. AGGRIEVED BY ORDER OF THE LD.AO, THE ASSESSEE I S IN APPEAL BEFORE US NOW. 19. THE LD.AR SUBMITTED THAT, ASSESSEE WISHES TO AR GUE ONLY CERTAIN COMPARABLES FOR INCLUSION/EXCLUSION UNDER B OTH THE SEGMENTS. HE SUBMITTED THAT, FOR YEAR UNDER CONSIDE RATION BOTH ASSESSEE AS WELL AS REVENUE HAVE CONSIDERED MEDIAN OF 3 IMMEDIATELY PRECEDING ASSESSMENT YEARS FOR COMPUTIN G MARGIN AS PER NEWLY INSERTED RULE 10 CA INTRODUCED W.E.F. 01/10/2015. 20. REFERRING TO GROUNDS RAISED BY THE ASSESSEE, TH E LD.AR SUBMITTED THAT GROUND NO.1-1.4 ARE GENERAL IN NATURE WHICH DO NOT REQUIRE ADJUDICATION. 21. GROUND 1.5, 1.7-1.9 ARE NOT PRESSED AT THE INSTRUCTION OF ASSESSEE. 22. GROUNDS 1.6 IS RAISED FOR NOT CONSIDERING PROVISION OF BAD AND DOUBTFUL DEBTS AS OPERATING IN NATURE WHILE COM PUTING OPERATING MARGIN OF ASSESSEE AND THE COMPARABLE COM PANIES. 23. THE LD.AR SUBMITTED THAT, THE LD.TPO HAS CONSID ERED PROVISION FOR DOUBTFUL DEBTS AND PROVISION FOR DOUB TFUL ADVANCES ARE NON-OPERATING IN NATURE AND THE ACTION WAS UPHE LD BY THE DRP. IN THIS REGARD IT WAS SUBMITTED THAT PROVISION FOR DOUBTFUL DEBTS IS A PROVISION WHICH IS TO BE MADE AS A PART OF THE OPERATING ACTIVITIES OF BUSINESS GOVERNED BY THE PR INCIPLES OF PRUDENCE, AND THEREFORE IT IS NOT CORRECT TO CONTEN D THAT THE SAME IS NON-OPERATING IN NATURE. THE LD.AR SUBMITTED THA T COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF BROCADE COMMUNICATIONS SYSTEMS PVT.LTD., REPORTED IN (2020) 117 TAXMANN.COM 439 HAS PAGE 10 OF 23 ITA NO.2573/BANG/2019 HELD THAT PROVISION FOR DOUBTFUL DEBTS ARE OPERATIN G IN NATURE BY RELYING ON DECISION OF HONBLE DELHI TRIBUNAL IN CASE OF ROLLS-ROYCE INDIA PVT.LTD. , REPORTED IN (2016) 69 TAXMANN.COM 209 . 24. THE LD.CIT.DR RELIED ON THE ORDER OF THE LD. DR P /AO/TPO. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 25. WE ARE OF THE VIEW THAT, IN LIGHT OF THE DECISI ON OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF BROCADE COMMUNICATIONS SYSTEMS PVT.LTD. (SUPRA) AND DECISION OF HONBLE DELHI TRIBUNAL IN THE CASE OF ROLLS-ROYCE INDIA (P.) LTD. ( SUPRA ), THE MARGIN IS TO BE REWORKED BY CONSIDERING THE PROVISION FOR DOUBTFUL DEBTS AS OPERATING EXPENDITURE. THE LD.AO IS DIRECTED TO REC OMPUTE THE MARGIN OF ASSESSEE AS WELL AS COMPARABLES BASED UPO N THE OBSERVATIONS OF THIS TRIBUNAL IN CASE OF BROCADE COMMUNICATIONS SYSTEMS PVT.LTD. (SUPRA) AND DECISION OF HONBLE DELHI TRIBUNAL IN THE CASE OF ROLLS-ROYCE INDIA (P.) LTD. ( SUPRA ). 26. IN TERMS OF RISK, WE NOTE THAT ASSESSEE IS A NO RISK COMPANY AND THEREFORE RISK ADJUSTMENT SHOULD BE PROVIDED TO COMPARABLES IS ANY. WE DIRECT THE ASSESSEE TO FILE ALL NECESSAR Y DETAILS IN RESPECT OF THE SAME. IN RESPECT OF THE COMPANIES FO R WHICH DETAILS COULD NOT BE FILED, THE LD.AO/TPO SHALL CALL FOR NE CESSARY INFORMATION UNDER SECTION 133(6) IN ORDER TO COMPUT E NECESSARY ADJUSTMENT. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. 27. GROUND NO.1.10 & 1.13 IS RAISED FOR NOT APPLYING THE UPPER LIMIT OF TURNOVER ON SALES FILTER AND FOR IN APPROP RIATE PAGE 11 OF 23 ITA NO.2573/BANG/2019 INCLUSION/EXCLUSION OF COMPARABLES BY LD.AO/TPO IN THE FINAL LIST. 28. HE SUBMITTED THAT 9 COMPARABLES IS SOUGHT TO BE EXCLUDED ON TURNOVER FILTER WHICH ARE AS UNDER: 29. TATA ELXSI LTD.(SEG.), MIND TREE LTD., RS SOFTW ARE (INDIA) LTD., LARSEN AND TOUBRO INFOTECH LTD., PERSISTENT S YSTEMS LTD., NIHILENT TECHNOLOGIES LTD., INFOSYS LTD., THIRDWARE SOLUTIONS LTD., CYBAGE SOFTWARE PVT. LTD. 30. THE LD.AR SUBMITTED THAT ASSESSEE IS SEEKING EX CLUSION OF INFOBEANS TECHNOLOGIES LTD. ON FUNCTIONAL DISSIMILA RITIES. 31. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS, IT S SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED, ASSETS OWNED AN D RISK ASSUMED BY THE ASSESSEE UNDER BOTH THESE SEGMENTS. THE LD.TPO OBSERVED AS UNDER: FUNCTIONS 32. ZYNGA INDIA IS AN INDIAN PRIVATE COMPANY REGIS TERED UNDER THE PROVISIONS OF THE COMPANIES ACT. 1956 ON NOVEMB ER 26, 2009 AND IS A SUBSIDIARY OF ZYNGA LUXERNHURG S. A. R. L. ZYNGA INDIA PROVIDES SOFTWARE DEVELOPMENT SERVICES IN THE NATUR E OF SOFTWARE DEVELOPMENT OF MODULES FOR ONLINE GAMES. TESTING AN D MAINTENANCE OF ONLINE GAMES DEVELOPED BY ZYNGA INC. THE COMPANY IS A 00% EXPORT ORIENTED UNIT AND REGISTERE D UNDER SOFTWARE TECHNOLOGY PARKS OF INDIA SCHEME AT BANGAL ORE WITH AN EMPLOYEE STRENGTH OF 275. PAGE 12 OF 23 ITA NO.2573/BANG/2019 ZYNGA INDIA RENDERS SOFTWARE DEVELOPMENT SERVICES FOR GAMES TO ITS ULTIMATE PARENT COMPANY, ZYNGA US, AND NOT TO A NOTHER INDEPENDENT THIRD PARTIES IN INDIA OR OUTSIDE INDIA . 33. IT IS OBSERVED THAT US ASSOCIATED ENTERPRISE PL AY SIGNIFICANT ROLE IN DETERMINING BUSINESS STRATEGY OF GROUP INCL UDING ASSESSEE AND IS RESPONSIBLE FOR ALL TOP MANAGEMENT FUNCTIONS OF CORPORATE STRATEGY, TREASURY, LEGAL AND REGULATORY AFFAIRS AN D DESIGNING THE POLICY WITH RESPECT TO ITS GROUP OPERATIONS INCLUDI NG ASSESSEE. AT PAGE ______ OF PAPER BOOK, IT IS OBSERVED THAT NO S TRATEGIC FUNCTIONS ARE PERFORMED BY ASSESSEE AND IS PRIMARIL Y PERFORMING THE TACTICAL MANAGERIAL FUNCTIONS REGARDING DAY-TO- DAY MANAGEMENT OF BUSINESS. AT PAGE ________OF PAPER BO OK IT IS OBSERVED THAT ASSESSEE HAS BEEN PROVIDING LTD FUNCT IONS UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT WHICH INCLUDES LIMITED FUNCTIONAL SPECIFICATIONS AND REQUIREMENT ANALYSIS, ASSETS OWNED: ASSESSEE OWNS ROUTINE TANGIBLE ASSETS LIKE OFFICE OF EQUIPMENT, FURNITURES AND FIXTURES, COMPUTER EQ UIPMENT ETC. RISKS ASSUMED: UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT ASSESSEE HAS BEEN IDENTIFIED TO BE UNDERTAKING LIMI TED MARKET RISK ONLY, AND ASSESSEE IS 100% RISK MITIGATED. CHARACTERISATION: ON THE BASIS OF FUNCTIONAL ANALYSIS, ASSESSEE HAS BEEN CHARACTERISED TO BE A RISK MITIGATED CONTR ACT SERVICE PROVIDER FOR BOTH THE SEGMENTS. THE ASSETS SCHEDULE D SUBSTANTIATES THAT THE PERFORMANCE OF FUNCTIONS ARE LINKED TO THE ASSETS EMPLOYED WHICH ARE ROUTINE IN NATURE AND DOE S NOT CARRY OUT ANY SIGNIFICANT ENTERPRISE IN REAL ACTIVITIES N OR DOES IT BEARS PAGE 13 OF 23 ITA NO.2573/BANG/2019 ANY SIGNIFICANT RISK ASSOCIATED WITH SUCH SERVICES RENDERED BY ASSESSEE. 34. ON THE BASIS OF ABOVE FAR ANALYSIS WE SHALL UND ERTAKE COMPARABILITY OF ALLEGED COMPARABLES FOR INCLUSION/ EXCLUSION. GROUND NO.1.10 &1.13 35. THE LD.AR ARGUED THAT, ASSESSEE SEEKS EXCLUSION OF TATA ELXI LTD (SEG.), MINDTREE LTD., LARSEN AND TOUBRO I NFOTECH LTD., RS SOFTWARE (INDIA) LTD., PERSISTENT SYSTEMS LTD., NIHILENT TECHNOLOGIES LTD., INFOSYS LTD., CYBAGE SOFTWARE PV T.LTD. BY APPLYING TURNOVER FILTER. THE LD.AR SUBMITTED THAT AUTHORITIES BELOW APPLIED LOWER LIMIT OF TURNOVER FILTER OF RS. 1 CRORE AND IGNORED APPLYING AN UPPER TURNOVER FILTER. IT WAS S UBMITTED THAT, CONSISTENTLY REVENUE ALWAYS TOOK STAND THAT TURNOVE R IS NOT A RELEVANT FILTER IN SOFTWARE INDUSTRY. IT HAS BEEN C ONTENDED BY REVENUE THAT IN SOFTWARE INDUSTRY SIZE HAS NO INFLU ENCE ON THE MARGINS EARNED BY A COMPARABLE COMPANY. WHAT MATTER S IS A HUMAN CAPITAL. IT WAS UNDER THESE CIRCUMSTANCES THA T THE LD.TPO APPLIED ONLY LOWER LIMIT OF TURNOVER FILTER FOR EXCLUDING COMPANIES HAVING TURNOVER LESS THAN RS.1 CRORE. AS SESSEE ALSO RELIED ON DECISIONS OF THIS TRIBUNAL IN CASE OF MET RIC STREAM INFOTECH (INDIA) PVT. LTD., VS. ACIT IN IT(TP)A NO.2347/BANG/2019 DATED 24/4/2020 FOR ASST. YEAR 20 14-15. 36. THE LD.CIT.DR SUBMITTED THAT WHEN COMPANIES FUN CTIONALLY SIMILAR TO ASSESSEE, AND IS POTENTIALLY COMPARABLE, THE SAME CANNOT BE EXCLUDED MERELY BECAUSE OF HIGH OR LOW TU RNOVER. PAGE 14 OF 23 ITA NO.2573/BANG/2019 37. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 38. WE NOTE THAT LD.AO/TPO HAS APPLIED FILTER OF MO RE THAN RS.1 CRORE, BUT DID NOT PUT AN UPPER LIMIT TO THE F ILTER. THIS TRIBUNAL IN CASE OF GENESIS INTEGRATING SYSTEMS INDIA PVT LTD VS DCIT REPORTED IN (2012) 53 SOT 159 AND VARIOUS OTHER DECISIONS HAVE HELD THAT, COMPANIES HAVING TURNOVER IN EXCESS OF RS.200 CRORES CANNOT BE COMPARED WITH COMPANIES HAVING TUR NOVER LESS THAN RS.200 CRORE. THIS PREPOSITION HAS BEEN ACCEPT ED BY HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS PENTAIR WATER PVT.LTD. , BY ORDER DATED 16/09/2015 IN ITA NO. 18/2015 . HONBLE COURT UPHELD REJECTION OF COMPANIES HAVING TURNOVER HOLDI NG THAT TURNOVER IS A RELEVANT FACTOR IN CONSIDERING COMPAR ABILITY OF COMPANIES. 