NTT Data Information Processing Services Private Limited, Bangalore V. The Deputy Commissioner Of Income Tax, Circle - 3(1)(1), Bangalore

ITA 297/BANG/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9649 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 27-06-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Working capital adjustments; Scheme of amalgamation; Notional interest; Commercial expediency; Set aside
• Section: 271(1)(c); 143(3); 92B; 10AA; 234B; 133(6); 274; 13; 119; 22; 20

Judgement Text

IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “B’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No.297/Bang/2021 Assessment Year: 2016-17 M/s. NTT Data Information Processing Services Pvt. Ltd. Plot No.123 EPIP Phase-II Whitefield, Industrial Area Bangalore 560 066 PAN NO : AADCD9895L Vs. Deputy Commissioner of Income-tax Circle 3(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri Chavali Narayan, A.R. Respondent by : Shri Manjunath Karkihalli, D.R. Date of Hearing : 07.07.2022 Date of Pronouncement : 07.07.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against the final assessment order passed by NFAC Delhi dated 30.4.2021 u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act. The assessee has raised following grounds of appeal:- “Grounds:- 1. Impugned order of the learned AO pursuant/ Transfer Pricing Officer (“TPO”) and directions of the Hon’ble DRP are based on incorrect appreciation of facts and incorrect interpretation of law and therefore, are bad in law. 2. Learned TPO/ AO/ DRP erred in proposing an adjustment to arm’s length price to the extent of INR 29,11,02,356 in respect of international transactions of IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 2 of 35 information technology enabled services undertaken by NTT Data IPS with its associated enterprises (‘AEs’). 3. Learned AO/ DRP erred in assessing the total income of the Appellant at INR 66,72,07,110, as against returned income of INR 37,61,04,750. 4. Learned AO/ DRP erred in determining a sum of Rs 8,47,74,080 as balance tax payable by the Appellant. Ground of appeal relating to Transfer pricing matters 5. Learned TPO erred in law and in facts, by not accepting the economic analysis undertaken by the Assessee in accordance with the provisions of the Act read with the Rules and conducting a fresh economic analysis for the determination of the arm’s length price in connection with the impugned international transactions and holding that the Assessee’s international transactions are not at arm’s length. 6. Adjustment on account of re-determination of arm’s length price for the transaction of provision of IT enabled services by the Appellant to its AEs 6.1. Learned TPO/ AO/ DRP erred in law and facts, by incorrectly applying the following quantitative and qualitative filters: a) Rejecting certain comparable companies for having different accounting year/ financial year (i.e. companies having accounting year/ financial year other than March 31 or companies whose financial statements were for a period other than 12 months). b) Applying incorrect modified related party transaction (“RPT”) filter to reject companies, which included application of the following filters separately: - An RPT filter for the revenue transactions only (RPT revenue greater than 25% of total revenue) - An RPT filter for the expense transactions only (RPT expenses greater than 25% of total expenses) c) Rejecting certain comparable companies using employee cost greater than 25% of the total operating revenues as a comparability criterion. d) Rejecting certain comparable companies using export earnings greater than 75% of the sales as a comparability criterion. e) Applying only the lower turnover filter of less than INR 1 crore as a comparability criterion and not applying a higher threshold limit for IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 3 of 35 turnover filter. f) Rejecting certain comparable companies that do not satisfy the 75 percent ITeS revenue filter compared to total revenue as applied by the learned TPO. g) The learned TPO/ AO have erred, in law and in facts, by accepting / rejecting certain companies based on unreasonable comparability criteria. h) Rejecting certain comparable companies on the basis of insufficient financial/segmental information. 6.2. Rejecting certain comparable companies on the basis of insufficient financial/ segmental information. 6.3. Learned AO/TPO/DRP erred in law and facts, by accepting/ rejecting the following companies based on unreasonable comparability criteria: a. Accepting the following companies that cannot be considered as comparable to the Appellant in law and fact, on one or more grounds: i) Infosys BPO Limited (“Infosys BPO”) ii) Eclerx Service Limited iii) S P I Technologies India Private Limited iv) Bhilwara Infotechnology Ltd v) One Touch Solutions India Private Limited b. Rejecting the following comparable companies selected by the Appellant in its TP documentation even though the companies are functionally comparable to the Appellant: i) Allsec Technologies Limited ii) Cosmic Global Limited iii) Jindal Intellicom Ltd (‘Jindal’) iv) BNR Udyog Ltd v) Jeevan Scientific Technology c. Rejecting companies additionally introduced by the Appellant even though the companies are functionally comparable to the Appellant: i) Informed Technologies India Limited ii) Sundaram Business Services Limited iii) ACE Software Exports Ltd iv) Hartron Communications Ltd. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 4 of 35 6.4. Learned AO/ TPO/ DRP erred, in law and facts, by exercising powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes. 6.5. The learned TPO/ AO have erred, in law and in facts, by not making suitable adjustment to account for differences in working capital position of the Assessee vis-à-vis the comparables. 6.6. The learned TPO/ AO have erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Assessee vis- à-vis the comparables. 7. Adjustment on account of notional interest on outstanding receivables 7.1. The learned TPO/ AO grossly erred in determining a transfer pricing adjustment on account of the interest on outstanding receivables amounting to INR 70,32,196. 7.2. The learned TPO/ AO/ DRP have erred, in law and in facts, by re- characterizing the outstanding trade receivables as on 31st March, 2016 as a loan transaction, without appreciating that the outstanding trade receivable from the AE is not an international transaction within the meaning of term as per section 92B of the Act; 7.3. Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred, in law and in facts, by not appreciating that the outstanding trade receivables from its AE’s is arising from the provision of IT enabled services transaction which is to be considered as closely linked to such transaction and should not be tested separately from arm’s length perspective; 7.4. Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred in law and on facts, by questioning the business rationale of the transaction undertaken by the Appellant thereby questioning the commercial expediency of the transaction entered into by the Appellant; 7.5. Without prejudice to our ground 7.2 above, the learned TPO/ AO has erred, in law and in fact, by computing interest on average outstanding receivables considering opening and closing receivables instead of computing interest on receivables on actual outstanding period; 7.6. Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred, in law and in facts, by adopting SBI interest rates on short term deposits for FY 2015-16, for computing notional interest on the outstanding trade receivables; 7.7. Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred in not adopting LIBOR as the basis for benchmarking. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 5 of 35 8. Corporate tax grounds 1.1 Without prejudice to the above grounds, while computing the taxable income in the assessment order, deduction under section 10AA of the Act claimed in the return of income (ROI) has erroneously been omitted by the learned AO, although in the computation sheet of even date, attached to the final assessment order, assessable income has been computed after allowing deduction under section 10AA of the Act. 9. Other grounds 9.1 The learned AO has erred, in law and in facts, by levying interest of INR 3,21,19,367 under section 234B of the Act. 9.2 The learned AO has erred, in law and in facts, in initiating penalty proceedings under section 274 read with section 271(1)(c) of the Act. The Appellant submits that each of above grounds is independent and without prejudice to one another.” 