M/s Infineon Technologies India Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 3355/BANG/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3512 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 19-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMER SINGH MEENA
• Assessee Lawyers: HAD UPHELD
• Keywords: Depreciation; Transfer pricing; Double taxation relief; International transaction; Notional interest; TDS
• Section: 32; 92C; 92; 92B; 142(1); 234B; 195; 143(2); 13; 22; 92CA

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. 3355/Bang/2018 Assessment Year : 2014-15 M/s. Infineon Technologies India Pvt. Ltd., 9 th Floor, Prestige Thirulakshmi, No. 11, MG Road, Bangalore. PAN: AABCS6967N Vs. The Deputy Commissioner of Income Tax, Circle – 3(1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri K.R. Vasudevan, Advocate Revenue by : Shri Sumer Singh Meena, CIT DR Date of Hearing : 12-07-2022 Date of Pronouncement : 25-08-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against assessment order dated 26/10/2018 by the Ld.DCIT, Circle – 3(1)(1), Bangalore on following grounds of appeal: “A. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ('learned AO'), learned Transfer Pricing Officer ('learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') grossly erred in adjusting the transfer price by INR 9,56,93,721/- with respect to the international Page 2 of 29 IT(TP)A No. 3355/Bang/2018 transaction rendered by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub- section (3) of section 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price ('ALP') of the international transaction. 4. The learned AO/ learned TPO/ Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP erred in using data available at the time of assessment proceedings, instead of the data available at the time of preparing the TP documentation for comparable companies while determining ALP. 6. The learned AO/ learned TPO/ Hon'ble DRP erred in applying different financial year ending filter while selecting the comparable companies thereby not considering the fact that the relevant data for the concerned financial year could be deduced from the corresponding financials. 7. The learned AO/learned TPO/Hon'ble DRP erred in applying the service income filter of 75% to sales, leading to a narrower set of comparable companies. 8. The learned AO/learned TPO/Hon'ble DRP erred in applying export earning filter of 75% instead of 25% of the total sales, leading to a narrower set of comparable companies. 9. The learned AO/learned TPO/Hon'ble DRP erred in applying Related Party Transactions ('RPT') filter of more than 25°/o, leading to a narrower set of comparable companies. 10. The learned AO/learned TPO/Hon'ble DRP erred in not applying upper limit on sales turnover filter while selecting the comparable companies. 11. The learned AO/learned TPO/Hon'ble DRP erred in not appreciating the fact that if lower limit on turnover has been accepted as an appropriate filter, similar approach should also be adopted for applying upper limit on turnover. 12. The learned AO/ learned TPO/ Hon'ble DRP erred in not allowing appropriate adjustment towards the Page 3 of 29 IT(TP)A No. 3355/Bang/2018 risk difference between the Appellant vis-à-vis the comparable companies. 13. The learned AO/ learned TPO/ Hon'ble DRP has grossly erred in the comparability analysis used for the determination of the ALP. SOFTWARE DEVELOPMENT SEGMENT 14. The learned AO/ learned TPO/ Hon'ble DRP has grossly erred in not rejecting the following companies from the list of the comparable companies for the software development segment of the Appellant:- a. Infosys Ltd. b. Larsen & Toubro Infotech Ltd. c. Mindtree Ltd. d. Persistent Systems Ltd. e. Thirdware Solutions Ltd. 15. The learned AO/ learned TPO/ Hon'ble DRP has grossly erred in rejecting companies that ought to have been accepted as comparables for the software development segment of the Appellant:- a. Akshay Software Technologies Ltd. b. KALS Information Systems Ltd. c. Helios & Matheson Information Technologies L d. Sasken Communication Technologies Ltd. e. Maveric Ltd. f. I2T2 India Ltd. g. Daffodils Software Ltd. MARKETING SUPPORT SEGMENT 16. The learned AO/ learned TPO/ Hon'ble DRP has grossly erred in not rejecting the following companies from the list of comparable companies for the Marketing support services segment of the Appellant:- a. Irunway India Pvt. Ltd. b. Alia Creative Consultants Pvt. Ltd. 17. The learned AO/ learned TPO/ Hon'ble DRP has grossly erred in rejecting companies that ought to have been accepted as comparables for the Marketing support services segment of the Appellant:- a. Concept Communication Ltd. b. Goldmine Advertising Ltd. c. Marketing Consultants & Agencies Ltd. INTEREST ON OUTSTANDING RECEIVABLES 18. The learned AO/ learned TPO/ Hon'ble DRP erred in not considering the fact that receivables cannot be considered as an international transaction as it does not fall within the purview of capital financing as stated by Sec. 92B of the Act. Page 4 of 29 IT(TP)A No. 3355/Bang/2018 19. The learned AO/ learned TPO/ Hon'ble DRP erred in not appreciating the fact that TP adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. 20. The learned AO/ learned TPO/ Hon'ble DRP erred in imputing interest on delayed receivables once the primary transaction has been tested. 21. The learned AO/ learned TPO/ Hon'ble DRP erred in charging notional interest on receivables without appreciating the fact that the Appellant does not have any cost of debt. 22. The learned AO/ learned TPO/ Hon'ble DRP erred in selecting an ad hoc interest rate while selecting that Comparable Uncontrolled Price ('CUP") Method as the Most Appropriate Method ('MAM') for determining the arm's length interest rate chargeable on receivables. 