M/s. BORQS Software Solutions Private Limited, Bangalore V. The Assistant Commissioner of Income Tax, Circle-1(1)(2), Bangalore

ITA 310/BANG/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2767 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-10-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 02-07-2021
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; Question of law; Set aside
• Section: 92C; 92B; 133(6); 10B; 43; 13; 22; 92CA; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER IT(TP)A NO.310/BANG/2021 ASSESSMENT YEAR : 2016-17 M/S BORQS SOFTWARE SOLUTIONS PVT. LTD., NO.3, PRESTIGE ALKAREEM, GROUND FLOOR, EDWARD ROAD, BENGALURU-560 052. PAN : AADCB 8697 G VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE -1(1)(2), BMTC BUILDING, 80 FEET ROAD, 6 TH BLOCK, NEAR KHB GAMES VILLAGE, KORAMANGALA, BENGALURU-560095. APPELLANT RESPONDENT APPELLANT BY : SHRI. TATA KRISHNA, ADVOCATE RESPONDENT BY : SHRI. PRADEEP KUMAR, CIT(DR)(ITAT), BENGALURU DATE OF HEARING : 14.10.2021 DATE OF PRONOUNCEMENT : 25.10.2021 O R D E R PER N. V. VASUDEVAN, VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.03.2021 OF THE DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE 1(1)(2), BANGALORE, (HEREINAFTER REFERRED TO AS THE ASSESSIN G OFFICER, AO IN SHORT) PASSED U/S.143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (ACT) IN RELATION TO AY 2016-2017. 2. THE ASSESSEE IN ENGAGED IN THE BUSINESS OF PROV ISION OF SOFTWARE DEVELOPMENT SERVICES (SWD SERVICES), TO BORQS, HONG KONG, WHICH IS A SUBSIDIARY OF ITS WHOLLY OWNED HOLDING COMPANY BORQ S INTERNATIONAL HOLDING CORPORATION, CAYMAN ISLANDS. IN IT(TP)A NO.310/BANG/2021 PAGE 2 OF 44 TERMS OF THE PROVISIONS OF SEC.92-A OF THE ACT, THE ASSESSEE AND ITS WHOLLY OWNED HOLDING COMPANY AND ITS SUBSIDIARY WERE ASSOC IATED ENTERPRISES ('AES'). IN TERMS OF SEC.92B(1) OF THE ACT, THE TRA NSACTION OF PROVIDING SWD SERVICES WAS AN INTERNATIONAL TRANSACTION I.E ., A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR B ORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEM ENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE O R FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. I N TERMS OF SEC.92(1) OF THE ACT, THE ANY INCOME ARISING FROM AN INTERNATION AL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. I N THIS APPEAL BY THE ASSESSEE, THE FIRST DISPUTE IS WITH REGARD TO DETER MINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANSAC TION OF RENDERING SWD SERVICES TO THE AE. 3. AS FAR AS THE PROVISION OF SOFTWARE DEVELOPME NT SERVICES ARE CONCERNED, THE ASSESSEE FILED A TRANSFER PRICING ST UDY (TP STUDY) TO JUSTIFY THE PRICE PAID IN THE INTERNATIONAL TRANSACTION AS AT ALP BY ADOPTING THE TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST AP PROPRIATE METHOD (MAM) OF DETERMINING ALP. THE ASSESSEE SELECTED OPE RATING PROFIT/OPERATING COST (OP/OC) AS THE PROFIT LEVEL I NDICATOR (PLI) FOR THE PURPOSE OF COMPARISON OF THE ASSESSEES PROFIT MARG IN WITH THAT OF THE COMPARABLE COMPANIES. THE ASSESSEE IS A CAPTIVE SE RVICE PROVIDER AND DOES IT(TP)A NO.310/BANG/2021 PAGE 3 OF 44 NOT BEAR ANY COST OF SOFTWARE DEVELOPMENT AND SUPPO RT SERVICES. THE ENTIRE COST OF OPERATIONS IS PASSED ON TO THE AE AS COST I NCURRED BY THE ASSESSEE AND IS REIMBURSED BY THE AE ALONG WITH MARK-UP. TH E OP/OC OF THE ASSESSEE WAS ARRIVED AT 15 % BY THE ASSESSEE IN ITS TP STUDY. THE OPERATING INCOME WAS RS.24,71,71,242/- (+RS.45,43,304 BEING G AIN ON FOEIGN EXCHANGE FLUCTUATION) AND THE OPERATING COST WAS RS .21,44,99,173/-. THE OPERATING PROFIT (OPERATING INCOME OPERATING COST WAS RS.3,72,15,373/-. THUS THE OP/TC WAS ARRIVED AT 17.35%. THE ASSESSEE CHOSE COMPANIES WHO ARE ENGAGED IN PROVIDING SIMILAR SERVICES SUCH AS T HE ASSESSEE. THE ASSESSEE IDENTIFIED COMPANIES WHOSE AVERAGE ARITHME TIC MEAN OF PROFIT MARGIN WAS COMPARABLE WITH THE OPERATING MARGIN OF THE ASSESSEE. THE ASSESSEE THEREFORE CLAIMED THAT THE PRICE IT CHARGE D IN THE INTERNATIONAL TRANSACTION SHOULD BE CONSIDERED AS AT ARMS LENGTH . 4. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE DETERMINATION OF ALP WAS REFERRED TO BY THE AO, ACCEPTED TNMM AS THE MAM AND ALSO USED THE SAME PLI FOR COMPARISON I.E., OP/OC. HE ALSO SELEC TED COMPARABLE COMPANIES FROM DATABASE. THE TPO ON HIS OWN IDENTI FIED SOME OTHER COMPANIES AS COMPARABLE WITH THE ASSESSEE COMPANY A ND ARRIVED AT A SET OF 13 COMPARABLE COMPANIES. THE PLI WAS REWORKED BY T HE TPO AT 24.83%. THE TPO WORKED OUT THE AVERAGE ARITHMETIC MEAN OF T HEIR PROFIT MARGINS OF THE 13 COMPARABLE COMPANIES AS FOLLOWS: SL. NO. COMPANY NAME FINANCIAL YEAR WISE OP/OC (%) 2015 - 16 2014 - 15 2013 - 14 AVERAGE 1. KALS INFORMATION SYSTEMS PVT. LTD. 3.97% 5.77% 16.94% 8.60% 2. RHEAL SOFTWARE PVT. 3.20% 2.76% 36.64% 14.50% IT(TP)A NO.310/BANG/2021 PAGE 4 OF 44 LTD. 3. C G-V A K SOFTWARE & EXPORTS LTD. 19.60% 19.87% 13.81% 18.50% 4. R S SOFTWARE (INDIA) LTD. -2.09% 32.75% 24.14% 20.87% 5. LARSEN & TOUBRO INFOTECH LTD. 26.29% 24.22% 23.54% 24.83% 6. NIHILENT LTD. 15.94% 29.19% 35.72% 26.36% 7. INTEQ SOFTWARE PVT. LTD. 7.53% 32.14% 45.00% - 28.20% 8. PERSISTENT SYSTEMS LTD. 26.92% 31.34% 35.64% 30.89% 9. INFOBEANS TECHNOLOGIES LTD. 34.98% 20.78% 41.95% 32.42% 10. THIRDWARE SOLUTION LTD. 23.89% 44.39% 44.68% 36.90% 11. INFOSYS LTD. 38.22% 41.30% 36.28% 38.61% 12. ASPIRE SYSTEMS (INDIA) PVT. LTD. 34.26% 47.56% 38.04% 39.28% 13. CYBAGE SOFTWARE PVT. LTD. 62.90% 68.68% 68.82% 66.45% 35 TH PERCENTILE 24.83% MEDIAN 28.20% 65%TH PERCENTILE 32.42% 5. THE TPO COMPUTED THE ADDITION TO TOTAL INCOME ON ACCOUNT OF ADJUSTMENT TO ALP AS FOLLOWS: 21.4. COMPUTATION OF ARM'S LENGTH PRICE: 21.4.1 THE MEDIAN OF THE WEIGHTED AVERAGE PROFIT LE VEL INDICATORS IS TAKEN AS THE ARM'S LENGTH MARGIN. PLEASE SEE ANNEXU RE A FOR DETAILS OF COMPUTATION OF PLI OF THE COMPARABLES. BASED ON THI S, THE ARM'S LENGTH PRICE OF THE SERVICES RENDERED BY THE TAXPAY ER TO ITS AE(S) IS COMPUTED AS UNDER: SWD SEGMENT PARTICULARS FORMULA AMOUNT (IN RS.) TAXPAYERS OPERATING REVENUE OR 24,71,71,242 IT(TP)A NO.310/BANG/2021 PAGE 5 OF 44 TAXPAYERS OPERATING COST OC 21,44,99,172 TAXPAYERS OPERATING PROFIT OP 3,26,72,770 TAXPAYERS PLI PLI=OP/OC 15.23% 35TH PERCENTILE MARGIN OF COMAPARABLE SET 24.83% ADJUSTMENT REQUIRED (IF PLI< 35TH PERCENTILE) YES MEDIAN MARGIN OF COMPARABLE SET M 28.20% ARM'S LENGTH PRICE ALP=(1+M)*OC 19,72,99,371 PRICE RECEIVED OR 24,71,71,242 SHORTFALL BEING ADJUSTMENT ALP-OR 2,78,16,697 21.4.2 THE ABOVE SHORTFALL OF RS. 2,78,16,697/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT OF THE TAXPAYER'S INTERNATIONAL TRANSACTIONS. THUS A SUM OF RS.2,78,16,697/- WAS ADDED TO THE TOT AL INCOME OF THE ASSESSEE ON ACCOUNT OF DETERMINATION OF ALP FOR PRO VISION OF SWD SERVICES BY THE ASSESSEE TO ITS AE. 6. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUT ES RESOLUTION PANEL (DRP) AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE AO WHEREIN THE ADDITION SUGGESTED BY THE TPO AS ADJUSTMENT CONSEQU ENT TO DETERMINATION OF ALP WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE B Y THE AO. THE DRP GAVE CERTAIN DIRECTIONS. BASED ON THE DIRECTIONS O F THE DRP, THE AO PASSED THE FINAL ORDER OF ASSESSMENT. TO THE EXTENT THE A SSESSEE DID NOT GET RELIEF FROM THE DRP, THE ASSESSEE HAS PREFERRED APPEAL BEF ORE THE TRIBUNAL. IT(TP)A NO.310/BANG/2021 PAGE 6 OF 44 7. THE MAIN GRIEVANCE OF THE ASSESSEE PROJECTED IN THE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL WHICH WAS ARGUED BEFORE U S WAS (I) CHOICE OF COMPARABLE COMPANIES BY THE TPO IN DISREGARD OF THE ASSESSEES CLAIM THAT THE COMPANIES CHOSEN HAD HIGH TURNOVER AND HENCE SH OULD NOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE. THE ST AND OF THE TPO WAS AFFIRMED BY THE DRP AGAINST WHICH THE ASSESSEE IS I N APPEAL (GROUND NO.8.7) THE SAID GROUND READS THUS: 8.7 WITHOUT PREJUDICE, THE LEARNED DRP IS NOT JUSTI FIED IN UPHOLDING THE SELECTION OF THE FOLLOWING COMPANIES BY THE LEA RNED TPO BY REFUSING TO ADOPT THE UPPER TURNOVER FILTER: (A) LARSEN & TOUBRO INFOTECH LTD (B) NIHILENT LTD. (C) PERSISTENT SYSTEMS LTD (D) ASPIRE SYSTEMS (INDIA) PVT LTD (E) INFOSYS LTD. (F) THIRDWARE SOLUTION LTD. (G) CYBAGE SOFTWARE PVT LTD. (II) EXCLUSION OF R.S.SOFTWARE (INDIA) LTD., ON THE GROUND THAT THE RELATED PARTY TRANSACTION IS MORE THAN 15%; OR IN THE ALTER NATIVE PRAYER FOR EXCLUDING THE OPERATING INCOME AND OPERATING EXPENS E OF FY 2014-15 AND FY 2013-14 IN COMPUTING THE WEIGHTED AVERAGE MA RGIN FOR RS SOFTWARE LTD, EVEN THOUGH THE SAME FAILS THE UPPER TURNOVER LIMIT OF RS. 200 CRORES FOR THE ABOVE-MENTIONED YEARS. (III) NON ACCEPTANCE OF ASSESSEES CLAIM REGARDING NON INCLUSION OF CERTAIN COMPANIES COMPARABLE COMPANY. INTEQ SOFTWARE PVT.LT D., AND INFOBEANS SOFTWARE LTD. . IT(TP)A NO.310/BANG/2021 PAGE 7 OF 44 8. AS FAR AS GROUND NO.8.7 IS CONCERNED, THE RELEV ANT PROVISIONS OF THE ACT IN SO FAR AS COMPARABILITY OF INTERNATIONAL TRANSAC TION WITH A TRANSACTION OF SIMILAR NATURE ENTERED INTO BETWEEN UNRELATED PARTI ES, PROVIDES AS FOLLOWS: DETERMINATION OF ARM'S LENGTH PRICE UNDER SECTION 9 2C . 