Appeal details
Counselvise Citation
[2023] 100 COUNSELVISE.COM (IT) 6566 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-10-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
25-07-2023
Assessment Year
2017-2018
Appeal Filed On
24-04-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No. 301/Bang/2022 Assessment Year : 2017-18 M/s. SanDisk India Device Design Centre Pvt. Ltd., Survey No. 143/1, Amani Bellandur Khane Village, Prestige Excelsior, Prestige Tech Park, Marathalli – Sarjapur Outer Ring Road, Kadubeesanahalli, Varthur Hobli, Bangalore – 560 103. PAN: AAICS9204M Vs. The Deputy Commissioner of Income Tax, Circle 6 (1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Ajay Rotti, CA Revenue by : Shri D.K. Mishra, CIT DR Date of Hearing : 26-07-2023 Date of Pronouncement : 13-10-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of final assessment order dated 26.02.2022 passed by the NFAC, Delhi for A.Y. 2017-18 on following grounds of appeal: Page 2 IT(TP)A No. 301/Bang/2022 Page 3 IT(TP)A No. 301/Bang/2022 Page 4 IT(TP)A No. 301/Bang/2022 Page 5 IT(TP)A No. 301/Bang/2022 Page 6 IT(TP)A No. 301/Bang/2022 Page 7 IT(TP)A No. 301/Bang/2022 2. Brief facts of the case are as under: 2.1 The assessee is engaged in the business of designing, developing and manufacturing data storage solutions in a variety of form factors using their flash memory, proprietary controller and firmware technologies. For year under consideration, assessee filed its return of income on 30.11.2017 declaring total income of Rs.61,52,43,330/-. The case was selected for scrutiny and statutory notices were issued to assessee. In response to the notices, assessee filed the relevant details as called for. The Ld.AO observed that assessee had entered into international Page 8 IT(TP)A No. 301/Bang/2022 transactions exceeding Rs. 15 crores. Accordingly, the case was referred to the transfer pricing officer. 2.2 On reference received by the Ld.TPO under 92CA, the Ld.TPO called upon assessee to furnish the economic details of the international transaction in form 3CEB. From the details filed, the Ld.TPO observed that following the international transaction entered into by assessee. International Transactions Amount Received/Receivable Amount Paid/Payable (Amount in INR) (Amount in INR) Revenue from software development services 5,657,964,967 - Revenue from Information Technology Enabled services 697,031,622 - Revenue from marketing support services 231,306,502 Reimbursement of employee's contribution to employee stock purchase plan 39,666,429 Reimbursement of expat salary expense 46,881,257 Interest on ECB - 138,295,505 Reimbursement of share based compensation expense 1,171,140,369 2.3 The Ld.TPO observed that, the assessee reported international transactions in respect of Software Development Service (SWD), IT Enabled Services (ITeS) and Market Support Services (MSS). The arm's length price of the international transactions in SWD/ITeS/MSS segments provided to the associated enterprises (AE) was determined by applying Transactional Net Margin Method (TNMM), stating to be the most appropriate method. OP/OC was taken as the profit level Page 9 IT(TP)A No. 301/Bang/2022 indicator (PLI) in TNMM analysis to compute margin under all three segments. 2.4 Software Development segment: 2.4.1 The Ld.TPO observed that assessee used 6 comparables, by using OP/OC as PLI, and computed average margin at 12.32%. Following were the comparables selected by assessee. Sl.No Name of the Company Weighted Average (%) 1 Akshay Software Technologies Ltd. -2.29% 2 Evoke Technologies Pvt. Ltd. 5.28% 3 Sasken Technologies Ltd. 6.78% 4 Mindtree Ltd. 17.86% 5 Intense Technologies Ltd. 18.15% 6 R Systems International Ltd. 23.51% Median 12.32% 2.4.2 The assessee computed its margin at 15.23% for the transaction with AE under SWD segment was held to be at arms length. 2.4.3 The Ld.TPO noted that the assessee applied certain inappropriate filters to select the above comparables under the segment. The Ld.TPO thus rejected the comparables and the filters applied by assessee. 2.4.4 The Ld.TPO also applied R&D as qualitative filter for the purpose of selecting comparables under SWD segment for the reason that SWD segment undertakes broad range of activities ranging from simple coding, testing and maintenance of software Page 10 IT(TP)A No. 301/Bang/2022 platform to complex activities like designing the architecture, developing new algorithms etc. The Ld.TPO also applied this filter for the reason that apart from the three segment undertaken by the assessee it also undertakes research and development activity and therefore the activity claimed by assessee to be routine under SWD was not accepted. The Ld.TPO was of the opinion that the assessee undertook research and development activities on regular basis that has commercial implication by employing its employees who are inventing new technologies. 2.4.5 The Ld.TPO thus applying various filters finalised the following 5 comparables with a mean of 27.43%. Sl. No. Company Name F.Year wise OP/OC (%) Wt. Average 2016-17 2015-16 2014-15 1 Larsen & Toubro Infotech Ltd. 20.78 19.21 23.98 21.14 2 Mindtree Ltd. 20.12 26.11 27.51 24.17 3 Persistent Systems Ltd. 25.05 23.95 30.39 26.17 4 Tata Elxsi Ltd. 24.90 29.13 24.45 26.19 5 Infosys Ltd. 38.79 38.30 41.40 39.50 -3% 23.60 Mean 27.43 +3% 31.25 2.4.6 He thus proposed adjustment of Rs.87,88,95,344/- under the software development segment. While computing the margin, the Ld.TPO did not grant Working Capital adjustment and rejected risk adjustment by following various decisions of Coordinate Bench of this Tribunal. Page 11 IT(TP)A No. 301/Bang/2022 2.5 ITeS segment: 2.5.1 The Ld.TPO noted that assessee selected a set of six (6) comparables with a median of 10.35%, the details of which are as under: Sl.No Name of the Company Weighted Average (%) 1 Informed Technologies India Ltd -13.42% 2 Cosmic Global Ltd 5.84% 3 Allsec Technologies Ltd 8.08% 4 R Systems International Ltd (segmental) 12.63% 5 Microland Ltd (seg) 16.51% 6 One Touch Solutions India Private Ltd. 20.37% Median 10.35% 2.5.2 The assessee computed its margin under ITeS segment at 18.24% and the median of the comparables was 10.35%. Assessee thus treated its transaction under ITeS segment to be at arms length. 2.5.3 Dissatisfied with the filters applied by the assessee, the Ld.TPO finalised the following set of 13 comparables with a weighted average margin of 24.37% as the median under the ITeS segment. Sl. No. Company Name F.Year wise OP/OC (%) Wt. Average 2016-17 2015-16 2014-15 1 Sundaram Business Services Ltd. 9.21 0.99 -3.95 2.08 2 Jindal Intellicom Ltd. 8.66 2.78 11.07 7.41 Page 12 IT(TP)A No. 301/Bang/2022 3 Fuzen Software Pvt. Ltd 15.07 16.06 16.98 15.93 4 Microland Ltd.(seg) 18.72 14.02 19.30 17.53 5 Tech Mahindra Business Services Ltd. 18.51 19.09 29.92 22.37 6 Datamatics Business Solutions Ltd. 6.21 33.46 36.22 22.64 7 Infosys B P M Services Pvt. Ltd. 22.35 24.41 26.77 24.37 8 Vitae International Accounting Services Pvt Ltd 27.00 27.25 No data available 27.13 9 Manipal Digital Systems Pvt. Ltd. 30.16 22.65 29.89 27.41 10 CES Ltd. 31.21 34.18 27.93 31.45 11 Ultramarine & Pigment Ltd. (Seg.) 46.63 30.27 27.26 34.41 12 S P I Technologies India Pvt. Ltd. 37.61 40.70 32.18 36.95 13 Inteq B P O Services Pvt. Ltd. 36.64 48.47 32.81 39.51 35 th Percentile 22.37 Median 24.37 65 th Percentile 27.41 2.5.4 He thus proposed adjustment of Rs.7,86,34,368/- under the ITeS segment. While computing the margin, the Ld.TPO did not grant the Working Capital Adjustment also rejected risk adjustment by following various decisions of Coordinate Bench of this Tribunal. 2.6 MSS Segment: 2.6.1 The Ld.TPO observed that assessee selected a set of following 9 comparables and computed the median margin to be 8.35%. Page 13 IT(TP)A No. 301/Bang/2022 Sl.No. Name of the Company Weighted Average (%) 1 Honeycomb Relationship Management Services Pvt. Ltd 0.81% 2 DGM India Internet Marketing Ltd 4.43% 3 Spectrum Business Solutions Limited. 4.82% 4 I C R A Management Consulting Services Ltd. 5.32% 5 Hansa Research Group Pvt. Ltd 8.35% 6 Technicom-Chemie (India) Ltd. 12.04% 7 Killick Agencies & Marketing Ltd 15.01% 8 Kestone Integrated Mktg. Services Pvt. Ltd. 15.46% 9 Majestic Research Services & Solutions Ltd 38.47% Median 8.35% 2.6.2 As the assessee’s margin under the marketing segment was computed at 10%, the transaction was held to be at arms length. 2.6.3 Dissatisfied with the filters applied by the assessee, the Ld.TPO finalised the following set of 5 comparables with a mean of 17.02% as under: Page 14 IT(TP)A No. 301/Bang/2022 2.6.4 He thus proposed adjustment of Rs.2,45,32,002/- under the MSS segment. While computing the margin, the Ld.TPO did not grant the Working Capital Adjustment also rejected risk adjustment by following various decisions of Coordinate Bench of this Tribunal. 2.7 Free of cost asset:- 2.7.1 The Ld.TPO observed that assessee has received free of cost asset amounting to Rs.52,77,34,000/- from the AEs, the details of which are as under: Page 15 IT(TP)A No. 301/Bang/2022 2.7.2 The Ld.TPO noted that assessee had aggregated the transaction relating to the free of cost asset received from its AE’s under all the three segments by using TNMM and had benchmarked accordingly. 2.7.3 The Ld.TPO noted that assessee used all the assets provided by the AEs free of cost for the provision of the services and the cost of these assets or the depreciation of such assets were not included in the operating cost. In order to compute the correct operating cost in the hands of the assessee, the Ld.TPO added the depreciation of 60% on the cost of such free of cost assets received from its AE. This was appropriated to all the three segments and the margin of assessee was reduced accordingly under the 3 segments. 