23. The Hon'ble DRP erred by not considering the fact that the Appellant raises its invoices and is paid for the same in foreign currency and not in Indian Rupees. Accordingly, the learned TPO/ Learned AO/ Hon'ble DRP erred in adopting SBI deposit rate for computing notional interest, instead of LIBOR based interest rate. 24. The learned TPO/ learned AO/ Hon'ble DRP erred by adopting credit period of 30 days for computing the notional interest on the delayed receivables. B. Corporate Tax 25. Disallowance under section 40(a)(i) of the Act on reimbursements to Infineon Singapore: i. The Learned AO and the Hon'ble DRP have erred in disallowing reimbursements made to Infineon Singapore amounting to Rs. 273,267 under section 40(a)(i) of the Act on the basis that these expenses are in the nature of 'Fees for Technical Services' ['FTS'] and that the Appellant has not deducted taxes at source under section 195 of the Act. ii. The Learned AO and the Hon'ble DRP have erred in not appreciating that these payments are in the nature of pure reimbursements on cost-to-cost basis, without any profit element. iii. The Learned AO and the Hon'ble DRP have failed to appreciate that the reimbursement of expenses to Infineon Singapore comprise of bonus and pension contribution which are not in the nature of FTS under the Act. Page 5 of 29 IT(TP)A No. 3355/Bang/2018 iv. The Learned AO and the Hon'ble DRP have failed to appreciate that the said payments are not in the nature of FTS under the India - Singapore Double Taxation Avoidance Agreement as Infineon Singapore does not make available any technical knowledge, experience, skill, know-how. v. The Learned AO and the Hon'ble DRP have failed to appreciate that the aforesaid payments are not taxable under the Act as well as under the DTAA and hence the withholding tax obligation would not arise. 26. Disallowance under section 40(a)(i)of the Act on reimbursements to Infineon Germany i. The Learned AO and the Hon'ble DRP have erred in disallowing reimbursements made to Infineon Germany amounting to Rs. 5,702,113. ii. The Learned AO and the Hon'ble DRP have erred in disallowing these reimbursements under section 40(a)(i) of the Act on the basis that these expenses are in the nature of FTS and the Appellant has not deducted taxes at source under section 195 of the Act. iii. The Learned AO and the Hon'ble DRP have erred in not appreciating that these payments are in the nature of pure reimbursements on cost-to-cost basis, without any profit. iv. The Learned AO and the Hon'ble DRP have failed to appreciate that Infineon Germany has not seconded any employee to the Appellant and merely is acting as a central procurement entity wherein it incurs the cost and then allocates the same based on the actual usage by the various entities in the Infineon group. v. The Learned AO and the Hon'ble DRP failed to appreciate that the expenses cross-charged by Infineon Germany are not in the nature of FTS under the Act and the applicable tax treaty. 27. Disallowance of depreciation on software expenses: i. The Learned AO and the HOn'ble DRP have erred in disallowing a sum of Rs. 1,125,986 as excess depreciation claimed under section 32 of the Act. ii. The Learned AO and the Hon'ble DRP have erred in limiting the allowance for depreciation on purchase of software to 25% of the cost as against the depreciation rate of 60% permitted under the Income- tax Rules, 1962 (Rules). iii. The Learned AO and the Hon'ble DRP have failed to appreciate that the software purchased cannot function without the computer; being an integral part of the computer is therefore eligible for depreciation as such. Page 6 of 29 IT(TP)A No. 3355/Bang/2018 iv. The Learned AO and the Hon'ble DRP have failed to appreciate that the Appellant does not have any right to commercially exploit the license in the software and also that the same cannot be classified as a license. v. The Learned AO and the Hon'ble DRP have failed to consider a higher opening WDV as computed by the Learned AO on account of disallowance of excess depreciation on software expense in AY 2013-14, for the computation of depreciation for the subject year. 28. Interest under section 234B of the Act: The Learned AO has erred in computing interest under section 234B of the Act, which is consequential in nature. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” Brief facts of the case are as under: 2.1 Assessee is engaged in provision of software development services in the form of technology development for automotive chip card and security, Industrial Multi-Market etc. It filed its return of income for year under consideration on 28/11/2014 declaring total income of Rs. 23,05,41,470/-. The case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act was issued to assessee. In response, assessee filed relevant details as called for. 2.2 The Ld.AO noted that, the assessee had international transaction with its wholly owned company Infineon Technologies Asia Pacific Pte. Ltd., Singapore. The Ld.AO noted that the assessee is engaged in providing software research and development services and marketing support services to its AE in India. As the value of international transaction exceed Rs. 15 Crores, reference was made to the Ld.TPO under 92CA of the Act. On receipt of the 92CA reference, the Ld.TPO called upon Page 7 of 29 IT(TP)A No. 3355/Bang/2018 assessee to furnish economic details of the international transaction between assessee and the AE. The Ld.TPO noted that following were the international transaction reported in Form 3CEB. 2.3 The assessee used the TNMM as the most appropriate method and OP/OC computed margin at 14.96% for SWD segment and 9% for MSS segment. 2.4 Assessee used 7 companies as comparables for software development segment. The average margin of 14.09% and 4 comparables under marketing support service segment with an average margin of 7.40%. SWD Sl. No Name of the Company (M/s) Weighted Margin (%) 1 Akshay Software Technologies Ltd 4.29% 2 Cigniti Technologies Ltd 19.49% 3 Helios & Matheson Information Technology Ltd 19.36% 4 Kals Information Systems Ltd 11.83% 5 R S Software (India) Ltd 19.47% 6 Sasken Communication Technologies Ltd — Software Services 7.45% Page 8 of 29 IT(TP)A No. 3355/Bang/2018 7 Spry Resources India Pvt Ltd 16.75% Average 14.09% MSS Sl. No. Name of the Company (M/s) Weighted Margin (%) 1 Asian Business Exhibition & Conference Ltd. 13.64 2 Concept Communications Ltd. 0.30 3 Goldmine Advertising Ltd. 4.79 4 Marketing Consultants and Agencies Ltd. 10.88 Arithmetic mean 7.40% 2.5 The Ld.TPO rejected the TP study and selected the following set of comparables under SWD segment as under: MSS Segment Page 9 of 29 IT(TP)A No. 3355/Bang/2018 2.6 Interest on receivables: The Ld.TPO held that the outstanding receivables from the AE are of the nature of loan facility given to the AEs and imputed interest on delayed receivables by adopting 6 months LIBOR plus 400 basis point and adopted an interest rate of 4.3836% and proposed an adjustment of INR 1,79,33,607/-. 