10B . (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A) TO (D). ..... (E)TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] ENTERED INTO WITH AN ASSOCIATED ENTERPRIS E IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB- CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION [ OR THE SPECIFIED DOMESTIC TRANSACTION ] AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF IT(TP)A NO.310/BANG/2021 PAGE 8 OF 44 NET PROFIT MARGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB - CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLIS HED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION [ OR THE SPECIFIED DOMESTIC TRANSACTION ] ; (F)...... (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFER ENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSF ERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCT IONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS AR E FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INC LUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOU R AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER TH E MARKETS ARE WHOLESALE OR RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE IT(TP)A NO.310/BANG/2021 PAGE 9 OF 44 ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIK ELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE O PEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 9. A READING OF RULE 10B(1)(E)(III) OF THE RULES READ WITH SEC.92CA OF THE ACT, WOULD CLEARLY SHOWS THAT THE NET PROFIT MARGIN ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS HAS TO BE ADJUSTED TO TAK E INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRAN SACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, WHICH COULD MATERIALLY A FFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET. 10. CHAPTERS I AND III OF THE OECD TRANSFER PRICIN G GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS ( HEREAFTER THE TPG) CONTAIN EXTENSIVE GUIDANCE ON COMPARABILITY ANALYSE S FOR TRANSFER PRICING PURPOSES. GUIDANCE ON COMPARABILITY ADJUSTMENTS IS FOUND IN PARAGRAPHS 3.47-3.54 AND IN THE ANNEX TO CHAPTER III OF THE TP G. A REVISED VERSION OF THIS GUIDANCE WAS APPROVED BY THE COUNCIL OF THE OE CD ON 22 JULY 2010. IN PARAGRAPH 2 OF THESE GUIDELINES IT HAS BEEN EXPL AINED AS TO WHAT IS COMPARABILITY ADJUSTMENT. THE GUIDELINE EXPLAINS T HAT WHEN APPLYING THE ARMS LENGTH PRINCIPLE, THE CONDITIONS OF A CONTROL LED TRANSACTION (I.E. A TRANSACTION BETWEEN A TAXPAYER AND AN ASSOCIATED EN TERPRISE) ARE GENERALLY COMPARED TO THE CONDITIONS OF COMPARABLE UNCONTROLL ED TRANSACTIONS. IN THIS CONTEXT, TO BE COMPARABLE MEANS THAT: NONE OF THE DIFFERENCES (IF ANY) BETWEEN THE SITUA TIONS BEING COMPARED COULD MATERIALLY AFFECT THE CONDITION BEIN G EXAMINED IN THE METHODOLOGY (E.G. PRICE OR MARGIN), OR IT(TP)A NO.310/BANG/2021 PAGE 10 OF 44 REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELI MINATE THE EFFECT OF ANY SUCH DIFFERENCES. THESE ARE CALLED COMPARAB ILITY ADJUSTMENTS. 11. AS FAR AS COMPARABILITY OF COMPANIES LISTED A S (A) TO (G) IN GRD.NO.8.7 RAISED BY THE ASSESSEE IS CONCERNED, THE ADMITTED F ACTUAL POSITION IS THAT THE TURNOVER OF THESE COMPANIES IS MORE THAN RS.200 CRO RES AND THE ASSESSEES TURNOVER IS ONLY RS. 24,71,71,242/-. THE TPO EXCLU DED FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE IN ITS TP STUDY COMPANIES WHOSE TURNOVER WAS LESS THAN RS.1 CRORE. THE CONTE NTION OF THE ASSESSEE BEFORE THE DRP WAS THAT WHILE THE TPO EXCLUDED COMP ANIES 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 MAD E THEIR RESULTS LESS RELIABLE. THE CONTENTION OF THE ASSESSEE WAS THAT THERE WOULD BE EFFECT ON PROFITABILITY WHEREVER THERE IS HIGH OR LOW TURNOVE R AND THEREFORE COMPANIES WITH HIGH TURNOVER SHOULD ALSO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE DRP PRIMARILY RELIED ON THE DECISIO N RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L INVESTMENT ADVISORS INDIA PVT.LTD VS. DCIT 82 TAXMANN.COM 167(DEL), WHE REIN IT WAS HELD THAT HIGH TURNOVER IPSO FACTO DOES NOT LEAD TO THE CONCL USION THAT A COMPANY WHICH IS OTHERWISE COMPARABLE ON FAR ANALYSIS CAN B E EXCLUDED AND THAT THE EFFECT OF SUCH HIGH TURNOVER ON THE MARGIN SHOU LD BE SEEN. THE DRP THEREFORE HELD THAT A COMPANY WHICH IS OTHERWISE FU NCTIONALLY COMPARABLE CANNOT BE EXCLUDED ONLY ON THE BASIS OF HIGH TURNOV ER. THE ASSESSEE HAS RAISED GRD.NO.4 BEFORE THE TRIBUNAL CHALLENGING THE AFORESAID VIEW OF THE DRP. IT(TP)A NO.310/BANG/2021 PAGE 11 OF 44 12. ON THE ISSUE OF APPLICATION OF TURNOVER FILTER , WE HAVE HEARD THE RIVAL SUBMISSIONS. THE PARTIES RELIED ON SEVERAL DECISIO NS RENDERED ON THE ABOVE ISSUE BY THE VARIOUS DECISIONS OF THE ITAT BANGALOR E BENCHES IN FAVOUR OF THE ASSESSEE AND IN FAVOUR OF THE REVENUE, RESPECTI VELY. THE ITAT BANGALORE BENCH IN THE CASE OF DELL INTERNATIONAL S ERVICES 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 BEN CH IN THE CASE OF SYSARRIS SOFTWARE PVT.LTD. VS. DCIT (2016) 67 TAXMA NN.COM 243 (BANGALORE-TRIB) WHEREIN THE TRIBUNAL AFTER NOTICIN G THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L (SUPRA) AND THE DECISION TO THE CONTRARY IN THE CASE OF CIT VS. PE NTAIR 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 FOLLOW ING WERE THE CONCLUSIONS OF THE TRIBUNAL IN THE CASE OF DELL INT ERNATIONAL (SUPRA): 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 BRADSTREETS ANALYSIS, HELD GROUPING OF COMPANIES HAVING TURNOVER OF RS. 1 CROR E 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 JUDIC IAL PRECEDENTS ON THE ISSUE, WE FIND THAT THE TPO HIMSE LF HAS REJECTED THE COMPANIES WHICH .IRE (SIC) MAKING LOSS ES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR T HE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITU ATION, IT(TP)A NO.310/BANG/2021 PAGE 12 OF 44 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 CONTENTI ON OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A POSITION TO B ARGAIN 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 TH ESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COM E DOWN REDUCING PROFIT MARGIN. THUS, AS HELD BY THE VARIOU S BENCHES OF THE TRIBUNAL, WHEN COMPANIES WHICH ARC L OSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPE R PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FO R THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REASONABLE CLASSI FICATION HAS TO BE MADE. DUN & BRADSTREET & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE IND IAN SCENARIO INTO CONSIDERATION, WE FEEL THAT THE CLASS IFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE HOLD THAT THE T URNOVER 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 R ANGE 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 ASSESSEES TURNOVER WAS AROUND RS.110 CRO RES. THEREFORE THE ACTION OF THE CIT(A) IN DIRECTING TPO TO EXCLUD E COMPANIES HAVING TURNOVER OF MORE THAN RS.200 CRORES AS NOT C OMPARABLE WITH THE ASSESSEE WAS JUSTIFIED. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THERE ARE TWO VIEWS EXPRE SSED BY TWO HONBLE HIGH COURTS OF BOMBAY AND DELHI AND BOTH AR E NON- JURISDICTIONAL HIGH COURTS. THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT IS IN FAVOUR OF THE ASSESSEE AND THEREFORE FO LLOWING THE SAID VIEW, THE ACTION OF THE CIT(A) EXCLUDING COMPANIES WITH TURNOVER OF ABOVE RS.200 CRORES FROM THE LIST OF COMPARABLE COM PANIES IS HELD TO CORRECT AND SUCH ACTION DOES NOT CALL FOR ANY INTER FERENCE. IT(TP)A NO.310/BANG/2021 PAGE 13 OF 44 13. THE TRIBUNAL IN THE CASE OF AUTODESK INDIA PVT .LTD. VS. DCIT (2018) 96 TAXMANN.COM 263 (BANGLORE-TRIBUNAL), TOOK NOTE OF A LL 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. TH E SUBSTANTIAL QUESTION OF LAW (QUESTION NO.1 TO 3) WHICH WAS FRAM ED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L INVESTMENT ADVISORS (INDIA) PVT.LTD., (SUPRA) WAS AS TO WHETHE R COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPTIONA LLY HIGH PROFIT MARGINS OR FLUCTUATION PROFIT MARGINS, AS COMPARED TO THE ASSESSEE IN TRANSFER PRICING ANALYSIS. THEREFORE AS RIGHTLY SUB MITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THE OBSERVATIONS OF THE HO N'BLE HIGH COURT, IN SO FAR AS IT REFERS TO TURNOVER, WERE IN THE NAT URE OF OBITER DICTUM . JUDICIAL DISCIPLINE REQUIRES THAT THE TRIBUNAL SHOU LD FOLLOW THE DECISION OF A NON-JURISDICTION HIGH COURT, EVEN THO UGH 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 CRIT ERION FOR CHOOSING COMPANIES AS COMPARABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICING CASES. THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE CIRCUMSTANCES, FOLLOWIN G THE PRINCIPLE THAT WHERE TWO VIEWS ARE AVAILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULL Y FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES CHO SEN BY THE TPO ON THE BASIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO THAT THE ASSESSEE. 