2.8 Interest on delayed trade receivables:- 2.8.1 The Ld.TPO noted that assessee had not benchmarked the delayed trade receivables. The Ld.TPO thus considered the Page 16 IT(TP)A No. 301/Bang/2022 LIBOR of 6 months + 450 basis points that worked out to be 5.975%, as notional interest on outstanding trade receivables in the hands of the assessee. The Ld.TPO thus computed the total adjustment as under: Sl. No Description Adjustment u/s 92CA (In Rs.) 1 Software development Segment 878,895,344 2 ITES segment 78,634,368 3 MSS Segment 24,532,002 4 Interest on delayed receivables 8,51,589 Total adjustment u/s 92CA 98,29,13,303/- 2.8.2 On receipt of the order of the Ld.TPO, the Ld.AO passed the draft assessment order by further proposing addition as under: i) Disallowance u/s. 28(iv) being assets received free of cost or on loan from AE amounting to Rs.52,77,34,000/- ii) Payment made to expats disallowed as FTS u/s. 40(a)(i) amounting to Rs.7,91,14,163/- iii) Disallowance of bonding and debonding charges amounting to Rs.16,17,686/-. 2.8.3 Against the draft assessment order, assessee filed the objections before the DRP. 2.8.4 The DRP partly considered the objections of the assessee wherein certain comparables sought for exclusion by assessee were excluded however certain comparables sought for inclusion were included by the DRP. In respect of the other issues alleged on transfer pricing adjustments, the DRP upheld the observation of the Ld.TPO. Page 17 IT(TP)A No. 301/Bang/2022 On the issues of corporate tax addition, the additions proposed in the draft assessment order were also upheld by the DRP. 2.8.5 On receipt of the DRP direction, the Ld.AO passed impugned order by making addition of Rs. 157,71,87,157/-, to the taxable income as per return of income filed by the assessee. 2.9 Aggrieved by the final assessment order passed, assessee filed present appeal before this Tribunal. 3. The Ld.AR at the outset has submitted that Ground nos. 1-8 are not pressed. 3.1 He further endorsed that Ground no. 10.1 wherein 3 comparables under software development service segment is challenged for failure of turnover filter being Larsen & Toubro Infotech Ltd., Mindtree Ltd. and Infosys Ltd. is also not pressed by assessee. 3.2 Further, the comparables mentioned in Ground nos. 11.1.1 to 11.1.4 being Mindtree Ltd., Tata Elxsi Ltd., Nihilent Ltd. and Infosys Ltd. are also not pressed for failure of onsite filter. The Ld.AR submitted that Infosys BPM Services Pvt. Ltd. 3.3 Under ITeS service segment it is submitted that Ground no. 11.1.5 is also not pressed by assessee. 3.4 Further, the Ld.AR submitted that in Ground no. 16.1, assessee do not wish to press the functional dissimilarity of Tech Mahindra Business Services Ltd., Infosys BPM Services Pvt. Ltd., Vitae International Accounting Services Pvt. Ltd. and SPI Technologies India Pvt. Ltd. (seg) under ITeS segment are also not pressed. 3.5 The Ld.AR then submitted that Ground nos. 16.2, 16.5, 16.6 are also not pressed by assessee. Page 18 IT(TP)A No. 301/Bang/2022 3.6 Further the Ld.AR submitted that Ground nos. 17.3 and 17.4 under marketing support service segment is also not pressed by assessee. All the above have been endorsed to be not pressed by the Ld.AR in the grounds of appeal and accordingly, the above grounds are dismissed as not pressed. 3.7 Thus the effective grounds that has been argued by assessee are Ground nos. 5, 6, 10.1.4, 10.1.5, 12, 13, 14, 15, 16.1.2, 16.1.5, 16.1.7, 16.3, 16.4, 17.1.1 to 17.1.3, 17.2, 18 to 26. 4. Before we undertake the comparability analysis, it is sine qua non to understand the functions performed by the assessee under the software development services segment. Software Development segment Functions performed SanDisk India is engaged in rendering software development services to its AEs. The conceptualization of product is done by Corporate engineering (‘CE’) in US. CE understands the needs of the existing customers and prospective customers through marketing channels and forecasts the revenue. The software development team designs and develops the product based on inputs received from the CE. Once the product is developed and approved by various teams, such product passes series of internal testing and the bugs identified, if any are fixed. Activities performed in India The RPG team in India stitches the various components required for the final product as per blue prints provided by the Associated Enterprises. Page 19 IT(TP)A No. 301/Bang/2022 After the proto type is developed, it is quality tested and a compatibility check is undertaken. The equipment used in the labs for quality check and compatibility check are normally various kinds of end products like cameras, mobile phones. The functions are performed by RPG team in India are based on specifications received from US. The team in India is supported by 709 (approx.) employees and approximately 500 contractors. ITeS SanDisk India renders IT enabled services which includes IT support, quality assurance and training activities to SanDisk Group. The scope of work is defined by IT team from Milpitas, US. The ITeS team in India provides assistance for 12 hours a day does documentation, development and testing of projects assigned renders business solutions in relation to projects assigned renders services only to SanDisk group SanDisk India Employees provide oversight to work that is sub contracted to Integration partners. Following are the Page 20 IT(TP)A No. 301/Bang/2022 technical domains of IT in which work is being outsourced to Integration partners: Procurement Planning (PP) and Material Management (MM) Applications Order to Cash (OTC) and Global Trade Services(GTS) Applications Applications related to Supply Chain and inventory planning Infrastructure services that run mission critical ERP Customer Relationship Management (CRM) and Finance & Cost accounting (FICO) Applications Business Intelligence Applications Microsoft Collaborative technologies (SharePoint) Page 21 IT(TP)A No. 301/Bang/2022 MSS Page 22 IT(TP)A No. 301/Bang/2022 Page 23 IT(TP)A No. 301/Bang/2022 Assets The following sections provide an overview of the significant capitalized and non-capitalized assets employed by the AEs in the transaction group provision of software development services, ITES Services and Marketing Support services. A total overview about the capitalized assets is presented in the financial statement of the related parties. For the purposes of the analysis, the significant assets are subdivided in tangible and intangible assets below. Any business requires assets (tangible or intangible) without which it cannot carry out its activities. Intangibles play a significant role in the functioning of a business and are accordingly more important Intangible Assets SanDisk India does not own or develop significant intangible assets and it also does not undertake any significant design and development activities on its account that leads to development of non-routine intangibles. SanDisk India uses computer software to carry out its business activities. Tangible Assets SanDisk India employs necessary tangible assets required in respect of the above mentioned functions. Risks assumed Sr. No. Risk SanDisk India AE 1 Market/ Business risk Limited Yes 2 Contract Risk No Yes 3 Capacity Utilization risk No Yes Page 24 IT(TP)A No. 301/Bang/2022 4 Credit Risk No Yes 5 Foreign Exchange Fluctuation risk Limited No 6 Service Liability Risk No Yes Entity Characterisation SanDisk India only performs software development, ITeS and MSS activities and does not perform the key decision making functions including but not limited to market research, product ideation, process development, etc. All strategic decisions are undertaken by its AEs. AEs of SanDisk India assigns work to development centres, including the Company and is responsible for monitoring its activities, providing the management/ strategic oversight and directions. SanDisk India does not assume any risk associated with the activities it undertakes. All primary risks such as the market risk, contract risk, credit risk, etc. are borne by its AEs. SanDisk India does not bear the cost of software development, ITeS and MSS segment. The entire cost of the operations is passed on to its AEs as cost incurred by SanDisk India is reimbursed by its AEs along with an arm's length mark-up. Based on the above, SanDisk India can be characterized as a captive service provider bearing insignificant risk. 5. Ground no. 5 - The Ld.AR submitted that in the final assessment order the directions of the DRP in para 3.1 has not been followed by the Ld.AO that reads as under: “3.1 Panel: During the course of DRP proceedings, this panel has examined the above contention of the assessee wherein it is mentioned that there is error in the margin computation. This panel is hereby directing the assessing officer to verify the margin computation and if any error is found, the same may be rectified/considered as per law. The assessee submitted that there is error in the margin Page 25 IT(TP)A No. 301/Bang/2022 computation of the various companies. It has not specifically pointed out the error in the TPO's computation except stating that the TPO has not adopted the figures as per the annual report. We consider it appropriate to direct the TPO to verify and adopt the figures as per the annual report of these companies and accordingly their PLI margin may be computed. Having considered the submission of the assessee, we note that the assessee has not given any detailed note in respect of the working of segregation of revenues and costs between software development services and staff augmentation. We consider it appropriate to direct the assessee to furnish the detailed notes on the working of segregation of revenues and costs before AOrfP0. AO/TPO is directed to examine the working of the assessee and decide the issue accordingly.” In the interest of justice, we remand this issue to the Ld.AO to verify the margin of the assessee as per the directions of the DRP reproduced hereinabove. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 6. The Ld.AR submitted that Ground nos. 6, 19 and 20 pertains to the free of cost assets received by the assessee from its AE being capitalised by the Ld.AO u/s. 28(iv) and considering depreciation in operating cost under all segments proportionately. 6.1 It is submitted by the Ld.AR that assessee received free of cost assets amounting to Rs.52,77,34,000/- in the nature of computer, testing equipment, computer accessories etc. He submitted that, the Ld.TPO added the depreciation at 60% of the same to the cost base and allocated under each segment based on the operating revenue to compute the markup. The Ld.AR thus submitted that for the above reason, the margin of the assessee reduced under all the three segments. Page 26 IT(TP)A No. 301/Bang/2022 6.2 Further the Ld.AO while passing the draft assessment order, disallowance of the cost of assets received free from the AEs u/s. 28(iv) of the act was made. 6.3 He submitted that the Ld.TPO on one hand granted depreciation at 60% on the cost of assets received free but on the other hand added the depreciation to the cost base to compute the arms length margin of the assessee. 6.4 It is the submission of the Ld.AR that the free of cost assets received by assessee were utilised for rendering the software development services alone and that there need not be any allocation of the cost to the other two segments. He submitted that even if depreciation on free of cost assets may be considered as a part cost base for computing the mark, it cannot go to increase the cost base of the assessee Without prejudice, the Ld.AR further submitted that the disallowance made by the Ld.AO u/s. 28(iv) of the act cannot be treated as capital asset in the hands of the assessee as these are received on account of capital receipt and are therefore not revenue in nature. He thus submitted that once the notional depreciation is considered for computing markup disallowance made u/s. 28(iv) of the act would lead to double addition. 6.5 On the contrary, the Ld.DR relied on the following observations of the DRP. Page 27 IT(TP)A No. 301/Bang/2022 Page 28 IT(TP)A No. 301/Bang/2022 Page 29 IT(TP)A No. 301/Bang/2022 6.6 We have perused the submissions advanced by both sides in the light of records placed before us. It is an admitted position that the assets received by assessee from its AEs free of cost included computers, testing equipments etc which were used by the assessee in rendering its services to its AEs. Admittedly these assets are received by the assessee on the capital account however there is no evidence that these equipments would be returned back by the assessee to the AE upon the rendition of services. 6.7 There is no doubt that the equipments received by the assessee are custom made which are used for the business of the assessee and are not available in the open market for purchase for commercial purposes. The AEs provided these equipments to Page 30 IT(TP)A No. 301/Bang/2022 the assessee in respect of the projects undertaken by assessee on their behalf. On a query being raised by the bench to the Ld.AR regarding the return policy of these assets, the Ld.AR very fairly admitted that the assets or goods or equipments received by it has never been returned in the past assessment years. Under such circumstances, it definitely amounts to enduring benefit in the hands of the assessee. In our view, the asset received free of cost has been rightly capitalised in the hands of the assessee. 6.8 It was also the correct approach by the Ld.TPO by granting depreciation in respect of the same. However, the double disallowance made in respect of the cost of asset received free from the assessee is not acceptable. We note that the Ld.TPO increased the operating cost base by allocating the depreciation at 60% on the cost of the assets under the three segments based on the operating revenue to compute the markup. This approach by the Ld.TPO are not based on sound principles of transfer pricing adjustments. The assessee has been submitting that the assets received free of cost from its AE are utilised for the purposes of rendering services under software development segment. Therefore we direct the Ld.TPO to consider the entire cost for the purposes of computing the margin of assessee under the software development segment as per the following directions. While computing the ALP of assessee, the depreciation as per schedule to Companies Act, is to be included as an element of operating cost. In the event, there is a difference in the rate of depreciation between the assessee vis-a-vis the comparables, suitable adjustments are to be granted in accordance with law. (Ref. Rule 10B(e) (i) to (iii)). We also direct the Ld.AO to delete the Page 31 IT(TP)A No. 301/Bang/2022 disallowance made u/s. 28(iv) as the same has been considered in the transfer pricing adjustment. Accordingly, ground nos. 6 and 19 stands dismissed and ground no. 20 stands allowed. 7. Ground nos. 10.1.4 & 10.1.5 – The Ld.AR submitted that Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. fails in upper turnover filter which has not been applied by the Ld.TPO. 7.1 The Ld.AR referring to the filters applied by the Ld.TPO stated that companies whose income was less than 1 crore were excluded by the Ld.TPO however companies whose income is more than turnover was not considered at all for exclusion. The Ld.AR referred to the decisions of Coordinate Bench of this Tribunal where on similar facts it has been held that comparables that has turnover between 1-200 crores vis-a-vis, the assessee’s turnover that also falls within 1 to 200 crores are only to be considered. The Ld.AR also submitted that the above two comparables does not also satisfy the ten times of the turnover of the assessee and thus applied either the turnover filter of 1 to 200 crores or 10 times the assessee’s turnover to 1/10 th of the comparables, the above two companies deserves to be excluded. It is also submitted that these comparables are not functionally similar with that of the assessee as has been observed by Coordinate Bench of this Tribunal in following cases: Mindteck (India) Ltd. vs. DCIT in IT(TP)A No. 211/Bang/2022 by order dated 30.11.2022 for A.Y. 2017-18 Page 32 IT(TP)A No. 301/Bang/2022 QuEST Global Engineering Services Pvt. Ltd. vs. ACIT in IT(TP)A No. 279/Bang/2022 by order dated 13.03.2023 for A.Y. 2017-18 In view of the above, the ld AR for the assessee requested that the aforesaid companies are to be excluded from the list of comparable companies as they fail the higher turnover filter of Rs. 200 crores. 7.2 On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 7.3 We have perused the submissions advanced by both sides in the light of records placed before us. In the present facts, the assessee has turnover of 56.67 crores approximately, as against the turnover of the two comparables as under: S.No. Name of the comparables Turnover (In crores) 1. Tech Mahindra Business Services Ltd. 24,324 2. Infosys BPM Services Pvt. Ltd. 62,893 7.4 In our opinion, this issue is covered by the decision of Coordinate Bench of this Tribunal in case of Mindteck (India) Ltd. vs. DCIT (supra) wherein this Tribunal excluded Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. by observing as under: “6...............In our opinion, this issue is covered by the judgement of the coordinate bench in the case of Mindteck India Ltd. in IT(TP)A No.252/Bang/2021 dated. 11.7.2022, wherein held as follows:- 11.As far as comparability of companies listed as (a) to (g) in Grd.No.4 raised by the assessee is concerned, the admitted factual position is that the turnover of these companies is more than Rs.200 Crores and the assessee’s turnover is only Rs. 82,52,62,269/-. The TPO excluded from the list of comparable companies chosen by the assessee in its TP study companies whose turnover was Page 33 IT(TP)A No. 301/Bang/2022 less than Rs.1 Crore. The contention of the assessee before the DRP was that while the TPO excluded companies with low turnover, he failed to apply the same yardstick to exclude companies with high turnover compared to the assessee. The reason for excluding companies with low turnover was that such companies do not reflect the industry trend as their low cost to sales ratio made their results less reliable. The contention of the assessee was that there would be effect on profitability wherever there is high or low turnover and therefore companies with high turnover should also be excluded from the list of comparable companies. The DRP primarily relied on the decision rendered by the Hon’ble Delhi High Court in the case of Chryscapital Investment Advisors India Pvt.Ltd Vs. DCIT 82 Taxmann.com 167(Del), wherein it was held that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd.No.4 before the Tribunal challenging the aforesaid view of the DRP. 12.On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the assessee and in favour of the Revenue, respectively. The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) order dated 13.10.2017, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt. Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon’ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT Vs. Pentair Water India Pvt. Ltd., Tax Appeal No.18 of 2015 dated 16.9.2015 wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the assessee laid down in the case of Pentair Water (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra): Page 34 IT(TP)A No. 301/Bang/2022 “41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010, relying on Dun and Bradstreet’s analysis, held grouping of companies having turnover of Rs. 1 crore to Rs.200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:- “9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study.” 