M/s Nuance Transcription services India Private Limited , Bangalore V. The Deputy Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITTPA 3230/BANG/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3264 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 09-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 02-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 143(3); 143(2); 153; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “A”, BANGALORE Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM IT(TP)A No.3230/Bang/2018 : Asst.Year 2014-2015 M/s.Nuance Transcription Services India Private Limited First Floor, Block B, Salarpuria Aura, Khata No.434/170 Marathahalli-Sarjapur Outer Ring Road, Kaverappa Layout Bangalore – 560 103. PAN : AAACF3465F. v. The Assistant Commissioner of Income-tax, Circle 5(1)(1) Bangalore. (Appellant) (Respondent) Appellant by : Sri.Vishal Kalra, CA Respondent by : Sri.Harishchandra Naik, CIT-DR Date of Hearing : 28.07.2022 Date of Pronouncement : 10.08.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 28.09.2018 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2014-2015. 2. The brief facts of the case are as follows: The assessee is engaged in providing Information Technology Enabled Services (ITES) to Nuance Transcription Services Inc., USA, which is an Associated Enterprise (AE) of the assessee. For the assessment year 2014-2015, the return of income was filed on 29.11.2014 declaring total income of Rs.19,03,20,830. The assessment was selected for scrutiny IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 2 and notice u/s 143(2) of the I.T.Act dated 29.08.2015 was served on the assessee. During the course of assessment proceedings, it was noticed that the assessee had undertaken international transactions with its AEs. Hence, the matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm’s Length Price (ALP) of the same. The TPO passed an order u/s 92CA of the I.T.Act dated 30.10.2017, wherein he proposed following transfer pricing adjustments:- (i) ALP adjustment to the ITeS segment of the assessee Rs.6,35,00,891 (ii) Interest chargeable on trade receivables Rs.2,18,95,047 3. Pursuant to the TPO’s order, draft assessment order dated 18.12.2017 was passed u/s 143(3) r.w.s. 144C(1) of the I.T.Act. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 05.09.2018 confirmed the TP adjustment proposed by the TPO. Pursuant to the DRP’s directions, the impugned final assessment order dated 28.09.2018 was passed making the TP adjustment amounting to Rs.8,53,95,938, as under:- Particulars Amount (Rs.) Returned income under the normal provisions of the Act 19,03,20,830 Add : TP adjustment to the ITES segment 6,35,00,891 Add : TP adjustment on interest on receivable 2,18,95,047 8,53,95,938 Total Assessed Income 27,57,16,768 IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 3 4. Aggrieved by the final assessment order, the assessee has filed the present appeal before the Tribunal. Grounds 1, 2 and 8 are general in nature and no specific adjudication is called for, hence, the same are dismissed. Grounds 3 to 6 relate to TP adjustment in ITES segment. Grounds 11 to 14 is regarding interest on receivables. The learned AR submitted that the same may be left open. Therefore, the surviving grounds, namely, grounds 3, 5, 6, 15 and 16 read as follows:- “3. That on facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily rejecting the transfer pricing study of the Appellant and used arbitrary filters for benchmarking the international transactions pertaining to ITeS. 5. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily selecting comparable companies based on incorrect appreciation of functional, asset and risk profile, and arbitrary filters. 5.1 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily rejecting the comparable companies, namely, Caliber Point Business Solutions Ltd (seg) and R Systems International Ltd (seg), alleging different financial year ending than the Appellant. 5.2 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred, in arbitrarily rejecting certain functionally comparable companies identified by the Appellant on a subjective basis, inter alia, using unreasonable comparability criteria. 5.3 That on facts and circumstances of the case and in law, AO / DRP / TPO have erred in rejecting Informed Technologies India Ltd applying filter of service income from ITeS, being less than 75% of the total operating income. 5.4 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in rejecting the comparable companies (Allsec Technologies Ltd and Datamatics Financial Services Ltd) that have export service income less than 75% of the sales. IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 4 6. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in including comparable companies having significantly high turnover as comparable to the Appellant. 15. Notwithstanding and without prejudice, the AO / DRP/ TPO have erred in computing the period for which the receivables were outstanding (opening as well as during the year) and in not appreciating the period of payment of invoice agreed between the appellant and its AE under the agreements applicable to such outstanding receivable (opening as well as during the year) and further erred in computing the outstanding receivables period on weighted average basis. 16. Notwithstanding and without prejudice, that on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily adopting a notional rate @ 4.3836% for imputing interest, which is excessive and unreasonable.” We shall adjudicate the above grounds as under: TP Adjustment relating to ITES segment (Grounds 3, 5 & 6) 5. The comparison of the TP study of the assessee and that of the computation of ALP and the adjustments made by the TPO are as follows:- Particulars As per assessee As per TPO Methodology TNMM Sales (refer A/R at pg. 74 of PB TP study at pg.197 of PB TP order at pg.115 of the appeal set) 107,68,83,538 107,68,83,538 Add : Exchange gain 14,04,152 14,04,152 Add: Provision no longer required written back 1,32,527 Operating Revenue (INR) 107,84,20,217 107,82,87,690 Personal costs 74,54,14,686 74,54,14,686 Transcription outsourcing expenses 11,18,94,243 11,18,94,243 Other operating expenses 7,19,20,677 7,19,20,677 Depreciation 40,61,698 40,61,698 Operating Cost 93,32,91,304 93,32,91,304 IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 5 Operating Profit (INR) 14,51,28,913 14,94,96,386 Margin considered (OP/OC) 15.55% 15.54% ALP as per TPO order (refer page 140 of appeal set) 22.34% TP Adjustment (INR) 6,35,00,891 3 per cent range computation Particulars Plus 3% Minus 3% Revenue (INR) (based on TPO order) 111,06,36,321 104,59,39,059 Operating Expenses 93,32,91,304 93,32,91,304 PBIT 17,73,45,017 11,26,47,755 Plus / Minus 5% margin 19.00% 12.07% No.of comparables ITeS Reference Selected by assessee 11 Refer TP study at pg 153 of PB Rejected by the TPO 9 Refer TPO order at pages 121- 122 of Appeal set Accepted by the TPO 2 Refer TPo order at pages 121- 122 of appeal set New comparables introduced by the TPO 5 Refer TPO order at page 140 of appeal set Final set of TPO 5 Refer TPO order at pg 140 of appeal set. 6. The learned AR’s limited submission before the Tribunal as regards the ITES segment is for exclusion of following three companies from the list of comparables on the ground of turnover filter and functional incompatibility. (i) Infosys BPO Limited (ii) Microland Limited (iii) Crossdomain Solutions Private Limited. IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 6 7. The assessee is also seeking inclusion of one company, namely, Jindal Intellicom Private Limited. We shall consider the exclusion and inclusion of the above companies as under: Infosys BPO Limited (Exclusion) 8. The learned AR has sought exclusion of this company from the comparable list on the basis of application of high turnover filter. The learned AR has demonstrated that the turnover of the comparable selected by the TPO is 21 times its turnover. While the assessee has an operating revenue of Rs.107.68 crore, it was submitted that it cannot be compared with Infosys BPO Limited which has turnover of Rs.2323 crore. The assessee has placed reliance on M/s.Fulcrum Fund Services (India) Private Limited v. ITO in IT(TP)A No.2521/Bang/2017 reported in (2019) 108 taxman.com. 9. The learned Departmental Representative has placed reliance on the orders of the subordinate authorities claiming hat turnover does not influence the margins of companies engaged in the service sector, more precisely ITES. 10. We have heard rival submissions and perused the material on record. The Bangalore Bench of the ITAT in the case of M/s.Fulcrum Fund Services (India) Private Limited v. ITO (supra) has directed exclusion of this comparable for the assessment year in question. The relevant finding of the Tribunal in the case of M/s.Fulcrum Fund Services (India) Private Limited v. ITO (supra) reads as follows:- IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 7 “7.3.1. The sum and substance of the conclusion of the ITAT in the passage quoted above is that the decision rendered by the Tribunal in the case of Genesis Integrated Systems (I) P. Ltd. (2012) [53 SOT 159] lays down the correct law on the application of turnover filter and that decision has to be followed. In the decision rendered in the case