17.8. IN VIEW OF THE ABOVE CONCLUSION, THERE MAY N OT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION RENDERED IN T HE CASE OF GENISYS IT(TP)A NO.310/BANG/2021 PAGE 14 OF 44 INTEGRATING (SUPRA) BY THE ITAT BANGALORE BENCH SHO ULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WERE ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGA LORE 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 R ENDERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) WAS THE EARLIEST DECISI ON 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 MUMBA I BENCHES CITED BY THE LEARNED DR BEFORE US IN THE CASE OF WILLIS P ROCESSING SERVICES (SUPRA) AND CAPEGEMINI INDIA PVT.LTD. (SUPRA) ARE T O BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO -ORDINATE BENCH DECISION. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS THE PLEA OF THE L EARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS RENDERED IN THE CASE O F M/S.NTT DATA (SUPRA), SOCIETE GENERALE GLOBAL SOLUTIONS (SUPRA) AND LSI TECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT O F TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROC ESSING SERVICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. T HESE THREE DECISIONS ALSO PLACE RELIANCE ON THE DECISION OF TH E HONBLE 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 RAT IO DECIDENDI LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F PENTAIR (SUPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THEREFORE, THE DECISIONS CITED BY THE LEARNED DR BE FORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS NOT RELEVAN T CRITERIA FOR DECIDING ON COMPARABILITY OF COMPANIES IN DETERMINATION OF A LP UNDER THE TRANSFER PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THE ISS UE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EXCLUDING COMP ANIES BY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF GENISYS INTEGRAT ING (SUPRA). 14. IN VIEW OF THE AFORESAID DECISION, WE HOLD THA T COMPANIES LISTED IN SL.NO.(A) TO (G) OF GRD.NO.8.7 RAISED BY THE ASSESS EE WHOSE TURNOVER IN THE IT(TP)A NO.310/BANG/2021 PAGE 15 OF 44 CURRENT YEAR IS MORE THAN RS.200 CRORES SHOULD BE E XCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 15. AS FAR AS EXCLUSION OF R.S.SOFTWARE (INDIA) LT D., IS CONCERNED, THE TURNOVER OF THIS COMPANY IN THE CURRENT YEAR IS LES S THAN RS.200 CRORES BUT IN THE EARLIER TWO YEARS ITS TURNOVER WAS MORE THAN RS .200 CRORES AND WAS LIABLE TO BE EXCLUDED IN THOSE EARLIER TWO YEARS. THE QUE STION RAISED IN THE AFORESAID GROUNDS IS AS TO: WHETHER THIS COMPANY SHOULD ALSO BE EXCLUDED ON THE APPLICATION OF TURNOVER FILTER BY REASON OF ITS TURNOVER IN THE EARLIER TWO YEARS BEING MORE THAN RS.200 CRORES IN THE LIGHT OF RULE 10CA OF THE RULE S WHICH WERE APPLICABLE FROM AY 2014-15 ONWARDS OR WHETHER IN COMPUTING THE WEIGHTED AVERAGE PROFIT MA RGIN OF THIS COMPANY, THE EARLIER TWO YEARS PROFIT MARGINS HAVE TO BE IGN ORED BECAUSE THEY FAIL THE TEST OF COMPARABILITY IN THOSE TWO EARLIER YEARS BY REASON OF THE APPLICATION OF THE RS.200 CRORE TURNOVER FILTER. 16. TO ANSWER THE ABOVE QUESTION, WE NEED TO LOOK AT THE AMENDMENT TO THE RULES THAT ALLOW FOR INTRODUCTION OF A RANGE CONCE PT FOR DETERMINATION OF ALP AND USE OF MULTIPLE YEAR DATA FOR UNDERTAKING COMPARABILITY ANALYSIS IN TRANSFER PRICING CASES. THE PROVISIONS OF THE INCOME-TAX ACT WERE AMENDED THROUGH THE FINANCE (NO.2) ACT, 2014 TO FAC ILITATE ALIGNMENT OF INDIAN TRANSFER REGIME WITH INTERNATIONAL BEST PRAC TICES. THE MANNER OF COMPUTATION OF ALP IS LAID DOWN UNDER THE INCOME-TA X RULES. THE GOVERNMENT HAS NOTIFIED THE AMENDED RULES FOR DETER MINING ALP VIDE S.O. NO. 2860 (E) DATED 19/10/2015. THE AMENDED REGIME W ILL BE APPLICABLE FOR IT(TP)A NO.310/BANG/2021 PAGE 16 OF 44 COMPUTATION OF ALP OF INTERNATIONAL TRANSACTIONS AN D SPECIFIED DOMESTIC TRANSACTIONS UNDERTAKEN ON OR AFTER 1/04/2014 I.E. ON AND AFTER PY 2014-15. THE AMENDED RULES ALLOW FOR INTRODUCTION OF A RANG E CONCEPT FOR DETERMINATION OF ALP AND USE OF MULTIPLE YEAR DATA FOR UNDERTAKING COMPARABILITY ANALYSIS IN TRANSFER PRICING CASES. THE USE OF RANGE CONCEPT BEING A STATISTICAL TOOL ENHANCES THE RELIABILITY O F ANALYSIS UNDERTAKEN FOR COMPUTATION OF ALP. THE RANGE CONCEPT WILL BE APPLI CABLE IN CERTAIN CASES FOR DETERMINING THE PRICE AND WILL BEGIN WITH THE 3 5TH PERCENTILE AND END WITH THE 65TH PERCENTILE OF THE COMPARABLE PRICES. TRANSACTION PRICE SHOWN BY THE TAXPAYERS FALLING WITHIN THE RANGE WILL BE A CCEPTED AND NO ADJUSTMENT WILL BE MADE. THE USE OF MULTIPLE YEAR DATA ALLOWS FOR YEARLY VARIATIONS TO BE AVERAGED OUT AND WOULD THEREFORE ADD VALUE TO TRANS FER PRICING ANALYSIS. THE AMENDED INCOME TAX RULES, 1962 (RULES) VIA NOTIFI CATION 83 OF 2015 WHICH IS THE 16TH AMENDMENT TO THE ORIGINALLY DRAFT ED INDIAN TAX RULES, 1962, ARE APPLICABLE FOR TRANSACTIONS UNDERTAKEN ON OR AFTER 1 APRIL 2014 (I.E. FROM FY 2014-15 AND ONWARDS). THESE AMENDED PROVIS IONS ARE APPLICABLE ONLY WHEN THE DETERMINATION OF ALP IS DONE UNDER THE MAM BEING RESALE PRICE METHOD (RPM), COST PLUS METHOD (CPM) OR T RANSACTIONAL NET MARGIN METHOD (TNMM). THE RELEVANT PROVISIONS OF RULE 10CA OF THE RULES, IN SO FAR AS IT RELATES TO CHOICE OF COMPARA BLE COMPANIES, READ AS FOLLOWS: COMPUTATION OF ARM'S LENGTH PRICE IN CERTAIN CASES . 10CA. (1) WHERE IN RESPECT OF AN INTERNATIONAL TRANSACTIO N OR A SPECIFIED DOMESTIC TRANSACTION, THE APPLICATION OF THE MOST APPROPRIATE METHOD REFERRED TO IN SUB-SECTION (1) O F SECTION 92C RESULTS IN DETERMINATION OF MORE THAN ONE PRICE, TH EN THE ARM'S LENGTH PRICE IN RESPECT OF SUCH INTERNATIONAL TRANS ACTION OR SPECIFIED IT(TP)A NO.310/BANG/2021 PAGE 17 OF 44 DOMESTIC TRANSACTION SHALL BE COMPUTED IN ACCORDANC E WITH THE PROVISIONS OF THIS RULE. (2) A DATASET SHALL BE CONSTRUCTED BY PLACING THE P RICES REFERRED TO IN SUB-RULE (1) IN AN ASCENDING ORDER AND THE ARM'S LENGTH PRICE SHALL BE DETERMINED ON THE BASIS OF THE DATASET SO CONSTRUCTED: PROVIDED THAT IN A CASE REFERRED TO IN CLAUSE (I) OF SUB-RUL E (5) OF RULE 10B, WHERE THE COMPARABLE UNCONTROLLED TRANSACTION HAS BEEN IDENTIFIED ON THE BASIS OF DATA RELATING TO TH E CURRENT YEAR AND THE ENTERPRISE UNDERTAKING THE SAID UNCONTROLLED TR ANSACTION, [NOT BEING THE ENTERPRISE UNDERTAKING THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC TRANSACTION REFERRED TO IN S UB-RULE (1)], HAS IN EITHER OR BOTH OF THE TWO FINANCIAL YEARS IMMEDI ATELY PRECEDING THE CURRENT YEAR UNDERTAKEN THE SAME OR SIMILAR COM PARABLE UNCONTROLLED TRANSACTION THEN, (I) THE MOST APPROPRIATE METHOD USED TO DETERMINE THE PRICE OF THE COMPARABLE UNCONTROLLED TRANSACTION OR TRANSACTIONS UNDERTAKEN IN THE AFORESAID PERIOD AND THE PRICE IN RESPECT OF SUCH UNCONTROLLED TRANSACTIONS SHALL BE DETERMINED; AND (II) THE WEIGHTED AVERAGE OF THE PRICES, COMPUTED IN A CCORDANCE WITH THE MANNER PROVIDED IN SUB- RULE (3), OF THE COMPARABLE UNCONTROLLED TRANSACTIONS UNDERTAKEN IN THE CURRENT YEAR AND IN THE AFORESAID PERIOD PRECEDING IT SHALL BE INCLUDED IN THE DATASET INSTEAD OF THE PRICE REFERRED TO IN SUB-RULE (1) : PROVIDED FURTHER THAT IN A CASE REFERRED TO IN CLAUSE (II) OF SUB- RULE (5) OF RULE 10B, WHERE THE COMPARABLE UNCONTROLLED TRANSACTION HAS BEEN IDENTIFIED ON THE BASIS OF THE DATA RELATING TO THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE CURRENT YEAR AND THE ENTERPRISE UNDERTAKING THE SAID UNCONTROLLED TRANSACTION, [NOT BEING THE ENTERPRISE UNDERTAKING THE INTERNATIONAL TRANSACTION OR THE SPECIFIED DOMESTIC IT(TP)A NO.310/BANG/2021 PAGE 18 OF 44 TRANSACTION REFERRED TO IN SUB- RULE (1)], HAS IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE SAID FINA NCIAL YEAR UNDERTAKEN THE SAME OR SIMILAR COMPARABLE UNCONTROLLED TRANSACTION THEN, (I) THE PRICE IN RESPECT OF SUCH UNCONTROLLED TRANSACTION SHALL BE DETERMINED BY APPLYING THE MOST APPROPRIATE METHOD IN A SIMILAR MANNER AS IT WAS APPLIED TO DETERMIN E THE PRICE OF THE COMPARABLE UNCONTROLLED TRANSACTION UNDERTAKEN IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE CURRENT YEAR; AND (II) THE WEIGHTED AVERAGE OF THE PRICES, COMPUTED IN ACCORDANCE WITH THE MANNER PROVIDED IN SUB- RULE (3), OF THE COMPARAB LE UNCONTROLLED TRANSACTIONS UNDERTAKEN IN THE AFORESAID PERIOD OF TWO YEARS SHALL BE INCLUDED IN THE DATASET INSTEAD OF THE PRICE REFERRED TO IN SUB-RULE (1) : PROVIDED ALSO THAT WHERE THE USE OF DATA RELATING TO THE CURRENT YEAR IN TERMS OF THE PROV ISO TO SUB- RULE (5) OF RULE 10B ESTABLISHES THAT, (I) THE ENTERPRISE HAS NOT UNDERTAKEN SAME OR SIMILAR UNCONTROLLED TRANSACTION DURING THE CURRENT YEAR; OR (II) THE UNCONTROLLED TRANSACTION UNDERTAKEN BY AN ENTERPRISE IN THE CURRENT YEAR IS NOT A COMPARABLE UNCONTROLLED TRANSACTION, THEN, IRRESPECTIVE OF THE FACT THAT SUCH AN ENTERPR ISE HAD UNDERTAKEN COMPARABLE UNCONTROLLED TRANSACTION IN THE FINANCIAL YEAR IMMEDIATELY IT(TP)A NO.310/BANG/2021 PAGE 19 OF 44 PRECEDING THE CURRENT YEAR OR THE FINANCIAL YEAR IMMEDIATELY PRECEDING SUC H FINANCIAL YEAR, THE PRICE OF COMPARABLE UNCONTROLLED TRANSACTION OR THE WEIGHTED AVERAGE OF THE PRICES OF THE UNCONTROLLED TRANSACTIONS, AS THE CASE MAY BE, UNDERTAKEN BY SUC H ENTERPRISE SHALL NOT BE INCLUDED IN THE DATASET. (3) WHERE AN ENTERPRISE HAS UNDERTAKEN COMPARABLE U NCONTROLLED TRANSACTIONS IN MORE THAN ONE FINANCIAL YEAR, THEN FOR THE PURPOSES OF SUB-RULE (2) THE WEIGHTED AVERAGE OF THE PRICES OF SUCH TRANSACTIONS SHALL BE COMPUTED IN THE FOLLOWING MAN NER, NAMELY: (I) WHERE THE PRICES HAVE BEEN DETERMINED USING THE METHOD REFERRED TO IN CLAUSE (B) OF SUB- RULE (1) OF RULE 10B, THE WEIGHTED AVERAGE OF THE PRICES SHALL BE COMPUTED WITH WEIGHTS BEING ASSIGNED TO THE QUANTUM OF SALES WHICH HAS BEEN CONSIDERED FOR ARRIVING AT THE RESPECTIVE PRICES ; (II) WHERE THE PRICES HAVE BEEN DETERMINED USING THE METHOD REFERRED TO IN CLAUSE (C) OF SUB- RULE (1) OF RULE 10B, THE WEIGHTED AVERAGE OF THE PRICES SHALL BE COMPUTED WITH WEIGHTS BEING ASSIGNED TO THE QUANTUM OF COSTS WHICH HAS BEEN CONSIDERED FOR A RRIVING AT THE RESPECTIVE PRICES; (III) WHERE THE PRICES HAVE BEEN DETERMINED USING THE METHOD REFERRED TO IN CLAUSE (E) OF SUB- RULE (1) OF RULE 10B, THE WEIGHTED AVERAGE OF THE PRICES SHALL BE COMPUTED WITH WEIGHTS BEING ASSIGNED TO THE QUANTUM OF COS TS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED, OR AS THE CASE MAY BE, ANY OTHER BASE WHICH HAS BEEN CONSIDERED FOR ARRIVING AT THE RESPECTIVE PRICES .. 