42. The Assessee’s turnover was around Rs.110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs.200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views Page 35 IT(TP)A No. 301/Bang/2022 expressed by two Hon’ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference.” 13. The Tribunal in the case of Autodesk India Pvt.Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Banglore- Tribunal), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations: 17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non- jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion 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, following 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. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. Page 36 IT(TP)A No. 301/Bang/2022 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as 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 Processing Services (supra) and Capegemini India Pvt.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 learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also 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 decision rendered in the case of Chriscapital Investment (supra) is obiter 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 cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). 14. In view of the aforesaid decision, we hold that 7 companies listed in grd.No.4 of the concise grounds whose turnover in the current year is more than Rs.200 Crores should be excluded from the list of comparable companies.” Page 37 IT(TP)A No. 301/Bang/2022 6.1In view of the above decision of the coordinate bench, the Tribunal consistently holding that when the turnover exceeding Rs.200 crores is to be excluded from the list of comparable to determine the ALP of International transaction with the A.E. In view of the above, we direct the AO/TPO to exclude Infosys Ltd. from the list of comparables.” 7.5 Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon’ble Mumbai Tribunal, we direct the Ld.TPO to exclude Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. from the final set. Accordingly ground nos. 10.1.4 and 10.1.5 stands allowed. 8. Ground no. 12 - The Ld.AR submitted that Working Capital Adjustment has not been granted to the assessee. After considering the submissions by both sides, we direct the Ld.AO/TPO to compute the Working Capital Adjustment on actuals in order to determine the arms length price of the transaction. Accordingly this ground raised by assessee stands allowed for statistical purposes. 9. Ground nos. 14 – 15 - The Ld.AR submitted that R&D filter applied by the Ld.TPO is without granting any opportunity to the assessee. He thus prayed for this issue to be remanded to the Ld.TPO for readjudication. 9.1 On the contrary, the Ld.DR relied on the observations of the Ld.TPO/DRP on application of R&D filter for selecting comparables under SWD segment. We note that for applying the R&D filter, to select the comparables under SWD segment, assessee was issued one notice by the Ld.TPO on 09.01.2021. Page 38 IT(TP)A No. 301/Bang/2022 However on perusal of the said notices as well as reply placed at pages 899 to 990 of the paper book, we note that the query raised was in respect of ITeS and MSS segment. There is no specific query raised by the Ld.TPO regarding application of R&D filter to the SWD segment for which assessee could have furnished any submissions. In the interest of justice, we remand the selection of comparables under SWD segment to the Ld.TPO for fresh consideration based on the filters that has been consistently applied in case of assessee in the preceding and subsequent assessment years. Accordingly, ground nos. 14 and 15 stands allowed for statistical purposes. 10. Ground no. 16.1 is in respect of selecting following comparables that are alleged to be functionally not similar with that of assessee. The Ld.AR submitted that those 7 comparables has been sought for exclusion on functional dissimilarity. Assessee is pressing only following three comparables being; a) Datamatics Business Solutions Ltd. b) Manipal Digital Systems Pvt. Ltd. c) Inteq BPO Services Pvt. Ltd. 10.1 Datamatics Business Solutions Ltd. The Ld.AR submitted that this comparable is functionally not similar with that of assessee as it is providing BPM services under ITeS segment. It is submitted that this comparable renders research and analytical activities for its clients which are considered to be KPO services and therefore are not akin to the backoffice services rendered by assessee to its AEs. He submitted that the Ld.TPO has relied on the website extracts to Page 39 IT(TP)A No. 301/Bang/2022 determine the functionality and to consider this comparable in the list of ITeS segment. He relied on the following decisions wherein this comparable has been remitted back by Coordinate Bench of this Tribunal in following cases: Global E-Business Operations Pvt. Ltd. for A.Y. 2017-18 Mindteck (India) Ltd. vs. DCIT in IT(TP)A No. 211/Bang/2022 by order dated 30.11.2022 for A.Y. 2017-18 Eurofins IT Solutions India Pvt. Ltd. vs. DCIT in IT(TP)A No. 186/Bang/2022 by order dated 05.01.2023 for A.Y. 2017-18 Ocwen Financial Solutions Pvt. Ltd. for A.Y. 2017-18 The Coordinate Bench of this Tribunal in case of Mindteck (India) Ltd. vs. DCIT (supra) held as under: “(a) Datamatics Business Solutions Ltd. 26.3 The Ld. A.R. submitted that this company provides essential business services to fortune 1000 companies and enterprises across the globe. This company provides fully integrated services and innovative solutions which cover the length and breadth of essential business needs across customers facing front-office functions and critical back- office operations. The information available in the website of this company in support of the above was submitted before the TPO (He referred Page 564-566 of Paper book). 26.4 The ld AR submitted that in the following decisions, the ITAT has held that this company is not a comparable company in the ITES segment. a) Akamai Technologies India (P.) Ltd. v DCIT [2016] 74 taxmann.com 188 (Bangalore - Trib.) – AY 2006-07 b) Tesco Hindustan Service Centre (P.) Ltd. v DCIT [2015] 60 taxmann.com 51 (Bangalore - Trib.) – AY 2006-07 26.5. He further submitted that there is no significant change in the activities of Datamatics for the year under consideration as compared to the years considered in the aforementioned decisions. In view of the same, the assessee requested for exclusion of Datamatics from the final set of comparable companies. 26.6 The Ld. D.R. submitted that the ld DRP observed that as per the Form No. MGT-9 forming part of the annual Page 40 IT(TP)A No. 301/Bang/2022 report, the principal activity of the company is described as IT enabled Services and BPM Service providers deriving income around 87.29%. Therefore, the company is functionally similar to the assessee as it is being predominantly into ITES company. On perusal of the submissions of the assessee, ld DRP noted that the comparable may be into many activities but the undisputed fact remains that its major revenue is from information technology enabled services. Thus, the ld DRP upheld the action of the TPO. Against this assessee is in appeal before us. 26.7. We have heard the rival submissions and perused the materials available on record. We have carefully gone through the paper book submitted by the assessee in pages 1331 & 1332 wherein annual report of the above company has been shown, which is as follows: Page 41 IT(TP)A No. 301/Bang/2022 Page 42 IT(TP)A No. 301/Bang/2022 26.8 Further, the assessee has made significant investment which can be seen from the paper book at page Nos.1336 & 1359 and the assessee is engaged in diversified range of activities. In our opinion, these are to be relooked into by the AO/TPO while examining the functionality of the comparable. Accordingly, this issue is remitted to the file of AO/TPO for fresh consideration.” As nothing contrary to the above has been brought on record by the revenue before us, respectfully following the above, we remit this comparable to the Ld.AO for necessary verification as above. Page 43 IT(TP)A No. 301/Bang/2022 10.2 Manipal Digital Systems Pvt. Ltd.: The Ld.AR submitted that this comparable is functionally not comparable with that of assessee as it is engaged in providing IT Enabled Services i.e., pre-press activities and also engaged in pre-media work and e-book distribution services. The Ld.TPO relied on website extracts to determine functionality. He relied on the following decisions wherein this comparable has been remitted back by Coordinate Bench of this Tribunal in following cases: Global E-Business Operations Pvt. Ltd. for A.Y. 2017-18 Eurofins IT Solutions India Pvt. Ltd. vs. DCIT in IT(TP)A No. 186/Bang/2022 by order dated 05.01.2023 for A.Y. 2017-18 Ocwen Financial Solutions Pvt. Ltd. for A.Y. 2017-18 The Coordinate Bench of this Tribunal in case of Eurofins IT Solutions India Pvt. Ltd. vs. DCIT (supra) held as under: “Manipal Digital Systems Pvt. Ltd. 8. The ld. A.R. submitted that this company is functionally different. He submitted that apart from ITES services Manipal Digital is also engaged in providing multiple other services such as pre-media services, web-development services and e-book distribution and various publishing services and no segmental information is available. It is engaged in multiple high end services including conceptualization, designing, analytics, etc., which could not be compared with the low end BPO support services provided by the assessee. 