2. At the time of hearing, assessee has not pressed ground Nos.1 to 6.2. Hence, these grounds are dismissed as not pressed. 3. In Ground No.6.3(a) assessee seeks exclusion of following 3 comparables only: a) Infosys BPO Ltd. b) Eclerx Service Ltd. c) SPI Technologies India Pvt. Ltd. 3.1 The assessee not pressed exclusion of following comparables, which are dismissed as not pressed. : a) Bhilwara Technologies Ltd. b) One Touch Solutions Pvt.Ltd. 3.2 The Ld. A.R. submitted as follows: (a) Infosys BPO Limited Functionally different 3.3 The company provides a gamut of services in horizontal and vertical areas that comprise of sourcing and procurement, customer services, financial & accounting, legal process outsourcing, sales & IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 6 of 35 fulfilment, analytics, human resources outsourcing, Industry solution, digital business services, financial services, manufacturing, energy and utilities, communication and services etc. 3.4 The company is also engaged in robotic process automation and has been awarded "Market Specialist in Mindfield's Research Report titled Robotic Process Automation - Driving the Next Wave of Cost Realization". These services are not comparable to the services provided by the Assessee. Incurs sub-contracting cost and selling, marketing & brand building expenses 3.5 The company has incurred subcontracting charges and selling, marketing & brand building expenses of Rs.162 crores Rs.130 crores and Rs.6 crores respectively during the year which accounts for around 10% of company's total expenses. However, the Assessee does not incur such charges implying that Infosys's business model different from the Assessee. Ld. A.R. stated that the company owns significant intangibles in the form of goodwill worth Rs. 19 crores (per standalone FS) and Rs. 495 crores (per consolidated FS) as at 31 March 2016 Brand Value 3.6 Infosys is an industry giant and commands a very high brand value in the market. It has also spent INR 6 crores towards brand building expenses. Infosys Brand is a key intangible asset of the company and thus, cannot be compared to the Assessee which is a captive service provider. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 7 of 35 Market leader 3.7 The company is a leader when it comes to providing innovative solutions to clients and considering that the BPO as industry has matured, providing end to end services that has resulted in increasing influence with clients, the company has the ability to negotiate its prices with the clients which is not the case with the Assessee as it is a captive service provider. This is evident as it is stated in Annual Report that "A strong brand name coupled with long-standing relationships help us be the employer of choice" Global presence 3.8 It has a wide global presence with 32 delivery centres across nations while the Assessee is a captive service provider. Use of data u/s 133(6) 3.9 The learned TPO, in the TP order has mentioned that data from 133(6) reply has been used. However, incomplete information was provided to the Assessee at the time of assessment proceedings. Further, the information obtained u/s 133(6) of the Act does not qualify as data available in the public domain. Judicial precedents relied upon: Functional comparability- 1. Swiss Re Global Business Solutions India Pvt. Ltd., vs. The Addl./Jt./Dy./Asst. Commissioner of Income Tax/ITO, National Faceless Assessment Centre (NFAC)- IT(TP)A No.397/Bang/2021- AY 2016-17 2. Unisys India Private Ltd vs The DCIT Circle 7(1)(1)- M.P. No. 29/Bang/2022 in ITA No. 584/Bang/2019- AY 2012-13 3. Infor (India) Private Limited vs DCIT CIrcle 2(1), Hyd - ITA-TP. No. 198/Hyd/2021- AY 2016-17- 4. COWI India Pvt. Ltd. vs Income Tax officer, E-Assessment Centre, Circle-I, Gurgaon- ITA No. 443/Del/2021- AY 2016-17 IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 8 of 35 High-end KPO service uncomparable- 1. Rampgreen Solutions private Limited Vs Commissioner of Income tax(ITA 102/2015) 4. The Ld. D.R. stated that on pe ru sa l of the annu al report by Ld. DRP, he noted that this company is engaged in business process management services to organizations that outsource their business processes. Further, at P.60, under Note 2.25 -Segment Reporting, it is clearly stated that the company's operations primarily relate to providing business process management services, and accordingly revenues represented along with industry classes comprise the primary basis of segmental information. Thus, primary business activity of this company is business process management services, in various verticals such as FSI, MFG, RCL, ECS. At P.63 of annual report, Note 2.33, the report clearly states that as per function wise classification it has income from business process management services. On page 28 of the AR, in para 1.3 it is mentioned that Infosys BPO offers business outsourcing solutions to several clients and span across multiple industry segments. The company's catering to a variety of industries does not change the nature of functions carried out as it is committed to provide best in class services to both horizontal and vertical focus areas. Just because the company is providing cloud-based services over various mainframe computers, the company would not be functionally different as claimed by the assessee. In view of the above information in the annual report, there is no merit in the plea that this company is functionally different, and that it has diversified activities, and the arguments of Ld. A.R. to be dismissed. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 9 of 35 4.1 Further, the Ld. D.R. submitted that a plea was also raised before Ld. DRP that this company is into high end ITES service provider, and hence not comparable. Under TNMM, there is no requirement that the comparables should render the same or identical services. It would be sufficient, if the services fall under the broad industry segment ITES. In this regard, it is relevant to note that the Hon’ble Bangalore Tribunal in the case of GE India Technology Centre Private Limited Vs. Dy. Director of Income Tax (ITA No.789/Bang/2010 & ITA Nos.487 & 925/Bang/2011 observed that TNMM requires only broad comparability. The relevant observation is as under: 'As per the principles of comparability, controlled and uncontrolled transactions are regarded as comparable if their economically relevant attributes turd the circumstances surrounding them are sufficiently similar to provide a reliable measure of an arm's length result. However, in reality, two transactions are seldom completely alike. To be comparable does not mean that the two transactions are necessarily identical, but that either none of the differences between them could materially affect the arm's length price or, where stick material differences exist, then reasonably accurate adjustments can he made to eliminate their effect. It is important to note that the life and attributes of the comparables available in a given situation typically determine the most appropriate transfer pricing method. In general, closely comparable products/services are required if the comparable uncontrolled price ('CUP) method is used for arms' length pricing; the resale price, cost-plus methods generally require a lesser degree of products or services comparability and may be appropriate if functional comparables are available. The TANIM requires only broad functional and product/services comparability. In many instances, it will be possible to use 'imperfect' comparables, e.g., comparables from another industry sector, possibly adjusted to eliminate or reduce the differences between them and the controlled transaction." 