39. OBJECTION RAISED BY LD.CIT.DR HAS BEEN DEALT WI TH BY THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT.LTD. VS DCIT IN (2018) 96 TAXMANN.COM 263 FOR ASSESSMENT YEAR 2005-06. THIS TRIBUNAL REVIEWED GAMUT OF CASE LAWS TO CONSIDER, WHETHER CO MPANIES HAVING TURNOVER MORE THAN RS.200 CRORES SHOULD BE R EGARDED AS COMPARABLE WITH A COMPANY HAVING TURNOVER LESS THAN 200 CRORE. THIS TRIBUNAL HELD AS UNDER: 17.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SUBSTANTIAL QUESTION OF LAW (QUESTION NO.1 TO 3) WHICH WAS FRAM ED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVEST MENT ADVISORS (INDIA) PVT. LTD., (SUPRA) WAS AS TO WHETHER COMPAR ABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPTIONALLY HIGH PRO FIT MARGINS OR FLUCTUATION PROFIT MARGINS, AS COMPARED TO THE ASSE SSEE IN TRANSFER PRICING ANALYSIS. THEREFORE AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THE OBSERVATIONS OF THE HON'BLE HI GH COURT, IN SO FAR PAGE 15 OF 23 ITA NO.2573/BANG/2019 AS IT REFERS TO TURNOVER, WERE IN THE NATURE OF OBI TER DICTUM. JUDICIAL DISCIPLINE REQUIRES THAT THE TRIBUNAL SHOULD FOLLOW THE DECISION OF A NON-JURISDICTION HIGH COURT, EVEN THOUGH THE SAID D ECISION IS OF A NON- JURISDICTIONAL HIGH COURT. WE HOWEVER FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR WATER INDIA (P.) LTD. (SUPRA) HAS TAKEN THE VIEW THAT TURNOVER IS A RELEVANT CRITERIO N FOR CHOOSING COMPANIES AS COMPARABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICING CASES. THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE CIRCUMSTANCES, FOLLOWIN G THE PRINCIPLE THAT WHERE TWO VIEWS ARE AVAILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULL Y FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES CHO SEN BY THE TPO ON THE BASIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO THAT THE ASSESSEE. 17.8 IN VIEW OF THE ABOVE CONCLUSION, THERE MAY NOT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION RENDERED IN T HE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA) BY THE IT AT BANGALORE BENCH SHOULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WER E ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE IT AT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THAT TA KEN IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIR ST ASPECT WHICH WE NOTICE IS THAT THE DECISION RENDERED IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I) (P.) LTD. (SUPRA) WAS THE EARLIEST DECI SION RENDERED ON THE ISSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED A S EARLY AS 5.8.2011. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES CITED BY THE LEARNED DR BEFORE US IN THE CASE OF WILLIS P ROCESSING SERVICES (SUPRA) AND CAPEGEMINI INDIA (P.) LTD. (SUPRA) ARE TO BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO -ORDINATE BENCH DECISION. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS THE PLEA OF THE L EARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS RENDERED IN THE CASE OF NTT DATA (SUPRA), SOCIETE GENERALE GLOBAL SOLUTIONS (SUPRA) AND LSI T ECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT OF TIME. THOSE DECISIO NS FOLLOW THE RATIO LAID DOWN IN WILLIS PROCESSING SERVICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. THESE THREE DECISIONS ALS O PLACE RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA). WE HAVE ALREADY HELD THAT THE D ECISION RENDERED IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA) IS O BITER DICTA AND THAT THE RATIO DECIDENDI LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR (SUPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THEREFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US PAGE 16 OF 23 ITA NO.2573/BANG/2019 CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS N OT RELEVANT CRITERIA FOR DECIDING ON COMPARABILITY OF COMPANIES IN DETER MINATION OF ALP UNDER THE TRANSFER PRICING REGULATIONS UNDER THE AC T. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON T HE ISSUE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EX CLUDING COMPANIES BY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF GENISY S INTEGRATING (SUPRA). 40. LD.AR SUBMITTED THAT THOUGH THIS DECISION WAS R ENDERED WITH REFERENCE TO AY 2005-06 AND 2006-07, SAME REAS ONING WOULD APPLY TO AY 2015-16 ALSO AND IN THIS REGARD. BASED UPON ABOVE DISCUSSIONS AND THE DECISION RELIED BY LD.AR HEREIN ABOVE. WE ARE OF OPINION THAT OBJECTION RAISED BY REVENUE CANNOT WITHSTAND THE TEST OF LAW. ACCORDINGLY WE DIRECT LD. AO/TPO TO EXCLUDE TATA EL XI LTD (SEG.), MINDTREE LTD., LARSEN AND TOUBRO INFOTECH L TD., RS SOFTWARE (INDIA) LTD., PERSISTENT SYSTEMS LTD., NIH ILENT TECHNOLOGIES LTD., INFOSYS LTD., CYBAGE SOFTWARE PV T.LTD. FOR HAVING HIGH TURNOVER AS COMPARED TO A CAPTIVE SERVI CE PROVIDER LIKE ASSESSEE. INFOBEANS TECHNOLOGIES LTD. 41. THE LD.AR SUBMITTED THAT THIS COMPARABLE WAS SE LECTED BY AUTHORITIES BELOW AS IT PASSES ALL FILTERS, BASED U PON RESPONSE RECEIVED FROM THIS COMPANY UNDER SECTION 133 (6) OF THE ACT. HE SUBMITTED THAT THIS OBSERVATION IS CONTRARY TO THE FACTS AND FIGURES APPEARING IN ANNUAL REPORT. REFERRING TO PA GE 1364 THE LD.AR SUBMITTED THAT THIS COMPANY IS ENGAGED IN SOF TWARE ENGINEERING SERVICES. IN THE COMPANY OVERVIEW THIS COMPANY HAS BEEN STATED TO BE PRIMARILY ENGAGED IN PROVIDING CU STOM DEVELOPED SERVICES TO OFFSHORE CLIENTS AND IT PROVI DES SOFTWARE PAGE 17 OF 23 ITA NO.2573/BANG/2019 ENGINEERING SERVICES PRIMARILY IN CUSTOM APPLICATIO N DEVELOPMENT, CONTENT MANAGEMENT SYSTEMS, ENTERPRISE MOBILITY, BIG DATA ANALYTICS. LD.AR THUS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT AT ALL SIMILAR WITH A CAPTIVE SERV ICE PROVIDER LIKE ASSESSEE THAT THIS PROVIDING LTD SERVICES TO ITS AS SOCIATED ENTERPRISES. 