8.1 The CIT(A), NFAC having considered issue observed that it was crystal clear from the annual report that the principal business activity of the company is given as IT enabled services which contributes 100% turnover of the company (page 13 of the annual report). On perusal of the breakup of the revenue given at page 41 of the annual report, the revenue earned from IT enabled services is Rs. 23.63 crores out of total revenue of Rs.24.34 crores which comes to around 97.08%. The other activities like pre-media work, e-distribution contributes around Rs.0.70 crores which is a minor revenue. The assessee, based on the Page 44 IT(TP)A No. 301/Bang/2022 website information, argued that the company is into diversified activities that can be classified as KPO services as per the definition of safe harbour rules. At the outset, the CIT(A) noted that the information put in website cannot be given complete credence, as they are mere forward looking information and statements with the motive of advertisement and other promotional gains. The functional aspect has to be determined by the information in the annual report which is based on audited financial statements and management reports, for qualitative analysis of comparability. The fact that the company is into ITES segment is corroborated by the corporate information given at page 45 of the annual report where it is lucidly stated that "the main business of the company is to provide information technology enabled services that means pre-press activities mainly to overseas as well as domestic customers". Therefore, the ld. CIT(A), NFAC observed that the pleas raised based on information said to be available in the website are liable to be rejected is in limine in view of the information given in the annual report on the functional aspect. 8.2 Further, the ld. CIT(A) observed that this company operates under a single primary segment. 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. Hence, the objection on the functional dissimilarity of the company was rejected by the ld. CIT(A). 8.3 As regards lack of segmental information, the ld. CIT(A) observed that the comparable company derives the whole revenue from sale of services and hence, there is no need of segmental reporting as per AS 17. As stated above while discussing the functional profile the company derives its total revenue from the ITES activities only. This is further supported by the clarificatory note No. 27 at page 52 of the annual report that "the company was operating under one reportable geographical segment and one business segment. Therefore, disclosure as prescribed under AS 17- segment reporting is not applicable. Hence, the objection on lack of segmental information is not valid and not acceptable by the ld. CIT(A). 8.4 On perusal of the annual report by the ld. CIT(A), it was observed that M/s. Manipal Technologies Limited is Page 45 IT(TP)A No. 301/Bang/2022 the promoter and holding company of the assessee. As per the information given under share holding pattern, it was seen by the ld. CIT(A) that there is no change shown under the head Change in Promoter's holding. On the other hand, during the year under review, Manipal Venture Gmbh and Medien Fabrik GmbH has been merged and named as Medienfabrik GMbH. Under the head material changes and commitments affecting financial position of the company, it was reported as under:- No material changes and commitments affecting the financial position of the Company has occurred between the end of the financial year to which this financial statement related and the date of this report 8.5 In view of the above, the ld. CIT(A) observed that the assessee has wrongly mentioned about new share holding pattern of the company instead of the above information reported in the annual report. In fact, there are no material changes affecting the financial position of the company. Further, the assessee also could not point to any information to show, that on account of such acquisition, merger or change in the share holding pattern materially affected the profit margin of this company. Thus, the ld. CIT(A) was of the view that there are no material changes affecting the financial position of the company as per the information in the annual report. Hence, the plea raised by the assessee was rejected by the ld. CIT(A). 9. We have heard the rival submissions and perused the materials available on record. Similar issue was considered by this Tribunal in IT(TP)A No.174/Bang/2022 dated 16.11.2022 for the AY 2017-18 in the case of M/s. Global E-Business Operations Pvt. Ltd. wherein it was held as under: 12.1.8 We have heard the rival submissions and perused the materials available on record. As per the annual report of the company, it is also in end-to-end content services across the value chain. From the website and annual report, it is clearly evident that the company is also engaged in web development, mobile application development. The company also provides publishing editorial & composition services, which includes creating layout & artwork for advertisements and brochures, typesetting services and proof reading. As per revenue from operations, it includes “Revenue from web development and other services” (INR 2.18 Cr) and “income from e-book Distribution” (INR 69 lakhs), without providing the segmental revenue and profitability with respect to ITES segment. Advertising and sales promotion expenses at 6.50%, 7.19% & 8.78% Page 46 IT(TP)A No. 301/Bang/2022 of total expenditure in FY 2016-17, FY 2015-16 & FY 2014-15 respectively. 12.1.9 Further, the Tribunal in the case of Iron Mountain Services Ltd. in IT(TP)A No.307/Bang/2022 dated 20.9.2022 has held as under:- 16. “The next company the assessee seeks to exclude is Manipal Digital Systems Pvt. Ltd. In this regard, it was submitted that this company is engaged in provision of multiple high-end services including KPO activity like Design Services, Animation. It was submitted that no segmental details were available in the financial statements on the variety of services provided by this company like Design Services, Animation. Reliance was placed on the decision of the ITAT, Pune Bench in the case of Credence Resource Management Pvt. Ltd., (supra) wherein this company was excluded by the Pune Bench with the following observations: “8.The assessee submits that the Manipal Digital Systems Private Limited is functionally different from the assessee which is involved in provision of ITes services. As per the annual report of the company, the activity undertaken by the company is in the nature of pre-press activities which is not comparable to the assessee. That further in the website of the company, it is engaged in the diversified set of activities which involves graphic solutions, packaging brand management, digital publishing and digital content solutions. Therefore, the assessee submits that this company should be rejected from the final set of comparables companies. 9. The TPO was of the opinion that in this company i.e. Manipal Digital Systems Private Limited, 90% of the revenue is earned from ITes which is similar to that of the assessee company. The TPO further observed that most of the information provided by the assessee was from website and it cannot be said reliable source of information as any company while projecting itself in public domain tries to shows its diverse functioning and range of products so as to create a brand image of itself. With these observations, the contention of the assessee was rejected and the company was taken as comparable company. 10. That before the Ld. DRP, objections have been raised by the assessee which are at running Page No.34 of the Page 47 IT(TP)A No. 301/Bang/2022 appeal memo and therein, apart from reiterating the submissions made before the TPO, the assessee has stated that as per the online advertising laws and guidelines provided by the Advertising Standard Council of India, advertisements are based on principle of truthfulness and honesty of representation and there cannot be any misleading advertisement. That further, since the audited financial statements do not provide detailed description of operations/products in which the company deals, the website can be referred to for the analysis of functions performed by the company. The Ld. DRP vide Para (c) of Page No.67 to 70 of its order and as per reasoning therein, had upheld the findings of the TPO and included Manipal Digital Systems Private Limited in the final set of comparables companies. That again the prime observation of the Ld. DRP in this regard was that more than 90% of the total revenue of the operation of the company comes from ITes. 11. At the time of hearing, the Ld. Counsel for the assessee took us through the annual report of the company at Volume –II, Page 1279 onwards, Page 1302 having notes of accounts. The Ld. Counsel vehemently submitted that on perusal of the annual report, notes of accounts, nothing can be stated whether at all this company i.e. Manipal Digital Systems Private Limited is engaged in the business of call center or not. The realm of ITes involves various activities and on general principle the Revenue cannot say that since majority of the earning of the said company comes from ITes, it is comparable company with that of the assessee company. 