of Genesis Integrates Systems (I) Pvt.Ltd., it has been held that companies with turnover of above Rs.200 crores cannot be compared with companies with turnover of less than Rs.200 Crores. In view of the aforesaid decision of the Tribunal, we hold that the CIT(A) erred in not accepting the claim of assessee for excluding of companies, whose turnovers were more than Rs. 200 Crores and those companies remain un-comparable with assessee, because assessee’s turnover was only Rs. 27.61 Crores. The 02 companies which would stand excluded by the application of turnover filter from the set of 10 set of companies chosen by the TPO are – (i) M/s. Infosys BPO Limited, whose turnover is Rs.1312 Crores and (ii) TCS E-Serve Limited, whose turnover is Rs.1578.40 Crores. Accordingly, we hold that the aforesaid two companies should be removed from the list of comparable companies. The TPO is directed to compute the average Arithmetic Mean profit of the comparable companies chosen by the TPO, after excluding the aforesaid two companies. 11. In view of the above order of the Coordinate Bench of the Tribunal, we direct to exclude this company from the list of comparable companies. Microland Limited (Exclusion) 12. The learned AR has sought for the exclusion of above company. It is submitted that the company is not functionally comparable as it is involved in infrastructure management and IT enabled services. It is stated that under infrastructure management, the company is engaged in provision of services in connection to server management, database management, storage management, archival management, network management, etc. It is claimed by the assessee that the same is different from ITES services rendered by it. The learned AR has also submitted that the company fails service income filter and also placed reliance on the ruling of the Bangalore IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 8 Tribunal in the case of M/s.Brady Company India (P) Ltd. v. ITO in IT(TP) No.103 and 790/Bang/2019 (A.Y. 2014-2015) (order dated 22.03.2022), reported in (2022) 136 taxmann.com 298 (Bang-Trib.). 13. The learned DR has reiterated the submissions of the authorities below. 14. We have heard rival submissions and perused the material on record. The Bangalore Bench of the ITAT in case of M/s.Brady Company India (P) Ltd. (supra) had excluded Microland Limited from the list of comparables on functional incompatibility with ITES segment. The relevant findings of the ITAT in case of M/s.Brady Company India (P) Ltd. (supra), reads as follows:- “7.2 We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s.Ocwen Financial Solutions Private Limited (supra), had excluded M/s.Microland Limited from the list of comparable company. The relevant finding of the Bangalore Bench of the Tribunal, reads as follows:- “8.4.1 We have considered the rival contentions / submissions put forth and perused the material on record. This company, ‘Microland’ was selected as a comparable by the TPO. In his order, the TPO has stated that this company ‘Microland’ is currently organized in business segments, comprising of infrastructure management services and IT Enabled Services (ITES). On the objections raised by the assessee that ‘Microland’ is not functionally comparable, the TPO rejected the same by holding that both its segments are in the nature of ITES only, considered its entire operations as ITES and held the company to be comparable to the assessee at entity level. In respect of the objections raised by the assessee before the DRP, it is seen that the DRP concurred with the TPO’s view that both the segments of ‘Microland’ are in the nature of ITES only and held that its entire operations to be comparable to the assessee at entity level. IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 9 8.4.2 We have perused the Annual Report of the company ‘Microland’, placed at pages 140 to 277 of the paper book. At page 14 of the Annual Report, this company has characterized itself as a service company primarily rendering Infrastructure Management Services. At page 97 of the Annual Report, it is mentioned that the company is organized in business segments comprising of infrastructure services and ITES thereby clearly indicating that the services rendered in both segments are different and distinct from each other. In our view, the TPO / DRP have not brought on record any evidence to support their contention that both the aforesaid segments are rendering ITES only. If that were so, there was no reason whatsoever for the company to show Infrastructure Management Services as different and distinct segment from the ITES. 8.4.3 From an appraisal of the details submitted, it