SYNECHRON TECHNOLOGIES PRIVATE LIMITED,BANGALORE V. ACIT, CIRCLE-6(1)(1), BANGALORE

ITTPA 2500/BANG/2024

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Synechron Technologies Pvt. Ltd., a company engaged in providing IT services to the payments industry, appealed against the orders of the Assessing Officer (AO) and the TPO concerning transfer pricing adjustments for the assessment year 2021-22. The TPO had made significant adjustments totaling Rs. 29,88,44,824, which included rejections of comparables for the software development services segment, adjustments for outstanding receivables from associated enterprises (AEs), and adjustments for corporate cost allocations for intra-group services. The Dispute Resolution Panel (DRP) upheld these adjustments, leading to the appeal before the ITAT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397989 (ITAT-BANGALORE)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VILAS V. SHINDE
• Assessee Lawyers: BHARATH L.
• Keywords: Additional evidence; Transfer pricing; International transaction; Rule of consistency

Judgement Text

"IT(TP)A No.2500/Bang/2024 Synechron Technologies Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER IT(TP)A No.2500/Bang/2024 Assessment Year: 2021-22 Synechron Technologies Pvt. Ltd 23 & 24, 2nd Floor, AMR Tech Park II Hongasandra Hosur Main Road Bangalore 560 068 PAN NO : AAICS2894R Vs. ACIT Circle 6(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Sri Bharath L., A.R. Respondent by : Shri Vilas V. Shinde, D.R. Date of Hearing : 03.06.2025 Date of Pronouncement : 04.06.2025 O R D E R PER PRAKASH CHAND YADAV, JUDICIAL MEMBER: Present appeal of the assessee is arising from the order of ld. AO dated 23.10.2024 having DIN No. ITBA/AST/S/143(3)/2024- 25/1069885262(1) and relates to assessment year 2021-22. 2. Brief facts of the case are that the Assessee is a Private Limited Company incorporated in India in 2001 and is assessed before the Circle - 6(1)(1), Bangalore under PAN AAICS2894R. For the FY 2020- 21 relevant to AY 2021-22. The Assessee is engaged in the business of providing Information technology services specific to the payments industry to customers such as banks, financial institutions, third party processors and to its AEs. Assessee, filed its return of income for the AY 2021-22 on 14.03.2022 declaring total income of Rs. 34,84,89,630/-. The case was selected for complete scrutiny under IT(TP)A No.2500/Bang/2024 Synechron Technologies Pvt. Ltd., Bangalore Page 2 of 6 CASS and notice under section 143(2) of the Act was issued to the Assessee. Subsequently, a reference under Section 92CA (1) of the Income Tax Act, 1961 (in short “The Act”) was made by the Jurisdictional Assessing Officer ('AO') to the Transfer Pricing Officer ('TPO') after obtaining the approval of the Pr. CIT for determination of Arm's length price. During the course of the proceedings before the TPO, the TPO issued numerous notices seeking for information. The Assessee duly complied with the notices and furnished details as requested by the TPO. Thereafter, on 04.10.2023, the TPO issued a show-cause notice proposing to: a. Reject comparables identified by the Assessee for SWD segment; and (Issue number-1) b. Adjustment for outstanding receivables from the AEs; and (Issue number-2) c. Adjustment for corporate cost allocation paid to AEs on account of Intra Group Services(IGS).( Issue number-3) 2.1 In response to the notice issued by the TPO, submissions were made by the Assessee. Subsequently the TPO passed the order under section 92CA (3) of the Act on 28.10.2023 by not considering the Assessee's submissions. The TPO proposed an aggregate transfer pricing adjustment of Rs. 29,88,44,824/- as follows: Sl. No. Particulars Amount (in Rs.) 1 SWD segment 2 Interest on delayed receivables 3 Intra group services Total Adjustment u/s 92CA (1+2) (*Total adjustment on intra-group services is subsumed under SWD Segment since as intra-group transaction has been treated as operating in nature and has been benchmarked under TNMM also) IT(TP)A No.2500/Bang/2024 Synechron Technologies Pvt. Ltd., Bangalore Page 3 of 6 2.2 The AO passed a draft assessment order dated 28.12.2023 incorporating the above TP adjustments and the following adjustments and assessed the income of the Assessee. 2.3 Aggrieved by the above orders of the AO and Ld. TPO, the Assessee filed its objections before the ld. Dispute Resolution Panel (‘DRP'). In its directions dated 24.09.2024, the ld. DRP upheld the TPO's approach for computation of arm's length price with respect to the SWD segment. Regarding the imputation of interest on receivables and the adjustment on cross charge payable to AE's by the AO, the ld. DRP upheld the positions taken by the TPO and AO. Based on the directions of the ld. DRP, the ld. TPO affirmed the original TP adjustment of Rs. 29,88,44,824/ Factoring this, the final assessment order dated 23.10.2024 was passed in the Assessee's case. 3. The assessee has raised 10 grounds of appeal. Ground No.1 is general in nature and hence does not require any specific adjudication. 4. In ground Nos.2, 3 & 4, the assessee has challenged the action of the TPO for making Transfer Pricing adjustment with respect to the software development services transaction entered with its Associated Enterprises. The main contention of the assessee is that the TPO has erred in not applying international TNMM method as most appropriate method for computing the Arm’s Length Price of the international transaction with its Associated Enterprises. Assessee further contended that there are transactions of the assessee, in greater volume, with non-AEs and hence internal TNMM would be most appropriate method for computing ALP. IT(TP)A No.2500/Bang/2024 Synechron Technologies Pvt. Ltd., Bangalore Page 4 of 6 5. Ld. Counsel for the assessee has drawn the attention of the Bench towards the TP order pages 156, 157, 158, 160 & 162 and contended that the TPO has not at all considered the replies of the assessee with respect to the justification of the most appropriate method i.e. internal TNMM applied by the assessee and prayed that this issue may kindly be restored to the file of TPO for examining afresh. The ld. A.R. of the assessee also contended that the TPO has erred in selecting the comparables as mentioned in ground No.5 and also in excluding certain comparables as mentioned in ground No.6. 6. Ld. D.R. relied upon the orders of authorities below. 7. After considering the rival submissions, we are of the view that this issue requires fresh consideration at the end of TPO, therefore, we restore this issue to the file of TPO for examining afresh. The contentions raised by the assessee being ground Nos.5 & 6 remained open vis-à-vis inclusion and exclusion of the comparables by applying the appropriate filter. Needless to say that the TPO will grant meaningful opportunity before passing any order. 8. Next ground nos. i.e. 7 & 8, they are related to the imputation of interest on delayed receivables by the TPO. In these grounds, assessee has basically argued that these outstanding receivables is not per se an international transaction and hence cannot be subjected to TP adjustments. The second argument that in any case LIBOR+200 is the appropriate rate to be applied vis-à-vis the outstanding receivables. 9. Ld. D.R. relied upon the orders of authorities below. 10. We have heard the rival submissions and perused the materials available on record. So far as the argument of assessee IT(TP)A No.2500/Bang/2024 Synechron Technologies Pvt. Ltd., Bangalore Page 5 of 6 that the transaction of outstanding receivables is not an international transaction, we do not find any force in this argument because now there are so many judgements on this issue, wherein it has been held that the transactions of outstanding receivables is an international transaction. So far as the applicability of rate is concerned, we observe that TPO has erred in applying LIBOR+450 basis points as a rate of interest, therefore, we modify this rate of interest to the tune of LIBOR+200 basis points, in the interest of justice and direct the TPO to calculate the interest attributable to the outstanding receivables accordingly. 11. In the next ground No.9, the assessee has challenged the action of TPO in computing the ALP of the intra-group services payment to NIL. The basic contention of the assessee is that the TPO has erred in holding that the assessee has not received any services from the intra-group and hence, the charges paid by the assessee to the tune of Rs.7,60,10,565/- deserves to be excluded from the operating cost. In respect of this issue also, the ld. A.R. of the assessee craved that this issue may also be restored to the file of AO as certain necessary documents were filed before the ld. DRP as additional evidences to show the rendition of services from the group companies. However, the ld. DRP could not deal with them in judicious manner. 12. Ld. D.R. relied upon the orders of the authorities below. 13. After considering the rival submissions, we are of the view that this issue also requires fresh consideration at the end of TPO. Particularly, in view of the submissions made by the assessee that some payments were made by assessee in the earlier years also in pursuance to such agreements, which are akin to the earlier year Global policy of the assessee. Ld. TPO will compare the Global policy IT(TP)A No.2500/Bang/2024 Synechron Technologies Pvt. Ltd., Bangalore Page 6 of 6 of the assessee as well as the agreements in force and then comment as to whether the nature of payments made is in line with the earlier payments. The TPO will observe whether as per the principle of consistency, the claim of the assessee is to be allowed or not. 14. Ground No.10 will remain open. The assessee can challenge all the contentions raised in this ground before the TPO with respect to the intra-group services issue. 15. With these directions, we remit issue number-3 also to the file of TPO for examining afresh. 16. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 4th June, 2024 Sd/- (Waseem Ahmed) Accountant Member Sd/- (Prakash Chand Yadav) Judicial Member Bangalore, Dated 4th June, 2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. "