17. LET US APPLY THE ABOVE RULES TO THE COMPARABLE COMPANY R.S.SOFTWARE (INDIA) LTD. AS PER RULE 10CA(2), THE DATASET OF CO MPARABLE COMPANIES IT(TP)A NO.310/BANG/2021 PAGE 20 OF 44 CHOSEN HAS TO BE ARRANGED IN ASCENDING ORDER. AS P ER THE 1 ST PROVISO TO RULE 10CA(2), R.S.SOFTWARE (INDIA) LTD., WAS CHOSEN AS A COMPARABLE COMPANY BASED ON THE DATA RELATING TO THE CURRENT YEAR AND IN THE EARLIER TWO FINANCIAL YEARS IMMEDIATELY PRECEDING THE CURRENT FINANCIAL Y EAR. IN ALL THE FINANCIAL YEARS THE SAID COMPANY HAS UNDERTAKEN SIMILAR COMPA RABLE UNCONTROLLED TRANSACTION. CLAUSE (I) TO 1 ST PROVISO TO SEC.10CA(2) MANDATES THAT THE SAME MAM HAS TO BE USED TO ARRIVE AT THE PRICE OF THE CO MPARABLE UNCONTROLLED TRANSACTION UNDERTAKEN BY R.S.SOFTWARE (INDIA) LTD. , IN THE FINANCIAL YEARS 2013-14 AND 2014-15. AS PER CLAUSE (II) OF 1 ST PROVISO TO SEC.10CA(2), WEIGHTED AVERAGE OF THE PRICES OF THE 3 FINANCIAL Y EARS HAVE TO BE TAKEN IN ACCORDANCE WITH RULE 10CA(3) AND THE WEIGHTED AVERA GE SO TAKEN SHALL BE INCLUDED DATA SET INSTEAD OF THE PRICE ARRIVED AT BY USING CURRENT YEAR DATA ALONE. IN THE PRESENT CASE, IF ONE SEES THE CHART OF COMPARABLES OF TPO GIVEN IN PARAGRAPH-4 OF THIS ORDER, THE PROFIT MARG INS OF THE COMPANY R.S.SOFTWARE (INDIA) LTD., FOR THE THREE FINANCIAL YEARS WERE 2013-14 TO 2015-16 WERE 24.14%, 32.75% AND -2.09% RESPECTIVELY AND THE WEIGHTED AVERAGE MARGIN OF 24.83% HAS BEEN CONSIDERED BY THE TPO. 18. THE SECOND PROVISO TO SEC.10CA(2) OF THE RULES PROVIDES FOR A SITUATION WHERE R.S.SOFTWARE (INDIA) LTD., HAS UNDERTAKEN COM PARABLE UNCONTROLLED TRANSACTION ONLY IN FINANCIAL YEAR 2014-15 & 2015-1 6, THEN THE WEIGHTED AVERAGE OF THE TWO FINANCIAL YEAR 2014-15 AND 2015- 16 HAS TO BE COMPUTED IN THE MANNER LAID DOWN IN RULE 10CA(3) OF THE RULE S AND THE MARGIN SO ARRIVED AT HAS TO BE INCLUDED IN THE DATASET. 19. THE THIRD PROVISO TO SEC.10CA(2) OF THE RULES PROVIDES THAT IF IN THE CURRENT YEAR I.E., FINANCIAL YEAR 2015-16 IF R.S.SO FTWARE (INDIA) LTD., HAS NOT IT(TP)A NO.310/BANG/2021 PAGE 21 OF 44 UNDERTAKEN ANY UNCONTROLLED COMPARABLE TRANSACTION THEN THAT COMPANY CAN NEVER BE CONSIDERED FOR INCLUSION IN THE DATASET. 20. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT AS PER THE PROVISO TO RULE 10CA(2) OF THE RULES, R.S.SOFTW ARE (INDIA) LTD., CANNOT BE REGARDED AS COMPARABLE COMPANY FOR FINANCIAL YEA R 2013-14 AND 2014- 15 BECAUSE IN THOSE YEARS, THE TURNOVER OF THIS COM PANY WAS MORE THAN RS.200 CRORES. THEREFORE AS PER THE FIRST AND SECO ND PROVISO TO RULE 10CA(2) OF THE RULES, THE PROFIT MARGIN OF THIS COM PANY FOR FINANCIAL YEAR 2013-14 & 2014-15 HAS TO BE IGNORED AND THE PROFIT MARGIN OF THE FINANCIAL YEAR 2015-16 ALONE SHOULD BE TAKEN. IF ONE LOOKS A T RULE 10CA(2) IN ISOLATION, WE HAVE TO REJECT THIS ARGUMENT BECAUSE THE 1 ST AND 2 ND PROVISO TO RULE 10CA(2) OF THE RULES REFERS TO ONLY R.S.SOFTWA RE (INDIA) LTD., (I.E., WHERE THE COMPARABLE UNCONTROLLED TRANSACTION HAS B EEN IDENTIFIED ON THE BASIS OF DATA RELATING TO THE CURRENT YEAR AND THE ENTERPRISE UNDERTAKING THE SAID UNCONTROLLED TRANSACTION HAS IN EITHER OR BOTH OF THE TWO FINANCIAL YEARS IMMEDIATELY PRECEDING THE CURRENT YEAR UNDERTAKEN T HE SAME OR SIMILAR COMPARABLE UNCONTROLLED TRANSACTION) UNDERTAKING UNCONTROLLED TRANSACTION DURING THE RELEVANT PREVIOUS YEAR AND IF THIS CONDI TION IS SATISFIED THEN THE PROFIT MARGIN OF R.S.SOFTWARE FOR THE 2 FINANCIAL Y EARS IMMEDIATELY PRIOR TO THE CURRENT FINANCIAL YEAR HAS TO BE TAKEN. A PLAI N READING OF THE 1 ST PROVISO WOULD SHOW THAT THE QUESTION OF COMPARABILITY IS NO T TO BE SEEN WHILE APPLYING THE 1 ST AND 2 ND PROVISO TO RULE 10CA(2) OF THE RULES. THE PROVISIONS OF RULE 10CA(2) HAVE TO BE READ HARMONIO USLY WITH THE OTHER PROVISIONS OF RULE 10B. DETERMINATION OF ARM'S LENGTH PRICE UNDER SECTION 9 2C . IT(TP)A NO.310/BANG/2021 PAGE 22 OF 44 10B . (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHO D, IN THE FOLLOWING MANNER, NAMELY : (A) TO (D).. (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FR OM AN INTERNATIONAL TRANSACTION [ OR A SPECI FIED DOMESTIC TRANSACTION ] ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MAR GIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COM PUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( II ) ARISING IN CO MPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO T AKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERN ATIONAL TRANSACTION [ OR THE SPECIFIED DOMESTIC TRANSACTION ] AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN TH E ENTERPRISES ENTERING INT O SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN I N THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AN D REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKE N INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELAT ION TO THE INTERNATIONAL TRANSACTION [ OR THE SPECIFIED DOMESTIC TRANSACTION ] ; .. (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] WITH AN IT(TP)A NO.310/BANG/2021 PAGE 23 OF 44 UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFER ENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSF ERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS A RE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILIT IES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INC LUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOU R AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHE THER THE MARKETS ARE WHOLESALE OR RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BET WEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIK ELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE O PEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. (4) THE DATA TO BE USED IN ANALYSING THE COMPARABIL ITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION [ OR A SPECIFIED DOMESTIC TRANSACTION ] SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR [ (HEREAFTER IN THIS RULE AND IN RULE 10CA REFERRED T O AS THE 'CURRENT YEAR') ] IN WHICH THE INTERNATIONAL TRANSACTION [ OR THE SPECIFIED DOMESTIC TRANSACTION ] HAS BEEN ENTERED INTO : IT(TP)A NO.310/BANG/2021 PAGE 24 OF 44 PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO [ THE CURRENT YEAR ] MAY ALSO BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMIN ATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPAR ED: A READING OF RULE 10B(3) SHOWS THAT COMPARISON OF A N UNCONTROLLED TRANSACTION TO AN INTERNATIONAL TRANSACTION CAN BE DONE ONLY IF DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS THAT ARE COMPARED OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATER IALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUC H TRANSACTIONS IN THE OPEN MARKET OR REASONABLY ACCURATE ADJUSTMENTS CAN BE MA DE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. A READING OF PROVISO TO RULE 10B(4) WOULD SHOW THAT USE OF DATA RELATING TO A PERIOD OF TWO YEARS PRIOR TO THE CURRENT YEAR MAY ALSO BE CONSIDERED BUT WITH A RIDE R THAT IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPAR ED. IF BY APPLICATION OF ANY FILTER AN ENTERPRISE UNDERTAKING UNCONTROLLED T RANSACTION SIMILAR TO AN INTERNATIONAL TRANSACTION IS REGARDED AS NOT BEING COMPARABLE IN THE EARLIER TWO YEARS IMMEDIATELY PRECEDING THE CURRENT YEAR AN D THEREBY ATTRACTING THE PROVISIONS OF RULE 10B(2) OR 10B(3) THEN THE DATA F OR THOSE YEARS WILL NOT HAVE ANY INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED FOR THE CURRENT YEAR AN D HENCE HAVE TO BE IGNORED. ON A HARMONIOUS READING OF THE PROVISIO NS OF RULE 10CA, 10B(3) (4) OF THE RULES, WE AGREE WITH THE STAND TAKEN BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE, IF AT ALL R.S.SOFTWARE LTD., I S TO BE REGARDED AS A COMPARABLE COMPANY, THEN THE MARGINS FOR AY 2014-15 AND 2015-16 OF THE COMPANY HAVE TO BE IGNORED BECAUSE IN THOSE YEARS T HEY ARE TO BE REGARDED AS NOT COMPARABLE. WE HOLD ACCORDINGLY. IT(TP)A NO.310/BANG/2021 PAGE 25 OF 44 21. AS FAR AS EXCLUSION OF THIS COMPANY R.S.SOFTWAR E (INDIA) LTD., ON THE GROUND THAT THE RELATED PARTY TRANSACTION IS MORE T HAN 15% IS CONCERNED, WE FIND THAT THE ADMITTED POSITION WITH REGARD TO RELA TED PARTY