is seen that the services rendered by ‘Microland’ under Infrastructure Management services are Server Management, Database Management, storage management, Archival Management, Network Management, etc., which has been classified as different from the back office processing services rendered by companies like the assessee in the case on hand. In our view, there is no basis for the TPO to contend that the aforesaid services rendered by ‘Microland’ are ITES, when the company itself has classified these services as different from ITES and characterized the same as a different business segment. In these factual circumstances, we are inclined to concur with the contention of the learned AR that the Infrastructure Management services segment of ‘Microland’ is different and distinct with ITES as has been classified by the company in its Annual Report for the year under consideration. We also observe that the TPO himself has reached the same conclusion n the subsequent Assessment Year 2015-16; that the Infrastructure segment services segment is not comparable to ITES. 8.4.4 At page 97 of the Annual Report of ‘Microland’ for the year under consideration, the segmental details of the two business segments are provided from which it is seen that out of the total revenue of Rs.34,471 lakhs, the revenue from ITES segment is Rs.1959 lakhs; which is 5.68% of the total revenue. As we have concluded that the infrastructure services segment is a different business segment not comparable to ITES rendered; this company, ‘Microland’ fails the filter adopted by the TPO that companies whose service income is less than 75% of total operating revenue are to be excluded. In view of the facts and circumstances of the case, as discussed above, and in view of the above factual findings, we hold that Microland Ltd., should be excluded from the final set of comparables in the case on hand.” 7.2.1 In the light of the order of the co-ordinate Bench of the Tribunal, we hold that the AO/TPO is not justified in including the above company in the list of comparable companies. Accordingly, we direct the AO/TPO to exclude the IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 10 Microland Limited from the list of comparables. 7.2.2 In the result, ground 23 is partly allowed.” 15. The profile of the assessee in the instant case and profile of the assessee in case of M/s.Brady Company India (P.) Ltd. are similar. Moreover, the assessment year concerned in the instant case and in case of M/s.Brady Company India (P.) Ltd. is identical. Therefore, following the order of ITAT in case of M/s.Brady Company India (P) Ltd. (supra), we direct the TPO to exclude Microland Limited as comparable. Accordingly, the appeal of the assessee is allowed on this ground. Crossdomain Solutions Private Limited (Exclusion) 16. The learned AR has submitted that the company is functionally different as it is engaged in Knowledge Processing Outsourcing providing services in the filed of HR, finance and administration, tax processes etc. It is claimed by the assessee that the same is different from ITES services rendered by it. The learned AR has drawn our attention to page 390 of the paper book wherein the Annual Report of the company, dealing with its functions, has been annexed. The learned AR has placed reliance on the ruling of the Bangalore Tribunal in the case of M/s.Vee Technologies Pvt. Ltd. v. PCIT in ITA No.7/Bang/2022 (A.Y. 2014-15) (order dated 07.03.2022). 17. The learned DR has reiterated the submissions of the authorities below. IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 11 18. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s.Vee Technologies Private Limited v. PCIT (supra) for assessment year 2014-2015, had excluded the above company from the comparable list on account of functional incompatibility. The relevant finding of the Tribunal reads as follows:- “11. The learned Counsel for the assessee has prayed for exclusion of 3 out of the 5 comparable companies that remain after the order of the DRP viz., Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solutions Pvt. Ltd. As far as the plea for exclusion of the aforesaid companies from the list of comparable companies is concerned, learned Counsel for the assessee has filed before us a copy of the decision of the ITAT, Bengaluru Bench, rendered in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT 115 taxmann.com 293. The aforesaid decision which also relates to Assessment Year 2014-15 and which was rendered in the context of a company providing ITeS such as the assessee and in whose case also the very same comparable companies that were chosen in the case of the assessee in this appeal