4.2 Reliance was also placed before Ld. DRP in the case of Pino Bisazza Glass Pvt. Ltd. Vs. ACIT, C5, IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 10 of 35 Ahmedabad 2005-06 & 2007-08, ITA No.1690 & 1622/Ahd/2010 & 3201/Ahd/2011 wherein acceptance of broad comparables was upheld. The relevant extract has been reproduced below: "- 12 - Although the selection of "Industry Segment" is the start point but it is a broad selection, particularly if a finer or more close selection is available. We are aware about Para 1.41 of OECD guidelines which prescribes that it is acceptable to broaden the scope of the comparability analysis to include uncontrolled transaction involving products that are different, hut where similar functions are undertaken. But the OECD guide lines have not stopped there and said that the acceptance of such an approach depends on the effects th a t th e p ro d uct differences have on the reliability on the comparison and do whether or not more reliable data are available. It is rather clarified that before broadening the search to include a large num b er o f p o tent hilly comparable uncontrolled transactions based on similar functions being undertaken, thought should be given to whether such transaction is likely to offer reliable comparables for the controlled transaction. Therefore, the Guidelines are unambiguously suggesting that 'comparability factor' do not restrict t o 'functional analysis and the importance of FAR as a major comparability factor can "t be over emphasized but one needs to carry out the process again and again till the exactly reliable comparable is found. 4.3 Further, in case of Aztec Software Technology Vs. ACIT (2007) 294 ITR (AT) 32 (Bang), the Honourable ITAT has observed following with respect to TNMM. “The TNMM requires establishing comparability at a broad functional level. It requires comparison between net margins derived from the operation of the uncontrolled parties and net margin derived by an associated enterprise on similar operation.” 4.4 In the case of TCL, holdings Pvt. Ltd., vs. Assistant Commissioner of Income Tax (ITA No.7129/Mum/2011), wherein the ITAT held that: “...............in TNMM method it is not necessary that the product should be exactly the same as dealt in by the assessee.” Therefore, these pleas were rejected by the Ld. DRP. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 11 of 35 5. We have heard both the parties and perused the material on record. This comparable has been considered as not comparable in Swiss Re Global Business Solutions India P. Ltd. for AY 2014-15 in IT(TP)A No. 3181/Bang/2018 dated 21.5.2020 wherein it was observed as under:- "We have perused submissions advanced by both sides in light of records placed before us. We note that this company is providing services in various areas of sourcing and procurement, customer services, finance and accounting legal process outsourcing, sales and fulfilment, analytics, business platforms, business transformation services, human resource outsourcing and technology solution optimisation. It is noted that this comparable also provides services in financial services and insurance, manufacturing, energy utilities communications and services and retail, consumer packaged foods, logistics and life services. Further in the annual report it has been mentioned that this comparable provides services that are different from routine back-office services. This noting itself makes this comparable not functionally similar with that of assessee. Accordingly we direct this comparable to be excluded from finalist." 5.1 In view of the above order of the Tribunal, we are inclined to direct the AO/TPO to exclude Infosys BPO Ltd. from the list of comparables to determine the ALP. (b) Eclerx Services Ltd. (‘Eclerx”) Functionally different 6. The company provides a wide range of activities including financial services (contract risk review, consulting services etc.), digital marketing (web analytics, CRM and business intelligence etc.), digital branding (content creation, digital asset management etc.) and cable and telecom services (tiered technical support). Eclerx was also the 2015 MAKE [Most Admired Knowledge Enterprise] winner for both Asia and India. Eclerx is a specialist KPO company and also India's first publicly listed KPO company IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 12 of 35 Extraordinary events 6.1 Eclerx has been amalgamated with Agilyst Consulting Private Limited ("ACPL") with effect from 01 April 2015. As per RPT schedule, the services of all employees and other employee benefits of ACPL have been transferred to Eclerx w.e.f 01 April 2015 6.2 The learned TPO in the order has mentioned that as per Annual Report for FY 2016-17, the HC of Bombay approved the scheme of amalgamation between ACPL and Eclerx with effect from the appointed date of April 01, 2015, which became effective from August 22, 2016 and hence, the results for FY 2015-16 are not impacted by such amalgamation 6.3 However, in financials for FY 2016-17, it is mentioned that the HC has sanctioned the scheme of Amalgamation with an appointed date of 01 April 2015. The scheme has been given effect to in the books of accounts of Eclerx w.e.f 01 April 2015, thus affecting the financials for FY 2015-16. Outsourcing/sub-contracting charges and expenses towards sales & marketing services 6.4 The company incurs subcontracting charges and selling & marketing expenses for INR 2.85 crores and INR 157.89 crores respectively. However, the Assessee does not incur such charges implying that Eclerx's business model is different from the Assessee. Premium pricing and high margins 6.5 The premium that Eclerx commands on account of the distinguished nature of services offered can be demonstrated by high profit margins earned by the company historically. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 13 of 35 Judicial precedents relied upon: Functional comparability/ High-end KPO service uncomparable- 1. Swiss Re Global Business Solutions India Pvt. Ltd., vs. The Addl./Jt./Dy./Asst. Commissioner of Income Tax/ITO, National Faceless Assessment Centre (NFAC)- IT(TP)A No.397/Bang/2021- AY 2016-17 2. Rampgreen Solutions private Limited Vs Commissioner of Income tax(ITA 102/2015) In view of above, the Ld. A.R. contended that the above companies are therefore not comparable to the Assessee and should be excluded from the list of comparable companies. 7. The Ld. D.R. submitted that the Ld. DRP observed that the TPO has included the Eclerx Services Ltd. (Eclerx) as a good comparable in the list of final set of comparables. The assessee argued that the same is a KPO company and hence, it is not a good comparable. There is a thin line of difference between BPO and KPO services. KPO is termed as an upward shift of the BPO industry in the value chain. Thus, BPO trying to upgrade itself as KPO is likely to render both BPO as well as KPO services in the process of evolution and therefore, such an entity cannot be considered strictly as either BPO or KPO. In view of the above, ITeS services cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. 7.1 Further, this company operates under a single primary segment i.e., data analytics and process outsourcing services and neither the assessee nor the TPO has gone into the verticals/ horizontals and high end or low-end distinction of the comparable companies. Finally, under TNMM only broad IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 14 of 35 comparability is required. Further, the profit margins of various comparables will be averaged and a variation of 3% is also permitted. These aspects take care of some differences which are bound to be there between various comparables. In view of the above, ITeS services cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. It is a fact that this company falls in the category of ITeS and hence, the objection is rejected. 7.2. The Annual report of the comparable mentions that Eclerx is a specialist KPO/BPO (Knowledge and Business Process Outsourcing) company providing critical business operations services to more than 301 global Fortune 500 clients, including many of the world’s leading financial services firms, online retail and distributors, interactive media, luxury brands and entertainment, high tech and industrial manufacturing, travel and leisure and software vendors, through operational support, data management and analytics solutions. Thus, it’s not purely a KPO company. 