2.7 The Ld.TPO thus proposed the following adjustment in the hands of the assessee. 2.8 While passing the draft assessment order, the Ld.AO proposed following additions. 1. Disallowance u/s. 40(a)(i) of reimbursement of salary cost as FTS for non-deduction of TDS amounting to Rs.69,07,859/- and 2. Disallowance of depreciation of Rs. 11,25,986/- 2.9 On receipt of the draft assessment order, assessee filed objections before the DRP. The DRP upheld the proposed additions by the Ld.AO in the draft assessment order. 2.10 On receipt of the DRP directions, the Ld.AO made additions in the hands of the assessee. Add: TP Adjustment – 9,56,93,721 Add: Disallowance u/s 40(a)(i) – 59,75,380 Add: Excess depreciation – 11,25,986 Page 10 of 29 IT(TP)A No. 3355/Bang/2018 2.11 Aggrieved by the final assessment order, assessee is in appeal before this Tribunal. 3. At the outset, the Ld.AR submitted that Ground nos. 1 to 13 are general in nature and therefore do not require adjudication. 4. He submitted that Ground no. 14, assessee is seeking exclusion of following 5 comparables. a) Infosys Ltd. b) Larsen & Toubro Infotech Ltd. c) Mindtree Ltd. d) Persistent Systems Ltd. e) Thirdware Solutions Ltd. 5. In Ground no. 15, assessee is seeking inclusion of only one comparable being I2T2 India Ltd. Accordingly the other comparables sought for inclusion in Ground No. 15 is said to be not pressed by the assessee by the Ld.AR. 6. In Ground no. 16, the assessee is seeking exclusion of one comparable being Irunway India Pvt. Ltd., under MSS segment. The Ld.AR submitted that the other comparables sought for exclusion is not pressed by assessee. 7. He submitted that assessee do not wish to argue the comparables alleged for inclusion in Ground no. 17 and hence the same is dismissed as not pressed. 8. The Ld.AR submitted that Ground nos. 18 to 24 is in respect of interest computed on outstanding receivables. 9. Ground nos. 25-26 is in respect of the reimbursement of cost in respect of the seconded employees that was disallowed for non- deduction of TDS as the same was held as FTS by the Ld.AO. Page 11 of 29 IT(TP)A No. 3355/Bang/2018 10. Ground no. 27 is in respect of disallowance of depreciation on software expenses claimed by assessee. 11. To consider the comparability analysis of the comparables sought for inclusion / exclusion, it is sine qua non to understand the functions performed, assets owned and risks assumed by assessee under the two segments. SWD Segment Functions The functions performed by ITIPL vis-à-vis its AEs are provided below: AEs identify the customer's requirements and collate the same in a requirement document. AEs interact with customers in the market and study their requirements. This enables them to understand the consumer demand in the market and strategize their business plans. The entire requirement analysis is the responsibility of the AEs. ITIPL is not involved in this phase. Once the software to be developed is decided, the AEs inform ITIPL about the specific software development activates to be performed by ITIPL. ITIPL undertakes software coding according to the functional specifications provided by the AEs ITIPL is responsible for initial or unit testing of the modules developed by it, to ensure that the activity undertaken meets the specification or requirements agreed with the AEs. ITIPL carries out oil the necessary testing to ensure correctness, completeness, security and quality of developed computer software . During the testing phase, if any software bugs are identified in the modules developed by ITIPL, it is the responsibility of ITIPL to fix the same. However, ITIPL is remunerated for all the rework undertaken. Functions ITIPL AEs Software Development Activities Requirement Analysis No Yes Conceptualization of Designs No Yes Development or Coding Yes No Testing of the Software Modules Yes Yes Bug fixing Yes No Quality Assurance No Yes Documentation and Localization Yes No Other general functions General Administrative Activities Yes Yes Page 12 of 29 IT(TP)A No. 3355/Bang/2018 Human Resource Management Yes Yes Infrastructure Management Yes Yes Assets owned (Both segments) For the purpose of providing software development service & MSS to its AEs, ITIPL uses the following tangible assets and intangible assets for its business operations. Employees The personnel who provide services to AEs are on ITIPL’s payroll. The AEs personnel also provide support and guide employees of ITIPL. Tangible Assets  Leasehold improvement;  Computer systems; and  Office equipment Intangible Assets ITIPL does not own any non-routine intangibles; it does not own trade secrets or undertake research and development activities that would lead to the development of non-routine intangibles. Whereas, the AEs being the entrepreneurial entities perform the necessary research and development function and own intangible rights in the products or solutions developed. Risks assumed Risks ITIPL AEs Market risk No Yes Contract risk No Yes Service liability risk No Yes Credit risk No Yes Foreign exchange fluctuation risk Yes Yes Idle capacity risk No Yes Technology obsolescence risk No Yes IPR risk No Yes Risk of attrition of manpower No Yes Characterisation The functional analysis serves as a foundation to characterise entities for the purposes of inter-company transfer pricing. Based on the facts as presented in the above functional analysis, it is appropriate to characterise ITIPL as a contract service provider that assumes minimal risks associated with the business of providing software development services. Marketing Support Services Functions ITIPL is responsible for human resources, financial and routine administration; it is responsible for managing its own cash flows, accounts payable, accounts receivables, employee management, management Page 13 of 29 IT(TP)A No. 