IVY COMPTECH PRIVATE LIMITED ,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-2(1), HYDERABAD

We notice with the able assistance of both the parties that assessee’s first and foremost substantive grievance challenges correctness of both lower 1 authorities’ orders making arms’ length price “ALP” adjustment of Rs.15,93,92,087/- in information technology software development services segment. We make it clear that the learned counsel for the assessee has only pressed for assessee’s 4th and 5th substantive ground alleging wrongful inclusion of M/s E - Info Chips Ltd., Infobeans Technologies Ltd., Infosys Ltd, Persistent Systems Ltd., and Thirdware Solutions Ltd., in the array of comparables followed by its stand that first and last of the said entities also carry abnormal margins as well; respectively We notice in this factual backdrop that instant first and foremost substantive ground is no more res integra since not only this tribunal’s co-ordinate bench order for the AY 2005- 06 and 2010-11 have excluded M/s Infosys and M/s Persistent Systems Ltd but also yet another coordinate bench decision in ITA 2305/Hyd/18 in M/s. Sony India Pvt. Ltd. for the very AY 2014 has rejected all these five comparable entities in the very segment of captive software development services thereby holding that all the said entities are not functionally similar. We thus adopt the very reasoning mutatis mutandis and direct the Assessing officer to exclude all these five comparables followed by necessary computation as per law. Assessee’s 4th and 5th substantive grounds raised in the instant appeal are accepted for statistical purposes in foregoing terms.

Next comes assessee’s 11th and 12th substantive ground challenging the correctness of learned lower authorities’ action adding interest on outstanding receivables by adopting SBI term deposit rates. We notice that this tribunal’s coordinate bench in the following cases : (i) Valuemomentum (ITA No. 2197/Hyd/2017 dt. 19th May, 2021) (ii) Open Text (ITA no 152/Hyd/2017 dated 19th May, 2021) (iii) Progressive Software (ITA no. 347, 391/Hyd/2015 dated 15th March, 2021) held that the impugned Arm’s Length Price (‘ALP’ for short) adjustment pertaining to international transactions based on SBI’s domestic lending rates than LIBOR is not sustainable. We, therefore, direct the TPO to delete the impugned adjustment for this precise reason alone.

Lastly comes assessee’s third issue (additional ground no.21) which is admitted after hearing both the parties regarding depreciation claim of Rs.6,82,894/- as a consequence to Assessing officer’s action having treating its foreign exchange loss of Rs.6,82,894/- as capital expenditure. Both the learned Representatives agree that the instant issue be restored to Assessing officer for his fresh adjudication as per law in view of the fact that the impugned foreign exchange loss have been treated as capital in nature. We order accordingly. This third and last issue is accepted for statistical purposes. This assessee’s appeal is partly allowed in above terms. Pronounced in Open Court on 17th August, 2021.