TRANSACTION IN THIS CASE OF R.S.SOFTWARE (INDIA) LTD., IS 17.52%. THE D RP IN ITS ORDER PROCEEDED ON THE BASIS THAT THE THRESHOLD LIMIT FOR APPLICATION OF THE RELATED PARTY TRANSACTION FILTER (RPT FILTER) WOULD BE 25% OF THE TOTAL TRANSACTION. THE HONBLE KARNATAKA HIGH COURT IN ITS JUDGMENT 2 8-06-2018 IN I.T.A.NO.684/2017 & I.T.A..NO.685/2017 PR. COMMISSI ONER OF INCOME TAX- 7 & ANR. VS. M/S. YODLEE INFOTECH PVT LTD., HAD TO CONSIDER AMONG OTHER QUESTIONS OF LAW THE FOLLOWING QUESTIONS OF LAW WIT H REGARD TO APPLICATION OF RPT FILTER, VIZ., WHETHER ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE, AND IN LAW, THE TRIBUNAL WAS JUSTIFIED BY NOT ACKNO WLEDGING ITS OWN ORDERS WHERE THE TRIBUNAL HAS HELD IN STRETCHING RPT% FROM 15-20% IN CASE OF KATERA SOFTWARE INDIA PVT LTD? AND WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT I N HOLDING THAT RPT FILTERS SHOULD BE 15% AND NOT 25%, TAKEN BY THE TPO?. THE HONBLE COURT HELD AS FOLLOWS: 3. THE LEARNED TRIBUNAL, AFTER DISCUSSING THE RIVA L CONTENTIONS OF BOTH THE APPELLANTS-REVENUE AND THE RESPONDENT-ASSESSEE, HAS GIVEN THE FOLLOWING FINDINGS AGAINST REVENUE WITH REGARD TO V ARIOUS ISSUES RAISED BEFORE IT WITH REGARD TO 'TRANSFER PRICING' AND 'TR ANSFER PRICING ADJUSTMENTS' MADE BY THE CONCERNED AUTHORITIES BELO W. WE CONSIDER IT APPROPRIATE TO QUOTE FROM THE ORDER OF TRIBUNAL REJ ECTING THE APPLICATION SEEKING A REVIEW BEFORE TRIBUNAL AS HER EUNDER:- '7. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE AND CONSI DERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE TPO HAS APPLIED THE FILTER OF 25% RPT WHEREAS THE A SSESSEE HAS CONTENDED THAT THE FILTER OF REVENUE FROM RPT S HOULD BE IT(TP)A NO.310/BANG/2021 PAGE 26 OF 44 APPLIED AT 15% INSTEAD OF 25% APPLIED BY THE TPO. T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED T HAT THERE IS NO STANDARD RULE FOR APPLYING THE FILTER OF 15% REGARDING THE RPT. IT IS PERTINENT TO NOTE THAT THE ALP AS PER TH E PROVISIONS OF THE TP HAS TO BE DETERMINED BY CONSIDERING UNCON TROLLED COMPARABLE PRICES AND THEREFORE ONLY UNRELATED PRIC ES HAVE TO BE TAKEN INTO ACCOUNT TO BENCH MARKED INTERNATIONAL TRANSACTIONS. HOWEVER, 0% RPT OF THE COMPARABLE PRI CE IS AN IMPOSSIBLE SITUATION AND THEREFORE A REASONABLE TOL ERANCE RANGE FROM REVENUE FROM RPT CAN BE CONSIDERED FOR SELECTI NG UNCONTROLLED COMPARABLES. THERE IS NO DISPUTE THAT THERE CANNOT BE A SINGLE CRITERIA/PARAMETER TO BE APPLIED AS A GENERAL RULE IN ALL THE CASES. THE TOLERANCE RANGE VARIES F ROM CASE TO CASE AND DEPENDING UPON THE AVAILABILITY OF COMPARA BLES FOR A PARTICULAR CASE. THUS IF THE COMPARABLES OF AN INTE RNATIONAL TRANSACTIONS ARE EASILY AVAILABLE IN SUFFICIENT NUM BER THEN THIS TOLERANCE RANGE OF RPT SHOULD BE RESTRICTED TO MINI MUM. THOUGH THERE IS NO SPECIFIED RANGE IN THE PROVISION S OF ACT OR RULES, HOWEVER, IN DUE COURSE OF DISCUSSION AND ADJ UDICATION OF THIS ISSUE IN A SERIES OF DECISIONS OF THIS TRIB UNAL, TOLERANCE RANGE OF 5% TO 25% OF TOTAL REVENUE FROM RPT HAS B EEN CONSIDERED AS REASONABLE DEPENDING UPON THE FACTS A ND CIRCUMSTANCES OF EACH CASE. IN THE CASE OF THE ASSE SSEE BEFORE US, THE TPO/A.O. SELECTED 17 COMPARABLES. THEREFORE , THE AVAILABILITY OF THE COMPARABLES OF THE INTERNATIONA L TRANSACTIONS OF THE ASSESSEE IS NOT A DIFFICULT TASK. THUS, WHEN A GOOD NUMBER OF COMPARABLES ARE AVAILABLE THEN THE RPT CA NNOT BE ALLOWED TO THE EXTREME LIMIT OF 25% OF REVENUE. ACC ORDINGLY, IN ORDER TO DETERMINE THE ALP CONSIDERING BY CONSID ERING THE UNCONTROLLED COMPARABLE TRANSACTIONS, IT SHOULD BE KEPT IN MIND THAT THE UNCONTROLLED TRANSACTIONS SHOULD BE L EAST INFLUENCED BY THE CONTROLLED AND RELATED PRICES. TH IS TRIBUNAL IN THE SERIES OF DECISIONS HAS TAKEN A VIEW THAT WH EN GOOD NUMBER OF COMPARABLES ARE AVAILABLE, THEN THE THRES HOLD LIMIT OF RPT SHALL NOT BE MORE THAN 15% OF TOTAL REVENUE. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN GOOD N UMBER OF COMPARABLES AVAILABLE, THEN WE ARE OF THE CONSIDERE D OPINION THAT THE RPT FILTER OF 15% IS PROPER IN THE CASE OF THE ASSESSEE. BY APPLYING THIS FILTER OF 15% RPT, WE MODIFY THE I MPUGNED ORDER OF THE CIT (APPEALS) AND THEREFORE ONLY ONE C OMPANY IT(TP)A NO.310/BANG/2021 PAGE 27 OF 44 NAMELY FOUR SOFT LIMITED WILL BE EXCLUDED FROM THE SAID COMPARABLE HAVING MORE THAN 15% RPT. ACCORDINGLY, W E DIRECT THE A.O./TPO TO EXCLUDE THE FOUR SOFT LTD. H AVING 19.89% OF RPT.' .. 4. THIS COURT IN ITA NO.536/2015 C/W ITA NO.537/201 5 DELIVERED ON 25.06.2018 (PRL. COMMISSIONER OF INCOME TAX & ANR. VS. M/S. SOFTBRANDS INDIA PVT. LTD.,) HAS HELD THAT IN THESE TYPE OF CASES, UNLESS AN EX-FACIE PERVERSITY IN THE FINDINGS OF THE LEARN ED INCOME TAX APPELLATE TRIBUNAL IS ESTABLISHED BY THE APPELLANT, THE APPEAL AT THE INSTANCE OF AN ASSESSEE OR THE REVENUE UNDER SECTIO N 260-A OF THE ACT IS NOT MAINTAINABLE. 5. THE RELEVANT PORTION OF THE SAID JUDGMENT IS QUO TED BELOW FOR READY REFERENCE: ' CONCLUSION: 55. A SUBSTANTIAL QUANTUM OF INTERNATIONAL TRADE AN D TRANSACTIONS DEPENDS UPON THE FAIR AND QUICK JUDICI AL DISPENSATION IN SUCH CASES. HAD IT BEEN A CASE OF S UBSTANTIAL QUESTION OF INTERPRETATION OF PROVISIONS OF DOUBLE TAXATION AVOIDANCE TREATIES (DTAA), INTERPRETATION OF PROVIS IONS OF THE INCOME TAX ACT OR OVERRIDING EFFECT OF THE TREATIES OVER THE DOMESTIC LEGISLATIONS OR THE QUESTIONS LIKE TRE ATY SHOPPING, BASE EROSION AND PROFIT SHIFTING (BEPS), TRANSFER OF SHARES IN TAX HAVENS (LIKE IN THE CASE OF VODAFO NE ETC.), IF BASED ON RELEVANT FACTS, SUCH SUBSTANTIAL QUESTIONS OF LAW COULD BE RAISED BEFORE THE HIGH COURT UNDER SECTION 260-A OF THE ACT, THE COURTS COULD HAVE EMBARKED UPON SUCH EXERC ISE OF FRAMING AND ANSWERING SUCH SUBSTANTIAL QUESTION OF LAW. ON THE OTHER HAND, THE APPEALS OF THE PRESENT TENOR AS TO WHETHER THE COMPARABLES HAVE BEEN RIGHTLY PICKED UP OR NOT, FILTERS FOR ARRIVING AT THE CORRECT LIST OF COMPARABLES HAVE BE EN RIGHTLY APPLIED OR NOT, DO NOT IN OUR CONSIDERED OPINION, G IVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. IT(TP)A NO.310/BANG/2021 PAGE 28 OF 44 56. WE ARE THEREFORE OF THE CONSIDERED OPINION THAT THE PRESENT APPEALS FILED BY THE REVENUE DO NOT GIVE RISE TO AN Y SUBSTANTIAL QUESTION OF LAW AND THE SUGGESTED SUBSTANTIAL QUEST IONS OF LAW DO NOT MEET THE REQUIREMENTS OF SECTION 260-A OF THE ACT AND THUS THE APPEALS FILED BY THE REVENUE ARE FOUND TO BE DEVOID OF MERIT AND THE SAME ARE LIABLE TO BE DISMISSED. 57. WE MAKE IT CLEAR THAT THE SAME YARDSTICKS AND P ARAMETERS WILL HAVE TO BE APPLIED, EVEN IF SUCH APPEALS ARE F ILED BY THE ASSESSEES, BECAUSE, THERE MAY BE CASES WHERE THE TR IBUNAL GIVING ITS OWN REASONS AND FINDINGS HAS FOUND CERTA IN COMPARABLES TO BE GOOD COMPARABLES TO ARRIVE AT AN 'ARM'S LENGTH PRICE' IN THE CASE OF THE ASSESSEES WITH WHI CH THE ASSESSEES MAY NOT BE SATISFIED AND HAVE FILED SUCH APPEALS BEFORE THIS COURT. THEREFORE WE CLARIFY THAT MERE DISSATISFACTION WITH THE FINDINGS OF FACTS ARRIVED AT BY THE LEARNED TRIBUNAL IS NOT AT ALL A SUFFICIENT REASON TO INVOKE SECTION 260-A OF THE ACT BEFORE THIS COURT. 58. THE APPEALS FILED BY THE REVENUE ARE THEREFORE DISMISSED WITH NO ORDER AS TO COSTS.' 6. HAVING HEARD THE LEARNED COUNSELS FOR THE PARTIE S, WE ARE THEREFORE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE PRESENT CASES ALSO. THE APPEALS FILED BY THE APPELLANTS-REV ENUE ARE LIABLE TO BE DISMISSED AND ARE DISMISSED ACCORDINGLY. 22. WE ARE OF THE VIEW THAT THE FACTS OF THE ASSES SEES CASE IS SIMILAR TO THE CASE DECIDED BY THE HONBLE HIGH COURT AND IN THE L IGHT OF THE AFORESAID DECISION OF THE TRIBUNAL WHICH HAS BEEN UPHELD BY T HE HONBLE KARNATAKA HIGH COURT, THE RPT FILTER HAS TO BE APPLIED ADOPTI NG THE THRESHOLD LIMIT OF 15%. WE HOLD AND DIRECT ACCORDINGLY. IT(TP)A NO.310/BANG/2021 PAGE 29 OF 44 23. THE NEXT GROUND THAT REQUIRES ADJUDICATION IS GROUNDS WITH REGARD TO EXCLUSION FROM THE LIST OF COMPARABLE COMPANIES, (A ) INTEQ SOFTWARE PRIVATE LIMITED AND (B) INFOBEANS TECHNOLOGIES LTD. 24. AS FAR AS EXCLUSION OF INTEQ SOFTWARE PRIVATE LIMITED IS CONCERNED, THE FIRST OBJECTION OF THE LEARNED COUNSEL FOR THE ASSE SSEE WAS THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE BECAUSE IT IS ENGAGE D IN THE BUSINESS OF COMPUTER PROGRAMMING, CONSULTANCY AND RELATED ACTIV ITIES. THE OBJECTIONS OF THE ASSESSEE IN THIS REGARD ARE BASED ON CONTENTS I N THE WEBSITE OF THIS COMPANY. THE DRP HAS DEALT WITH THIS OBJECTION IN PARAGRAPH 2.18.1 OF ITS ORDER, WHICH READS THUS: 2.20.1 HAVING CONSIDERED THE SUBMISSIONS, WE NOTE THAT AS PER INFORMATION IN THE DIRECTOR'S REPORT OF THE COMPANY , THE COMPANY'S PRINCIPAL ACTIVITY IS SOFTWARE DEVELOPMENT SERVICES (MC CODE 620), WHICH IS 100% OF ITS TOTAL TURNOVER (ANNEXURE-A TO THE BOARDS REPORT). THE INDEPENDENT AUDIT REPORT STATES THAT T HE COMPANY IS A SERVICE COMPANY PRIMARILY RENDERING SOFTWARE SERV ICES. AS PER REVENUE RECOGNITION POLICY (NOTE 20(F)), THERE IS M ENTION RELATING TO REVENUE FROM SOFTWARE DEVELOPMENT AND T HERE IS NO INFORMATION ABOUT PRODUCT. SALES. WE ALSO NOTE THAT THIS COMPANY SATISFIES THE VARIOUS FILTERS ADOPTED BY THE TPO. T HE ASSESSEE HAS NOT DISPUTED OR REBUTTED ANY OF THESE INFORMATION S TATED IN THE ANNUAL REPORT. INSTEAD, THE ASSESSEE HAS MERELY ARG UED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT WITH REFERENCE TO CERTAIN INFORMATION IN THE WEBSITE. WE HAVE ALREADY DISCUSS ED THAT THE INFORMATION IN THE WEBSITE CANNOT BE GIVEN CREDENCE AS THEY ARE GENERALLY FORWARD LOOKING STATEMENTS WITH ADVERTISE MENT AND PROMOTIONAL MOTIVES. IN VIEW OF THESE, WE DO NOT FI ND ANY MERIT. IN THE ASSESSEE'S PICAS. AS WE FIND THAT THIS COMPA NY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES, WE HOLD THAT IT I S FUNCTIONARY COMPARABLE TO THE ASSESSEE AND ACCORDINGLY, THE OBJ ECTION IS REJECTED. IT(TP)A NO.310/BANG/2021 PAGE 30 OF 44 WE FIND NO GROUNDS TO TAKE A VIEW DIFFERENT FROM TH E VIEW TAKEN BY THE DRP ON THIS ASPECT OF COMPARABILITY OF THIS COMPANY. 