3355/Bang/2018 information system and training, hiring employees statutory compliance. ITIPL drafts its policies within the broad framework provided by AEs, and it receives support from AEs in terms of guidance to implement those policies. ITIPL provides marketing support services to AEs. Its activities are limited to marketing activities to identify potential customers by creating awareness of the products and services rendered and managed by AEs, as well as to educate users on the benefits and features of those products and se ices. AEs provide literature and other material like brochures and promotional material for ITIPL's business promotion activities. ITIPL educates customers on the basic functionality and effective usage of the products being offered for sale. For other technical assistance and troubleshooting, AEs provides post-sales support services directly to the customer. Risks assumed Risks ITIPL AEs Market Risk No Yes Contract Risk No Yes Credit Risk No Yes Service Liability Risk / Quality Risk / Product Liability Risk No Yes Risk of Attrition of Manpower No Yes Foreign Exchange Fluctuation Risk Yes Yes Characterisation The functional analysis serves as a foundation to characterise entities for the purposes of inter-company transfer pricing. Based on the facts as presented in the above functional analysis, it is appropriate to characterise ITIPL as a contract service provider that assumes minimal risks associated with the business of providing marketing support services. 12. Based on the above, we shall carry on the comparability analysis. The Ld.AR submitted that all the comparables under both the segments sought for inclusion / exclusion has been considered by Coordinate Bench of this Tribunal in case of Salesforce.com India Pvt. Ltd. vs. DCIT reported in (2021) 133 taxmann.com 481. 13. He submitted that in the assessment year considered by this Tribunal in the above referred case is 2014-15. He submitted Page 14 of 29 IT(TP)A No. 3355/Bang/2018 that the assessee in case of Salesforce.com India Pvt. Ltd. vs. DCIT (supra) was also a captive service provider bearing minimal risk in rendering the software development services and MSS services to the associated enterprises. 14. Ground no. 14 – Assessee is seeking exclusion of a) Infosys Ltd. b) Larsen & Toubro Infotech Ltd. c) Mindtree Ltd. d) Persistent Systems Ltd. e) Thirdware Solutions Ltd. 15. We note that the comparables sought for exclusion under SWD segment have been directed to be excluded by this Tribunal in similar circumstances in case of Salesforce.com India Pvt. Ltd. vs. DCIT (supra) by observing as under: “1. Infosys Limited : 20.1 It is submitted that, this company is functionally dissimilar and provides end to end business solutions like business consulting technology engineering and outsourcing services and no segmental details in respect of services are available. It is also submitted that this comparable made investments in products to establish as a tradable IPO owner. The Ld.AR submitted that this comparable owns significant brand value products and focus on brand building and incurred expenditure on R & D and that the company owns 7 Edge products / platforms, and six other product based solutions. The company leverages on its premium banking solution and during the year the company merged with its wholly owned subsidiary Infosys Consulting India Limited. 20.2 It is submitted that this company was excluded from the final list of comparables in assessee's own case for the Assessment Year 2011-12, which has been accepted by revenue. The Ld.AR relied on decision of co-ordinate Bench of the Tribunal in the case of LG Soft India (P.) Ltd. v. Dy. CIT in IT(TP)A No. 3122/Bang of 2018 for dated 28.5.2019 for Assessment Year 2014-15, the. The contrary, the Ld.CIT.DR placed reliance on orders passed by authorities below. Page 15 of 29 IT(TP)A No. 3355/Bang/2018 20.3 We have perused submissions advanced by both sides in light of records placed before us. 20.4 We support the view taken by this Tribunal in case of LG Soft India Pvt. Ltd. (supra), where this Tribunal observed as under: "6. We notice that the co-ordinate bench has excluded M/s.Infosys Ltd in A.Y 2008-09 by following the decision rendered by another co-ordinate bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No.1303/Bang/2012 dated 28.11.2013, wherein the decision rendered in the case of Triology E Business Software India P Ltd. (ITA No.1054/Bang/2011) was followed and it was held that M/s. Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break up of revenue from software services and software product is not available." 20.5 We note that this comparable has significant intangibles and huge revenues from software products and was considered by the co-ordinate Bench of the Tribunal for exclusion in the Assessment Year 2014-15. Based on the above observation we direct Ld.AO/TPO to exclude this comparable from final list. Persistent Systems Ltd. 20.6 The Ld.AR submitted that this company is functionally different, as it is engaged in rendering IT services and development of software products, without there being segmental information. It is submitted that this company is also engaged in IP led solutions and undertakes significant R & D activities, owns IP. It is submitted that during the year, the company made acquisitions. It was submitted that this company has made significant investment in IP and their solutions and has a dedicated team for Research and IP development. The company is functionally different as it provides complete life cycle services and has specialized software product and technology innovation. The Ld.AR also submitted that entire revenue of the comparable company is from outsourced product development and has presence of intangibles, brand ownership and provision of applied solutions and further holds proprietary products. A new business unit was established in the said year exclusively for the product business engaged in R & D and also has onsite activities and no segmental information is available. During the year there are extraordinary events of acquisitions of cloud squads and fails the turnover filter of more than Rs. 200 Crores. The Ld.AR relied on decision of co-ordinate Bench of this Tribunal in case of LG Soft Page 16 of 29 IT(TP)A No. 3355/Bang/2018 India(P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019. 