was chosen as a comparable company, the Tribunal directed to be excluded Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solutions Pvt. Ltd., as comparable companies for the following reasons: On exclusion of Infosys BPO Ltd., ................... Cross Domain Solutions Pvt.Ltd., was excluded for the following reasons: (iii) Cross Domain Solutions Pvt. Ltd., the company margin is 21.07% and has to be excluded as the company is providing value based quality services in the fields of HF, Finance, Administration, tax process etc and falls within the ambit of KPO services and dissimilar to ITES. The KPO service provider cannot be compared to the ITES provider and has to be excluded. The company was excluded in the co-ordinate Bench decision in the case of Symphony Marketing Solutions India (P.) Ltd. v. ITO [2013] 38 taxmann.com 55 (Bang - Trib) at paras 18 & 19 held as under : '18. This company was considered as a comparable and listed at Sl.No.8 of the comparables chosen by the TPO. It is the stand of the assessee that this company is not functionally comparable. As observed in the case of Coral Hubs Ltd., the TPO rejected the plea IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 12 of the assessee on the basis of a non-existent TP order passed for the A.Y. 2007-08. It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. These activities are totally different from the activities of the assessee which perform very limited/low end functions back office services. The review and business functions of Cross Domain is as follows: "With a decade of experience in Payroll Outsourcing, Crossdomain has created a re-engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000." "Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn- around-time for business critical processes." As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. 19. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." Also in the case of PCIT v. BNY Mellon International Operations (India) (P.) Ltd. [2018] 93 taxmann.com 363/255 Taxman 397 (Bom) the Hon'ble Bombay High Court has held the comparable Cross Domain Solutions (P.) Ltd. is in the nature of KPO and observed at paras 3 to 8 as under : "3. The impugned order of the Tribunal held that the following entities mentioned at nos.(i) to (iv) above are not Comparables to the Respondent. This by following the decision of its Co-ordinate Bench in PTC Software (India) (P.) Ltd. v. Dy. CIT [2014] 52 taxmann.com 35l/[2015] 67 SOT 138 (URO) (Punj. - Trib). 4. Mr. Suresh Kumar teamed counsel appearing for the Revenue very fairly pointed out that being aggrieved by the decision of the Tribunal in PTC Software (I) (P.) Ltd. (supra), the Revenue had IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 13 preferred an appeal to this Court being IT Appeal No. 598 of 2016 - Pr. CST v. PTC Software (I) (P.) Ltd. This Court dismissed the Revenue's above appeal on 16 April 2018 upholding the view of the Tribunal. The Revenue does not dispute that the above decision in PTC Software (I) (P.) Ltd. (supra)of this Court rendered on 16 April 2018 would apply to this case. 5. Therefore for the reasons indicated in our order dated 16 April 2018 in case of PTC Software (I) (P.) Ltd. (supra)the entities listed at serial nos.(i) to (iv) cannot be held to be comparable to the Respondent-Assessee. 6. So far as the entity listed at serial no.(v) above, namely Crossdomain Solutions Limited, is concerned the impugned order of the Tribunal has excluded it from the list of comparables. This by following its decision in Dy. CIT v. Wills Processing Services (India) (P.) Ltd. vide ITA No.2152/Mum/2014, dated 10-10-2014, Mr. Suresh Kumar learned counsel appearing for the Revenue states that inspite of his best efforts, the Revenue is unable to instruct him whether or not an appeal has been preferred against the order of the Tribunal dated 10 October 2014. in the case of Wills Processing Services under (P.) Ltd. (supra). 7. In the above view we proceed on the basis that no appeal from the order passed in Wills Processing Services under (P.) Ltd. (supra)has been filed by the Revenue. We further note that the impugned order records that the services provided by Crossdomain Solutions is in the nature of KPO ^Knowledge Process Outsourcing). 8. It is an agreed position between the parties that the entity at Sl. no.(v) above was a subject matter of consideration by this Court in the Revenue's appeal being Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240. In the aforesaid case, this Court recorded the fact that M/s Crossdomain Solutions Ltd. was engaged in distinct activities such as payroll activity. 