25. THE NEXT ARGUMENT FOR EXCLUSION OF THIS COMPAN Y IS BASED ON INCONSISTENCIES IN THE FINANCIAL STATEMENT OF THIS COMPANY. THE ARGUMENT ADVANCED IN THIS REGARD WERE THAT THE VALUE OF THE INTANGIBLE ASSETS TO THE TOTAL ASSETS IS VERY HIGH AND THAT INDICATES THAT T HE FUNCTIONS OF THIS COMPANY COULD BE DISSIMILAR. REGARDING THE ARGUMENT THAT TH ERE ARE SOME UNUSUAL FEATURES OBSERVED FROM THE FINANCIAL STATEMENTS OF THIS COMPANY, THESE FEATURES DO NOT AFFECT THE COMPARABILITY. BY MEREL Y POINTING OUT THAT THERE IS A SUBSTANTIAL INCREASE IN VALUE OF INTANGIBLE ASSET S, THE ASSESSEE CANNOT SEEK TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES, UNLESS THE ASSESSEE IS ABLE TO SHOW THAT THE PRESENCE OF INTAN GIBLES IS OWING TO FACTORS WHICH CAN AFFECT THE FUNCTIONAL COMPARABILITY OF TH IS COMPANY WITH THE ASSESSEE. 26. THE NEXT ARGUMENT IS THAT BY APPLYING RPT FILT ER THIS COMPANY CANNOT BE REGARDED AS COMPARABLE FOR FY 2013-14 AND THEREF ORE WHILE WORKING THE MARGIN OF THIS COMPANY THE MARGIN FOR FY 2013-14 SH OULD NOT BE CONSIDERED. WE HAVE ALREADY UPHELD SIMILAR ARGUMEN T WHILE DECIDING ON THE EXCLUSION OF MARGINS OF R.S.SOFTWARE ON THE GROUND OF APPLICATION OF TURNOVER FILTER FOR FY 2013-14 AND 2014-15. THOSE REASONS GIVEN WILL EQUALLY APPLY TO THIS COMPARABLE COMPANY ALSO AND A CCORDINGLY, WE DIRECT THAT THE MARGINS OF THIS COMPANY FOR FY 2013-14 SHO ULD NOT BE TAKEN FOR WORKING OUT THE AVERAGE PROFIT MARGINS OF THIS COMP ANY WHICH IS TO BE INCLUDED IN THE DATASET. IT(TP)A NO.310/BANG/2021 PAGE 31 OF 44 27. AS FAR AS THE PLEA OF THE ASSESSEE FOR EXCLUSI ON OF INFOBEANS SOFTWARE LTD., IS CONCERNED, THE FIRST PLEA OF THE LEARNED C OUNSEL FOR THE ASSESSEE IS THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR TO A S WD SERVICE PROVIDER AND IN THIS REGARD REFERENCE HAS BEEN MADE TO CERTAIN D ECISIONS OF TRIBUNAL RENDERED FOR AY 2015-16. AS FAR AS AY 2016-17 IS C ONCERNED, THE DRP HAS OBSERVED THAT THIS COMPANY WAS IN THE BUSINESS OF R ENDERING SWD SERVICES IN PARA 2.16.3 TO 2.16.7 OF ITS ORDER, WHICH READS THUS: 2.16.3. IT WAS ALSO PLEADED THAT SOME OF THE SOF TWARE ACTIVITIES CARRIED OUT BY THIS COMPANY ARE NOT SOFTWARE SERVIC ES AS DEFINED IN THE SAFE HARBOR RULES. IN THIS REGARD, IT IS RELEVANT TO NOTE THAT AS PER INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE T O 133(6), THIS COMPANY IS ENGAGED IN CUSTOMIZED SOFTWARE DEVELOPME NT SERVICES AND HAS NOT EARNED REVENUE FROM ANY SERVICE ACTIVIT Y OTHER THAN CUSTOMIZED SOFTWARE DEVELOPMENT SERVICES. THE RELEV ANT EXTRACT OF THE REPLY SUBMITTED IS AS UNDER: - THAT OUR COMPANY IS ENGAGED THE CUSTOMIZED SOFTWARE DEVELOPMENT SERVICES AND THE EXPERTISE/CLARIFICATIO NS OF THE EMPLOYEES BELONGS TO THE SAME FIELD OF SOFTWARE DEV ELOPMENT. THAT THE COMPANY HAS NO: EARNED FROM ANY SERVICES O THER THAN FROM THE CUSTOMIZED SOFTWARE DEVELOPMENT SERVICES, 4 (A) (1) SINCE NO SOFTWARE PRODUCT AND THAT NO 'OF F THE SHELF SOFTWARE PRODUCT WAS MANUFACTURED BY THE COMPANY, T HUS THIS POINT IS NOT APPLICABLE. 4 (A) (2)] LIKEWISE NO SALE OF SOFTV4ARE PRODUCT WA S MADE DURING THE ASSESSMENT YEAR 2016-17, DETAILS OR REVENUE GEN ERATED FROM SOFTWARE SERVICES IS MENTIONED IN THE AUDITED PROFI T & LOSS A/C. 4 (A) (3)] THAT THE COMPANY OWNED INTANGIBLE ASSETS (SOFTWARE) WHICH IS ALSO MENTIONED IN NOTE NO. 10 O F THE AUDITED BALANCE SHEET. AS REGARD 'WHETHER THE SAME REPRESENT SOFTWARE LICENSES ACQUIRED FOR ITS OWN US E OR IF IT IS IT(TP)A NO.310/BANG/2021 PAGE 32 OF 44 AN INBUILT SOFTWARE PRODUCT WHICH GENERATE REVENUE FOR COMPANY', IT IS SUBMITTED THAT NO SUCH SOFTWARE IS OWNED BY THE COMPANY. THE SOFTWARE REPRESENTS MAINLY UTILITY SOFTWARE FOR THE PURPOSE OF ITS EFFICIENT OPERATION OF THE B USINESS AND CODING SOFTWARE'S FOR PROVIDING SOFTWARE SERVICES. OUR COMPANY IS NOT ENGAGED IN TECHNOLOGY INNOVATION ACTIVITY: THUS THIS POINT IS NOT APPLICABLE. 2.16.4 THEREFORE THIS PLEA HAS NO MERITS AND REJEC TED. 2.16.5 WITH REGARD TO THE OBJECTIONS RELATED TO INF ORMATION COLLECTED UNDER SECTION 133(6) AND THE CLAIM OF HIGH-END SERV ICE PROVIDER, WE NOTE THAT THERE IS NO INHERENT CONTRADICTION AS CLA IMED BY THE ASSESSEE. FROM THE INFORMATION COLLECTED U/S.13:3(6 ), IT IS CONFIRRNED BY THE COMPANY THAT IT IS ENGAGED IN PROVISION OF C USTOMISED SOFTWARE DEVELOPMENT SERVICES AND ROT IN ANY ACTIVITY RELATI NG TO TECHNOLOGICAL INNOVATION. THE FUNCTIONAL ASPECT OF THE COMPARABLE COMPANY CANNOT BE CONTRADICTED WHEN THE COMPANY ITSELF CONFIRMED I TS BUSINESS ACTIVITY. ACCORDINGLY, WE REJECT THE ASSESSEES PL EAS. _ 2.16.6 THE INTANGIBLES REFERRED IN THE ASSET SCHEDU LE REPRESENT THE COMPUTER SOFTWARE, AND AS SUCH DOES NOT REFER TO AN Y IPR OR LICENCE OWNED BY THE SAID COMPANY. FOR ANY SOFWARE COMPANY, IT IS ESSENTIAL TO HAVE RIGHTS OF SOFTWARE FOR CODING PURPOSES. FUR THER THESE INTANGIBLES ARE MEAGRE 6.89% OF TOTAL FIXED ASSETS. THEREFORE, SUCH INTANGIBLES CANNOT BE EQUATED WITH THE INTANGIBLES ACQUIRED CREATED BY THE ASSESSEE TO PROVIDE SPECIFIC ENDURING BENEFI T. ALSO, THE ASSESSEE HAS FAILED TO ESTABLISH THAT SUCH DIFFEREN CES HAVE MATERIAL EFFECT ON THE MARGIN OF THE ABOVE COMPANY, IN TERMS OF CLAUSE (I) OF SUB-RULE OF RULE 10B, WHICH PROVIDES THAT AN UNCONT ROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF NONE OF THE DIFFERENCES, IF ANY, BETWEEN ENTERPRISES ENTERING I NTO BUSINESS TRANSACTIONS OR LIKELY TO MATERIALLY AFFECT THE PRO FIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET. HENCE, THESE PLEAS ARC REJECTED. 2.16.7 IT WAS CONTENDED THAT SUFFICIENT BUSINESS IN FORMATION IS NOT AVAILABLE IN THE PUBLIC DOMAIN, AND HENCE, IT HAS T O BE EXCLUDED. WE IT(TP)A NO.310/BANG/2021 PAGE 33 OF 44 NOTE THAT THERE IS CLEAR INFORMATION IN THE ANNUAL REPORT TO SHOW THAT THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT ACT IVITY. FURTHER. THE INFORMATION OBTAINED U/S 133(6) CLARIFY THAT TH IS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT ACTIVITY. HENCE, TH IS PLEA IS REJECTED. 28. THE ABOVE CONCLUSIONS OF THE DRP HAVE NOT BEEN COUNTERED BY THE ASSESSEE AND BY MERELY RELYING ON FINDINGS IN EARLI ER AY THAT THIS COMPANY WAS HELD TO BE NOT A COMPARABLE COMPANY, THE ASSESS EE CANNOT SEEK EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LE COMPANIES. THE ONLY DIRECTION THAT THE ASSESSEE CAN GET IS THAT THE MAR GINS FOR AY 2015-16 IN WHICH YEAR THIS COMPANY WAS REGARDED AS NOT COMPARA BLE HAVE TO BE IGNORED IN ARRIVING AT THE AVERAGE OF THREE YEARS PROFIT MA RGIN OF THIS COMPANY. WE DIRECT ACCORDINGLY. 29. NO OTHER GROUNDS EXCEPT THE ABOVE WERE ARGUED BEFORE US, THOUGH IN THE WRITTEN NOTE PLEA TO INCLUDE AKSHAY SOFTWARE TECHNO LOIGES LTD., AND E-ZEST SOLUTIONS LTD., HAS BEEN MADE. THEREFORE THE PRAYE R FOR INCLUSION OF THESE TWO COMPANIES ARE NOT BEING DECIDED. THE TPO/AO IS DIRECTED TO COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION OF RENDERI NG OF SWD SERVICES BY THE ASSESSEE TO AE IN THE LIGHT OF THE DIRECTIONS GIVEN ABOVE, AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD. 30. IN GRD.NO.8.2 THE ASSESSEE HAS RAISED AN ISSUE THAT THE INTERNATIONAL TRANSACTION IN QUESTION WOULD BE AT ARMS LENGTH WH EN BENCHMARKED WITH ITS TRANSACTION WITH UNRELATED PARTIES ON THE BASIS OF THE INTERNAL TNMM. THE SUBMISSIONS IN THIS REGARD WAS THAT THE ASSESSEE UN DERTOOK TRANSACTIONS WITH NON AE ENTITIES ALSO AND THOSE TRANSACTIONS WERE SI MILAR IN NATURE TO THE ONE ENTERED INTO WITH THE AE. THE PRICE CHARGED IN THO SE TRANSACTIONS IN THE NON IT(TP)A NO.310/BANG/2021 PAGE 34 OF 44 AE WAS ON A PROFIT MARGIN OF 15.26% WHEREAS THE PRI CE CHARGED TO THE AE WAS AT A PROFIT MARGIN OF 17.35% AND THEREFORE BY A PPLYING THE INTERNAL TNMM THE TRANSACTION WITH THE AE HAS TO BE REGARDED AS AT ARMS LENGTH. 31. WE HAVE CONSIDERED THE ABOVE SUBMISSION AND W E FIND THAT THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE REVENUE AUTHORITIES DID NOT HAVE ANY OCCASION TO EX AMINE THIS ISSUE AND THEREFORE WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE AO/TPO FOR CONSIDERATION AFRESH AND IN THE LIGHT OF THE RELEVA NT APPLICABLE STATUTORY PROVISIONS. 