20.7 On the contrary, the Ld.CIT.DR placed reliance on orders passed by authorities below. 20.8 We have perused submissions advanced by both sides in light of records placed before us. 20.9 We support the view taken by this Tribunal in case of LG Soft India Pvt. Ltd., where this Tribunal observed as under : "7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd. also by following the decision rendered in the case of 3DPLM Software Solutions Ltd. (supra), where in it was held that M/s Persistent Systems Ltd. is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd." Based on the above observation we direct Ld.AO/TPO to exclude this comparable from final list. Thirdware Solutions Ltd. 20.10 The Ld.AR submitted that this comparable is to be excluded for its huge turnover of Rs. 206.75 Crores and the margin is 44.68%. It is also submitted that this comparable is functionally different and has diversified activities and earns revenue from export of services, transcription and provides consultancy services and there is no segmental data. Further delivery locations are outside India and has an extraordinary events and fails the turnover filter of more than Rs. 200 Crores. The Ld.AR relied on LG Soft India(P.) Ltd. (supra). 20.11 On the contrary Ld.CIT.DR placed reliance on orders passed by authorities below. 20.12 We have perused submissions advanced by both sides in light of records placed before us. 20.13 We found that the Tribunal in the case of LG Soft India(P.) Ltd. (supra) has observed at page 4 paras 8 & 8.1 as under "8. We also notice that in AY 2008-09, the co- ordinate bench has excluded M/s Thirdware Solutions Ltd. also by following the decision rendered in the case of 3DPLM Software Solutions Ltd. (supra), where in it was held that M/s Thirdware solutions Ltd. is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 It was stated that there is no change in facts. Accordingly, following the decision Page 17 of 29 IT(TP)A No. 3355/Bang/2018 rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Thirdware Solutions Ltd." Considering the facts, findings and judicial decisions, we are of the opinion that the following Three comparables are to be excluded from the list of comparables for determination of ALP by the TPO." Based on the above observation we direct Ld.AO/TPO to exclude this comparable from final list. Mindtree Ltd. 20.14 The Ld.AR submitted that this company deserves to be excluded from the finalist list as it is functionally not similar with that of assessee. He submitted that, this company owns 19 patents and has huge scale of operation with turnover of Rs.3031 crores. It has been submitted that this comparable is engaged in sale of products like 'VmUnify' which is cloud management and ought orchestration platform etc. It is submitted that it also engages in IT consulting for high-end services and is rendering into an digital transformation and technology services to its clients the Ld.AR thus submitted that this comparable is functionally not similar with that of assessee and is a giant company with huge turnover thereby not fulfilling turnover criteria. 20.15 On the contrary Ld.CIT DR placed reliance on orders passed by authorities below. 20.16 We have perused submissions advanced by both sides in light of records placed before us. 20.17 The decision rendered in the case of Genisys Integrating (supra) by coordinat bench of this Tribunal had analysed the application of upper turnover filter in order to exclude companies whose turnover is more than that of assessee. 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. Admittedly, the turnover of above said companies is more than 200 crores and hence cannot be considered as good comparable companies. We also observed that this company is functionally not similar with that of assessee as it is involved in diversified activities which is not comparable with a captive contract service provider like that of assessee. Accordingly we direct Ld.AO/TPO to exclude this comparable from finalist. Larsen and Toubro Infotech Ltd. 20.18 This comparable was upheld by authorities below and has been objected by assessee for its inclusion. Ld.AR Page 18 of 29 IT(TP)A No. 3355/Bang/2018 submitted that this company is functionally not comparable with that of assessee and is engaged in providing consultancy and testing services. Further it has been submitted that there is no segmental information available in the annual reports of this company. Ld.AR submitted that this company owns its own brand and have products and are engaged in trading activity. This company also has R&D services and presence of huge intangibles and brands. 20.19 On the contrary Ld.CIT DR placed reliance on orders passed by authorities below. 20.20 We have perused submissions advanced by both sides in light of records placed before us. 20.21 We note that this comparable was excluded by coordinate bench of this tribunal in case of LG Soft India(P.) Ltd. (supra) 20.22 We note that in case of LG soft India Pvt.Litd (supra), this comparable was excluded on the ground that it is functionally incomparable to the assessee on various counts. The company deals with software products and renders aftermarket service management services, integrated IT service management solution, business process management implementation services, cloud computing, consulting, enterprise integration, geographical information system and infrastructure management services. Despite rendering these diverse services, the segmental details of the various services and products are not available. The company's business segments are divided into service cluster, industrial cluster and telecom business. In the absence of segmental data being made available as regards the diverse services, it is not possible to determine whether the company passes the filters applied by the TPO. Therefore, the company ought to be excluded. Further, the company is a market leader and thus enjoys significant benefits on account of ownership of marketing intangibles, intellectual property rights and business rights. Also, in