42. ON THE CONTRARY LD. CIT DR, REFERRING OBSERVATI ONS OF DRP IN PARA 19.1 SUBMITTED THAT THE ACTIVITIES OF COMPA NY FALL UNDER THE GAMUT OF SOFTWARE DEVELOPMENT HAS CATEGORISED B Y COMPANY ITSELF AND THAT THE INFORMATION OBTAINED UNDER SECT ION 133 (6) IS SUFFICIENT ENOUGH TO COME TO SUCH CONCLUSIONS. HOWE VER HE SUBMITTED THAT THIS COMPARABLE ALSO MAY BE SENT BAC K TO THE LD.AO/TPO FOR VERIFICATION. 43. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN LIGHT OF RECORDS PLACED BEFORE US. IT IS OBSERVED T HAT THE ANNUAL REPORT OF THIS COMPANY CATEGORISES THE DIVERSIFY SE RVICES PROVIDED BY THIS COMPANY UNDER SOFTWARE DEVELOPMENT SEGMENT. WE ALSO NOTE THAT THIS COMPANY IS BASICALLY INTO APPLICATIO N DEVELOPMENT FOR WEB AND MOBILE AND PROVIDES CUSTOMISED SERVICES TO ITS OFFSHORE CLIENTS COMPRISING. ENTIRE REVENUE RECEIVE D BY THIS COMPARABLE EASE UNDER ONE SINGLE SEGMENT OF SALE OF SOFTWARE. THIS COMPANY ALSO OWNS SOFTWARE LICENSES. 44. IN OUR CONSIDERED OPINION THIS COMPARABLE CANNO T BE CONSIDERED TO BE FUNCTIONING IN 100% RISK MITIGATED ENVIRONMENT AND IS A FULL-FLEDGED ENTERPRISE. SUCH A COMPARABLE CANNOT BE COMPARED WITH A CAPTIVE SERVICE PROVIDER LIKE ASSES SEE. PAGE 18 OF 23 ITA NO.2573/BANG/2019 ACCORDINGLY WE DIRECT THIS COMPARABLE TO BE EXCLUDE D FROM FINALIST. ACCORDINGLY GROUNDS 1.10 AND 1.13 AS ALLOWED. 45. GROUND NO. 1.14 IS RAISED BY ASSESSEE WHEREIN ASSESSEE IS SEEKING INCLUSION OF FOLLOWING 6 COMPARABLES: EVOKE TECHNOLOGIES LTD., I2T2 INDIA LTD., INDIAGAME S LTD., FCS SOFTWARE SOLUTIONS LTD., DCIS DOT COM PVT.LTD. 46. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 47. WE NOTE THAT COMPARABLES , FCS SOFTWARE SOLUTIO NS LTD., DCIS DOT COM PVT.LTD. WERE REJECTED BY THE DRP FOR THE REASON THAT THEY WERE NOT SHOWING IN THE SEARCH IS CARRIED OUT BY THE LD.TPO. AT THE OUTSET, THE LD.AR SUBMITTED THAT, TH ESE COMPARABLES FORMED PART OF REPLY FILED BY ASSESSEE AS ADDITIONAL COMPARABLES. IT WAS SUBMITTED THAT HOWEVER THESE CO MPARABLES WERE NOT CONSIDERED BY THE LD.TPO. AS REGARDS EVOKE TECHNOLOGIES PVT. LTD., THE LD.AR SUBMITTED THAT TH E LD.TPO REJECTED THE SAME FOR THE REASON THAT THE FINANCIAL S INCLUDED FIGURES FROM AN OUTSIDE BRANCH WHICH WERE UNAUDITED AND HENCE WERE CONSIDERED TO BE UNRELIABLE. 