32. THE NEXT ISSUE TO BE DEALT WITH IN THIS APPEAL IS GROUND NO.9 OF GROUNDS OF APPEAL WITH REGARD TO DETERMINATION OF ALP BY CO NSTRUING THE DELAYED REALIZATION OF RECEIVABLE BY THE ASSESSEE FROM ITS AE AS A SEPARATE INTERNATIONAL TRANSACTION AND DETERMINING ALP OF SU CH DELAYED RECEIVABLES. THE FACTS IN THIS REGARD ARE THAT IN THE ORDER PASS ED UNDER SECTION 92CA OF THE ACT DETERMINED A TP ADJUSTMENT OF RS.50,87,241/ - IN RESPECT OF DELAYED RECEIVABLES ON A NOTIONAL MANNER. THE TPO HAS OBSER VED IN THIS REGARD IN HIS ORDER THAT THE ASSESSEE WAS ASKED TO FURNISH DETAIL S OF TRADE RECEIVABLE AND DETAILS OF REALIZATION AND IN THE ABSENCE OF SUCH D ETAILS, HE HAS NO OTHER OPTION BUT TO DETERMINE THE INTEREST ATTRIBUTABLE T O DELAYED REALIZATION OF TRADE RECEIVABLES BY APPLYING 6 MONTHS LIBOR PLUS 4 00 BASIS POINTS WITH A MARK-UP OF 100 BASIS POINTS (WHICH WORKS OUT TO 4.4 85%) ON THE AVERAGE OF OPENING AND CLOSING RECEIVABLE. THE DRP CONFIRMED THE ACTION OF THE TPO. THE COMPUTATION DONE BY THE TPO IN THIS REGARD WAS AS FOLLOWS: 24. COMPUTATION OF INTEREST ON DELAYED RECEIVABLES IT(TP)A NO.310/BANG/2021 PAGE 35 OF 44 24.1 AS DISCUSSED IN THE PRECEDING PARAGRAPHS, INTE REST ON THE DELAYED TRADE RECEIVABLES IS PROPOSED TO BE COMPUTE D ON INVOICE BASIS. TO CALCULATE THE DELAY, THE ASSESSEE (VIDE T HE SHOW CAUSE ISSUED ON 30.5.2019) WAS ASKED TO FURNISH INVOICE W ISE DETAILS OF ALL THE TRADE RECEIVABLES FROM AES DURING THE YEAR. THE FOLLOWING DETAILS WERE ASKED IN A PARTICULAR FORMAT: AMOUNT R AISED IN INVOICE, DATE OF INVOICE, DATE OF RECEIPT, DELAY IN NO. OF DAYS. INTEREST IS CALCULATED, USING LIBOR- 6 MONTHS + 400 BASIS POINTS APPLICABLE FOR THE FY 2015-16 AND WHICH WORKS OUT T O 4.485%. THE DETAILED COMPUTATION IS AS FOLLOWS: AMOUNT IN RS. 31.03.2016 31.03.2015 RECEIVABLESFROMAES (A) 13,86,01,600 10,85,69,642 PAYABLE DUE TOAES(B) 0 0 NET RECEIVABLE (C=A- B) 13,86,01,600 10,85,69,642 AVERAGE NET RECEIVABLE 12,35,85,621 INTEREST RATE 4.485% PERIOD OF DELAY (DAYS) 335 INTEREST AMOUNT 50,87,241 *PERIOD OF DELAY IS 365 ALLOWED PERIOD OF 30 DAYS . THUS, ARMS LENGTH INTEREST AMOUNT TO BE CHARGED WO RKS OUT TO BE RS.50,87,241/-. THE SAME IS TREATED AS ADJUSTMENT U/S 92CA FOR INTERST ON DELAYED RECEIVABLES. 33. THE DRP CONFIRMED THE ACTION OF THE DRP. BEFOR E THE TRIBUNAL THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNTS OUTSTANDING IT(TP)A NO.310/BANG/2021 PAGE 36 OF 44 FROM THE AE WILL BE SETTLED WITH THE AE ON AN ONGOI NG BASIS IN THE NORMAL COURSE OF BUSINESS, HAVING REGARD TO COMMERCIAL AND ECONOMIC FACTORS. THE ARMS LENGTH PRICE DETERMINATION FOR THE SAID RECEI VABLES IS SUBSUMED WITHIN THE ARMS LENGTH PRICE DETERMINATION OF THE PRINCIP AL TRANSACTION ITSELF. THE OUTSTANDING RECEIVABLES ARE IN RESPECT OF THE PROVI SION OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE AND HENCE ARIS E OUT OF THE PRIMARY TRANSACTION OF RENDERING SWD SERVICES. SINCE THE RE CEIVABLES ARE INTEGRAL TO THE MAIN TRANSACTION, THE SAME OUGHT TO BE AGGREGAT ED WITH THE SAID TRANSACTION AND ADJUSTMENT OUGHT TO BE COMPUTED ACC ORDINGLY. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THIS HON BLE TRIBUNAL IN THE CASE OF AVNET INDIA (P.) LTD. V. DCIT (REPORTED IN [2016] 6 5 TAXMANN.COM 187 [BANGALORE - TRIB.)] WHICH WAS UPHELD BY THE HONBLE HIGH COURT OF KARNATAKA IN ITA NO. 358/2016 . IT WAS FURTHER CONTENDED THAT THAT THE DELHI BENCH OF ITAT IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. V. ACIT (ORDER DATED 31.03.2015 PASSED BY THE DELHI BENCH OF THE HONBLE TRIBUNAL IN ITA NO. 6814/DEL/2014 ) HELD THAT IF THE WORKING CAPITAL INVESTMENT OF TH E ASSESSEE AND THE COMPARABLES RATHER ARE CONSIDERED THAN LOOKING AT THE RECEIVABLE INDEPENDENTLY IS NOT NECESSARY AS THE WO RKING CAPITAL ADJUSTMENT TAKES INTO ACCOUNT THE IMPACT OF OUTSTANDING RECEIV ABLES ON THE PROFITABILITY. IT WAS POINTED OUT THAT THIS DECISION CAME TO BE UP HELD BY THE HONBLE DELHI COURT IN PCIT V. KUSUM HEALTHCARE PVT. LTD. (ORDER DATED 25.04.2017 PASSED IN ITA NO. 765/2016 ) (REFER PARAS 10 AND 11):- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SU BMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUN TS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WO ULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. IT(TP)A NO.310/BANG/2021 PAGE 37 OF 44 THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SU PPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF F ACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE BASI S. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON THE WORKING CAPITAL O F THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, 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--VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARR ANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO B ENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUS TIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 18 0 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF T HE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON ITS PRICING/P ROFITABILITY VIS- -VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTME NT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DIS TORTED THE PICTURE AND RE-CHARACTERISED THE TRANSACTION. 34. IT WAS ARGUED THAT THE ABOVE PRINCIPLES HAVE BE EN FOLLOWED CONSISTENTLY BY THE VARIOUS BENCHES OF THE TRIBUNAL. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE DELAYED RECEIVABLES CANNOT BE TR EATED AS AN INDEPENDENT INTERNATIONAL TRANSACTION. 35. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, I T WAS CONTENDED THAT EVEN ASSUMING THAT DELAYED REALIZATION OF TRADE RECEIVAB LES IS AN INTERNATIONAL TRANSACTION, IT WAS SUBMITTED THAT NO INTEREST ON O UTSTANDING RECEIVABLES CAN BE COMPUTED IN THE CASE OF A DEBT FREE COMPANY SUCH AS THE ASSESSEE. IN THIS REGARD OUR ATTENTION WAS DRAWN TO THE RELEVANT EXTR ACT OF THE BALANCE SHEET AS ON 31.3.2015 AND 31.3.2016 TO DEMONSTRATE THAT T HE ASSESSEE WAS A DEBT FREE COMPANY. THERE WAS NO LONG TERM BORROWING OR SHORT TERM BORROWING OR TRADE PAYABLES AND IT WAS ARGUED BASED ON JUDICI AL PRONOUNCEMENTS THAT INTEREST ON AE RECEIVABLES CANNOT BE COMPUTED IN TH E CASE OF DEBT FREE IT(TP)A NO.310/BANG/2021 PAGE 38 OF 44 COMPANY. IT WAS FURTHER SUBMITTED THAT THE ASSESSE E HAS NOT CHARGED INTEREST ON NON-AE RECEIVABLES AND HENCE THIS WAS A COMPARAB LE UNCONTROLLED TRANSACTION THAT COULD BE BENCHMARKED AGAINST THE A E RECEIVABLES AND IN THIS REGARD REFERENCE WAS MADE TO CERTAIN JUDICIAL PRONO UNCEMENTS. IT WAS ALSO SUBMITTED THAT THE DELAY IN REALIZATION OF THE TRAD E RECEIVABLES IN THIS CASE IS NOT INORDINATE SO AS TO WARRANT ANY BENEFIT PROVIDE D TO THE AE WARRANTING DETERMINATION OF ALP. OUR ATTENTION WAS DRAWN TO T HE FACT THAT THE AVERAGE REALIZATION PERIOD OF THE TRADE RECEIVABLES IS 96 D AYS. IT WAS CONTENDED THAT SINCE THE PERIOD OF CREDIT IS NOT UNUSUALLY HIGH, N O ADDITION IS WARRANTED. THE LD. DR RELIED ON THE ORDER OF THE DRP. 36. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. ON THE QUESTION WHETHER DELAYED REALIZATION OF TRADE RECEIVABLES FR OM THE AE CONSTITUTES AN INTERNATIONAL TRANSACTION OR NOT, THERE ARE CONFLIC TING DECISIONS OF VARIOUS BENCHES OF THE TRIBUNAL, WHICH WE SHALL POINT OUT. SEC.92B OF THE ACT DEFINING WHAT IS AN INTERNATIONAL TRANSACTION WAS A MENDED BY FINANCE ACT, 2012, WAY OF INSERTION OF AN EXPLANATION TO SEC.92B WITH RETROSPECTIVE EFFECT FROM 1-4-2002 AND THE SAME READS THUS:- EXPLANATION- FOR THE REMOVED OF DOUBTS, IT IS HERE BY CLARIFIED THEN-(I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE (A) . (B) .. (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT- TERM BORROWING. LENDING OR GUARANTEE, PURCHASE OR S ALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYME NTS OR DEFERRED PAYMENT OF RECEIVABLE OR ANY OTHER DEBT AR ISING DURING THE COURSE OF BUSINESS: IT(TP)A NO.310/BANG/2021 PAGE 39 OF 44 37. THE AMENDMENT IS TO THE EFFECT THAT INTERNATIO NAL TRANSACTION WOULD SPECIFICALLY INCLUDE WITHIN ITS AMBIT. 'DEFERRED PA YMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS A ND HENCE NON-CHARGING OR UNDER-CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE FOR THE REALIZATION OF INVOICES WOULD AMOUNT TO AN INTERNATIONAL TRANSACTION. IT WAS SO HELD BY THE ITAT DELHI BENCH IN THE CASE OF BECHTEL INDIA PVT LTD (IN ITA NO.6530/DE1/2016 DATED 16 MAY 2017) . IT IS IMPORTANT TO NOTE THAT THE BENCH WHILE ARRIVING AT THE SAID CONCLUSIO N DISTINGUISHED ITS EARLIER ORDER IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SUPRA) AND REJECTED THE CONTENTION THAT INTEREST GETS SUBSUMED IN THE WORKI NG CAPITAL ADJUSTMENT. THE HON`BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . PATNI COMPUTER SYSTEMS LTD, (2013) 215 TAXMAN 108 (BOM) DEALT, INTER ALIA, WITH THE FOLLOWING QUESTION OF LAW:- '(C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE TRIBUNAL DID NOT ERR IN HOLDING THAT THE L OSS SUFFERED BY THE ASSESSEE BY ALLOWING EXCESS PERIOD OF CREDIT TO THE ASSOCIATED ENTERPRISES WITHOUT CHARGING AN INTEREST DURING SUC H CREDIT PERIOD WOULD NOT AMOUNT TO INTERNATIONAL TRANSACTION WHERE AS SECTION 92B(1) OF THE INCOME-TAX ACT, 1961 REFERS TO ANY OT HER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME , LOSSES OR ASSETS OF SUCH ENTERPRISES?' 