addition to the above, the company owns proprietary software products which are developed in-house. Accordingly, the Appellant submits that L&T is a product company having significant intangibles and is thus not comparable to captive software development service providers such as the Appellant who does not own any significant or non- routine intangibles. Further, L&T enjoys significant brand value. As a result of this high brand value, the company enjoys a high bargaining power in the market. Page 19 of 29 IT(TP)A No. 3355/Bang/2018 Based on the above observation we direct Ld.AO/TPO to exclude this comparable from final list.” 16. The Ld.DR before us has not brought any details / evidences in order to deviate from the view taken by Coordinate Bench of this Tribunal in case of Salesforce.com India Pvt. Ltd. vs. DCIT (supra). Respectfully following the above observations, we direct the Ld.AO/TPO to exclude a) Infosys Ltd., b)Larsen & Toubro Infotech Ltd., c) Mindtree Ltd., d) Persistent Systems Ltd. and e) Thirdware Solutions Ltd. Accordingly this ground raised by assessee stands allowed. 17. Ground no. 16 – Assessee is seeking exclusion of only one comparable under MSS segment among the entire list raised in the grounds of appeal which is Irunway India Pvt. Ltd. under marking support service segment. The Coordinate Bench of this Tribunal in case of Salesforce.com India Pvt. Ltd. vs. DCIT (supra) observed as under: “IRunway India Pvt.Ltd 21.4 The Ld.AR has submitted that this comparable is functionally dissimilar as it provides technology analysis and research services to corporations, law firms and other leading technology investment and licensing firms worldwide. It is also submitted that related party transaction of this comparable for the year under consideration is 30.89%. It has been submitted that these services rendered by this comparable are not discernible from the annual report however from the website of the company the details have been ascertained. It is also submitted that from the balance sheet it is clear that this comparable owns huge intangibles and is into some kind of research and development as every year there is an addition to the intangible asset which is clear from page 3954 of paper book. On the contrary, the Ld.CIT.DR placed reliance on orders passed by authorities below. 21.5 We have perused submissions advanced by both sides in light of records placed before us. 21.6 Is on perusal of the annual accounts placed in the paper book, we note that the functions carried out by this company is not very clear the notes to the financial statements only refers to service income without Page 20 of 29 IT(TP)A No. 3355/Bang/2018 mentioning the nature of services rendered by this comparable also from the profit and loss account it is not discernible the kind of services rendered by this company that has been considered by the Ld.TPO akin to MSA services rendered by assessee. We owe note that the Ld.TPO has included this into the final list only by mentioning that the functions performed by this company are similar to assessee and under TNMM only similarities to be seen and not exact comparability. The Ld.TPO also note that the RPT of this comparable is only 3.7% however from page 3959 of paper book transactions with related party have been recorded and it does not tally with the rate computed by the Ld.TPO. Under such circumstances we do not find this comparable to be fit to be included in the finalist. Accordingly we direct Ld.AO/TPO to exclude this comparable from final list.” Accordingly, this ground raised by assessee stands allowed. 18. Ground nos. 18 to 24 – is in respect of interest computed on outstanding receivables. 18.1 The Ld.TPO computed interest on outstanding receivables under weighted average method using 6 months LIBOR + 300 basis points applicable for year under consideration that worked out to 4.3836% on receivables that exceeded 30 days. It has been argued by Ld.AR that authorities below disregarded business/commercial arrangement between the assessee and its AE's, by holding outstanding receivables to be an independent international transaction. 18.2 We have perused the submissions advanced by both the sides in the light of the records placed before us. 18.3 From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Page 21 of 29 IT(TP)A No. 3355/Bang/2018 18.4 Alternatively, he submitted that under TNMM, working capital subsumes sundry creditors and therefore separate addition is not called for. 18.5 This Bench referred to decision of Special Bench of this Tribunal in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in [IT Appeal No. 1548 and 1549 (Kol.) of 2009, dated 15- 7-2016], 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. It has been argued that, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lone and advances to international transaction would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT reported in [2018] 91 taxmann.com 286 has 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 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. v. 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." Page 22 of 29 IT(TP)A No. 3355/Bang/2018 18.6 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. The Ld.AO shall also consider the alternate argument taken by the Ld.AR and carryout necessary verification and then to decide the issues in accordance with law. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Accordingly these ground raised by assessee stands allowed for statistical purposes. 19. Ground nos. 25-26 is in respect of the reimbursement of cost in respect of the seconded employees that was disallowed for non- deduction of TDS as the same was held as FTS by the Ld.AO. 19.1 The Ld.AO observed that assessee reimbursed salary cost of employees; Rs.38,55,758/- to Infineon Technologies Taiwan, Bonus and pension contribution of Senthil Kumar; Rs. 12,05,746/- to Infineon Singapore and secondment / assignment of employees charges of Rs.57,02,113/- to Infineon Germany. The assessee has withheld taxes on the payment made to Infineon Taiwan, however no taxes was deducted on the payments made to Infineon Singapore and Infineon Germany. 