8. We have heard the rival submissions and perused the materials available on record. This comparable has been considered in the case of Swiss Re Global cited (supra), wherein it was held as under: “29. We have heard both the parties on the issue. This company has also been considered as not comparable in assessee’s own case for AY 2014-15 & IT(TP)A No.3181/Bang/2018 dated 21.5.2020 wherein it was observed as under:- 2. "It is noted that this company is involved in high-end KPO services whereas assessee is providing IT enabled services by rendering remote data IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 15 of 35 processing in the field of reinsurance. In our opinion functions performed by this company is not similar to that of assessee even though assessee before us also carries out certain services on contract basis. Ld.AR has placed reliance upon decision of Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. v. CIT [2015] 60 taxmann.com 355/234 Taxmann, 573/377 ITR 533 Hon'ble court had held that once a company falls into the category of high-end KPO, it cannot be functionally comparable with a BPO service provider like that of assessee. Applying this reissue in the present case, we direct Ld.AO to eliminate this comparable from final list." 30. In view of the above order of the Tribunal, we are inclined to direct the Eclerx Services Ltd. be excluded from the list of comparables”. 8.1 In view of the above order of the Tribunal, we direct the AO/TPO to exclude this company from the list of comparables. (c) SPI Technologies India Pvt. Ltd. Functionally dissimilar 9. As per the annual report of the company, the company is engaged in typesetting business, including transformation of unedited manuscripts into final print-ready files, supply of structured data for electronic publishing and providing end-to-end project management services. These services are not comparable to the services rendered by the Assessee. 9.1 Further, the learned TPO in the order has rejected MPS Limited which is engaged in "the business of providing publishing solutions viz., type setting and data digitization services for overseas publishers and supports international publishers through every stage of the author-to-reader publishing process and provides a digital-first strategy for publishers across content production, IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 16 of 35 enhancement and transformation, delivery and customer support. " MPS Limited has been rejected basis functional incomparability. KPO service company basis response received u/s 133(6) 9.2 Basis the response received u/s 133(6) of the Act from SPI Technologies, the company has claimed that it is "operating in knowledge process outsourcing..". Considering that SPI technology provides KPO services, the same is uncomparable to the Assessee's business of routine BPO services. Sub-contracting cost 9.3 The company incurs subcontracting charges which indicates it outsources part of its activity. The cost of such subcontracting charges is INR 20.88 crores for FY 2015-16 hence, SPI's business model is different from NTT Data IPS as it does not outsource its work. Presence of inventories 9.4 SPI has inventories for INR 68.69 crores (which works out as 20.43% of turnover) in its Balance Sheet unlike the Assessee that is a pure service provider with no inventories. Judicial precedents relied upon: High-end KPO service uncomparable- Rampgreen Solutions private Limited Vs Commissioner of Income tax(ITA 102/2015) (Page 2461 - 2506 of Paperbook II- Part 4- Caselaws) 10. The Ld. D.R. submitted that fo r fu nc ti o na l d if fe r en ce s, t he as s e s s e e has r e li ed o n th e w e bs it e e xt ra c t o f thi s c o mp a ny . T he d is c u s s io n o n t he c o mp a ra bi li t y s ho u ld b e ba s e d on t he An nu a l Re p or t of the co m pa ny fo r t he re le v an t fi na n ci al y e ar . A s Fo r e x a mp le , in th e prese nt IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 17 of 35 c a se , w e a re c on s id e ri ng th e An nu a l Report of 2015-16 whereas when the submission is made by the assessee before the TPO in FY 2019-20, the web site extract will show the functionality of the company in the relevant financial year i.e., 19-20 which may be much different than the FY 15-16 which is actually under consideration. Having said that, the functionality of the company is analysed with reference to the annual report for F.Y. 2015-16. It is reported in page Nos. 119 &120 of the annual report that "the company is engaged in data processing and related services primarily in the typesetting business, including transformation of unedited manuscripts into final print ready files, supply of structured (data for electronic publishing and providing end-to- end project management services", all these activities are in the nature of ITeS and hence, is held to be functionally comparable. Further, the company is in single segment of ITeS as per ITC 4 digit code reported in the Annual Report at page no. 1. Accordingly, the company is Functionally comparable. 10.1 The assessee contended based on the information collected under section 133(6) of . the Act by the TPO that this company is involved in provision of diversified KPO services and hence cannot he considered as ITES comparable. There is a thin line of difference between BPO and KPO services. KPO is termed as an upward shift of . the BPO industry in the value chain. Thus, BPO trying to upgrade itself as KPO is likely to render both BPO as well as KPO services in the process of evolution and therefore, such an entity cannot be considered strictly as either BPO or KPO. In view of the above, ITeS services cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 18 of 35 10.2 As discussed by the TPO, the company in response to the notice u/s 133 . (6) of the Act, has stated that the company and Lambda tent Pvt 1,1d had entered into a scheme of amalgamation with effect from 1 September 2017. This amalgamation also does not pertain to this year and do not have any impact on the profits of the company. 10.3 The company is engaged in providing, only data processing services and hence the margin is completely at the entity level. On page 163 of the Annual report, the company has, disclosed that the entire revenue is from data processing and related services only. 10.4 Therefore, all these objections are to be rejected and this company is to be a comparable. 11. We have heard the rival submissions and perused the materials available on record. The main contention of the Ld. A.R. is that TPO rejected the NPS Ltd. which is engaged in the business of providing publishing solutions namely typesetting, data digitisation commission for overseas publisher and support international publisher through every stage of the author to reader publishing process and provides the digital first strategy for publishing contents, production and transformation, delivery and customer support. Thus, NPS Ltd. Has been rejected based on functional incomparability. Hence, on the same logic SPI Technologies Ltd. to be excluded. 12. Ground No.6.3(b) the assessee seeks inclusion of following comparables except (iv) BNR Udyog Ltd. The assessee has not pressed the inclusion of following comparables and made endorsement to this effect. Accordingly, inclusion of these 4 comparables are dismissed as not pressed:- IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 19 of 35 i. Allsec Technologies Limited ii. Cosmic Global Ltd. iii. Jindal Intellicom Ltd. v. Jeevan Scientific Technology (iv) BNR Udyog Ltd. Functionally comparable 13. The company is engaged in 3 primary segments- Medical transcription, Business support and Finance & other activities. The activities of medical transcription services are in the nature of IT enabled services Export earnings > 75% filter 13.1 Without prejudice to our contention that export service revenue filter of 75% is not appropriate, the company's Medical transcription services segment passes the export earnings > 75% filter for FY 2015-16, FY 2014-15 and FY 2013-14. Further, the Hon'ble Bangalore ITAT's judgement in the case of CGI Information Systems and Management Consultants Private Limited [IT(TP)A No. 586/Bang/2015 and 183/Bang/2017], holds that "when segmental information is available and not disputed, it cannot be argued that filters have to be applied at entity level. 