48. AS REGARDS I2T2 INDIA PVT. LTD., THE SAME WAS R EJECTED FOR THE REASON THAT IT DID NOT APPEAR IN THE PROWESS DA TABASE. IT WAS SUBMITTED THAT ASSESSEE HAD FILED ALL RELEVA NT DETAILS IN REGARDS TO THE SAME IN ORDER TO VERIFY THE FILTERS CONSIDERED BY THE LD.TPO HOWEVER THE AUTHORITIES BELOW HAVE SUMMARILY REJECTED THESE COMPARABLES. PAGE 19 OF 23 ITA NO.2573/BANG/2019 BASED UPON THE ABOVE SUBMISSIONS BY BOTH SIDES, WE SET ASIDE THIS ISSUE BACK TO LD.AO/TPO FOR RECONSIDERAT ION OF EVOKE TECHNOLOGIES LTD., I2T2 INDIA LTD., INDIAGAME S LTD., FCS SOFTWARE SOLUTIONS LTD., DCIS DOT COM PVT.LTD. ACCORDINGLY GROUND 1.14 STANDS ALLOWED FOR STATISTI CAL PURPOSES. 49. GROUND NO.2 IS IN RESPECT OF PROPOSED ADJUSTMENT OF NOTIONAL INTEREST ON OUTSTANDING DEBTORS. 50. THE LD.AR SUBMITTED THAT THE LD.TPO IMPUTED NOT E ADDITIONAL INTEREST WITH REGARD TO TRADE RECEIVABLE S FROM THE AE EVEN WHEN ASSESSEE HAS RECEIVED ALL THE TRADE RECEI PTS FOR YEAR UNDER CONSIDERATION FROM ITS AE IS WITHIN THE MUTUA LLY AGREED PERIOD OF 90 DAYS. THE LD.AR SUBMITTED THAT, AUTHOR ITIES BELOW UPHELD THE COMPUTATION OF NOTIONAL INTEREST AT LIBO R +400 BASIS POINTS THAT IS 4.3836%, BY USING CUP AS MOST APPROP RIATE METHOD. 51. THE LD.AR SUBMITTED THAT ASSESSEE HAS ACTUALLY RECEIVED THE TRADE RECEIVABLES WITHIN THE CREDIT PERIOD AND THER EFORE NO ADJUSTMENT IS CALLED FOR. HE SUBMITTED THAT INVOICE WISE DETAILS WERE GIVEN BEFORE THE AUTHORITIES BELOW HOWEVER THE SAME WERE NOT VERIFIED. 52. THE LD.AR FURTHER SUBMITTED THAT EVEN OTHERWISE ADJUSTMENT IS NOT CALLED FOR AS ASSESSEE IS FOLLOWI NG TNMM AS MOST APPROPRIATE METHOD WHICH IS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW AND THEREFORE WORKING CAPITAL ADJ USTMENT WOULD SUBSUMES ALL THE TRADE RECEIVABLES. HE PLACED RELIANCE ON PAGE 20 OF 23 ITA NO.2573/BANG/2019 ORDER PASSED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF INGERSOLL RAND (INDIA) LTD. VS DCIT IN ITA NO.1378/BANG/2011, WHEREIN IT IS HELD THAT NO INTEREST LIABILITY ARISE S EVEN IF PAYMENT IS MADE BEYOND THE CREDIT PERIOD BY AE. AT THIS JUN CTURE, WE WOULD LIKE TO EMPHASISE THAT SUBSEQUENT SPECIAL BEN CH KOLKOTTA DECISIONS OF THE TRIBUNAL IN CASE OF INSTRUMENTATIO N CORPORATION LTD., VS. ACIT IN ITA NO.1548 & 1549/KOL/2009 BY OR DER DATED 15/7/2016 HAS ANALYSED INTEREST ON RECEIVABLE TO BE AN INTERNATIONAL TRANSACTION. 53. THE SUBMISSION OF THE LD.AR, REGARDING NON-VERI FICATION OF INVOICE WISE DETAILS FILED BY ASSESSEE BEFORE AUTHO RITIES BELOW CANNOT BE IGNORED. ALSO THE ALTERNATIVE PLEA REGARD ING THE TRADE RECEIVABLES BEING SUBSUMED BY WORKING CAPITAL ADJUS TMENT UNDER TNMM AS MOST APPROPRIATE METHOD IS A VALID POINT TO BE CONSIDERED, IN THE EVENT WHERE THERE WOULD BE ANY TRADE RECEIVABLES IF ANY BEYOND THE AGREED CREDIT PERIOD. 