'Knowledge Process Outsourcing'(KPO) service, development of products and routine IT services. Thus, it was found not comparable with an entity which was rendering E-learning services, In the present case also the Respondent provides BPO services which is not with KPO services." Further the learned Authorised Representative substantiated his argument with Annual Report of comparable and we consider it proper to direct the TPO to exclude the comparable from the list of comparables for determination of ALP” 12. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid 3 companies from the list of comparable companies.” IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 14 19. Respectfully following the above order of the ITAT, we direct the TPO to exclude Crossdomain Solutions Pvt. Ltd. from the comparable list. Accordingly, the appeal of the assessee is allowed on this ground. Jindal Intellicom Private Limited (Inclusion) 20. The DRP / TPO have held that the company is not functionally comparable as it is engaged in provision of call centre and therefore engaged in software segment and not in ITES, as in the case of the assessee. Lack of availability of segmental information was also one of the reasons for exclusion of this comparable. 21. On the other hand, the learned AR has submitted that the company’s activity is provision of call centre services will come under the category of low-end ITES services and the same is comparable with the services in the nature of medical transcription, a low-end ITES services as rendered by the assessee. The learned AR has made reference to internal page 160 of the Annual Report. Reliance has been placed on the ruling of the Bangalore Bench of the Tribunal in the case of M/s.Brady Company India (P) Ltd. v. ITO (supra). 22. The learned DR supported the orders of the lower authorities. 23. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s.Brady Company India (P) Ltd. v. ITO (supra) IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 15 had held Jindal Intellicom Private Limited is comparable company to ITES segment. The relevant finding of the Tribunal reads as follows:- “10. The assessee has objected to the exclusion of this company Jindal Intellicon Limited for the following reasons:- (a) Call center services would be classified under ITeS. (b) As the company is operating in only one segment – ITeS, no segmental data is required. 10.2 The learned AR relied on the order of the ITAT in the case of M/s.Ocwen Financial Solutions Private Limited (supra). 10.3 We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s.Ocwen Financial Solutions Private Limited (supra), had included Jindal Intellicon Limited in the list of comparable company. The relevant finding of the Bangalore Bench of the Tribunal, reads as follows:- “12.4.1 We have considered the rival contentions / submissions put forth and perused the material on record. We have also perused the Annual Report of this company, ‘Jindal’; which is placed at pages 498 to 975 of the paper book. At page 130 of the Annual Report (i.e., page 627 of the paper book), it is mentioned that the company is engaged in providing call centre services, both in the overseas and domestic market; export of call centre services forming a major part of its business activities. In these circumstances, the observation of the DRP that this company ‘Jindal’ is engaged in software development services and ITES and segmental information is not available is not a factually correct observation; as borne out from the Annual Report of this company. Further, at page 160 of the Annual Report (i.e., page 657 of the paper book), it is seen that the segmental data of domestic and international segments of operation are given; thereby rendering the observations of the TPO is factually incorrect. 12.4.2 As far as the functional comparability of this company, ‘Jindal’ is concerned, we find that the Co-ordinate Bench of this Tribunal, in the case of CGI Information Systems and Management Consultants Pvt. Ltd., (supra) for Assessment Year 2012-13 has held that this company should be included in the set of comparables for companies rendering ITES and in this regard at para 56 thereof has held as under:- IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 16 comparable companies 12.4.3 In respect of the assessee in the case on hand also, the facts are similar to the cited case (supra). It is also seen that this company, ‘Jindal’ was chosen / accepted by the TPO as comparable to the assessee in the case on hand both in the earlier Assessment Years 2011-12 and 2012-13 and again in the immediately subsequent Assessment Year 2015-16. In this view of the matter, as discussed above, we are of the view