13.2 Segmental information is clearly available for BNR Udyog Ltd in its annual report; hence filters may be applied at segment level instead of on entity level and BNR Udyog would be considered a good comparable. Hence, assessee contended that the company passes all other filters IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 20 of 35 Judicial precedents relied upon: Segmental data to be considered for filters 1. CGI Information Systems and Management Consultants Private Limited [IT(TP)A No. 586/Bang/2015 and 183/Bang/2017] In view of above, the Ld. A.R. contended that the above companies are comparable to the Assessee and should be included in the list of comparable companies. 14. The Ld. D.R. submitted that on perusal of the annual report, it was seen from disclosure in Profit and Loss account and Annual Report for the A.Y. 2015-16 that earnings in foreign exchange is Rs. 0.46 crore whereas the total revenue from operations is Rs. 8.33 crore. Therefore, it has an export revenue of 0.55% of total revenue from operations. Hence it is rightly rejected as comparable as it is not satisfying the export revenue filter adopted by the TPO. Therefore, this company is not functionally comparable as it fails the export revenue filter of 75% adopted by the TPO. As a result, this objection is to be dismissed. 15. We have heard the rival submissions and perused the materials available on record. The contention of the Ld. A.R. is that when segmental information is available and not disputed, it cannot be argued that filters have to be applied at entity level. We find that this proposition accepted by this Tribunal in the case of CGI Information Systems and Management Consultants Pvt. Ltd. In IT(TP)A No.586/Bang/2015 and No.183/Bang/2017 dated 11.4.2018, wherein held as under: “52. There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 21 of 35 from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore, comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already suited if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore, the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing. Offset Printing and Pre press /WO. Whether the label printing and offset printing segments supplement the functions performed iii the Pre- press BP° segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the Top the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press IIPO have to be adjusted taking into account the fact that two other segments supplement the pre-press IWO segment. If such adjustment cannot be reasonably or accurately ma e then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s.133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by the pm-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regarded to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s.133(6) of the Act. The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO. 15.1 In view of the above order of Tribunal, taking a consistent view, we direct the AO/TPO to include BNR Udyog Ltd. In the list of comparables to determine the ALP of international transactions. 16. Ground No.6.3(c) assessee wants inclusion of following comparables:- IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 22 of 35 1) Informed Technologies India Ltd. 2) Sundaraam Business Services Ltd. 3) ACE Software Exports Ltd. 4) Hartron Communications Ltd. 16.1 The Ld. A.R. submitted that the DRP’s direction to reject the below mentioned companies in the final list of comparables is incorrect in law and on facts for the following reasons: (a). Hartron Communications Limited Functionally comparable 16.2 The company is engaged in 3 business segments namely, Rent Income, Office back-up operations and Real estate. The office back up operations segment of the company is functionally comparable to the Assessee Segmental data to be considered for filters 16.3 DRP has rejected the comparable stating that it fails the core service revenue >75% filter. However, the filter has been applied by the TPO/DRP on an entity-wide basis despite clear segmental information being available. The Hon'ble Bangalore ITAT's judgement in the case of CGI Information Systems and Management Consultants Private Limited [IT(TP)A No. 586/Bang/2015 and 183/Bang/2017], holds that "when segmental information is available and not disputed, it cannot be argued that filters have to be applied at entity level. Segmental information is clearly available for Hartron Communications Limited in its Annual Report, hence filters may be applied at segment level and Hartron would be considered a good comparable. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 23 of 35 The company also satisfies all other filters as applied by the learned TPO. Judicial precedents relied upon: Segmental data to be considered for filters 1. CGI Information Systems and Management Consultants Private Limited [IT(TP)A No. 586/Bang/2015 and 183/Bang/2017] (Page 2712 of Paperbook II- Part 4- Caselaws) (b) Ace Software Exports Ltd Functionally comparable 17. As per the annual report of the company, the company is in the business of creation of database which falls within the category of IT enabled services only. The company passes all the filters as applied by learned TPO. (c) Sundaram Business Services Limited Passes the persistent operating losses filter 17.1 A comparable should be treated as a persistent loss making company only if it has incurred losses in all 3 years under consideration. 17.2 The company is not a persistent loss making as it has earned profits of 1.61% for FY 2015-16 and thus did not incur losses for consecutive 3 years. The company passes all other filters as applied by learned TPO. The company is engaged in rendering of Business Process Outsourcing (BPO) and related activities IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 24 of 35 Judicial precedents relied upon: Passing persistent operating loss Swiss Re Global Business Solutions India Pvt. Ltd., vs. The Addl./Jt./Dy./Asst. Commissioner of Income Tax/ITO, National Faceless Assessment Centre (NFAC)- IT(TP)A No.397/Bang/2021- AY 2016-17 (d) Informed Technologies India Limited Functionally comparable 18. The company is primarily engaged in the business of Business processing outsourcing which is the only reportable segment of the company The company passes quantitative and qualitative filters applied by the Assessee and the learned TPO and, is therefore comparable to the Assessee. 19. We have heard the rival submissions and perused the record. In our opinion, th TPO/AO is required to consider these comparables afresh and decide. Accordingly, these comparables are remitted to AO/TPO for fresh consideration. FINAL SET OF COMPARABLES 20. On acceptance of the afore-mentioned submissions, the final list of comparables would be as follows: a) Bhilwara Infotechnology Limited b) One touch Solutions India Private Limited c) Tech Mahindra Business Services Ltd. d) Hartron Communications Limited e) Ace Software Exports Ltd f) Sundaram Business Services Limited g) Informed Technologies India Limited h) B N R Udyog Ltd IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 25 of 35 20.1 Since the Assessee’s margin would be within the arm’s length range of margins of the remaining comparables, the international transaction of provision of IT enabled services by the Assessee to its AEs would be at arm’s length. 20.2 The argument of Ld. D.R. is that the assessee has not produced the physical copy of annual report and hence it has not been considered by the lower authorities. 20.3 We have heard the rival submissions and perused the materials available on record. In our opinion, if all the filters are satisfied, these comparables to be included. Accordingly, this issue remitted to the file of the AO/TPO with a direction to the assessee to furnish the annual report copy and if it is furnished, the AO/TPO to apply the filters at segmental level to decide accordingly. Accordingly, these comparables remitted to file of AO/TPO for fresh consideration. 21. Ground No.7 is with regard to not giving adjustment on account of notional interest on outstanding receivables. The grounds raised are reproduced as follows: 7. Adjustment on account of notional interest on outstanding receivables 7.1 The learned TPO/ AO grossly erred in determining a transfer pricing adjustment on account of the interest on outstanding receivables amounting to INR 70,32,196. 7.2 The learned TPO/ AO/ DRP have erred, in law and in facts, by re-characterizing the outstanding trade receivables as on 31st March, 2016 as a loan transaction, without appreciating that the outstanding trade receivable from the AE is not an international transaction within the meaning of term as per section 92B of the Act; 7.3 Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred, in law and in facts, by not appreciating that the outstanding trade receivables from its AE’s is arising from the provision IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 26 of 35 of IT enabled services transaction which is to be considered as closely linked to such transaction and should not be tested separately from arm’s length perspective; 7.4 Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred in law and on facts, by questioning the business rationale of the transaction undertaken by the Appellant thereby questioning the commercial expediency of the transaction entered into by the Appellant; 7.5 Without prejudice to our ground 7.2 above, the learned TPO/ AO has erred, in law and in fact, by computing interest on average outstanding receivables considering opening and closing receivables instead of computing interest on receivables on actual outstanding period; 7.6 Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred, in law and in facts, by adopting SBI interest rates on short term deposits for FY 2015-16, for computing notional interest on the outstanding trade receivables; 7.8 Without prejudice to our ground 7.2 above, the learned TPO/ AO/ DRP have erred in not adopting LIBOR as the basis for benchmarking. 21.1 The Ld. A.R. submitted that the assessee wishes to submit that the delayed / outstanding receivables should not be considered as a separate international transaction. Further, it is humbly submitted that determination of ALP in respect of delayed receivables from inter-company transactions is not required since ALP of inter- company transactions of provision of services has been already determined and no separate adjustment is necessary in this regard. Outstanding receivables cannot be treated as a separate international transaction 21.2 The assessee has provided IT enabled services to its AEs and amount outstanding as trade receivables merely represent the dues which are to be received by the Assessee against the services provided. As a business practice, the Assessee did not charge any interest on delayed realisation of invoice from AEs nor paid any interest on delayed payables. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 27 of 35 21.3 Early or late realization of service proceeds is incidental to the transaction of sale/ service, and not a separate transaction in itself. In other words, these represent the consequence of an international transaction and not an international transaction per-se. If the ALP in respect of an international transaction of service is determined, then there can be no question of treating non-receipt of interest in such transaction as separate international transaction warranting any further adjustment. Once ALP is determined in respect of the sale/ service transaction, it would be deemed to be covering all the elements and consequences of such transaction of sale/ service. Aggregation approach - all service related costs are embedded in the remuneration received from the AEs 21.4 Without prejudice to above, it is to be appreciated that where companies are aware of the fact that customer will take longer than the agreed time to pay the outstanding dues, the same is factored in the price/ mark-up charged for the services rather than to levy of actual interest when the payment is eventually made by the customer. The principle of aggregation is well established rule in the transfer pricing analysis. This principle seeks to combine all functionally similar transactions wherein arm's length price can be conducted for a number of transactions taken together. The said principle is enshrined in the transfer pricing regulation itself. Outstanding receivables from AEs cannot be re-characterised as loan advanced to AEs 21.5 The assessee wishes to humbly submit that outstanding/ delayed receivables from AEs cannot be treated as unsecured loans advanced to AEs and interest cannot be imputed on the same. IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 28 of 35 Account receivables arising from an international transaction are closely linked to the main transaction and should be benchmarked using a combined transaction approach 21.6 Without prejudice to our contention that outstanding receivables is not an international transaction, we would like to submit that if outstanding receivables is treated as a separate international transaction by the learned TPO, the same should be benchmarked using a combined transaction approach, by combining the outstanding receivables with the main international transaction of provision of services due to the fact that receivables are a result of the international transactions of the Assessee. Incorrect adoption of SBI short term deposit rates instead of LIBOR rates for imputing notional interest 21.7 Without prejudice to our contention that outstanding receivables is not an international transaction, we would like to submit that the outstanding balances being in foreign currency and receivable from foreign debtors, the appropriate rate for imputing notional interest on delayed receivables would be LIBOR. The Hon’ble DRP has erred in directing the ld. TPO to use SBI short-term deposit rates. Incorrect computation of notional Interest on delayed receivables 21.8 Without prejudice to our contention that outstanding receivables is not an international transaction, we wish to submit that the notional interest is imputed considering a credit period of 30 days in spite of our submission that as per the inter-company agreement, the credit period allowed by the Assessee is 60 days. 21.9 As per the Hon’ble DRP’s directions, the notional interest computation must be made on an Invoice-by-Invoice basis. The Hon’ble DRP directed the Assessee to furnish the TPO with Invoice- IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 29 of 35 wise details of period of delay for the computation of notional interest which was submitted with the TPO vide submission dated 23 April 2021. However, the TPO has not provided any workings for computation of the notional interest on delayed receivables to determine whether the directions of the DRP to compute interest on a Invoice-by-invoice basis has been followed and accordingly the issue is remitted to AO/TPO for fresh consideration. Working capital adjustment appropriately takes into account the delayed/ outstanding receivable; separate TP adjustment is unwarranted 22. The assessee requests that where working capital adjustment is granted, receivables amount gets adjusted in working capital adjustments and another separate addition is not required under the TP provisions. In view of above, the assessee prays that the adjustment on account of the interest on receivables should be deleted by providing working capital adjustment. Judicial precedents- Xchanging Solutions Ltd - IT(TP)A No.294/Bang/2021- AY 2016-17 22.1 We have heard the rival submissions and perused the materials available on record. This issue considered by this Tribunal in the case of Xchanging Solutions Ltd. In IT(TP)A No.294/Bang/2021 dated 12.5.2022 for AY 2016-17, wherein Tribunal held as under: “7.2 We have heard rival submissions and perused the material on record. The assessee has undertaking working capital adjustment to consider the impact of extended credit period. The working capital adjustments are made to analyse the operational performance of the companies, therefore, the receivables amount gets adjusted in working capital adjustments and another separate addition is not required under the TP provisions. This principle has been upheld by the Tribunal in assessee's own case for assessment year 2014-2015 in IT(TP)A No.3358/Bang/2011 (order dated 01.11.021). The relevant finding of the Tribunal in assessee's own case, for assessment year 2014-2015 reads as follows:- IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 30 of 35 "7.4 We have heard rival submissions and perus ed the material on record. The Tribunal in assessee's own case for assessment year 2008-2009 (supra) had directed AO / TPO to determine afr esh the ALP in, respect of providing SWD services by considering the proper working capital adjustment in com parable prices. It was held by the Tribunal that in case after giving necessary adjustment, the international tr ansaction of the assessee is found to be at arm's length, then ther e is no question of separate adjustm ent on account of allowing credit period from receivables from AE. The relevant finding of the Tribunal in assessee's own case for assessment year 2008-2009 reads as follows:- "23. We have heard the learned Counsel for the assessee as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that this issue has been considered and decided by this Tribunal in a series of decisions including the decision in the case of M/s. Dell International Services India Pvt. Ltd. Vs. JCIT in ITA No.308/Bang/2015 Dt.17.6.21)16 wherein the Tribunal has considered this issue in para 7 as under : " 7. We have considered the rival submissions and relevant material on record. At the outset, we note that allowing a credit period on receivable from AE is not an independent international transaction however, it is part of the main international transaction of providing software development services by the assessee to its AEs. There are series of decisions wherein the Tribunal has considered this transaction as part of the main international transaction between the assessee and its AE and therefore the treatment of the same at the time of determining the arm's length of the international transaction has to be given in the shape of allowing the necessary adjustment in the comparable prices on account of working capital adjustment. We find that the Jigastbai Bench of the Tribunal in the case of Goldstar Jewellery Lit in ITA No.6570/Mum/2012 vide order dt.14. 1.2015 as well as Delhi Bench of the Tribunal in the case of Kusum Healthcare Pot Ltd Vs. ACTT in ITA No.6814/Del/2014 vide order &3132015 has taken this view that allowing the credit period. over and above normal credit period prevailing in the industry is certainly relevant and part of the main international transaction of sale or purchase between the assessee and the AE. However, it was held that it cannot be treated as an independent international transaction de horse the mail] international transaction between the parties. We further note that an identical issue was considered and decided by the Mumbai Bench of this Tribunal in the case of Information Systems Resource Centre Pvt. Ltd. Vs. ACIT in ITA No.7757/Mum/2012 and C.O. 282/Mum/2013 vide order dt.29.5.2015 in paras 11 to 13 as under : 11. We have considered the rival submissions as well as the relevant material on record. In the present case, the sale transaction of the assessee with its A.E. have been accepted by the Transfer Pricing Officer/Assessing Officer at arm's length and no adjustment has been made in respect of the sale transaction. However, the Transfer Pricing Officer has made the adjustment on account of credit period provided by the assessee to the A.E. on realisation of sale proceeds. At the outset, we note that an identical issue has been considered by the co— ordinate IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 31 of 35 bench of the Tribunal, Mumbai Benches, in Goldstar Jewellery Ltd. (supra), f Vide Para-8, held as under:— : "8. We have considered the rival submissions and relevant material on record. The assessee has reported international transaction in its TP report regarding sale to its AE from manufacture of jewellery units and diamond trading unit. The TPO accepted the price charged by the assessee from AE at arm's length. However, the TPO has made the adjustment on account of notional interest for the excess period allowed by the assessee to AE for realization of dues. The TPO applied 18.816% per annum as arm's length on the over due amounts of AE and proposed adjustment of Rs. 2,49,95,139/, The DRP though concurred with the view of the Assessing Officer/TPO on the issue of international transaction, however, the adjustment was reduced by applying the interest rate of 7% instead of 18.816% applied by the TPO. The first issue raised by the assessee is whether the aggregate period extended by the assessee to the AE which is more than the average credit period extended to the nonAE would constitute international transaction. We are of the view that after the insertion of explanation to section 92B(1), the payment or deferred payment or receivable or any debt arising during the course of business fall under the expression international transaction as per explanation. Therefore, in view of the expanded meaning of the international transaction as contemplated under clause (1) (e) of explanation to section 92B(1), the delay in realization of dues from the AE in comparison to non-AE would certainly falls in the ambit of international transaction. However, this transaction of allowing the credit period to AE on realization of sale proceeds is not an independent international transaction but it is a closely linked or continuous transaction along with sale transaction to the AE. The credit period allowed to the party depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE. As per Rule 10A(d) if d number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregate and clubbing of closely linked transaction are permitted under said rule. This concept of aggregation of the transaction which is closely linked is also supported by OECD transfer pricing guidelines. In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation what is to be considered is that one transaction is follow-on of the earlier transaction and then the subsequent transaction is carried out and dependent wholly or substantially on the earlier transaction. In other words, if two transactions are so closely linked that determination of price of one transaction is dependent on the other transaction then for the purpose of determining the ALP, the closely linked transaction should he aggregated and clubbed together. When the transaction are influenced by each other and particularly in determining the price and profit involved in the transactions then those transactions can safely be regarded as closely linked transactions. In the case in hand the credit period extended to the AE is a direct result of sale transaction. Therefore no question of credit period allowed to the AE for realization of sale proceeds without having sale to AE. The credit period extended to the AE cannot be treated as a transaction stand alone without considering the main transaction of sale. The sale price of the product or service IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 32 of 35 determined between the parties is always influenced by the credit period allowed by the seller. Therefore, the transaction of sale to the AE and credit period allowed in realization of sale proceeds are closely linked as they are inter linked and the terms and conditions of sale as well as the price are determined based on the totality of the transaction and not on individual and separate transaction. The approach of the TPO and DRP in analyzing the credit period allowed by the assessee to the AE without considering the main international transaction being sale to the AE will give distorted result by disregarding the price charged by the assessee from AE. Though extra period allowed for realization of sale proceeds from the AE is an international transaction, however, for the purpose of determining the ALP, the same has to be clubbed or aggregated with the sale transactions with the AE. Even by considering it as an independent transaction the same has to be compared with the internal CUP available in the shape of the credit allowed by the assessee to non AE. When the assessee is not making any difference for not charging the interest from AE as well as non AE then the only difference between the two can be considered is the average period allowed along with outstanding amount. If the average period multiplied by the outstanding amount of the AE is at arm's length in comparison to the average period of realization and multiplied by the outstanding from non AEs then no adjustment can be made being the transaction is at arm's length. The third aspect of the issue is that the arm's length interest for making the adjustment. Both the TPO and DRP has taken into consideration the lending rates, however, this is not a transaction of loan or advance to the AE but it is only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan is available. Accordingly, we direct the Assessing Officer/TPO to re-do the exercise of determination of ALP in terms of above observation." 