19.2 It has been submitted by both sides that identical issue has been considered by Coordinate Bench of this Tribunal in a recent decision in case of DCIT vs. M/s. Cerner Healthcare Solutions Pvt. Ltd. in IT(TP)A Nos. 217 & 218/Bang/2020 by order dated 14/07/2022. 19.3 This Tribunal observed as under: “3. At the outset, the Ld.AR submitted that this issue stands squarely covered by following decisions. Page 23 of 29 IT(TP)A No. 3355/Bang/2018  Decision of Hon’ble Karnataka High Court in case of DIT(IT) vs. Abbey Business Services India (P.) Ltd. reported in [2020] 122 taxmann.com 174  Decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) in W.P. No. 3619/2021(T-IT) by order dated 24.06.2022  Decision of Hon’ble Pune Tribunal in case of M/s. Faurecia Automotive Holding vs. DCIT (IT) in ITA No. 784/PUN/2015 by order dated 08.07.2019  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  Coordinate Bench of this Tribunal 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.  Decision of Coordinate Bench of this Tribunal in case of M/s. Scania CV AB vs. DCIT in IT(IT)A No. 3432/Bang/2018 by order dated 06/07/2022 4. The Coordinate Bench of this Tribunal in the recent decision in case of M/s. Scania CV AB vs. DCIT (supra), observed as under: “2.3 It is submitted that identical issue has been considered at length and in detail in the above decisions. The Ld.AR referred to the recent decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) (supra) wherein Hon’ble Court observed as under: “(viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. & S.T.-Bangalore (Adjudication) etc. v. M/s.Northern Operating Systems Pvt. Ltd.12 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional control test to indicate who the employer is may not be the sole test to be applied. The Apex Court while construing a contract whereby employees were seconded to the assessee by foreign group of Companies, had upheld the demand for service tax holding that in a secondment arrangement, a secondee would continue to be employed by the original employer. (ix) The Apex Court in the particular facts of the case had held that the Overseas Co., had a pool of highly skilled employees and having regard to their expertise were seconded to the assessee and upon cessation of the term of secondment would return to Page 24 of 29 IT(TP)A No. 3355/Bang/2018 their overseas employees, while returning Civil Appeal Nos.2289-2293/2021 such finding on facts, the assessee was held liable to pay service tax for the period as mentioned in the show cause notice. (x) It needs to be noted that the judgment rendered was in the context of service tax and the only question for determination was as to whether supply of man power was covered under the taxable service and was to be treated as a service provided by a Foreign Company to an Indian Company. But in the present case, the legal requirement requires a finding to be recorded to treat a service as 'FIS' which is "make available" to the Indian Company. (xi) Accordingly, any conclusion on an interpretation of secondment as contained in the M.S.A. to determine who the employer is and determining the nature of payment by itself would have no conclusive bearing on whether the payment made is for 'FIS' in light of the further requirement of "make available."” 3. On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 4. We have perused the submissions advanced by both sides in the light of records placed before us. 4.1 We note that the evidences filed by assessee has not been considered by the revenue authorities. 4.2 We therefore remand this issue to the Ld.AO to consider the claim in accordance with the decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) (supra) and 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.” 5. Respectfully following the above, we remand this issue to the Ld.AO to consider the claim in accordance with the decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. vs. DCIT (IT) (supra) and Page 25 of 29 IT(TP)A No. 3355/Bang/2018 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. 6. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accordingly this ground raised by revenue stands allowed for statistical purposes.” We have perused the submissions advanced by both sides in the light of records placed before us. 19.4 The assessing officer is directed to consider the claim of assessee in accordance with the principles laid down by the decisions referred to hereinabove. Respectfully following the above, the issue raised by assessee stands allowed for statistical purposes. 20. Ground no. 27 – The Ld.AR submitted that assessee capitalised the cost of the software amounting to Rs. 27,32,162/- against which depreciation at 60% was claimed. 20.1 The Ld.AO restricted it to 25%. It is a submission of assessee that the software is eligible for depreciation at 60% as it is embedded in the computer. The Ld.AR submitted that in the schedule to Appendix 1 in Part A, plant and machinery includes computers and computer software that is eligible for a 60% depreciation. The Ld.AR in support relied on decision of Hon’ble Bombay High Court in case of CIT vs. I-Flex Solutions Ltd. reported in (2014) 46 taxmann.com 88 and decisions of Hon’ble Delhi Tribunal in case of ACIT vs. Indiabulls Ventures Ltd. by order dated 02/07/2020 in ITA No. 1475/Del/2017 and decision of Hon’ble Mumbai Tribunal in case of Arkema Chemicals India Pvt. Ltd. vs. ACIT reported in (2022) 139 taxmann.com 540. Page 26 of 29 IT(TP)A No. 3355/Bang/2018 20.2 We have perused the submissions advanced by both sides in the light of records placed before us. 20.3 We note that the recent decision in case of Arkema Chemicals India Pvt. Ltd. vs. ACIT (supra) has considered this issue by observing as under: “8. We have carefully considered the rival contentions and judicial precedents cited before us. We have also considered the decision of the lower authorities. The issue involved in this appeal is where the assessee has purchased license of ERP SAP, assessee is entitled to the deprecation at the rate of 60 % as covered in New Appendix I of Rule 5 of ITAT Rules in heading of machinery and plant in part A of tangible assets at serial number 5 "computers including computer software (see note 7 below this