38. WHILE ANSWERING THE ABOVE QUESTION, THE HON'BLE HIGH COURT NOTICED THAT AN AMENDMENT TO SECTION 92B HAS BEEN CARRIED O UT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002. SETTI NG ASIDE THE VIEW TAKEN BY THE TRIBUNAL, THE HON'BLE HIGH COURT RESTORED TH IS ISSUE TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN THE LIGHT OF THE LEG ISLATIVE AMENDMENT. IN THE CASE OF BT E SERV (TS-849-ITAT-2017(DEL)-TP) THE ITAT DELHI BENCH HELD THAT UNDOUBTEDLY THE RECEIVABLE OR ANY OTHER DEBT A RISING DURING THE COURSE IT(TP)A NO.310/BANG/2021 PAGE 40 OF 44 OF THE BUSINESS IS INCLUDED IN THE DEFINITION OF 'C APITAL FINANCING' AS AN 'INTERNATIONAL TRANSACTION' AS PER EXPLANATION 2 TO SECTION 92B OF THE ACT W.E.F. 01.04.2002 INSERTED BY THE FINANCE ACT 2012. THEREFORE, EVEN THE OUTSTANDING RECEIVABLE PARTAKE THE CHARACTER OF CAP ITAL FINANCING AND CONSEQUENTLY, OVERDUE OUTSTANDING IS AN 'INTERNATIO NAL TRANSACTION'. THE NATURAL COROLLARY WOULD BE OF IMPUTING INTEREST ON SUCH 'CAPITAL FINANCING' IF SAME IS NOT CHARGED AT ARM'S LENGTH. THE ITAT CONCL UDED THAT IF OUTSTANDING RECEIVABLES ARE WITHIN THE TERMS OF AGREEMENT, THEN IT MAY BE ARGUED THAT INTEREST ON SUCH OUTSTANDING IS ALREADY COVERED IN THE SALE PRICE OF THE GOODS. HOWEVER, IF THE AGREEMENT DOES NOT SPECIFY THE TERM OF THE PAYMENT, EVEN THEN ASSESSEE MUST BE GIVEN BENEFIT OF CREDIT PERIO D WHICH IS ACCEPTED BUSINESS PRACTICE IN THE TRADE. THE ITAT CONFIRMED 30 DAYS AS THE NORMAL CREDIT PERIOD ADOPTED BY THE TPO. 39. THE FOREGOING DISCUSSION DISCLOSES THAT NON-CH ARGING OR UNDER- CHARGING OF INTEREST ON THE EXCESS PERIOD OF CREDIT ALLOWED TO THE AE, FOR THE REALIZATION OF INVOICES AMOUNTS TO AN INTERNATIONAL TRANSACTION AND THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IS REQUIRED TO BE DETERMINED. IN VIEW OF THE ABOVE OBSERVATIONS. THE RELIANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON EARLIER DECISIONS CANNOT BE ACCEPTED. S IMILARLY, CONSIDERING THE ABOVE DISCUSSION, IT IS HELD THAT DEFERRED TRADE RE CEIVABLE CONSTITUTES INTERNATIONAL TRANSACTION. 40. HAVING CONCLUDED THAT DEFERRED TRADE RECEIVABLE S CONSTITUTE INTERNATIONAL TRANSACTION, WE COME TO THE COMPUTATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF 'DEBT ARISING DURING THE COURSE OF B USINESS.' THIS HAS TWO INGREDIENTS, VIZ., THE AMOUNT ON WHICH INTEREST SHO ULD BE CHARGED AND THE ARM'S LENGTH RATE AT WHICH THE INTEREST SHOULD BE C HARGED. ON THIS ASPECT WE IT(TP)A NO.310/BANG/2021 PAGE 41 OF 44 CAN TAKE USEFUL GUIDANCE FROM THE DECISION OF THE I TAT DELHI BENCH IN THE CASE OF TECHBOOKS INTERNATIONAL (P.) LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3, NOIDA [2015] 63 TAXMANN.COM 1 14 (DELHI - TRIB.), WHEREIN THE TRIBUNAL LAID DOWN GUIDELINES ON THE MA NNER OF DETERMINATION OF ALP, AS FOLLOWS: 13.11 NOW, WE COME TO THE COMPUTATION OF THE ALP O F THE INTERNATIONAL TRANSACTION OF 'DEBT ARISING DURING T HE COURSE OF BUSINESS.' THIS HAS TWO INGREDIENTS, VIZ., THE AMOU NT ON WHICH INTEREST SHOULD BE CHARGED AND THE ARM'S LENGTH RATE AT WHIC H THE INTEREST SHOULD BE CHARGED. 13.12 IN SO FAR AS THE FIRST ASPECT IS CONCERNED, W E FIND THAT THE TPO HAS TAKEN NORMAL CREDIT PERIOD OF 60 DAYS AND ACCOR DINGLY MADE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT FOR THE PERIOD IN EXCESS OF 60 DAYS. IN OUR CONSIDERED OPINION, TRANS FER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST FOR THE ENTIRE PE RIOD OF DELAY BEYOND 60 DAYS CANNOT BE TREATED AS A SEPARATE INTE RNATIONAL TRANSACTION OF TRADING DEBT ARISING DURING THE COUR SE OF BUSINESS. IT IS NOTICED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ITS AE FOR REALIZATION OF INVOICES WITHIN A PERIOD OF 150 DAYS . THIS IMPLIES THAT THE INTEREST AMOUNT ON NON-REALIZATION OF INVOICES UP TO 150 DAYS WAS FACTORED IN THE PRICE CHARGED FOR THE SERVICES REND ERED. ANNEXURE-1 TO THE TPO'S ORDER GIVES DETAILS OF THE INSTANCES OF L ATE REALIZATION OR NON-REALIZATION OF ADVANCES UP TO THE YEAR ENDING. FIRST THREE AND A HALF PAGES OF THIS ANNEXURE INDICATE NUMBER OF DAYS FOR WHICH THERE WAS DELAYED REALIZATION. SUCH DELAY RANGES FROM 175 DAYS TO 217 DAYS. THE REMAINING PAGES DISCLOSE NO REALIZATION O F INVOICES UP TO 31ST MARCH, 2010. WHEN WE CONSIDER THE DATES OF INV OICES IN THE REMAINING PAGES, IT IS MANIFESTED THAT IN CERTAIN C ASES THESE INVOICES HAVE BEEN RAISED ON 31ST AUGUST, 30TH OR SEPTEMBER OR 31ST OCTOBER, 2009. IN ALL SUCH CASES, THE PERIOD OF 150 DAYS ALR EADY STOOD EXPIRED AS ON 31ST MARCH, 2010 AND THE ASSESSEE OUGHT TO HA VE CHARGED INTEREST ON THE DELAY IN REALIZING SUCH INVOICES AL ONG WITH THE FIRST THREE AND A HALF PAGES IN WHICH THERE IS AN ABSOLUT E AND IDENTIFIED DELAY IN REALIZATION OF INVOICES BEYOND THE STIPULA TED PERIOD. WHEN THE INTEREST FOR REALIZATION OF TRADE ADVANCES UP T O 150 DAYS IS PART AND IT(TP)A NO.310/BANG/2021 PAGE 42 OF 44 PARCEL OF THE PRICE CHARGED FROM THE AE, THEN THE D ELAY UP TO THIS EXTENT CANNOT GIVE RISE TO A SEPARATE INTERNATIONAL TRANSACTION OF INTEREST UNCHARGED. RATHER INTEREST FOR THE PERIOD IN EXCESS OF NORMALLY REALIZABLE PERIOD IN AN UNCONTROLLED SITUA TION UPTO 150 DAYS NEEDS TO BE CONSIDERED IN THE DETERMINING THE ALP O F THE INTERNATIONAL TRANSACTION OF THE 'PROVISION OF IT E NABLED DATA CONVERSION SERVICES'. THIS CAN BE DONE BY INCREASIN G THE REVENUE CHARGED BY THE COMPARABLE COMPANIES WITH THE AMOUNT OF INTEREST FOR THE PERIOD BETWEEN THAT ALLOWED BY THEM IN REALIZAT ION OF INVOICES AND 150 DAYS AS ALLOWED BY THE ASSESSEE, SO AS TO B RING SUCH COMPARABLES AT PAR WITH THE ASSESSEE'S INTERNATIONA L TRANSACTION OF PROVISION OF THE ITES. TO ILLUSTRATE, IF THE COMPAR ABLES HAVE ALLOWED CREDIT PERIOD OF, SAY, 60 DAYS AND THE ASSESSEE HAS REALIZED ITS INVOICES IN 180 DAYS, THEN INTEREST FOR 90 DAYS (15 0 DAYS MINUS 60 DAYS) SHOULD BE ADDED TO THE PRICE CHARGED BY THE C OMPARABLES AND THE AMOUNT OF THEIR RESULTANT ADJUSTED OPERATING PR OFIT BE COMPUTED. RULE 10B PERMITS MAKING SUCH AN ADJUSTMENT. SUB-RUL E (2) TO RULE 10B STIPULATES THAT FOR THE PURPOSES OF SUB-RULE (1 ), THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLE D TRANSACTION SHALL BE JUDGED, INTER ALIA, WITH REFERENCE TO THE : '(C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING ) OF THE TRANSACTIONS ' . THEN SUB-RULE (3) MANDATES THAT A N UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF 'REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELI MINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES'. APPLYING THE PRESCRIPTION OF RULE 10, IT BECOMES VIVID THAT DIFFERENCE ON ACCOUNT OF THE 'CONTRACTUAL TERMS OF THE TRANSACTIONS', WHICH ALSO INCLUDE THE CREDIT PERIOD ALLOWED, NEEDS TO BE ADJUSTED IN THE PROFIT OF COMP ARABLES. AS THE TPO HAS TAKEN THE ENTIRE DELAY BEYOND THAT NORMALLY ALLOWED AS A SEPARATE INTERNATIONAL TRANSACTION, WHICH POSITION IS NOT CORRECT, WE HOLD THAT THE EFFECT OF DELAY ON INTEREST UP TO 150 DAYS OVER AND ABOVE THE NORMAL PERIOD OF REALIZATION IN AN UNCONTROLLED SITUATION, SHOULD BE CONSIDERED IN THE DETERMINATION OF THE ALP OF TH E INTERNATIONAL TRANSACTION OF 'PROVISION OF IT ENABLED DATA CONVER SION SERVICES' AND THE PERIOD OF DELAY ABOVE 150 DAYS, NAMELY, 30 DAYS IN OUR ABOVE ILLUSTRATION (180 DAYS MINUS 150 DAYS) SHOULD BE CO NSIDERED AS A SEPARATE INTERNATIONAL TRANSACTION IN TERMS OF CLAU SE (C) OF EXPLANATION TO SECTION 92B. IT(TP)A NO.310/BANG/2021 PAGE 43 OF 44 13.13 IN SO FAR AS THE QUESTION OF RATE OF INTEREST IS CONCERNED, WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF T HE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CO TTON NATURALS (I) (P.) LTD. (SUPRA), IN WHICH IT HAS BEEN HELD THAT I T IS THE CURRENCY IN WHICH THE LOAN IS TO BE REPAID WHICH DETERMINES THE RATE OF INTEREST AND HENCE THE PRIME LENDING RATE SHOULD NOT BE CONS IDERED FOR DETERMINING THE INTEREST RATE. UNDER SUCH CIRCUMSTA NCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF ADDITION ON ACCOUNT OF TRANS FER PRICING ADJUSTMENT TOWARDS INTEREST NOT REALIZED FROM ITS A E ON THE DEBTS ARISING DURING THE COURSE OF BUSINESS IN LINE WITH OUR ABOVE OBSERVATIONS. 41. WE ARE OF THE VIEW THAT THE ISSUE WITH REGARD TO DETERMINATION OF ALP IN RESPECT OF THE INTERNATIONAL TRANSACTION OF GIVING EXTENDED CREDIT PERIOD FOR RECEIVABLES SHOULD BE DIRECTED TO BE EXAMINED AFRES H BY THE AO/TPO ON THE GUIDELINES LAID DOWN IN THE DECISION REFERRED TO IN THE EARLIER PARAGRAPH, AFTER AFFORDING ASSESSEE OPPORTUNITY OF BEING HEARD. AS HELD IN THE AFORESAID DECISION THE PRIME LENDING RATE SHOULD NOT BE CONSI DERED AND THIS REASONING WILL APPLY TO ADOPTING SHORT TERM DEPOSIT INTEREST RATE OFFERED BY STATE BANK OF INDIA (SBI) ALSO. THE RATE OF INTEREST WOULD BE ON THE BASIS OF THE CURRENCY IN WHICH THE LOAN IS TO BE REPAID. WE HOL D AND DIRECT ACCORDINGLY. ALL ISSUES ON DETERMINATION OF ALP OF THE TRANSACTI ON ARE KEPT OPEN. 42. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. S D/- SSD (CHANDRA POOJARI) (N. V. VA SUDEVAN) ACCOUNTANT MEMBER VICE PRESID ENT BANGALORE, DATED : 25.10.2021. /NS/*/VMS IT(TP)A NO.310/BANG/2021 PAGE 44 OF 44 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.