12. Placing strong reliance on the decision of the Hon ’ble Delhi High Court in the case of Ramp green Solutions Pvt. Ltd. Vs. CIT, ITA No.102/2015 dated 10.08.2015 copy of which is placed before us, the Ld. Counsel brought to our notice at Para 31 wherein the Hon ’ble Delhi High Court observed that the Tribunal had held that once a service falls under the category of ITes then there is no subclassification of segment. Thus, according to the Tribunal, no differentiation could be made between the entities rendering ITes. The Hon ’ble Delhi High Court rejecting such view of the Tribunal had held that such a view, if upheld, would be contrary to the fundamental rationale of determining ALP by comparing controlled transactions/entities with similar uncontrolled transactions/entities. ITes encompasses a wide Page 48 IT(TP)A No. 301/Bang/2022 spectrum of services that use Information Technology based delivery. Such service could include rendering highly technical services by qualified technical personnel involving advanced skills and knowledge, such as engineering, design and support. While, on the other end of the spectrum ITes would also include voice based call centers that render routine customer support for their clients. The relevant portion of the judgment is extracted as follows for the sake of completeness: “.............Clearly, characteristics of the service rendered would be dissimilar. Further, both service providers cannot be considered to be functionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 32. It has been pointed out that whilst the Tribunal in Willis Processing Services (India) Pvt. Ltd. v. DCIT (supra) held that no distinction could be made between KPO and BPO service providers, however, a contrary view had been taken by several benches of the Tribunal in other cases. In Capital IQ Information System India (P.) Ltd. v. Dy. CIT, (IT) [2013] 32 taxmann.com 21 and Lloyds TSB Global Services Pvt. Ltd. v. DCIT, (ITA No. 5928/Mum/2012 dated 21th November 2012), the Hyderabad and Mumbai Bench of the Tribunal respectively accepted the view that a BPO service provider could not be compared with a KPO service provider. 33. The Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra) struck a different cord. The Special Bench of the Tribunal held that even though there appears to be a difference between BPO and KPO Services, the line of difference is very thin. The Tribunal was of the view that there could be a significant overlap in their activities and it may be difficult to classify services strictly as falling under the category of either a BPO or a KPO. The Tribunal also observed that one of the key success factors of the BPO Page 49 IT(TP)A No. 301/Bang/2022 Industry is its ability to move up the value chain through KPO service offering. For the aforesaid reasons, the Special Bench of the Tribunal held that ITeS Services could not be bifurcated as BPO and KPO Services for the purpose of comparability analysis in the first instance. The Tribunal proceeded to hold that a relatively equal degree of comparability can be achieved by selecting potential comparables on a broad functional analysis at ITeS level and that the comparables so selected could be put to further test by comparing specific functions performed in the international transactions with uncontrolled transactions to attain relatively equal degree of comparability. 34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) Pvt. Ltd. (supra). As indicated above, the expression 'BPO' and 'KPO' are, plainly, understood in the sense that whereas, BPO does not necessarily involve advanced skills and knowledge; KPO, on the other hand, would involve employment of advanced skills and knowledge for providing services. Thus, the expression 'KPO' in common parlance is used to indicate an ITeS provider providing a completely different nature of service than any other BPO service provider. A KPO service provider would also be functionally different from other BPO service providers, inasmuch as the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITeS sector can be used for selecting comparables without making a conscious selection as to the quality and nature of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BPO service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the Page 50 IT(TP)A No. 301/Bang/2022 BPO service provider by benchmarking it with the transactions of KPO services providers. The object is to ascertain the ALP of the service rendered and not of a service (higher in value chain) that may possibly be rendered subsequently. 35. As pointed out by the Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feasible. Clearly, no straitjacket formula can be applied. In cases where the categorization of services rendered cannot be defined with certainty, it would be apposite to employ the broad functionality test and then exclude uncontrolled entities, which are found to be materially dissimilar in aspects and features that have a bearing on the profitability of those entities. However, where the controlled transactions are clearly in the nature of lower-end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold. 36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP.” 13. The Ld. Counsel for the assessee further submitted therefore, it is clear that merely because two companies are doing ITes services, on general categorization comparability is not permitted and one has to look into the specific services rendered in the spectrum of ITes and for this reason, the said company i.e. Manipal Digital Systems Private Limited is not a comparable company with that of the assessee company since absolutely functionally different. Page 51 IT(TP)A No. 301/Bang/2022 The Ld. Counsel also submitted that the TPO should have specifically stated why he has selected this company as comparable with that of the assessee company since the onus is on him to give reason for such inclusion. The logic was shown from the decision of the Pune Bench of the Tribunal in the case of M/s. Tasty Bite Eatables Limited Vs. ACIT, ITA No.1823/PUN/2018 for the assessment year 2014-15 dated 03.06.2021 wherein it was held that since the comparable chosen by the assessee, the onus is upon it to prove the functional comparability of this company. Extending the same logic, the Ld. Counsel submitted that it was also for the TPO to explain the reasons for inclusion of this company i.e. Manipal Digital Systems Private Limited since it was chosen as comparable by him. 14. We are of the considered view on going through the order of the TPO, findings of the Ld. DRP and the various judicial pronouncements placed on record, first of all the Revenue has selected Manipal Digital Systems Private Limited as comparable to that of the assessee company based on the earning of the company from ITes. However, there is no segmental specification provided neither by the TPO nor by the Ld. DRP for the reason of such inclusion of this company in the final set of comparable companies with that of the assessee company. In the decision of the Hon’ble Delhi High Court (supra.), it is very much clear in the wide spectrum of ITes if two companies are to be comparable one has to look into the characteristic of service or business provided under ITes by them. This exercise was not done by the Department in this case. We also opine that as per Indian Council for Advertising, the online advertising has to be published on true and honest disclosure basis and therefore, when proper documentation of activities are not physically available, in such scenario, referring the website for information is correct option and the information therein cannot be doubted. These are all multi-national companies and certain amount of honesty has to be attributed to them since all are functioning as per relevant rules and laws. With these observations and respectfully, Page 52 IT(TP)A No. 301/Bang/2022 following the judgment of the Hon’ble Delhi High Court (supra.) we direct the AO/TPO to exclude this company i.e. Manipal Digital Systems Private Limited from the final set of comparables with that of the assessee company.” 17. Learned DR submitted that the aforesaid decision was in relation to Assessment Year 2016-17 whereas the case of the assessee in this appeal is in reference to Assessment Year 2017- 18. Learned Counsel for the assessee submitted that the functional profile of the comparable company as well as the assessee remains the same for both Assessment Years 2016-17 and 2017-18 and therefore the decisions cited above are applicable to Assessment Year 2017-18 also. 18. We have given a careful consideration to the rival submissions and are of the view that it would be just and appropriate to set aside the question of comparability of Manipal Digital Systems Pvt. Ltd., to the TPO/AO to examine as to whether the functional profile of the assessee and the assessees in the decisions cited by the learned AR remains the same in Assessment Year 2017-18 as it was in Assessment Year 2016-17.” 12.1.10 Accordingly, the above comparable i.e. Manipal Digital Systems Pvt. Ltd. is directed to be excluded from the list of comparables. 9.1 In view of the above, taking a consistent view, we direct the AO/TPO to exclude Manipal Digital Systems Pvt. Ltd. as comparable on the similar lines.” As nothing contrary to the above has been brought on record by the Ld.DR, respectfully following the above view, we direct the Ld.AO/TPO to exclude Manipal Digital Systems Pvt. Ltd. from the final list. 10.3 Inteq BPO Services Pvt. Ltd.: The Ld.AR submitted that this comparable is functionally not comparable with that of assessee as it is engaged in the provision of business process management services which means Page 53 IT(TP)A No. 301/Bang/2022 streamlining the different steps in repeatable workflows to make them as efficient as possible, lack of segmental information, abnormally high margins. The Ld.TPO relied on website extracts to determine functionality. He relied on the decision of the Coordinate Bench of this Tribunal in case of Mindteck (India) Ltd. vs. DCIT (supra) in which the Tribunal has observed as under: “(f) Inteq BPO Services Pvt. Ltd. 27. The Ld. A.R. for the assessee submitted that this company is engaged in providing services in the nature of Revenue Cycle Management, Claims processing services and document & data processing. The information available in the website of this company in support of the same was submitted before the TPO (He referred Page 572 of Paperbook). 27.1 He further submitted that this company earns income entirely from Business Process Management (BPM) related services and relevant extracts from its annual report in support of the same are as follows. Page 1493 of Annual Report Compilation Page 1510 of Annual Report Compilation Page 1517 of Annual Report Compilation Page 1521 of Annual Report Compilation 27.2 He submitted that the ITAT in Vee Technologies (P.) Ltd. v PCIT [(2022) 139 taxmann.com 229 (Bang-Trib) – Page 54 IT(TP)A No. 301/Bang/2022 Page 1751-1752 of Case law compilation], following the decision of its co-ordinate bench in EMC Software and Services (P.) Ltd v JCIT (2020) 115 taxmann.com 293, held that a company involved in business process management services cannot be considered comparable to a company providing ITeS such as the assessee. 27.3 In view of the above, the assessee requested for exclusion of Inteq BPO from the final set of comparable companies. 27.4 The Ld. D.R. submitted that the ld DRP in his reported observed that the services offered by Inteq BPO are in Revenue Cycle Management, Claims Processing services and Document & Data Processing. The principal business activity of the company at page 5 of the annual report is business process outsourcing (BPO). However, the assessee stated that business activities of the comparable company are more in the nature of business process management in the form of revenue cycle management, claims processing. It cannot be compared to Assessee Company which is rendering IT enabled services. In this regard, the contention and understanding of the assessee on the functional aspect of comparable company vis-a-vis IT enabled services is not correct. Information Technology Enabled Service (ITES) is defined as outsourcing of processes that can be empowered with information technology and covers diverse areas like finance,. HR, administration, health care, telecommunication, manufacturing etc. Armed with technology and manpower, these services are provided from e-enabled locations. This radically reduces costs and improves service standards. Some of the services offered include Medical Transcription, Document Processing, Data Entry and Processing, Data Warehousing, IT Help Desk Services, Application Development, Enterprise Resource Planning and Telecommunication Services. ITeS is a type of Outsource services which involves IT in various fields like Insurance, Finance & Banking, and so forth. These soft skills are mainly utilized in KPO (Knowledge Process Outsourcing) and BFO (Business Process Outsourcing) and LPO (Legal Process Outsourcing), rear office job and phone centres. Therefore, the functional profile of the comparable company is very much in the domain of ITES only. Therefore, the contention of the assessee that the functional profile of the company is dissimilar is that of company is not acceptable to the ld DRP. 27.5 We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this comparable came for consideration in the case of Vee Technologies Pvt. Ltd. cited (supra), wherein held that this company is involved in Page 55 IT(TP)A No. 301/Bang/2022 business process management services and cannot be considered as a comparable to a company providing ITeS such as the assessee. Being so, we direct the AO/TPO to exclude Inteq BPO Services Pvt. Ltd. from the list of comparables. Directed accordingly.” Before us, the Ld.DR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Inteq BPO Services Pvt. Ltd. from the final list. Accordingly, ground no. 16.1 stands partly allowed. 11. Ground no. 16.3 – The Ld.AR submitted that Informed Technologies Ltd. has been excluded by the Ld.TPO as there was no documentation and that this comparable was failing the service revenue filter of more than 75%. 11.1 Further in Ground no. 16.4, the Ld.AR submitted that Cosmic Global Ltd. and Allsec Technologies Ltd. was excluded by the Ld.TPO as it failed export income filter. It is the submission of the Ld.AR that the above observation by the Ld.TPO in respect of these comparables are not true as from the annual report it is verifiable that these companies passes all the relevant filters applied by the Ld.TPO. He thus prayed for these comparables to be remanded for considering afresh. The Ld.DR did not object for the comparables to be remanded for verification based on the annual reports. 11.2 We have perused the submissions advanced by both sides in the light of records placed before us. We note that the annual reports of the above comparables are to be verified before excluding them. The assessee is directed to furnish the annual reports before the Ld.TPO which shall be verified and the filters applied by the Ld.TPO shall be considered Page 56 IT(TP)A No. 301/Bang/2022 for its exclusion / inclusion as there is no dispute by the Ld.TPO regarding the functional dissimilarities the filters applied by the Ld.TPO are directed to be verified from the annual reports. All necessary data for such verification shall be provided by the assessee. Accordingly, ground nos. 16.3 and 16.4 stands allowed for statistical purposes. 12. Ground no. 17.1 – The Ld.AR submitted that assessee wish to argue three comparables for exclusion on functional dissimilarity. a) Pressman Advertising Ltd. b) Scarecrow Communications Ltd. c) Majestic Research Services & Solutions Ltd. It is submitted that these comparables are not functionally similar to the assessee under the marketing support service segment as they are engaged in knowledge process outsourcing services and is a product company. The Ld.AR relied on the decisions of Coordinate Bench of this Tribunal in the following cases in support of its exclusion. a) M/s. Radisys India Ltd. vs. DCIT in IT(TP)A No. 190/Bang/2022 by order dated 18.11.2022 for A.Y. 2017-18 b) M/s. Arm Embedded Technologies Pvt. Ltd. vs. DCIT in IT(TP)A No. 899/Bang/2022 by order dated 08.06.2023 for A.Y. 2018-19 12.1 Pressman Advertising Ltd. The Ld.AR submitted that this comparable is functionally not similar to that of assessee as it is engaged in the business of advertising services, selling of space for advertisement in print Page 57 IT(TP)A No. 301/Bang/2022 media and public relations and engaged in providing market research services, which is nothing but knowledge process outsourcing services. The Coordinate Bench of this Tribunal in case of M/s. Radisys India Ltd. vs. DCIT (supra) for A.Y. 2018-19 held as under: “(i) Pressman Advertising Ltd. 12.1 The Ld.AR submitted that, there is abnormal increase in the profit in respect of this company for the year under consideration. It is also submitted that no segmental details are available in respect of the various services rendered by this company though the Ld.TPO held it to be functionally similar. The Ld.AR referring to page 4039 of paper book submitted that this comparable is into advertising services, selling of place for advertisement in printing media and public relations. It is also submitted that, it has incurred a huge service cost of about Rs.37,11,57,227/-, which is almost 89% of the total cost. The Ld.AR submitted that, the details of these expenses are verifiable from the P&L account at page No. 4057 of the paper book. Referring to the schedule for revenue recognition at page 4066 of the paper book, the Ld.AR submitted that, these expenses are excessive in nature. The Ld.AR submitted that, the entire revenue generated by this company has been shown as advertising services which is not akin to marketing support services rendered by the assessee before us. 12.2. On the contrary, the Ld. DR relied on the observations of the DRP. 12.3. We have perused the submissions advanced by both the sides in the light of records placed before us. From the Director’s report at page 4045 of PB, we note that the business over view of this company is shown to be advertising, public relation, design and digital. As there is no segmental details available, it is difficult to analyse the revenue generated by this company from the advertising segment. Therefore, in our view, cannot be considered to be functionally comparable with that of assessee. “ 12.2 Scarecrow Communications Ltd. The Ld.AR submitted that this comparable is not functionally comparable with that of assessee as it is engaged in the business of advertising, communication, and public relations and lacks Page 58 IT(TP)A No. 301/Bang/2022 segmental information. The Coordinate Bench of this Tribunal in case of M/s. Arm Embedded Technologies Pvt. Ltd. vs. DCIT (supra) held as under: “(A) Scarecrow Communications Ltd. (‘Scarecrow’): Functionally dissimilar: 6.2 The ld. A.R. submitted that the company has operated without having a single employee during the financial year 2017-18. It has incurred no employee expenses and the annual report states that the company had no employees during the year. The company essentially acts as an intermediary by purchasing the services from external agencies and reselling them in contrast to the Assessee which is a MSS provider. This is evident from the presence of expenses such as professional charges, service charges, etc., which suggest that Scarecrow depends on external agencies that provides advertisement, marketing support. 6.2.1 Further, in terms of the annual report, the company has various revenue streams such as retainership fees, shoot/production fees and service receipts & other fees. No segmental information is available as regards these diverse activities and therefore, the company cannot be considered as comparable to the Assessee. 6.2.2 The ld. A.R. submitted that this company was directed to be excluded by the DRP in the assessee’s own case for the assessment years 2013-14 and 2014-15 on the ground that it is not functionally comparable to the assessee. The relevant extracts of the DRP’s directions are reproduced on page 256-257 of the appeal set. 6.2.3 Further, the ld. A.R. submitted that this company was directed to be excluded from the final list of comparables in the Assessee’s own case by this Hon’ble Tribunal for the assessment year 2016-17 vide its order dated 30.08.2022 in IT (TP) A No. 235/Bang/2021 and thus, this company ought to be excluded from the final list of comparables. 