54. WE NOTE THAT AT PAGE 77 OF ITO ORDER, THE LD.TP O ADOPTED 60 DAYS AS ALLOWABLE CREDIT PERIOD. HOWEVER DRP AT PAGE 30 OF THEIR ORDER OBSERVED THAT THE LD.TPO GAVE CREDIT FO R PAYABLE DUE TO AE AND REDUCED IT FROM THE RECEIVABLES. THE DRP ALSO OBSERVED THAT THERE IS NO BASIS FOR SUCH METHOD AD OPTED BY THE LD.TPO AS THERE IS NO EVIDENCE THAT THE PAYABLES AN D RECEIVABLES ARE FROM SAME AE. THE DRP THUS DIRECTED THAT THE L D.AO/TPO TO RECOMPUTE INTEREST WITHOUT ANY REDUCTION. THE LD.A O WHILE PASSING FINAL ASSESSMENT ORDER U/S 143(3) R.W.S 144 (3) CONSIDERED CREDIT PERIOD OF 30 DAYS AND ADOPTED LIB OR + 400 PAGE 21 OF 23 ITA NO.2573/BANG/2019 BASIS POINTS TO BE COMPUTED AS NOTIONAL INTEREST ON TRADE RECEIVABLES. 55. THE LD.AR SUBMITTED THAT ASSESSEE RECEIVED ALL TRADE RECEIVABLES WITHIN THE PERIOD OF 37 DAYS FROM THE D ATE OF INVOICE, WHICH IS VERIFIABLE. WE NOTE FROM THE MASTER SERV ICE AGREEMENT PLACED AT PAGE 146, CLAUSE 1.4(C) SPECIFIES A PERIO D OF 90 DAYS WITHIN WHICH THE PAYMENTS HAS TO BE MADE TO THE ASS ESSEE. 56. ON THESE FACTS, ACTION OF THE LD.AO TO TREAT CR EDIT PERIOD TO BE 30 DAYS IS NOT CORRECT. AT PAGE 157 OF PAPER BO OK, WE NOTE THAT ASSESSEE FILED INVOICE WISE DETAILS OF TRADE RECEIVABLES ALONG WITH MASTER SERVICE AGREEMENT THE BEFORE LD.AO/TPO, WHICH HAS NOT BEEN LOOKED INTO BEFORE MAKING ADDITION ON ACCO UNT OF INTEREST ON TRADE RECEIVABLES. 57. THEREFORE IN THE LIGHT OF THE ABOVE, WE DIRECT LD.AO/TPO TO VERIFY THE INVOICES AGAINST WHICH PAYMENTS HAVE BEE N RECEIVED BY ASSESSEE WITHIN THE CREDIT PERIOD AGREED BETWEEN AS SESSEE AND THE AE. IN THE EVENT, ANY TRADE RECEIVABLE FALLS B EYOND THE AGREED PERIOD OF 90 DAYS, THE LD.AO/TPO SHALL VERIFY, IF T HE SAME IS SUBSUMED IN THE WORKING CAPITAL ADJUSTMENTS. ON VE RIFICATION, IF FOUND TO BE SUBSUMED, THEN NO ADJUSTMENT DESERVES TO BE MADE. ON THE CONTRARY IF ANY TRADE PAYABLES FALLS OUTSIDE THE AGREED CREDIT PERIOD THAT IS NOT SUBSUMED, ADJUSTMENT ON S UCH TRADE RECEIVABLES WOULD BE RESTRICTED TO LIBOR + 300 BASI S POINTS. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. PAGE 22 OF 23 ITA NO.2573/BANG/2019 58. GROUND NO.3 IS CONSEQUENTIAL IN NATURE AND THEREFORE DO NOT REQUIRE SEPARATE ADJUDICATION. ACCORDINGLY, APPEAL FILED BY ASSESSEE STANDS ALLOWE D AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2021 SD/- SD/- (B.R BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 23 RD MARCH, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 23 OF 23 ITA NO.2573/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -3-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -3-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -3-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -3-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -3-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -3-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -3-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS