OAKTON GLOBAL TECHNOLOGY SERVICES CENTRE (I) PRIVATE LIMITED ,HYDERABAD V. DY. COMMISSIONER OF INCOME TAX , CIRCLE-16(2), HYDERABAD

ITA 32/HYD/2019

AI Insights

The case involves M/s. Oakton Global Technology Services Centre (India) Private Limited, which appealed against the final assessment orders passed by the Deputy Commissioner of Income Tax, Circle-16(2), Hyderabad, concerning transfer pricing adjustments made for the assessment years 2013-14 and 2014-15. The primary issues revolved around the rejection of the assessee's transfer pricing documentation, the selection and exclusion of comparable companies, and the benchmarking of interest on trade receivables. The Tribunal considered various precedents and the principles of transfer pricing under the Income Tax Act, 1961, and the Income Tax Rules, 1962, to arrive at its decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 103650 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2014-2015
• Other Referred Cases: DCIT v/s Quark Systems (P) Ltd., CIT v. Bharat General Reinsurance Co. Ltd., R.B. Jessaram Fatehchand v. CIT, CIT v. C. Parakh & Co. (India) Ltd., CIT v. V.MR.P. Firm, Muar, Shiva Industries & Holdings Ltd. v. Assistant Commissioner of Income-tax, CIT vs. Cotton Naturals (I) Private Ltd, CIT vs. Tata Autocomp Systems Ltd, HARSCO India Private Ltd. v/s DCIT, Hetero Lab Limited Vs. ACIT, ADP Pvt. Ltd. Vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: RAVI BHARADAWAJ
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; International transaction; Bad and doubtful debts; Onus to prove; Tax effect; Working capital adjustments
• Section: 48; 139(1); 22; 13; 234B; 92B; 20

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 /ITA Nos.2130/Hyd/2017 & 32/Hyd/2019 (निर्धारण वर्ा/Assessment Years:2013-14 & 2014-15) M/s. Oakton Global Technology Services Centre (India) Private Limited, Hyderabad. PAN:AAACO8824H Vs. Dy. Commissioner of Income Tax, Circle-16(2), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Ravi Bharadawaj, C.A. रधजस् व द्वधरध/Revenue by: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 27/02/2025 घोर्णध की तधरीख/Pronouncement: 16/04/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : These appeals are filed by M/s. Oakton Global Technology Services Centre (India) 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. 92CA(3) r.w.s. 144C(5) of the Income Tax Act, 1961 ('the Act'), as per the direction of Learned Dispute Resolution Panel, Bangalore (“Ld. DRP”) on 05.10.2017 & 26.10.2018 for A.Ys. 2013-14 & 2014-15 respectively. Since these appeals are inter-related, they are heard together and one consolidated order is being passed for the sake of convenience and brevity. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 2 ITA Nos.2130/Hyd/2017 for A.Y. 2013-14 2. The assessee has raised the following grounds : “ TRANSFER PRICING MATTERS Rejection of transfer pricing documentation maintained and undertaking fresh search of comparables: 1) Rejection of the transfer pricing documentation maintained by the assessee in accordance with the provisions of the Act read with the Income Tax Rules, 1962 (\"Rules\") and undertaking a fresh economic analysis during the course of assessment proceedings and accordingly making a TP adjustment to the international transactions of providing software services to its AE; Rejection of use of multiple year data 2) Rejecting the use of multiple year data and using data for the FY 2012-13 only; Use of additional filters 3) Inter-alia use of the following additional/modified filters in undertaking the comparative analysis and rejecting comparable companies having: (a) Different financial year-end; and (b) Export sales less than 75% of the sales Selection of companies 4) Not undertaking an objective comparative analysis and inter-alia selecting the following companies without appreciating that the same are not functionally comparable to the Appellant: a) Infobeans Technologies Limited; b) Larsen & Toubro Infotech Ltd; c) Persistent Systems Ltd; Rejection of comparables 5) Not undertaking an objective comparative analysis and interalia rejecting the following comparable companies identified by the Appellant: a) Akshay Software Technologies Limited b) Caliber Point Business Solutions Limited (Seg) ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 3 c) CAT Technologies Limited d) Cigniti Technologies Limited e) Evoke Technologies Private Limited f) Helios & Matheson Information Technology Limited g) Maveric Systems Limited h) R Systems International Limited (Segmental) I )Sasken Communication Technologies Limited (Seg) j) Zylog Systems India Ltd Provision for doubtful debts 6) Considering the provision for doubtful debts in the comparable companies as non- operating in nature while computing the operating margins of comparables. Error in margin computation. 7) Erred in not incorporating the Hon'ble DRP directions to consider the correct segmental margins of the following companies: a) Mindtree Ltd. Adjustment for risk differences 8) Not adjusting the net margins of the comparable companies selected taking into account the functional and risk differences between the international transaction of the Appellant and the comparable companies in accordance with the provisions of Rule 10B(1) (e) of the Rules; Negative Working Capital Adjustment 9) Without prejudice to the above, making a negative working capital adjustment to the arm's length margin determined without appreciating the fact that the Company does not bear any working capital risks. Imputing interest on outstanding receivables 10) Erred in making TP adjustment by imputing interest at rate charged by SBI on short term fixed deposits on outstanding receivables relating to sale of services to Associated Enterprise's (AE's) as on March 31st 2013. (i) Not appreciating that the instant transaction is not covered in the definition of international transaction as defined u/s 92B of the Act in the facts and circumstances of the case. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 4 (ii) Not appreciating the facts and circumstances surrounding the receivables and re- characterising the outstanding receivables as unsecured loans advanced to AES. (iii) Not appreciating the fact that the receivables are consequential/ closely linked to the principle transaction of provision of software services and hence have been aggregated for determination of ALP under TNMM. (iv) Not appreciating the fact that under TNMM, the impact of outstanding receivables on the working capital adjustments have already been taken into account in determining the arm's length margin hence there is no need of imputing interest on outstanding receivables again. 11. Without prejudice to the above, not undertaking an objective economic analysis to determine the arm's length price of the outstanding receivables by (i) Not appreciating that the receivables due from overseas AE's are in foreign currency and hence interest, if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans. (i.e. at USD \"LIBOR plus\"). (ii) Determining the arm's length credit period as 30 days without any basis and imputing interest on credit period provided for the invoices raised relating to provision of services. CORPORATE TAX ISSUES 12) Levy of interest u/s 234B on the TP adjustment. 13) Levy of interest u/s 234C of the Act. 14) Initiating proceedings u/s 271AA and 271BA of the Act. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.” 3. The facts of the case are that the assessee is a company engaged in the business of providing Software Development Services (“SDS”), filed its Return of Income (“ROI”) for A.Y. 2013-14 on 30.11.2013 declaring a total income at Rs.3,10,23,252/-. In view of the international transactions involved during the year under consideration, for determination of Arm’s Length Price (“ALP”), the case was referred to Learned Transfer Pricing Officer (“TPO”). The Ld. TPO vide his order dated 31.10.2016 suggested upward adjustment of ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 5 Rs.1,19,93,961/- on account of provision of SDS and Rs.30,82,056/- on account of interest on receivables. Accordingly, the Ld. AO passed the draft assessment order on 26.12.2016. 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 02.09.2017, the Ld. AO finalized the assessment on 05.10.2017 by making total addition of Rs.2,05,96,976/- on account of upward adjustment of ALP. 5. Aggrieved with the final assessment order of Ld. AO, the assessee is in appeal before us. The Ld. AR submitted that, they are only pressing the following issues out of their grounds of appeal : (i) exclusion of Infobeans Technologies Limited, Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited from the list of comparables. (ii) benchmarking of interest on trade receivables. (iii) Issue on account of provision for bad and doubtful debts. (iv) Issue on account of negative working capital adjustment. 6. As far as the first issue regarding exclusion of four companies from the list of comparables is concerned, the Ld. AR argued that, Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited are liable to be excluded on account of significant difference in turnover and difference in functionality. 7. Further, as far as exclusion of Larsen & Toubro Infotech Limited and Persistent Systems Limited are concerned, the Ld. AR fairly invited our attention to the decision of this Tribunal in assessee's own case for A.Y. 2012- ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 6 13 in ITA No. 309/Hyd/2017 dated 12/06/2024, wherein this Tribunal has rejected the claim of the assessee for the exclusion of these two companies from the list of comparables due to the reason that the assessee had included Larsen & Toubro Infotech Limited and Persistent Systems Limited in the list of comparables in their TP study. The Ld. AR further submitted that, inadvertently the assessee could not bring to the notice of the Tribunal during the appellate proceedings for A.Y. 2012-13, the decision of Special Bench of Tribunal in the case of DCIT v/s Quark Systems (P) Ltd. 4 ITR (Trib) 606, wherein the Tribunal has held that although the assessee has included some comparables in the TP study documentation, the assessee cannot be prevented from objecting to the same company being selected as comparable, if there are valid reasons for doing so. Accordingly, relying on the decision of Special Bench of Tribunal in the case of DCIT v/s Quark Systems (P) Ltd. (supra), the Ld. AR prayed before the bench not to reject their claim for exclusion of Larsen & Toubro Infotech Limited and Persistent Systems Limited on the basis of the decision of ITAT in assessee's own case for A.Y. 2012-13(supra). 7.1 Per contra, the Ld. DR relied on the decision of Ld. AO/Ld. TPO. 7.2 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. 2012-13(supra), wherein this Tribunal has rejected the claim of the assessee for exclusion of Larsen & Toubro Infotech Limited and Persistent Systems Limited from the list of comparables. We also found that the decision of Special Bench of ITAT in the case of DCIT v/s Quark Systems (P) Ltd. (supra) was not brought before this Tribunal during the appellate proceedings in assessee's own case for A.Y. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 7 2012-13(supra), wherein the Special Bench at par no. 30 to 38 of its order has held as under : “ 30. Learned Special counsel for the revenue Shri Kapila has vehemently argued that \"Datamatics\" was taken as one of the comparables by the taxpayer and no objection to its inclusion was raised before the TPO or before the learned CIT (Appeals) in appeal. Therefore, the taxpayer should not be permitted to raise additional ground and ask for exclusion of the above enterprise in the determination of the average margins. We are unable exercise. This has not been done in this case. We would only say that prima facie, as per the material, to which reference has been drawn by Shri Aggarwal. Datamatics does not appear to be comparable. Even if the taxpayer or its counsel had taken Datamatics as comparable in its I P audit, the testedyer is entitled to point out to the Tribunal that above enterprise has wrongly been taken as comparable. In fact there are vast differences between party and the Datamatics. The case of Datamatics is like that of \"Imercius Technologies\" representing extreme positions. If Imercius the question as per the statutory regulations. 31. In the case of CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303, the Hon'ble Delhi High Court observed as under : \"It is true that the assessee itself had included that dividend income in is return for the year in question but there is no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it is incumbent on the Income-tax Department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year.\" 32. In the case of R.B. Jessaram Fatehchand v. CIT [1971] 81 ITR 409 (All.), it has been found and observed as under: ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 8 \"Mr. Brijlal Gupta appearing for the department pointed out that the assessee itself filed separate returns for the two parts of a single accounting period. The assessee applied for registration for the first period only. The assessment for the second period proceeded as against an unregistered firm. It was, therefore, urged by Mr. Gupta that it is not open to the assessee to urge now that a single assessment under section 26(1) ought to have been made. Now, there cannot be an estoppel against statute. If in fact the procedure adopted by the Income-tax Officer was incorrect, the defect is not cured by the attitude taken up by the assessee.\" 33. In the case of CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661, Their Lordships of Supreme Court made the following observations: \"On the question of the admissibility of the deduction of Rs. 1,23,719, the contention of the appellant is that as the respondent had itself split up the commission of Rs. 3,12,699 paid to the managing agents, and appropriated Rs. 1,23,719 thereof to the profits earned at Karachi and had debited the same with it, it was not entitled to go back upon it, and claim the amount as a deduction against the Indian profits. We do not see any force in this contention. Whether the respondent is entitled to a particular deduction or not will depend on the provision of law relating thereto, and not on the view which it might take of its rights, and consequently, if the whole of the commission is under the law liable to be deducted against the Indian profits, the respondent cannot be estopped from claiming the benefit of such deduction, by reason of the fact that it erroneously allocated a part of it towards the profits earned in Karachi. What has, therefore, to be determined is whether, notwithstanding the apportionment made by the respondent in the profit and loss statements, the deduction is admissible under the law.\" 34. In the case of CIT v. V.MR.P. Firm, Muar [1965] 56 ITR 67, the following observations of Their Lordships of Supreme Court are as under : \"The decision in Amarendra Narayan Roy v. CIT AIR 1954 Cal. 271 has no bearing on the question raised before us. There the concessional scheme tempted the assessee to disclose voluntarily all his concealed income and he agreed to pay the proper tax upon ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 9 it. The agreement there related to the quantification of taxable income but in the present case what is sought to be taxed is not a taxable income. The assessee in such a case can certainly raise the plea that his income is not taxable under the Act. We, therefore, reject this plea.\" 35. In para 4.16 of latest report, the OECD provides the following guidelines : \"In practice, neither countries nor taxpayers should misuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analysis, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof in the course of the examination of a transfer pricing case. More particularly, as a matter of good practice the burden of proof should not be misused by tax administrations or taxpayers as a justification for making groundless or unverifiable assertions about transfer pricing. A tax administration should be prepared to make good faith showing that its determination of transfer pricing is consistent with the arm's length principle even where the burden of proof is on the taxpayer, and the taxpayers similarly should be prepared to make good faith showing that their transfer pricing is consistent with the arm's length principle regardless of where the burden of 36. The aforesaid decisions and guidelines may not be exactly on identical facts before us but they emphatically show that taxpayer is not estopped from pointing out a mistake in the assessment though such mistake is the result of evidence adduced by the taxpayer. 37. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. For the other side cannot claim to have a vested right in injustice being done due to some mistakes on its part. 38. Accordingly, on facts and circumstances of the case, we hold that taxpayer is not estopped from pointing out that Datamatics has wrongly been taken as comparable. While admitting additional ground of appeal raised by the assessee to require us to consider whether or not Datamatics should be included in the comparable, we make ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 10 no comments on merit except observing that assessee from record has shown its prima facie case. Further claim may be examined by the Assessing Officer. This course we adopt as objection to the inclusion of Datamatics as comparable has been raised now and not before revenue authorities. Therefore, we deem it fit and proper to remit the matter to the file of the Assessing Officer for consideration of claim of the taxpayer and make a de novo adjudication of the arm's length price after providing reasonable opportunity of being heard to the assessee. We order accordingly.” 7.3 On perusal of above, we found that, although the assessee has included some comparables in the TP study documentation, the assessee cannot be prevented from objecting to the same company being selected as comparable, if there are valid reasons for doing so. Respectfully following the decision of Special Bench in the case of DCIT v/s Quark Systems (P) Ltd. (supra), we accept the submission of the assessee and proceed to adjudicate the exclusion of Larsen & Toubro Infotech Limited and Persistent Systems Limited from the list of comparables. 8. With regard to exclusion of Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited, the Ld. AR has submitted that these comparables are liable to be excluded from the list of comparables as their turnover is significantly higher than that of the assessee. He further submitted that, the turnover of the assessee is Rs.25.61 Crores, however, the turnover of Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited are Rs.3,609 Crores; Rs.996 Crores and Rs.1640 Crores respectively, which is more than 10 times of the turnover of the assessee. The Ld. AR placed reliance on the decision of this Tribunal in the case of Triniti Advanced Software Labs Private Limited in ITA no. 397/Hyd/2021 dated 20/06/2024, wherein this Tribunal has held that the turnover filter of 10 times (both upward and downward) is a valid filter to determine the comparability. Therefore, the Ld. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 11 AR contended that Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited should be excluded from the list of comparables as their turnover exceeds the threshold determined by the ITAT. 8.1 Per contra, the Learned Department Representative (“Ld. DR”) objected the exclusion of Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited and submitted that the turnover filter should not be considered in the selection of comparables provided the functional comparability is established. The Ld. DR further argued that, the assessee as well as comparable companies are operating in the field of human sources intensive industry, wherein increase in turnover is accompanied by a corresponding increase in the expenditure. Therefore, mere turnover difference should not be a ground for exclusion, if the core business function remains the same. Finally, the Ld. DR prayed that, Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited should not be excluded from the list of comparables merely on the ground of significant difference in turnover. 8.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. The primary dispute before us is to decide whether Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited should be excluded only on the basis of their significantly higher turnover or not. It is well settled by various decision of co- ordinate benches of ITAT, including in the case of Triniti Advanced Software Labs Private Limited (supra) that the turnover filter of 10 times (both upward and downward) is a valid criteria for determining the comparability. This Tribunal in the case of Triniti Advanced Software Labs Private Limited (supra) at para no. 9 to 11 of its order has held as under : ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 12 “9. We have considered these contentions in the light of the decided case law. Insofar as the turnover filter is concerned, Hon’ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd. (supra), held that huge profit or a huge turnover, ipso facto does not lead to its exclusion; whereas in the case of Pentair Water India Pvt. Ltd. (supra), the Hon’ble Bombay High Court held that turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. Hon’ble Karnataka High Court, however, in the case of Obopay Mobile Technology (supra), having noticed the view taken by the Hon’ble Delhi High Court in the case Chryscapital Investment Advisors (India) (P.) Ltd. (supra), and also the decision of the Hon’ble Bombay High Court in the case of M/s. Pentair Water India Pvt. Ltd. (supra), upheld the Tribunal order excluding certain entities from the list of comparables on the ground of huge turnover, while following the principle that where two views are possible on an issue, the view favourable to the assessee has to be adopted. 10. In these circumstances, following the foot prints of the Hon’ble Karnataka High Court in the case of Obopay Mobile Technology India Private Ltd., (supra), we hold that the turnover is a relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. 11. Now turning to the next question as to the appropriate turnover filter, in all the decisions relied upon by the learned AR, a consistent view is taken that the application of tolerance range of turnover of ten times on both sides of assessee’s turnover was proper. Following the same, we direct the learned Assessing Officer to adopt the same for a fresh search. With this view of the matter, we set aside the findings of the authorities below and direct the learned Assessing Officer/learned TPO to take the range of turnover filter at ten times on both the ends and conduct search afresh to take a plausible view.” 8.3 On perusal of above, we found that, this Tribunal has categorically held that, companies with proportionately high turnover should be excluded and the application of tolerance range of turnover of ten times on both sides of assessee’s turnover was proper. There is no dispute about the fact that the turnover of Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited are more than 10 times than the turnover of the assessee, which clearly breaches the threshold set by this Tribunal in the case of Triniti ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 13 Advanced Software Labs Private Limited(Supra). Therefore, in our considered opinion, Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited cannot be considered as good comparable companies. 8.4 As regards the argument of Ld. DR that turnover difference do not impact profitability due to the nature of the business, we find no merit in his contention. It is well accepted principle in Transfer Pricing (“TP”) that companies with significantly different scales of operations face different economic and market condition, which impact their margin, cost structure and pricing strategy. Hence the contention of the Ld. DR is rejected. 8.5 Further, we observe that, the Ld. TPO did not apply the turnover filter of 10 times (both upward and downward) to other comparables as well. Therefore, in the interest of justice, we deem it appropriate to remand the issue back to Ld. TPO, granting liberty to the Ld. TPO to apply the turnover filter uniformly to all the comparables and carryout the necessary verification. 8.6 Since we have decided the exclusion of Larsen & Toubro Infotech Limited, Persistent Systems Limited and Mindtree Limited in favour of the assessee on account of turnover filter, therefore, we do not propose to adjudicate on the other arguments raised by the assessee on the basis of functional dissimilarity. 9. As far as the exclusion of Infobean Technologies Limited from the list of comparables is concerned, the Ld. AR invited our attention to the decision of this Tribunal in the case of EPAM Systems India Pvt. Ltd. Vs. ACIT in ITA No.2122/Hyd/2017, wherein this Tribunal had remanded the issue to Ld. TPO for fresh verification with regard to the inclusion of Infobean Technologies ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 14 Limited as comparable. Accordingly, the Ld. AR prayed before the bench to remand back the issue to the file of Ld. TPO for fresh verification. 9.1 Per contra, the Ld. DR submitted that, he has no objection if the issue is remanded back to the Ld. TPO for fresh verification. 9.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. Since both the parties have agreed for a remand, we find it appropriate to restore the matter to the file of TPO for fresh verification. 10. The next issue of the assessee is related to adjustment made by the Ld. TPO on account of interest on trade receivables. 10.1 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 +200 basis points. Accordingly, the Ld. AR prayed before the bench to direct the Ld. TPO to apply the LIBOR + 200 basis points on trade receivables. 10.2 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 15 accordance with the decision of this Tribunal in the case of Hetero Lab Limited (supra). 10.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. The core issue before us is to decide the appropriate interest rate to be applied for trade receivables from foreign AEs. 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 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 16 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 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 17 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 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 18 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.\" 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.” ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 19 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 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.” ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 20 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 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 21 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. 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 22 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.” 10.4 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, 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 ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 23 of the assessee. Therefore, we direct the Ld. AO/TPO to apply LIBOR + 200 basis points for benchmarking of interest on trade receivables. 11. The next issue is related to non-consideration of provision for bad and doubtful debts by the Ld. AO/TPO for the calculation of operating cost in the case of comparable companies. 11.1 The Ld. AR relying on the decision of this Tribunal in the case of Hyundai Motor India Engineering Pvt. Ltd. Vs. DCIT in ITA no.87/Hyd/2017, wherein the Tribunal has held that provision for bad and doubtful debts should be considered while calculating the operating cost for comparable companies. Accordingly, the Ld. AR prayed before the bench to direct the Ld. AO/TPO to include the provision for bad and doubtful debts while computing the operating cost in the case of comparable companies. 11.2 Per contra, the Ld. DR objected the contention of the assessee stating that while the term “operating cost” is not explicitly defined under the Act, it is defined under Rule 10TA(j) of Income Tax Rules, 1962 meant for Safe Harbor Rules, which does not recognise provision for bad and doubtful debts as part of operating cost. The Ld. DR further contended that provision for bad and doubtful debts is not an allowable expenditure u/s.36 of the Act, as it does not represent actual expenses but merely an estimate of potential future losses. It was further argued by the Ld. DR that, the provision for bad and doubtful debts does not meet the criteria of operating expenses, as operating cost should include only those expenses that are actually incurred and crystalised. Finally, the Ld. DR submitted that, the provision for bad and doubtful debts should not be considered for calculation of operating cost of the comparables. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 24 11.3 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 provisions of section 36(1)(vii) of the Act, which specifically states that, any provision for bad and doubtful debts is not an allowable expenditure unless it qualifies under the specific conditions mentioned therein. The legislative intent behind this provision is to allow only actual write off not merely provisions for future contingency. We have also gone through the Rule 10TA(j), which does not recognize provision for bad and doubtful debts as part of operating cost. Since operating cost meant to reflect actual expenses incurred, provision for uncertain liability cannot be included in such calculation. Following the above reasoning, we are of the considered opinion that the provision for bad and doubtful debts, being an uncertain liability and not an actual expenditure, cannot be considered for the purpose of calculation of operating cost. Accordingly, we reject the contention of the assessee and accept the approach of Ld. AO/TPO for excluding the provision for bad and doubtful debts while computing the operating cost. Accordingly, this issue of the assessee is dismissed. 12. The next issue is with regard to application of negative working capital adjustment of 2% in the calculation of PLI. The Ld. AR relied on the decision of this Tribunal in the case of Adaptec India Pvt. Ltd. Vs. ACIT in ITA No.206/Hyd/2014, wherein this Tribunal has held that, when an assessee does not bear any working capital risk, a negative working capital adjustment is unwarranted. The Ld. AR further submitted that, in the present case, the assessee is fully funded by its AEs and does not bear any working capital risk or contingency. Therefore, the Ld. AR prayed before the bench to follow the decision of this Tribunal in the case of Adaptec India Pvt. Ltd. (supra) and ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 25 delete the negative working capital adjustment. In their alternate submission, the Ld. AR submitted that, the Ld. TPO has applied negative working capital adjustment of 2%, whereas no such direction was given by the Ld. DRP. Therefore, the Ld. AR submitted that, the assessee could not get any opportunity to present their case on merits . Accordingly, the Ld. AR requested to set aside the issue to Ld. AO/TPO for fresh adjudication. 12.1 Per contra, the Ld. DR relied on the order of Ld. AO/TPO and contended that the negative working capital adjustment was correctly applied by the Ld. AO/TPO. The Ld. DR did not specifically dispute the assessee's claim that no such direction was given by the Ld. DRP but submitted that the adjustment made by the Ld. AO/TPO are in line with the TP principle. 12.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It is observed that the Ld. AO/TPO made a working capital adjustment of 2%, however, no such direction for making any working capital adjustment was issued by the Ld. DRP. Since the negative working capital adjustment was applied directly by the Ld. TPO without a prior direction from the Ld. DRP, the assessee was denied an opportunity to raise objection before the Ld. DRP on this issue. Further, this Tribunal in the case of Adaptec India Pvt. Ltd. (supra) has held that when an assessee do not bear any working capital risk, a negative working capital adjustment is not required. In the present case, the assessee claims that it is fully funded by AE and does not have any working capital risk. Therefore, in the interest of justice, we find it appropriate to set aside the issue to the file of Ld. AO/TPO with a direction to provide an opportunity to the assessee to present its case regarding the working capital risk. The Ld. AO/TPO shall examine whether the assessee bears any working capital risk and decide the ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 26 issue as per law. Accordingly, this issue of the assessee is allowed for statistical purposes. 13. In the result, the appeal of the assessee is partly allowed for statistical purposes. ITA No. 32/Hyd/2019 for A,Y. 2014-15 14. The assessee has raised the following grounds : “ 1. Rejection of the transfer pricing documentation maintained by the assessee in accordance with the provisions of the Income Tax Act, 1961 ('Act') read with the Income Tax Rules, 1962 ('Rules') and undertaking a fresh economic analysis during the course of assessment proceedings and thereby making an adjustment of Rs.7,64,51,732 towards the international transactions with AEs. 2. Rejection of use of multiple year data: Rejecting the use of multiple year data and using data for the FY 2013-14 only in determining the arm's length price. 3. Use of additional filters: Inter-alia use of the following additional/modified filters in undertaking the comparative analysis and rejecting comparable companies: (a) 75% Export Revenue Filter, (b) Different Financial Year Filter; and (c) Using one sided turnover filter 4. Selection of additional companies: Not undertaking an objective and consistent comparative analysis and interalia selecting the following companies as comparable to the services of the assesse ignoring the fact that the same are not functionally comparable to the Assessee (a) Tata Elxsi Limited (Seg) (b) Mindtree Limited (c) RS Software (India) Limited ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 27 (d) E-Infochips Ltd (e) Larsen & Toubro Infotech Limited (f) Infosys Ltd (g) Persistent Systems Limited (h) Infobeans Technologies Limited (i) Thirdware Solutions Limited 5. Rejection of Comparables: Not undertaking an objective and consistent comparative analysis and inter- alia rejecting the following comparable companies: (a) Akshay Software Technologies Limited (b) Caliber Point Business Solutions Limited (Seg) (c) Maveric Systems Limited (d) Sasken Communication Technologies Limited (Seg) (e) Sagar Soft India Ltd (f) Kellton Tech Solutions Ltd (g) Goldstone Technologies Limited (h) CAT Technologies Limited (i) Helios & Matheson Information Technology Limited (j) R Systems International Limited (Seg) (k) TVS Infotech Ltd (1) Accel Frontline Ltd (Seg) (m) Infomile Technologies Lts (n) Kals Information Systems Limited (0) Sankhya Infotech Limited (p) Zylog Systems Limited (q) Acropetal Technologies Limited ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 28 6. Erred in application of persistent loss filter and thereby not following the directions of Hon'ble DRP for including Sagar Soft India Limited in the final list of comparables. 7. Determination of operating margins of comparables. (a) Error in computing segmental margin of Tata Elsxi Limited (b) Considering Provision for Bad and Doubtful Debts (PBDD) as non-operating expenditure in determining the operating margins of companies considered comparable. Which are: 1. E-Infochips Ltd. 2. Larsen & Toubro Infotech Ltd. 3. Infosys Ltd 4. Persistent Systems Ltd 8. Working capital adjustments. Not adjusting the net margins of comparable companies for differences in working capital in accordance with the provisions of rule 10B(1) (e) of the Rules. 9. Adjustments for Risk differences. Not adjusting the net margins of comparable companies for functional and risk differences in accordance with the provisions of rule 10B(1) (e) of the Rules. 10. Making TP adjustment and accordingly imputing interest on outstanding receivables as on March 31st 2014 relating to provision of software services to AES: a) Not appreciating that the instant transaction is not covered in the definition of international transaction as defined u/s 928 of the Act in the facts and circumstances of the case. b) Not appreciating the facts and circumstances surrounding the receivables and re-characterising the outstanding receivables as unsecured loans advanced to AEs. c) Not appreciating the fact that under TNMM, the impact of outstanding receivables on the working capital adjustments have already been taken into ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 29 account in determining the arm's length margin hence there is no need of imputing interest on outstanding receivables again. d) Not appreciating the fact that the receivables are consequential/closely linked to the principle transaction of provision of IT services and hence have been aggregated for determination of ALP under TNMM. 11. Without prejudice, not undertaking an objective economic analysis and determining the arm's length interest rate on outstanding receivables at SBI term deposit rates by: a) Not appreciating that the receivables due from overseas AE's are in foreign currency and hence interest, if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans b) Determining the arm's length credit period as 30 days without any basis and imputing interest on credit period provided for the invoices raised relating to provision of services. 12. Not following the directions of Hon'ble DRP. Not following the directions of Hon'ble DRP in entirety in computing thee total adjustment. Note 1: Total tax effect relating to Transfer Pricing Grounds (i.e Ground 1 to 11) 13. Non-grant of MAT credit available to the Company. Without prejudice to the above grounds, that on facts and circumstances of the case, the Ld. AO has grossly erred in law as well as in facts, in non-grant of MAT Credit available, amounting to Rs. 33,95,196, as set-off to the Company against the tax liability determined for the captioned AY. 14. Erroneous levy of interest u/s 234A of 1 the Act. Without prejudice to the above grounds, that on facts and circumstances of the Case, the Ld. AO has grossly erred in law as well as in facts in computing the interest u/s 234A of the Act amounting to Rs. 8,33,858, as the Company has filed its ROI for the captioned AY before the due-date applicable as per Section 139(1) of the Act. 15. Erroneous calculation of interest 234B of the Act. u/s. 234B of the Act. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 30 That on facts and circumstances of the Case, the Ld. AO has grossly erred in law as well as in facts in computing the interest u/s 234B of the Act amounting to Rs. 1,89,21,854 and the same is consequential to the above grounds. 16. Erroneous calculation of Interest u/s F 234C of the Act. That on facts and circumstances of the Case, the Ld. AO has grossly erred in law as well as in facts in computing the interest u/s 234C of the Act amounting to Rs.4,11,702 and the same is consequential to the above grounds. 17. Levy of penalty under section 271AA M and 271BA of the Act. Initiating penalty proceedings under section 271AA and 271BA of the Act.” 15. The Ld. AR submitted that, they are only pressing the following issues out of their grounds of appeal : (i) Exclusion of E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd. Infosys Ltd., Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. from the list of comparables. (ii) Inclusion of Sagar Soft India Limited as comparable company. (iii) Interest on trade receivables. 16. As far as the exclusion of Larsen & Toubro Infotech Ltd. is concerned, the assessee is seeking exclusion on the ground of high turnover. We found that, the turnover of the assessee is Rs.25.61 Crores, whereas the turnover of Larsen & Toubro Infotech Ltd. is 4548 crores, which is more than 10 times of the turnover of the assessee. We have decided the identical issue in para no.8 to 8.6 Of this order in ITA no.2130/Hyd/2017. The same findings shall apply mutatis mutandis here also. Hence, we hold that Larsen & Toubro Infotech Ltd. is not comparable to the assessee and we direct the Ld. AO/TPO to delete Infosys Ltd. from the list of comparables. Further, we also grant liberty to the ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 31 Ld. TPO to apply the turnover filter uniformly to all the comparables and carryout the necessary verification. 17. As far as the exclusion of E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd., Infosys Ltd. and Persistent Systems Ltd. are concerned, the assessee relied on the decision of this Tribunal in the case of ADP Pvt. Ltd. Vs. DCIT in ITA no.2233/Hyd/2018 dated 18.12.2020, wherein this Tribunal has excluded E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd. Infosys Ltd. and Persistent Systems Ltd. from the list of comparables based on functional dissimilarity. The Ld. AR further contended that, the functional profile of the assessee is identical to that of ADP Pvt. Ltd. and therefore the findings of the Tribunal in the case of ADP Pvt. Ltd. should be applied in the case of the assessee as well. Finally, the Ld. AR requested for exclusion of E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd., Infosys Ltd. and Persistent Systems Ltd. From the list of comparables. 17.1 Per contra, the Ld. DR objected the assessee's contention and argued that the assessee has not taken ADP Pvt. Ltd. as a comparable in its TP Study. The Ld. DR further submitted that, it is essential to first verify whether ADP Pvt. Ltd. is actually functionally comparable to the assessee before applying the decision of this Tribunal. The Ld. DR argued that, a proper FAR analysis is required to determine whether ADP Pvt. Ltd. and assessee are functionally similar or not. He further submitted that, unless the ADP Pvt. Ltd. is established as a good comparable to the assessee, the decision in ADP Pvt. Ltd. to exclude E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd., Infosys Ltd. and Persistent Systems Ltd. cannot be blindly apply to the case of the assessee. Therefore, it was prayed before the bench that the issue ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 32 may be remanded to Ld. AO/TPO for verification of FAR analysis of ADP Pvt. Ltd. with the assessee. 17.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. It is undisputed fact that the assessee is seeking exclusion of E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd., Infosys Ltd. and Persistent Systems Ltd. from the set of comparables, relying on the decision of Tribunal in the case of ADP Pvt. Ltd.(supra). However, it is also fact that the assessee did not take ADP Pvt. Ltd. as a comparable in its own TP study. The key question before us is whether the functional profile of ADP Pvt. Ltd. and the assessee are identical, so that the decision of ITAT in the case of ADP Pvt. Ltd. can be applied to the case of the assessee. This requires a proper FAR analysis, which has not been conducted at this stage. The ITAT has consistently held that comparability analysis must be based on detail factual examination. Without verifying whether the assessee and ADP Pvt. Ltd. have the same functional profile, it would not be appropriate to blindly follow the decision of Tribunal in the case of ADP Pvt. Ltd. (supra). In view of the above, we accept the request of Ld. DR and remand the issue to the Ld. AO/TPO with the following direction : (i) The Ld. AO/TPO shall verify the FAR analysis of the assessee and ADP Pvt. Ltd. to determine whether the ADP Pvt. Ltd. is a good comparable to the assessee or not. (ii) If, upon verification, the Ld. AO/TPO finds that ADP Pvt. Ltd. is having functional similarity to the assessee, then the decision of Tribunal in the case of ADP Pvt. Ltd. (supra) shall be applied to the assessee's case and E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 33 Technologies Ltd., Infosys Ltd. and Persistent Systems Ltd. shall be excluded from the list of comparables. (iii) If the functional similarity between the assessee and the ADP Pvt. Ltd. is not established, then, the decision of the tribunal in the case of ADP Pvt. Ltd.(supra) shall not be mechanically applied and the Ld. AO/TPO may decide the comparability of E-Infochips Ltd., Thirdware Solutions Ltd., Infobeans Technologies Ltd., Infosys Ltd. and Persistent Systems Ltd. based on its own functional analysis. The assessee is also directed to furnish all the necessary documents and co-operate with the Ld. TPO during the verification process. 18. The next issue of the assessee is with regard to inclusion of Sagar Software India Pvt. Ltd. in the list of comparables. In this regards, the Ld. AR invited our attention to the order of Ld. DRP at para no.5.1.5, wherein the Ld. DRP has accepted the functional similarity of Sagar Software India Pvt. Ltd. and the assessee and directed the Ld. TPO to consider the Sagar Software India Pvt. Ltd. as comparable if on examination this company satisfy the other criteria adopted by the Ld. TPO. However, without considering the direction of the Ld. DRP, the Ld. AO/TPO excluded Sagar Software India Ltd. from the list of comparables. Accordingly, the Ld. AR prayed before the bench to make a suitable direction to the Ld. TPO to include Sagar Software India Pvt. Ltd. in accordance with the order of Ld. DRP. 18.1 Per contra, the Ld. DR had no objection if the matter is directed to Ld. TPO in accordance with the directions of Ld. DRP. 18.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have also gone ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 34 through the para no.5.1.5 of the order of Ld. DRP which is to the following effect : 18.3 On perusal of above, we found that the Ld. DRP has directed the Ld. AO/TPO to consider Sagar Software India Pvt. Ltd. as comparable, if it satisfies the other filters. Hence, we direct the Ld. AO/TPO to follow the directions of Ld. DRP as provided under para no.5.1.5 of the order of Ld. DRP. 19. As far as the issue related to benchmarking of interest on trade receivables is concerned, we have decided the identical issue in para no.10 to 10.4 Of this order in ITA no.2130/Hyd/2017. The same findings shall apply mutatis mutandis here also. Therefore, we direct the Ld. TPO to apply LIBOR + 200 basis points for benchmarking of interest on trade receivables. 20. In the result, the appeal of the assessee in ITA No.32/Hyd/2019 is partly allowed for statistical purpose. ITA Nos.32/Hyd/2019 & 2130/Hyd/2017 35 21. To sum up, both the appeals of the assessee are partly allowed for statistical purposes. Order pronounced in the open Court on 16th April., 2025. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad. Dated: 16.04.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. Oakton Global Technology Services Centre (India) Private Limited, Plot No.499, Krishe@36, Road No.36, Jubilee Hills, Hyderabad-500033 2. DCIT, Circle 16(2), Hyderabad. 3. Pr. CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard File. BY ORDER, "