6.2.4 Without prejudice, the Assessee sought the re- computation of margin of Scarecrow Communications Ltd. The ld. A.R. submitted that the correct weighted average margin of this Company is 9.26% as against 10.80%, as computed by the TPO. 6.3. The ld. D.R. relied on the orders of lower authorities. 7.We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in assessee’s own case Page 59 IT(TP)A No. 301/Bang/2022 for the assessment year 2016-17. The Tribunal vide order dated 30.8.2022 in IT(TP)A No.235/Bang/2021 held as under: “29. Scarecrow Communications Ltd. It is submitted that this company has operated without having a single employee during the financial year 2015- 16. The company acts as an intermediary in providing its services which is contrary to the activity undertaken by the assessee as a marketing support service provider. The company having operated without a single employee shows that the company is not rendering any services on its own and is therefore not comparable to the assessee. Further the revenue earned is in respect of different types of services which are not comparable to the assessee. Further, there are no segmental details available as regards the services. It is submitted that this company was directed to be excluded by the DRP in the assessee’s own case for the assessment years 2013-14 and 2014-15 on the ground that it is not functionally comparable to the assessee. The relevant extracts of the DRP’s directions are produced on page 188 of the appeal set. We have perused the submissions of both sides in light of records placed before us. This comparable has been excluded by the revenue itself in the preceding assessment years for being functionally different. We therefore direct exclusion of this company from the final list.” 7.1 In the present case also it has been excluded by ld. DRP in the assessment years 2013-14 & 2014-15 on the same analogy following the assessee’s own case cited (supra). We direct the AO/TPO to exclude this Scarecrow Communications Ltd. from the list of comparables to determine the ALP of international transactions.” 12.3 Majestic Research Services & Solutions Ltd. The Ld.AR submitted that this comparable is not functionally similar with that of assessee as it is engaged in rendering knowledge process outsourcing services and it is a product company and also engaged in providing market research services which is knowledge process outsourcing services. The Coordinate Bench of this Tribunal in case of M/s. Radisys India Ltd. vs. DCIT (supra) for A.Y. 2017-18 held as under: “(ii) Majestic Research Services & Solutions Limited Page 60 IT(TP)A No. 301/Bang/2022 13. The Ld.AR submitted that this comparable is functionally not similar to the assessee as it is involved in numerous services like Eye Tracking, Mobile Analytics, Video analysis, Facial recognition, Digital tracking, Online communities, Neuro Science, Emotional analysis, Automated audience measurement, Sensory sciences, etc. Under the marketing research services, which can be verified at page Nos. 4125 to 4126 of the paper book. At the outset, the Ld.AR submitted that these activities carried by this company is not akin to the marketing support service segment and the services rendered by assessee under this segment. 13.1. On the contrary, the Ld. DR relied on the order of the DRP. 13.2. We have perused the submissions advanced by both sides in the light of records placed before us. We note that this comparable is into various activities like Digital Network Services and into analysing media and marketing information based on various concepts through different mediums of interactions. Therefore, in our considered opinion, this comparable cannot be compared with assessee and deserves to be excluded. Accordingly, this ground raised by the assessee stands allowed.” Nothing contrary to the observations in the above referred cases has been brought on record by the Ld.DR. Respectfully following the same, we direct the Ld.AO/TPO to exclude Pressman Advertising Ltd., Scarecrow Communications Ltd. and Majestic Research Services & Solutions Ltd. from the list. Accordingly, Ground no. 17.1 stands allowed. As we have allowed Ground no. 17.1, Ground no. 17.2 becomes academic. 13. Ground no. 18 – Interest on delayed receivables It is submitted that the amounts outstanding have been settled by the AE on an on-going basis in the normal course of business having regard to economic and commercial factors. Since the outstanding receivables related to the primary services rendered, the assessee submits that, the determination of ALP of the Page 61 IT(TP)A No. 301/Bang/2022 outstanding receivables is not warranted as the same is subsumed in the ALP of the principal transaction. 13.1 The Assessee also contends the outstanding receivables could not be made subject matter of TP adjustment as the same is not covered under the provisions of Section 92B of the Act. Also, it is submitted that the Assessee is a debt free company and does not bear any working capital risk since it is fully funded by its AEs. The Assessee has not incurred any interest expenses for its working capital requirement. Hence, the Assessee does not have any interest cost in the funds blocked on deferred receivables from AEs as it is entirely funded by its AEs for its working capital requirements. 13.2. The Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 13.3. This Bench referred to decision of Special Bench of this Tribunal in case Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15/07/2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act. Alternatively, it has been argued that working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would Page 62 IT(TP)A No. 301/Bang/2022 have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions." 13.4. In view of the above, we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points which is in accordance with the principles laid down by Hon’ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt. Ltd., reported in (2015) 276 CTR 445 by considering a credit of 90 days. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Accordingly, this ground raised by assessee stands partly allowed for statistical purposes. Page 63 IT(TP)A No. 301/Bang/2022 14. Ground no. 21 is in respect of disallowance of salaries paid and reimbursement of expenses made towards seconded employees. 14.1 The Ld.AR submitted that TDS has been deducted on the entire salary paid by assessee to the seconded employees and what is reimbursed is the payment which has been partly made by the AE to the families of such seconded employees. The Ld.AR submitted that though the 100% salary has been subjected to TDS assessee has paid only part of the salary to the seconded employees in India and balance of such salary has been reimbursed to the AE as the same has been paid by the AE to the employees. The Ld.AR submitted that all the details relevant in respect of the salaries and the TDS deduction which were submitted before the authorities below which has not been considered. 14.2 He has placed reliance on the observation of Coordinate Bench of this Tribunal in case of M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT in IT(TP)A No. 1646/Bang/2017 by order dated 13.04.2022 and in the case of Goldman Sachs Services Pvt. Ltd. vs. DCIT in IT(IT)A Nos. 362 to 369 & 338 to 345/Bang/2020 by order dated 29.04.2022. Identical issue has been considered at length. 14.3 On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 14.4 We have perused the submissions advanced by both sides in the light of records placed before us. 14.5 We note that the evidences filed by assessee has not been considered by the revenue authorities. We therefore remand this Page 64 IT(TP)A No. 301/Bang/2022 issue to the Ld.AO to consider the claim in accordance with the decision of Coordinate Bench of this Tribunal in the above referred cases M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT (supra) Goldman Sachs Services Pvt. Ltd. vs. DCIT(supra) having regard to the evidences filed by the assessee. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes. 15. Ground no. 22 - The Ld.AR submitted that the bonding and debonding charges were disallowed for not furnishing the evidences as has been observed by the DRP. He submitted that assessee may be alternatively granted depreciation on the assets. 15.1 On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 15.2 We have perused the submissions advanced by both sides in the light of records placed before us. 15.3 We note that the bonding and debonding expenses have been incurred by assessee in respect of capital asset. Assessee is seeking depreciation on such charges as the same were disallowed u/s. 37 of the Act. The assessee has not filed any evidences in support of its claim however the Ld.AR has submitted that assessee may be provided an opportunity to substantiate the claim. We accordingly remand this issue to the Ld.AO to verify the evidences if any filed by the assessee and to consider the alternate claim of deprecation in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Page 65 IT(TP)A No. 301/Bang/2022 Accordingly this ground raised by assessee stands allowed for statistical purposes. 16. Ground no. 23 – The Ld.AR submitted that the Ld.AO in the final assessment order has considered the total income incorrectly in the computation. The same is directed to be verified and necessary corrections may be made in respect of the same. 17. Ground nos. 24 to 26 are consequential in nature and therefore do not require any adjudication. 18. Ground no. 27 is general in nature. In the result, the appeal filed by the assessee stands partly allowed in terms of the grounds argued by the Ld.AR. Order pronounced in the open court on 13 th October, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 13 th October, 2023. /MS / Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file By order Assistant Registrar, ITAT, Bangalore