12. Thus, it is clear that the Tribunal has taken a view that the transaction of allowing the credit period to the A.E. on realisation of sale proceeds has to be considered along with the main international transaction in respect of sale to A.E. A similar view has been taken by the Tribunal, Delhi Bench, in Kusum Healthcare Pvt. Ltd. (supra), wherein the Tribunal, vide Para-7 to 10, held as under:— " 7. We have heard rival submissions and perused the material on record. An uncontrolled entity will expect to earn a market rate of return on its working capital investment independent of the functions it performs or products it provides. However, the amount of capital required to support these functions varies greatly, because the level of inventories, debtors and creditors varies. High levels of working capital create costs either in the form of incurred interest or in the form of opportunity costs. Working capital yields a return resulting from a) higher sales price or b) lower cost of goods sold which would have a positive impact on the operational result. Higher sales prices acts as a return for the longer credit period granted to customers. Similarly in return . for longer credit period granted, a . firm should be willing to pay higher purchase price which adds to the cost of goods sold. Therefore, high levels accounts receivable and inventory tend to overstate the operating results while high levels of accounts payable tend to understate them thereby necessitating appropriate adjustment. The appropriate adjustments need to be considered to bring parity in the working capital investment of the assessee and the comparables rather than looking at the receivable independently. Such working capital adjustment takes into account the impact of outstanding receivables on the profitability. In this regard, the reliance is placed on the following rulings wherein the need to undertake IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 33 of 35 working capital adjustment has been appreciated by the Hon 'ble Tribunals : • •• • Mercer Consulting India Pvt. Ltd. [TS-170-ITAT-2014(DEL)J, • •• • Mentor Graphics (Noida) Private Limited [109 ITD 1011 • •• • Egain communication (P) Ltd. [ITA No. 1685/PN/2007J • •• • Sony India (Pvt.) ltd. [2011-T7I-43-ITAT-DEL-TPJ • •• • Capgemini India Private Limited [TS-45-ITAT-2013(Mum)-TP] 8. In view of the above, a working adjustment appropriately takes into account the outstanding receivable. Therefore, the assessee has undertaken a working capital adjustment to reflect these differences by adjusting for differences in working capital and thereby, profitability of each comparable company. Accordingly, while calculating the working capital adjusted, operating margin on costs of the comparable companies, the impact of outstanding receivables on the profitability has been taken into account. If the pricing/ profitability of the assessee are more than the working capital adjusted margin of the comparables, then additional imputation of interest on the outstanding receivables is not warranted. `9. The assessee had undertaken a working capital adjustment for the comparable companies selected in its transfer pricing report which was also submitted with the Ld. 77'0. A snapshot of the result is provided below: Segment Name Appellant's Margin (OP/T9 Working capital adjusted margins of comparables (OP/TC) Manufacturing Activity 46.33% 11.84% Trading Activity 17.44% 8.36% 10. The above analysis empirically demonstrates that the differential impact of working capital of the vis-a-vis its 'comparables has already been factored in the pricing/profitability of the assessee which is more than that working capital adjusted margin of the comparables. Hence, any further adjustment to the margins of the assessee on the pretext of outstanding receivables is unwarranted and ivholly unjustified." Following the orders of the Tribunal, we set aside this issue to the record of the Assessing Officer / Transfer Pricing Officer and direct to re—do the exercise of determination of arm's length price in the light of the above decisions of the Tribunal. The grounds raised in this cross objection are allowed for statistical puiposes." Following the earlier orders of this Tribunal, we set aside this issue to the record of the A.O./TPO with the direction to redo the exercise of determination of ALP by considering the proper working capital adjustment in the comparable prices in respect of transaction of software development services provider to the AE. We make it clear that if after giving the necessary adjustment the international transaction of the assessee is found at arm's length then there is no question of any separate adjustment on account of allowing the credit period on the receivable from AE. We further clarify that the normal credit period allowed for the receivable from the AE shall be the credit period prevailing in the industry and therefore we are of the view that two months credit period should be taken as a normal business practice in the industry. The TPO/A.O shall also consider the benchmark interest rate as LIBOR/PLR in the light of various precedents on this issue." IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 34 of 35 A similar view has been taken by this Tribunal in a series of Other decisions as referred in the earlier decisions as well as relied upon by the Id. AR of the assessee. Accordingly, taking a consistent view we set aside this issue to the record of the A.O./TPO with the direction to redo the determination of ALP in respect of providing software development services by considering the proper working capital adjustment in comparable price. In case after giving the necessary adjustment the international transaction of the assessee is . found at arm's length then there is no question of separate adjustment on account of allowing credit period on receivable from the AE." 7.2.1Taking a consistent stand, we direct the AO / TPO to redo the transfer pricing analysis in respect of interest on outstanding receivables by taking into account the directions of the Tribunal in assessee's own case for assessment year 2008-2009 (supra). It is ordered accordingly.” 22.2 In view of the above order of the Tribunal, we remit this issue to the file of AO/TPO on similar directions. 23. The next ground raised by the assessee in ground No.8.1 is with regard to the Corporate Tax. The ground is reproduced as follows:- Without prejudice to the above grounds, while computing the taxable income in the assessment order, deduction under section 10AA of the Act claimed in the return of income (ROI) has erroneously been omitted by the learned AO, although in the computation sheet of even date, attached to the final assessment order, assessable income has been computed after allowing deduction under section 10AA of the Act. 23.1 We have heard both the parties on this issue. In our opinion, the claim of assessee to be verified by the AO/TPO in accordance with the return of income filed by the assessee. Accordingly, we direct the AO/TPO to consider claim of assessee u/s 10AA of the Act in accordance with law. The issue remitted to AO/TPO for fresh consideration, IT(TP)A No.297/Bang/2021 M/s. NTT Data Information Processing Services Pvt. Ltd., Bangalore Page 35 of 35 24. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 7 th Jul, 2022 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 7 th Jul, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.