table ) entitled to depreciation at the rate of 60% or in Para B being licenses, intangible assets entitled to deprecation at the rate of 25%. We find that entry number 5 under Part A allows depreciation at the rate of 60% on computers including computer software. Note-7 states that computer software means any computer programme recorded on any disk, tape, perforated media or other information storage device. Apparently, it does not make any difference between application system software or application software. Further, part B of appendix-1 prescribed deprecation at the rate of 25% on certain intangible assets such as knowhow, patents, copy rights trademarks, license fee, franchise or any other business or commercial right of similar nature. Therefore, the question that arises is the license obtained by the assessee would fall in the definition of computer software so as to make it eligible as tangible asset and then depreciation rate at the rate of 60% will apply. If it is a license only then naturally it would be intangible assets eligible for depreciation at the rate of 25%. We now find that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Madras High Court in the case of Computer Age Management Services (P.) Ltd. (supra) wherein depreciation held that software lincense acquired by the assessee was in nature of application software and is eligible for deprecation at the rate of 60%. The honourable court held as under :— '7. As noticed above, the assessee is in the business of registrar and transfer agent as licensed by the SEBI handling large volume of market sensitive data and information, which is available only through general Page 27 of 29 IT(TP)A No. 3355/Bang/2018 customized application software. The assessee acquired software licenses capitalized during the relevant years in the books of accounts and claimed depreciation at 60%. In paragraph 20 of the order passed by the Tribunal, the nature of items, on which, the assessee claimed depreciation at 60%, has been listed out and they are 17 in number, from which, we find that substantial amount of server licences, which have been obtained by the assessee are customized and some of which are single user licenses. 8. The question would be as to whether the software application, which was acquired by the assessee would fall under Entry 5 of Part A of New Appendix I, which states that computers including computer software are entitled to depreciation at 60%. Note 7 of the Appendix defines the expression 'computer software' to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices. 9. The case of the Revenue is that software are licences and that they are intangible assets and would fall under Part B of New Appendix I, which deals with knowhow, patents, copyrights, trademarks, licenses, francises or any other business or commercial rights of similar nature. 10. We find that Part B of New Appendix I is a general entry whereas Entry 5 of Part A of New Appendix I is a specific entry read with Note 7. In the instant case, the Tribunal, in our considered view, rightly held that the assessee is eligible to claim depreciation at 60%. 11. In the decision rendered by a Division Bench of this Court in the case of CIT v. M/s. Cactus Imaging India Private Limited [reported in (2018) 406 ITR 406], to which, one of us (TSSJ) was a party, an identical question came up for consideration wherein the object was printer (computer printer). This Court, after taking into consideration as to how the entries would be interpreted, referred to the decision in the case of Bimetal Bearings Ltd. v. State of Tamil Nadu [reported in (1991) 80 STC 167] and held as hereunder: "9. The Hon'ble Division Bench took note of the decision of the Hon'ble Supreme Court pointing out that the 'entry' to be interpreted is in a taxing statute; full effect should be given to all words used therein and if a particular article would fall within a description, by the force of words used, it is impermissible to ignore the description, and denote the article under another entry, by a process of reasoning. 10. It was further pointed out that the rule of construction by reference to contemporanea expositio is a well- established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, Page 28 of 29 IT(TP)A No. 3355/Bang/2018 though it must give way where the language of the statute is plain and unambiguous. 11. By applying the rule of interpretation, we find that the relevant entry under old appendix I clause III (5) states computers including computer software and the Notes under the Appendix defines 'computer software' in clause 7 to mean any computer program recorded on disc, tape, perforated media or other information storage device. Noteworthy to mention that the notes contained in the appendix, the term 'computer' has not been defined. Therefore, as pointed out by the Division Bench in Bimetal Bearings Ltd. (supra), if a particular article would fall within the description by the force of words used, it is impermissible to ignore the word description. Thus, going by the usage of the equipment purchased by the petitioner, we have to take a decision." 12. As held in the above decision, if a particular article would fall within the description by the force of the words used, it is impermissible to ignore the word 'description' and going by the usage of the equipment purchased by the assessee, a decision has to be arrived at. We find that there is no error in the decision arrived at by the Tribunal by taking note of the specific entry in contra distinction with the general entry. Therefore, the first substantial question of law has to be necessarily answered against the Revenue."' 9. Therefore, respectfully following the decision of Hon'ble Madras High court, we direct the Assessing Officer to delete the disallowance of deprecation on computer software of Rs. 3,84,70,669/-. Accordingly, the ground no. 1 of the appeal is allowed.” Accordingly this ground raised by assessee stands allowed. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 25 th August, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 25 th August, 2022. /MS / Page 29 of 29 IT(TP)A No. 3355/Bang/2018 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore