IVY SOFTWARE DEVELOPMENT SERVICES PRIVATE LIMITED,HYDERABAD V. DCIT, CIRCLE -2(1), HYDERABAD

ITA 73/HYD/2022

AI Insights

The case involves M/s. IVY Software Development Services Private Limited, which appealed against the final assessment order passed by the Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad. The appeal was primarily concerned with the exclusion of certain comparables used in the transfer pricing analysis and the benchmarking of interest on trade receivables. The Tribunal examined the functional profiles of the comparables and the nature of services provided by the assessee, concluding that the selected comparables were not appropriate due to significant functional differences. Additionally, the Tribunal adjusted the interest rate benchmark for trade receivables to LIBOR + 200 basis points, recognizing the international nature of the transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708340 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: HARSCO India Private Ltd. v/s DCIT, Radhasoami Satsang Vs. CIT, CIT vs. Cotton Naturals (I) Private Ltd, CIT vs. Tata Autocomp Systems Ltd, CIT vs. Aurionpro Solutions Ltd, CIT vs. The Great Eastern Shipping Co. Ltd, DCIT vs. iGATE Global Solutions Ltd, Hetero Lab Limited Vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: NAGESWAR RAO
• Keywords: Set aside; Transfer pricing; International transaction; Related party transaction

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /IT(TP)A No.73/Hyd/2022 (निर्धारण वर्ा/Assessment Year:2017-18) M/s. IVY Software Development Services Private Limited, Hyderabad. PAN:AADCI6283R Vs. Dy. Commissioner of Income Tax, Circle-2(1), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Nageswar Rao, Advocate. रधजस् व द्वधरध/Revenue by: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 16/05/2025 घोर्णध की तधरीख/Pronouncement: 16/07/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. IVY Software Development Services Private Limited (“the assessee”), feeling aggrieved with the final assessment order of Learned Assessing Officer (\"Ld. AO\") passed u/s.143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 ('the Act') dated 21.01.2022, as per the direction of Learned Dispute Resolution Panel, Bangalore (“Ld. DRP”) u/s 144C(5) dated 22.12.2021 for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal : IT(TP)A No.73/Hyd/2022 2 IT(TP)A No.73/Hyd/2022 3 IT(TP)A No.73/Hyd/2022 4 3. The facts of the case are that, the assessee is a company engaged in the business of provision of Software Development and Computer Assisted Graphics Design and software maintenance services for online gaming solutions to its group companies. The case of the assessee was selected for scrutiny and notice u/s.143(2) of the Act was issued on 17.08.2019. In view of International transaction with Associated Enterprises (“AEs”), the matter was referred to Learned Transfer Pricing Officer (“Ld. TPO”) for determination of Arm’s Length Price (“ALP”). The Ld. TPO vide his order dated 29.01.2021 suggested upward adjustment of Rs.10,04,72,389/- on account of provision of Software Development Service (“SDS”) segment and interest on trade IT(TP)A No.73/Hyd/2022 5 receivables. Accordingly, the Ld. AO passed the draft assessment order on 30.03.2021. 4. Aggrieved with the draft assessment order passed by the Ld. AO, the assessee preferred objection before the Ld. DRP. In pursuance to the directions of Ld. DRP dated 22.12.2021, the Ld. AO finalized the assessment on 21.01.2022 by making total addition of Rs.6,86,82,703/- on account of upward adjustment of SDS and interest on receivables. 5. Aggrieved with the final assessment order of the Ld. AO, the assessee is in appeal before us. The Learned Authorised Representative (“Ld. AR”) submitted that, the assessee is only pressing ground no.3 regarding exclusion of comparables and ground no.8 regarding bench marking of interest on trade receivables. 6. Ground no.3 of the assessee is related to exclusion of 15 comparables from the set of comparables. However, the Ld. AR submitted that, they are pressing exclusion of only 7 comparables out of 15 comparables, which are as under : (i) Infosys Limited (“Infosys”) (ii) E-Infochips Private Limited (“E-Infochips) (iii) Persistent Systems Limited (“Persistent”) IT(TP)A No.73/Hyd/2022 6 (iv) Infobeans Technologies Limited (“Infobeans”) (v) Tata Elxsi Limited (“Tata Elxsi”) (vi) Wipro Limited (“Wipro”) (vii) Nihilent Technologies Limited (“Nihilent”) 6.1 The Ld. AR further submitted that, the assessee is engaged in the business of providing SDS exclusively to its overseas AEs. The assessee operates on a cost-plus model, providing back-end support services including coding, debugging, and related activities, without assuming any significant entrepreneurial risk or ownership of intellectual property rights. As far as exclusion of Infosys, Persistent and Tata Elxsi are concerned, the Ld. AR submitted that, these comparables have already been excluded by this Tribunal in assessee’s own case for A.Y. 2015-16 in ITA no.1801/Hyd/2019 dated 06.03.2025 based on detailed functional analysis. It was further submitted that, the functional profile of the assessee as well as profiles of Infosys, Persistent and Tata Elxsi have remain unchanged in A.Y. 2017-18. Accordingly, the Ld. AR prayed before the bench to exclude these 3 comparables form the set of comparables. 6.2 Per contra, the Ld. DR submitted that, the principle of res judicata is not applicable to the income tax proceedings, and therefore, the findings of earlier year cannot automatically binding on the revenue authorities for subsequent IT(TP)A No.73/Hyd/2022 7 year. It was further submitted that, each assessment year is independent and exclusion of comparables must be examined afresh in each year based on prevailing facts. Accordingly, the Ld. DR supported the action of Ld. AO/TPO in retaining these 3 comparables. 6.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the order of this Tribunal, in assessee’s own case for A.Y. 2015-16 (supra), wherein at para no.20, 11 & 8 of its order, this Tribunal has given its findings regarding exclusion of Infosys, Persistent and Tata Elxsi respectively which are to the following effect : “ 20. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. On perusal of annual reports of Infosys Limited, we find that the company provides business consulting, technology, engineering and outsourcing services which includes software products and platforms which are not limited only to routine software development. Further, the company also into product development which is evident from the annual report where it generates revenue from sale of ‘Finacle’ and “Edge Verve’. Further, Infosys Limited is a giant company carries huge brand value which is evident from the report of brand financials where the total value of brand of Infosys Limited was at USD$ 3414 million. We further note that the company incurred significant amount of expenditure on R and D activities which is more than the 1000% of the turnover of the appellant- IT(TP)A No.73/Hyd/2022 8 company. From the nature of services rendered by Infosys Limited and it’s scale of operations, in our considered view, it cannot be compared with appellant-company which is a capitive service provider to it’s AE on cost plus mark-up. It is relevant to refer to the decision of it Hyderabad bench in appellants own case for the assessment year 2010-2011 in ITA.No.222/Hyd./2015 and ITA.No.334/ Hyd./2015 order dated 29.11.2018 wherein the Tribunal has directed the Assessing Officer/TPO to exclude Infosys Limited from the list of comparables on functional dissimilarities. Therefore, we direct the learned Assessing Officer/TPO to exclude Infosys Limited from the list of comparables. “ “11. We have heard both the parties. perused the material on record and the orders of the authorities below. We have also carefully considered relevant annual reports of Persistent Systems Limited with that of the appellant company and we find that, the assessee-company is a captive service provider to it’s AE on cost plus mark-up basis in respect of one vertical of software development i.e., gaming solutions, whereas, the Persistent Systems Limited is engaged in providing IP and product business and also development of software products services and technology innovation. Further there is no segmental details in financials and annual report to compare this software development services segment to the appellant-company. Further the company has spent significant amount towards R and D and also acquired significant rights in the nature of intangible assets. From the details submitted by the assessee-company, we find that Persistent Systems Limited is engaged in diversified activities, whereas, the assessee company engaged in providing software development services to it’s AE on cost plus mark-up basis as a captive service provider and, therefore, in our considered view, IT(TP)A No.73/Hyd/2022 9 Persistent Systems Limited cannot be compared with the appellant- company. At this stage we take support from the decision of ITAT Hyderabad Bench in assessee’s own case for the assessment year 2010- 2011 in ITA.No.222/Hyd./ 2015 and ITA.No.334/Hyd./2015 order dated 29.11.2018 wherein the Tribunal has directed the Assessing Officer/TPO to exclude Persistent Systems Limited from the list of comparables on functional dissimilarities. Therefore, we direct the learned Assessing Officer/TPO to exclude Persistent Systems Limited from the list of comparables.” “8. We have heard both sides and considered the relevant arguments of the Counsel for the Assessee for exclusion of Tata Elxsi Limited from the list of comparables in light of various evidences including the relevant annual reports of the company. We find that the appellant is a captive service provider to it’s AE on cost plus mark-up basis, whereas, Tata Elxsi Limited is engaged in providing product design and engineering services to different segments of business. The company generates 92.04% revenue from design and development of computer software and hardware. Further the company had also incurred substantial amount for in-house R and D project which is supported by technology partnerships, subscriptions and active participation in the standard and technology forums, trade shows and even go by the amount of expenditure incurred for R and D which is almost 2.75% of the total revenues of the company, whereas the assessee-company is a simple service provider to it’s AE without any expenditure for R and D projects. We further note that Tata Elxsi Limited owns significant intangible assets which contributes to its revenue. From the details filed by the assessee-company, we find that the assessee-company is a simple captive service provider to it’s AE, IT(TP)A No.73/Hyd/2022 10 whereas, Tata Elxsi Limited is a company which provides a software development services to multiple segments and to different verticals of industry. Therefore, the said company i.e., Tata Elxsi Limited cannot be comparable to assessee-company. Further the ITAT Hyderabad Bench in appellants own case for the assessment year 2010-2011 in ITA.No.222/Hyd./2015 and ITA.No.334/Hyd./2015 order dated 29.11.2018 has directed the Assessing Officer/TPO to exclude Tata Elxsi Limited from the list of comparables on functional dissimilarities. We thus, direct the learned Assessing Officer/TPO to exclude Tata Elxsi Limited from the list of comparables.” 6.4 On perusal of above, we found that this Tribunal in assessee’s own case for A.Y. 2015-16 (supra) has excluded Infosys, Persistent and Tata Elxsi from the set of comparables after detailed functional analysis. Further, the Ld. AR has pointed out that, there is no difference in functionality of the assessee and the comparables between the A.Y. 2015-16 and the assessment year under consideration i.e. 2017-18. The Ld. DR has also not brought on record any material to demonstrate any change in facts or law. Therefore, we are inclined to follow the decision of this Tribunal following the consistency and judicial discipline. Further, as far as the submission of Ld. DR with regard to non- applicability of res judicata in income tax proceedings is concerned, in the absence of any change in facts or law, a consistent view should be taken on the same issue in subsequent year. Our view has been endorsed by the Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT (1992) 193 IT(TP)A No.73/Hyd/2022 11 ITR 321 (SC). In view of the above discussion, we accept the contention of the Ld. AR and direct the Ld. AO/TPO to exclude Infosys, Persistent and Tata Elxsi from the final set of comparables. 7. With regard to exclusion of E-Infochips, Wipro, Nihilent and Infobeans, the Ld. AR vehemently objected to the inclusion of the same as comparables by Ld. AO / TPO. It was submitted that the assessee is a captive service provider engaged in low-end SDS such as coding and testing, strictly in accordance with the specifications and control of its AEs. The assessee assumes limited risks, has no intangible assets, does not develop software products or undertake independent research and development activities. 8. As far as the exclusion of E-infocheap is concerned, the Ld. AR invited our attention to page no.41 of the order of Ld. TPO, page no.67 of the order of Ld. DRP and page no.1499 of the paper book, wherein the disclosure of principal product/services by e-infochips is stated as “computer software development services other than programming services, including embedded system development services.” He submitted that the assessee is engaged only in coding, i.e., routine SDS, whereas e-infochips is engaged in embedded SDS, which is functionally distinct from the assessee’s business model. IT(TP)A No.73/Hyd/2022 12 8.1 He further submitted that although the Ld. DRP, in para 2.4.16.1 at page no.67 of its order, has recorded that e-infochips is engaged in “computer software development services other than programming services, including embedded system development services”, it has nonetheless treated the company as engaged in “computer programming, consultancy and related services” for comparability purposes, which is inconsistent. 8.2 The Ld. AR also invited our attention to the Board of Directors’ report of e-infochips placed at page no. 1522 of the paper book. The report clearly states that the company has been operating for two decades in the niche area of embedded research and development addressing verticals such as aerospace and defence, consumer electronics, healthcare, home and automation, medical devices, semiconductors, security and surveillance. 8.3 To support functional dissimilarity, he pointed to page no.1510 of the paper book, where the main business of e-infochips is described as “computer programming consultancy and related activities.” He argued that companies engaged in consultancy services typically earn higher profit margins due to the complex and customized nature of their offerings, and therefore, are not comparable to a captive SDS provider like the assessee. IT(TP)A No.73/Hyd/2022 13 8.4 The Ld. AR then referred to the profit and loss account of e-infochips placed at page no. 1706 of the paper book, showing that the company has earned revenue from sale of products; incurred expenditure on cost of materials consumed and reflected changes in inventory of finished goods, work-in-progress and stock-in-trade. These, he submitted, are not features of a company engaged solely in SDS. 8.5 Further, referring to page no.1708 of the paper book, the Ld. AR demonstrated that the company has incurred payments to subcontractors for technical assistance. At page no. 1711 of the paper book, he submitted that the company has earned revenue from technical know-how, and at page no.1710 of the paper book, he pointed to inventory of finished goods like printed circuit boards, all of which indicate product-based operations. 8.6 Finally, the Ld. AR highlighted the absence of segmental data in the segment report at page no.1688 of the paper book, and argued that in the absence of segmental bifurcation between embedded R&D, technical know- how, and product sales, e-infochips cannot be reliably used as a comparable. Accordingly, it was prayed that the said company be excluded. 9. The Ld. AR sought exclusion of Wipro Limited, submitting that the said company is a full-fledged risk-bearing entity, engaged in diversified operations IT(TP)A No.73/Hyd/2022 14 well beyond the scope of the assessee’s functions. To substantiate his argument, the Ld. AR brought to our attention to page no.1873, under the Business Overview section of Wipro’s annual report, where the company has disclosed that it’s IT services business provides: “A range of IT and IT-enabled services which include digital strategy advisory, customer-centric design, technology consulting, IT consulting, customer application design, development, re-engineering and maintenance, system integration, package implementation, global infrastructure services, analytics services, business process services, research and development and hardware and software design to leading enterprises worldwide.” 9.1 The Ld. AR further invited our attention to page no. 1989 of the paper book, where under Notes to the Financial Statements, Wipro described itself as a Leading India-based provider of IT services, including business process services. 9.2 The Ld. AR also invited our attention to page no. 2024 of the paper book and highlighted that Wipro has earned Rs.2,361 crores from sale of software products and Rs.408 crores from sale of eco-energy division, indicating diversified revenue streams beyond software development. Further at page no. 2028 of the paper book, under the Other Expenses schedule, Wipro incurred Rs.7,461 crores on subcontracting/technical fees / third-party application and Rs.274 crores on advertisement and brand building, IT(TP)A No.73/Hyd/2022 15 demonstrating significant expenditure on activities not undertaken by the assessee. At page no.2037 of the paper book, Wipro disclosed related party transactions aggregating Rs.3,880 crores from sale of services, which is substantially larger than the total turnover of the assessee (Rs.104 crores), indicating a disproportionate scale and economic footprint. 9.3 Finally the Ld. AR submitted that in light of these facts, Wipro is functionally and economically not comparable with the assessee, and its inclusion would distort the arm’s length price determination. 10. The Ld. AR sought exclusion of Nihilent, contending that the company is functionally dissimilar and operates in IT consultancy and enterprise transformation services, which are not comparable to the software development and coding work performed by the assessee. In support of this contention, the Ld. AR invited our attention to page no. 2499 of the paper book, where, under the section “Description of Product/Services”, Nihilent has disclosed that it is engaged in “Other professional, technical and business services.” Further, at page no. 2507 of the paper book, it is recorded that Nihilent is engaged in “IT consultancy, software development and related services.” At page no.2620 of the paper book, under “Background”, it is mentioned that the company is engaged in “Rendering software services, business consulting in the area of enterprise transformation, change and IT(TP)A No.73/Hyd/2022 16 performance management and providing related IT services.” At page no.2644 of the paper book, the financials show that the entire revenue is from information technology consultancy, thus affirming that consultancy and business advisory services form the core of its operations. 10.1 Finally, the Ld. AR argued that these services involve a higher level of expertise, market-facing roles, strategic advisory functions, and business model transformation, which are not comparable to the back-end software development work done by the assessee. It was emphasized that a functional mismatch exists and hence Nihilent should be excluded. 11. Seeking exclusion of Infobeans, the Ld. AR pointed out that the said company is functionally different and operates in diversified domains involving high-end software engineering and data analytics services. In support of this contention, the Ld. AR invited our attention to page no. 1165 of the paper book, where under the heading “Business Performance”, it is mentioned that, “The company specialises in enterprise software development across platforms, technology and devices”, at page no.1191 of the paper book, under the Notes to Financial Statements, it is stated that, “Our business is primarily engaged in providing custom-developed services to offshore clients. Infobeans provides software engineering services primarily in custom application development, content management systems, enterprise mobility, and big data IT(TP)A No.73/Hyd/2022 17 analytics.” It was submitted that Infobeans operates in custom enterprise solutions, big data, and cross-platform architecture, which require intellectual property creation, market-facing functions, and strategic delivery capabilities, none of which are assumed by the assessee. Accordingly, the Ld. AR contended that Infobeans is not functionally comparable to the assessee and ought to be excluded. 12. Per contra, the Learned Departmental Representative (“Ld. DR”), relying on the order of the Ld. TPO and Ld. DRP, submitted that e-infochips, Wipro, Nihilent and Infobeans are broadly engaged in SDS, and therefore, are functionally comparable to the assessee at a broad level. He further contended that, the mere presence of other revenue streams, such as sale of products or technical know-how, does not automatically render the company incomparable, especially when the Transactional Net Margin Method (TNMM) is adopted. Under TNMM, he argued, some degree of functional difference can be tolerated, and the overall similarity of software development as the core activity supports inclusion of e-infochips, Wipro, Nihilent and Infobeans as valid comparables. 13. We have heard the rival submissions and carefully perused the orders of the Ld. TPO and Ld. DRP, as well as the material placed on record in the paper book. At the outset, we note that the assessee is a captive service provider IT(TP)A No.73/Hyd/2022 18 rendering routine SDS, primarily coding, for its AE under a cost-plus model, without owning any intangibles or assuming significant risks. Although we are in agreement with the contention of Ld. DR that TNMM permits a certain degree of tolerance in functional similarity, but that leeway cannot extend to situations where a company engages in fundamentally different business models, assumes entrepreneurial risks, and earns product income, unlike the assessee. 14. As far as exclusion of e-infochips is concerned, we have gone through the page nos. 41 of the order of Ld. TPO, 67 of the order of Ld. DRP, 1499, 1510, 1522, 1688, 1706 to 1711 of the paper book. On perusal of same, we found that, e-infochips is engaged in embedded system development, technical consultancy, and product engineering for specialized industries, including aerospace, defence, and healthcare. The company has earned revenue from sale of products, incurred cost of materials, carried inventories, paid subcontractors, and derived income from technical know-how. These findings in our view, are inconsistent with a low-risk SDS provider. Moreover, as pointed out by the Ld. AR, the segmental reporting does not provide a clean demarcation of revenue and costs from embedded systems, product sales, or technical services. In absence of reliable segment data, we are unable to accept e-infochips as a suitable comparable. Accordingly, we find merit in the IT(TP)A No.73/Hyd/2022 19 contention of the Ld. AR and hold that e-infochips is functionally dissimilar and unsuitable as a comparable for benchmarking the international transaction. 15. As far as exclusion of Wipro is concerned, we have gone through the specific pages of the annual report of Wipro as referred to by the Ld. AR. On perusal of the same, we find considerable force in the submission of the Ld. AR that Wipro operates in a diversified domain encompassing digital strategy, IT consulting, system integration, hardware and software design, and business process services, as recorded in the Business Overview section (Page no.1873 of the paper book). These functions are qualitatively and quantitatively broader than the captive coding and development services rendered by the assessee. Further, the financial disclosures at page no. 2024 of the paper book reveal significant revenue from software products and sale of business divisions, activities not carried out by the assessee. The scale of brand-building expenditure (Rs.274 crores) and technical/subcontracting expenditure (Rs.7,461 crores) (page no.2028 of the paper book), further highlights the entrepreneurial risk profile of Wipro. Additionally, the related party transactions disclosed at page no.2037 of paper book (Rs.3,880 crores) vastly exceed the total turnover of the assessee, making it an inappropriate economic comparable on both functional and scale parameters. On perusal of these records, we are satisfied that Wipro Limited is functionally dissimilar and IT(TP)A No.73/Hyd/2022 20 economically not comparable with the assessee. Accordingly, we direct the Ld. AO / TPO to exclude Wipro from the list of comparables. 16. As far as the exclusion of Nihilent is concerned, based on the documents placed before us, we note that at page no. 2499 of the paper book, the description of services mentioned as “Other professional, technical and business services” is broad and indicative of diverse operations beyond coding, at page no. 2507 of the paper book, the core activities are described as “IT consultancy, software development and related services” with consultancy being the lead offering, at page no. 2620 of the paper book, it is expressly stated that the company is engaged in business consulting in the area of enterprise transformation, change and performance management and providing related IT services, which are significantly different in nature from the coding support provided by the assessee. Further, at page no. 2644 of the paper book, the entire revenue is recorded as having arisen from information technology consultancy, thereby reinforcing the Ld. AR’s contention that the company’s business model is client-facing, advisory-driven, and functionally distinct. On perusal of these disclosures, we are of the considered opinion that Nihilent is functionally not comparable to the assessee. The company is engaged in IT and business consulting services, which require strategic and domain-level expertise and command higher margins, unlike the routine back- IT(TP)A No.73/Hyd/2022 21 end software development and coding services provided by the assessee to its AE. Accordingly, we are satisfied that Nihilent is functionally not comparable with the assessee and direct the Ld. AO / TPO to exclude Nihilent from the list of comparables. 17. As far as exclusion of Infobeans is concerned, we have examined the nature of operations of Infobeans based on the documents referred by the Ld. AR i.e. at page no.1165 of the paper book, the company states that it specialises in enterprise software development across platforms, technology and devices, at page no. 1191 of the paper book, the company discloses that it provides custom-developed software, including content management systems, enterprise mobility, and big data analytics. Further, the company’s business model involves end-to-end solution architecture, client-specific innovation, and delivery across diverse verticals, which are indicative of a high- functionality software product company, with ownership of delivery models and intellectual capital. On perusal of these documents, we find merits in the Ld. AR’s contention that Infobeans operates in a domain and manner that are functionally not comparable to the assessee’s low-risk service profile. Accordingly, we hold that Infobeans is not functionally comparable to the assessee and direct the Ld. TPO/AO to exclude the said company from the list of comparables. IT(TP)A No.73/Hyd/2022 22 18. Ground no. 8 of the assessee is related to adjustment made by the Ld. TPO on account of interest on trade receivables. Under this ground the assessee has raised two issue i.e. a) the bench marking of rate of interest on outstanding trade receivables and b) allowability of credit period on account of trade receivables. 18.1 As far as the bench marking of rate of interest on outstanding trade receivables is concerned, the Ld. AR submitted that, the Ld. TPO erred in applying the interest rate charged by SBI on short term deposits for benchmarking the interest on outstanding trade receivables relating to sale of services by the assessee to its Associated Enterprises (“AEs”). The Ld. AR further submitted that, this Tribunal in many cases has held that the interest on trade receivables should be benchmarked at LIBOR. Accordingly, the Ld. AR prayed before the bench to direct the Ld. TPO to apply the LIBOR on trade receivables. 18.2 As far as the allowability of credit period is concerned, the Ld. AR submitted that the Ld. TPO has allowed credit period of only 30 days. The Ld. AR submitted that, the allowability of credit period should be calculated on the basis of average of receivables of all the comparable companies considered for benchmarking of ALP and prayed accordingly. IT(TP)A No.73/Hyd/2022 23 18.3 Per contra, the Ld. DR relied on the order of Ld. AO/TPO and submitted that this Tribunal in the case of Hetero Lab Limited Vs. ACIT in ITA nos.312 & 313/Hyd/2023 has upheld the application of SBI short term deposit rate for benchmarking the interest on trade receivables. Accordingly, the Ld. DR argued that the rate applied by the Ld. TPO is correct and should be upheld in accordance with the decision of this Tribunal in the case of Hetero Lab Limited (supra). As far as the allowability of credit period of 30 days is concerned the Ld. DR relied on the decision of Ld.AO/TPO. 18.4 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. As far as issue with regard to application of the appropriate interest rate on trade receivables from foreign AEs is concerned, we find that an identical issue has been dealt by this Tribunal in the case of HARSCO India Private Ltd. v/s DCIT in ITA No. 1041/Hyd/2024 dated 06/03/2025, wherein at para no. 6 to 10 of the order this Tribunal has held as under : “6. It is pertinent to note that, not following the decisions of the Tribunal in assessee’s own case amounts to judicial indiscipline on the part of the DRP. However, since the issue has now come up before the Tribunal, therefore, we will discuss the merits of this issue. The basic question before us is, whether for benchmarking the outstanding receivables from AEs, the comparable interest rate should be PLR rate/SBI short term rate or LIBOR rate/LIBOR+ mark up. This issue was considered by the Chennai Special Bench of this Tribunal in case of IT(TP)A No.73/Hyd/2022 24 Shiva Industries & Holdings Ltd. v. Assistant Commissioner of Income- tax reported in 46 SOT 112/11 Taxmann.com 404 (SB) and held in para 11 as under: “11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0 per cent optional convertible preferential shares. Thus, it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1-4-2005 to 31-3-2006 is 4.42 per cent and the assessee has charged interest at 6 per cent which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted.” 7. Thus, a transaction of loan to the AEs in foreign currency is considered as international transaction between the assessee and its AEs, then the transaction would have to be looked upon by applying the commercial principles in regard to the international transactions. Therefore, the domestic prime lending rate or domestic deposit rate would have no applicability on international transaction, but the international rate being London Interbank Offered Rate (LIBOR) or similar rate i.e. Euro Interbank Offered Rate (EURIBOR) would govern the international transactions of lending by the assessee to the AEs. This issue also came up for consideration before the Hon'ble Delhi High Court in the case of CIT vs. Cotton Naturals (I) Private Ltd, reported in 276 CTR 445 (Del.) and the Hon'ble Delhi High Court has held in para 35 to 40 as under: “35. The LIBOR rate plus markup or the interest rate prevailing in the United States at that time, i.e. 2003 have not been examined and are not the basis on which the TPO made the adjustment and compute the interest rate for the transaction under consideration. It claimed that the LIBOR rates in the year 2002 varied between IT(TP)A No.73/Hyd/2022 25 1.447 % to 3.006 % and in the year 2003 between 1.201% to 1.487%. Rates in the year 2004 were again marginal, with the highest at 3.100% and the lowest at 1.340%. The LIBOR rate of 5.224% quoted in the TPO's order, it is pointed out, was the rate received on the investment made during the assessment year in question by the assessed. Thus, it was argued that the present case is of a long-term loan granted to the AE and the rate of interest charged was much higher than the then prevailing LIBOR interest rate. There is no finding of the TPO, the DRP or the Assessing Officer questioning the long-term transaction as such. 36. Under sub-rule (4) to Rule 10B, the data used for comparability of the uncontrolled transaction should be the data relating to the financial year in which the international transaction has been entered into. The proviso permits consideration of data, not more than two years prior to the financial year, if such data reveals facts which would have influenced determination of transfer price in relation to the transaction being compared. The transaction in question was entered into in the year 2002-03 when the loans were granted to the AE. This was the financial year of the international transaction. Payment of interest is also an international transaction but would have reference to the year in which the loan was granted in case of a long term loan. However, in such situations, question may arise whether the case would fall under the second exception mentioned in the case of E.K.L. Appliances (supra), when an AE has the right to recall and ask for repayment of loan. These aspects have not been considered and applied by the TPO, DRP and the Assessing Officer. Neither has this ground been argued before us on behalf the Revenue. We, therefore, would not proceed to examine the said aspect and leave the question open. Similarly, we have not expressed any opinion on the issue or question of \"thin capitalization\" which does not arise for consideration in the present case. 37. We observe that whatever the Revenue argues and submits in the case of outbound loans or for that matter what we have observed would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs. The parameters cannot be different for outbound and inbound loans. A similar reasoning applies to both inbound and outbound loans. Revenue has erroneously argued that different parameters would apply for inbound and outbound loans, which is not acceptable. 38. The DRP referred to the PLR rates fixed in India. It is evident that the PLR rates were not the basis for fixing the arm's length price. Both TPO and the DRP have referred to the PLR rates only by way of analogy so as to state the prevailing interest rates in India, but while applying CUP method for comparability, they had applied LIBOR rates prevailing and had applied a mark-up of 700 points on account of low credit rating of the subsidiary AE and the cost of transaction. 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding that the IT(TP)A No.73/Hyd/2022 26 interest rate should be the market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rates should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. Interest rates applicable to loans and deposits in the national currency of the borrower or the lender would vary and are dependent upon the fiscal policy of the Central bank, mandate of the Government and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:— \"The existing differences in the levels of interest rates do not depend on any place but rather on the currency concerned. The rate of interest on a US $ loan is the same in New York as in Frankfurt-at least within the framework of free capital markets (subject to the arbitrage). In regard to the question as to whether the level of interest rates in the lender's State or that in the borrower's is decisive, therefore, primarily depends on the currency agreed upon (BFH BSt.B1. II 725 (1994), re. 1 § AStG). A differentiation between debt-claims or debts in national currency and those in foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt- claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular currency can be just as reasonable as that of another, despite different levels of interest rates. An economic criterion for one party may be that it wants, if possible, to avoid exchange risks (for example, by matching the currency of the loan with that of the funds anticipated to be available for debt service), such as taking out a US $ loan if the proceeds in US $ are expected to become available (say from exports). If an exchange risk were to prove incapable of being avoided (say, by forward rate fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no 'special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to 'eliminate hypothetically' the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money.\" IT(TP)A No.73/Hyd/2022 27 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply.” 8. The Hon'ble High Court has answered the question whether the interest rate prevailing in India should be applied for the lender who is an Indian Company/Assessee or the lending rate prevailing in the US, the place of the AE should be applied. The Hon'ble High Court has held that the interest rate should be the market determined rate applied to the currency concerned in which the loan has to be repaid. The interest rate should not be computed on the basis of interest payable on the currency or legal tender of the place or the country of resident of either party. Once the loan or credit is given in foreign currency and also to be repaid in same currency, the interest applicable to loan granted and to be returned in Indian rupee would not be the relevant comparable. The Hon'ble High Court has held that the PLR rate would not be applicable and should not be applied for determining the interest rate in such cases where loan to be repaid in foreign currency. This issue was again considered by the Hon'ble Bombay High Court in the case of CIT vs. Tata Autocomp Systems Ltd reported in (2015) 56 Taxmann.com 206 (Bom.) and the Hon'ble Bombay High Court has upheld the decision of the Tribunal directing the Assessing Officer to benchmark the interest at the prevailing EURIBOR rate instead of rupee loan rate to be computed at Arms’ Length on the loan advanced to the AE. The relevant findings of the Hon'ble High Court in para 7 & 8 are as under: “7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate IT(TP)A No.73/Hyd/2022 28 Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law.” 9. We further note that, the Pune Benche of the Tribunal in the case of DCIT vs. iGATE Global Solutions Ltd reported in (2019) 109 Taxmann.com 48 (Pune) has again discussed this issue elaborately in Para 4 to 10 as under: “4. We have heard both the sides and gone through the relevant material on record. It is observed from the order passed by the TPO that the assessee advanced loans to its two AEs, one in the USA and the other in Germany. Insofar as loan to Symphoni Interactive LLC, an Associated Enterprise in the USA is concerned, the assessee charged interest @ 6%. The ld. CIT(A) has recorded that the assessee also paid interest to another AE in the USA, namely, iGATE Corporation, USA at 5.9% on its External Commercial Borrowings (ECB). He further recorded in para 57 of the impugned order that the TPO accepted this transaction and made no transfer pricing adjustment on this score, thereby, he also impliedly accepting this transaction at ALP. The viewpoint of the ld. CIT(A) on this point is not fully correct. We have noted above that the TPO worked out the transfer pricing adjustment by considering the loans advanced by the assessee to both of its AEs, including Symphoni Interactive LLC, USA. Be that as it may, it is seen that the ld. CIT(A) also impliedly accepted the interest earned by the assessee from Symphoni Interactive LLC, USA, at 6% as at ALP, against which the Department has no grudge as the assail is only to the application of EURIBOR of 4.42%, which relates to the loan advanced by the assessee to Mascot GmbH, Germany. As such, we are confining ourselves only to international transaction of receipt of interest from Mascot GmbH, Germany. As against the assessee charging interest at the rate of 1.50% from Mascot GmbH, Germany, the TPO determined the arm's length rate of interest at 14%, which the ld. CIT(A) reduced to 4.42% by treating it as the average EURIBOR rate for the year under consideration. 5. There are two facets of the dispute raised by the Revenue on this issue. The first is that the rate of interest should be considered with reference to the prime lending rate prevalent in IT(TP)A No.73/Hyd/2022 29 India and the second is that the reduction in rate to 4.42% by the ld. CIT(A) is not justified. 6. As against the TPO's point of view that since the assessee in India advanced loan to its AE in Germany, which if not given, would have fetched interest @14% in India, the ld. CIT(A) has held that interest rate prevalent in the country in which the loan is received, should be considered for determining the ALP of transaction of interest received. We find that there is almost judicial consensus ad idem at the higher appellate forums on the question of which country, that is the borrower or the lender, should be considered for determining the arm's length rate of interest on loans advanced to the AEs. The Hon'ble Bombay High Court in CIT v.Tata Autocomp Systems Ltd . [2015] 56 taxmann.com 206/230 Taxman 649/374 ITR 516 has held that the ALP in case of loan advanced to AEs should be determined on the basis of rate of interest charged in the country where loan is received. The Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 has also held that the currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. rate of interest. The Hon'ble Bombay High Court in CIT v. The Great Eastern Shipping Co. Ltd. [2018] 301 CTR 642 has reiterated that the arm's length rate of interest is to be considered with reference to the country in which the loan is received and not from where it is paid. In view of these precedents, it is palpable that the viewpoint of the AO in considering the rate of interest prevalent in India, being, the lender country, as determinative of the ALP of rate of interest charged by the assessee, is not correct. To this extent, we uphold, in principle, the view canvassed by the ld. CIT(A) that the rate of interest prevalent in Germany, being, the country in which the loan was consumed, is determinative of the arm's length rate of interest charged by the assessee-lender. 7. Now we espouse the second facet of the dispute relating to the determination of the arm's length rate of interest. It is seen that the ld. CIT(A) has held that average EURIBOR for the A.Y. 2007- 08 should be considered as a benchmark. In determining the average EURIBOR at 4.42%, he relied on an order passed by the Tribunal in which the average LIBOR was considered at 4.42%. In other words, the ld. CIT(A) considered EURIBOR as a comparable uncontrolled transaction for the purpose of benchmarking the rate of interest charged by the assessee. 8. At this juncture, we consider it expedient to clarify that EURIBOR (Euro Inter-bank Offered Rate) is not a rate of interest, in itself, at which loans are advanced by banks in Euros to borrowers. EURIBOR is a reference rate which is calculated from the average interest rate at which Euro Zone Banks offer lending on inter-bank market. While calculating EURIBOR, 15% of the lowest and 15% of the highest interest rates collected by a panel of European banks are eliminated and the remaining 70% form the basis for its calculation. In such circumstances, EURIBOR, being, not an average rate at which the loans are advanced by European banks to borrowers, cannot per se be characterized as a comparable uncontrolled rate of interest at which loans are advanced in Germany. IT(TP)A No.73/Hyd/2022 30 9. On lines of EURIBOR, there is LIBOR (London Inter-bank Offered Rate), another rate which is applied on behalf of British Bankers Association. Similar to EURIBOR, LIBOR is also a rate at which major global banks lend to one another in the international inter-bank market on short-term basis. In calculation of LIBOR, 25% of lowest and 25% of the highest values are eliminated and the remaining 50% are considered for determining LIBOR. Therefore, LIBOR, as such, can also not be construed as a comparable uncontrolled transaction. The Hon'ble Bombay High Court in CIT v. Aurionpro Solutions Ltd. [2017] 99 CCH 70 approved the action of the Tribunal in considering LIBOR +2% as the arm's length rate as against the TPO applying LIBOR plus 3%. Drawing an analogy from this position, we hold that EURIBOR+2% should be considered as arm's length rate of interest for determining the ALP of the international transaction of interest received by the assessee from Mascot Systems GmbH, Germany. 10. Before parting with this issue, we would like to clarify that the ld. CIT(A) has considered 4.42% as EURIBOR applicable for the assessment year under consideration by relying on an order of the Tribunal, in which the average LIBOR was considered at this level. Equality of LIBOR and EURIBOR could not be substantiated from any material on record. In the given circumstances, we set aside the impugned order and remit the matter to the file of the AO for considering EURIBOR +2% as arm's length rate of interest to be applied on loan advanced by the assessee to Mascot Systems GmbH, Germany. In case EURIBOR +2% turns out to be lower than 4.42% as directed to be applied by the ld. CIT(A) on the understanding of the same being EURIBOR simplicitor, then the addition should be restricted with reference to 4.42% rate of interest, as the assessee is not in appeal on this issue. In the otherwise scenario, the relief allowed by the ld. CIT(A) will be restricted pro tanto.” 10. Therefore, we find force in the assessee’s case to adopt LIBOR rate for benchmarking the transactions of outstanding receivables from the AEs. Accordingly, the Assessing Officer/TPO is directed to adopt the LIBOR + 200 basis as comparable rate for benchmarking the transaction of outstanding receivables from AEs after allowing a credit period of 60 days as a normal credit period without any interest.” 18.5 On perusal of above, we found that, this Tribunal has adopted LIBOR rate for benchmarking the transactions of outstanding receivables from the AEs. We have also gone through the decision of this tribunal in the case of Hetero Lab Limited Vs. ACIT(supra) relied by the revenue and found that, the Tribunal has given it’s findings relying on the decisions of some Tribunals, IT(TP)A No.73/Hyd/2022 31 however, this Tribunal in the case of HARSCO India Private Ltd. v/s DCIT (supra) has given it’s findings relying on the decisions Hon’ble Bombay high court. In our considered opinion the decision of hon’ble high court always prevails over the decision of Tribunal. Therefore, respectfully following the decision of this Tribunal in the case of HARSCO India Private Ltd. v/s DCIT (supra), we hold that, the justice will be served by applying LIBOR + 200 basis points on trade receivables in the case of the assessee. Therefore, we direct the Ld. AO/TPO to apply LIBOR + 200 basis points for benchmarking of interest on trade receivables. 18.6 As far as the allowability of credit period is concerned, we found that the Ld. TPO has allowed credit period of only 30 days. In our considered view, the justice would be met by allowing a credit period of 60 days. Accordingly, we direct the Ld. AO/TPO to allow the credit period of 60 days for the purpose of benchmarking of interest on trade receivables. 18.7 In the result, the ground no. 8 of the assessee is partly allowed for statistical purpose. 19. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 16th July, 2025. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad. Dated: 16.07.2025. * Reddy gp IT(TP)A No.73/Hyd/2022 32 Copy of the Order forwarded to : 1. M/s. IVY Software Development Services Pvt. Ltd., 5th Floor, Block B, Plot No.13E Divyasree Omega, Survey No.13 (Part), Kondapuyr, Hyderabad- 500084 2. DCIT, Circle 2(1), Hyderabad. 3. Pr. CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard File. BY ORDER, "