that the above cited decision in the case of CGI Information System and Management Consultant Pvt. Ltd., (supra) would apply to the facts and circumstances of the case on hand also being similar; as seen from the acceptance of the company ‘Jindal’ by the TPO in both earlier and subsequent Assessment Years. Therefore, taking into consideration the factual matrix of the case as discussed above, Revenue’s stand of accepting this company as a comparable both in earlier Assessment Years and the immediately subsequent Assessment Year 2015-16 and respectfully following the decision of the Co-ordinate Bench of this Tribunal in the case of CGI Information Systems and Management Consultants (P) Ltd., (supra), we direct the AO / TPO to include this company ‘Jindal Intellicom Ltd.,’ in the final set of comparables.” 10.3.1 In the light of the order of the co-ordinate Bench of the Tribunal, we hold that the AO/TPO is not justified in excluding the above company from the list of comparable companies. Accordingly, we direct the AO/TPO to include Jindal Intellicom Limited in the list of comparables. 24. Respectfully following the above order of the Tribunal, we direct the TPO to include Jindal Intellicom Limited in the list of comparables. Accordingly, the appeal of the assessee is allowed on this ground. IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 17 Interest on delayed receivables (Ground 15) 25. The learned AR has pointed out that in computing the interest on outstanding receivables, credit period of 90 days has been allowed as per the agreement dated 01.04.2013. It was contended that the DRP / AO / TPO have erred in not considering the credit period allowed under the erstwhile agreement dated 01.10.2020, in imputing interest on opening balance. Reliance was also placed on the ruling of the Bangalore Bench of the Tribunal in assessee’s own case for assessment year 2011-2012 vide order dated 20.04.2018 in MP No.73/Bang/2018 arising out of ITA No.307/Bang/2016. 26. The learned DR has placed reliance on the orders of the subordinate authorities. 27. We have heard rival submissions and perused the material on record. We note that the Tribunal in assessee’s own case for assessment year 2011-2012 has held as follows:- “5. As per the discussion above, we feel that in the present case also, this has to be worked out as to how much amount was received beyond the agreed credit period by the assessee from its AE and the same should be considered as a separate international transactions and appropriate interest on that account should be brought to tax in the present case as TP adjustment. The working given by the ld. AR of assessee in this regard is placed on record but this working is only in respect of debtors as on 31.03.2011 but if the debts are already liquidated during the year but the receipt was after expiry of agreed credit period then the amount of such realization during the present year beyond the agreed credit period should also be considered for this purpose. Hence on this issue, we restore the matter back to the file of AO/TPO for fresh decision by examining the agreement between the assessee and its AE in respect of agreed credit period because as per the agreement dated 01.10.2010 copy of which is available on pages 187 to 217 of paper book, only those receivables are covered which are arising after this date but in respect of those IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 18 receivables which has arisen before 01.10.2010 if any, there must be some other agreement which may contain different credit period terms and therefore, such agreement should also be examined and those receivables are also be examined which are already liquidated in the present year because even if payments were already received from the AE in the present year itself, it has to be seen as to whether such payment received from the AE in the present year are received within agreed credit period or beyond it and the total delayed payment received or not received up to 31.03.2011 should be worked out for the purpose of this TP adjustment. 6. Now regarding rate of interest to be adopted for working out interest on such delayed payment from AE, we find that in Assessment Year 2014-15, as per its order dated 30.10.2017, the TPO himself has adopted the interest rate using LIBOR- 6 months + 400 basis points and the same was worked out at 4.3836% for Financial Year 2013-14. In our considered opinion, the same basis of LIBOR – 6 months + 400 basis points as applicable for Financial Year 2010-11 should be considered in the present case also. We hold accordingly. The AO/TPO is directed to work out the TP adjustment on this account at the rate of 6 months LIBOR + 400 basis points for the relevant Financial Year i.e. Financial Year 2010-11 on the total amount received or receivable by the assessee from its AE beyond the agreed credit period considering the actual delay in number of days. These two grounds are decided accordingly.” 28. While the Tribunal has considered only the receivables as may be due beyond the credit period allowed under the agreement between the assesee and its AE as an international transaction, we are of the considered opinion that the same is a tainted transaction and therefore cannot be considered as a benchmark. We find merit in the submission of the learned DR that the period mentioned in the agreement between the assessee and AE should not be considered for the purpose of benchmarking and even to determine whether trade receivable constitutes an international transaction. The very purpose of undertaking benchmarking exercise is to compare the tainted transaction, i.e., the transaction between two related parties / AEs, with that of transactions that are carried out by independent parties on arm’s length basis. If IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 19 we consider the period allowed in the agreement to benchmark the transaction which is also the subject matter of the same agreement, it will lead to absurd results. We accordingly direct the AO / TPO to determine the credit period allowed by the comparable companies and treat only such trade receivables that are outstanding beyond the arm’s length credit period, as international transactions. Once the above exercise has been done, we direct computation of interest for the delayed realization of trade receivable over and above the arm’s length credit period till the date of its realization or the financial year end, whichever is earlier. It is ordered accordingly. Therefore, ground 15 is allowed for statistical purposes. TP adjustment on interest on outstanding receivables (Ground 16) 29. It is submitted by the learned AR that adopting a notional rate of 4.3836% for imputing interest is excessive and unreasonable. In support of the submission, the learned AR placed reliance on the judgment of the Hon’ble High Court in the case of CIT v. Aurionpro Solutions Ltd. (ITA 1869/2014) and the ITAT order in the case of M/s.Bioplus Life Sciences Private Limited v. DCT (ITA No.3150/Bang/2018 – order dated 23.03.2022). The assessee, therefore, sought adoption of markup of LIBOR+2%. IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 20 30. The learned DR drew our reference to the order of the Tribunal in assessee’s own case for the assessment year 2011-2012, as referred above, to state that the assessee has asked for adoption of the rate applied by the TPO for the subject year (i.e., LIBOR + 4.3836%). It was submitted that the Tribunal considered the same as appropriate benchmark and the issue has attained finality. 31. We have heard rival submissions and perused the material on record. With respect to the mark-up that has been charged over and above LIBOR, it is well accepted that such arbitrary numbers cannot be adopted without it being backed by a benchmarking exercise, which is a mandate of the law. We note from the TP order that benchmarking has been undertaken to find ALP rate i.e. 300 basis points has been considered as mark-up and the same represents ceiling rate on ECB and Trade Credits as per RBI Circular. The learned AR is seeking consideration of 2% benchmark merely on the basis of the rulings cited during the course of hearing and no benchmarking exercise has been carried on by the assessee. The ruling in the case of CIT v. Aurionpro Solutions Ltd. (supra) has been rendered for assessment year 2007- 2008 and the mark-up have been arrived considering the facts relevant to that assessment year. Hence, the same cannot be considered relevant to the assessment year in question as seven years have elapsed. Given the variability of interest rate on a time-to-time basis and in the interest of natural justice, we direct the TPO to provide a fresh IT(TP)A No.3230/Bang/2018. M/s.Nuance Transcription Services India Private Limited. 21 opportunity to the assessee to justify 2% mark-up and determine the appropriate mark-up to be charged over and above the LIBOR rate. It is ordered accordingly. In the result, ground 16 is allowed for statistical purposes. 32. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 10 th day of August, 2022. Sd/- (Laxmi Prasad Sahu) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 10 th August, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-2, Bengaluru. 4. The Pr.CIT-5, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore