EMIDS TECHNOLOGIES PRIVATE LIMITED,BANGALORE vs. DCIT, CIRCLE-2(2)(1), BENGALURU

The brief facts of the case are that the assessee is a wholly owned subsidiary of Specialists Resources Global Corporation, USA and engaged in the rendering of IT services. The assessee had international transactions and therefore the AO had made a reference u/s. 92CA of the Act to the transfer pricing officer for determining the arms length price. The Ld.TPO

The assessee in its TP document, had taken the 9 comparables in respect of software development services by applying certain filters and TNMM as the most appropriate method. The Ld.TPO had rejected the TP study of the assessee since the same has not applied the appropriate filters. The Ld.TPO had, issued show cause notice on that basis. The assessee also submitted their detailed objections. The assessee had selected 9 companies as comparables on the basis of search conducted in the public database viz., Prowess and Capitaline. The Ld.TPO also searched the databases viz., Prowess and AceTP and on the search result, the Ld.TPO had taken 18 companies as comparables. The Ld.TPO had considered the various filters adopted by him for selecting the 18 comparable companies. Based on the said final list of comparables, the Ld.TPO had determined the arms length price at Rs. 3,52,78,84,782/- as against the price received Rs. 3,25,51,77,861/- and treated the shortfall of Rs. 27,27,06,921/- as the transfer pricing adjustment u/s. 92CA of the Act in respect of software development segment of the assessee’s international transactions.

The Ld.TPO had also made a transfer pricing adjustment in respect of the interest rate by taking the SBI PLR interest rate as the appropriate one for determining the arms length price rate to measure the interest compensation in these types of transactions. The Ld.TPO also made it clear that if the invoices are raised in domestic currency, the interest rate should be charged on the basis of average SBI PLR during the F.Y. 2020-21 i.e. 12.27% per annum and if the invoices are raised in foreign currency, the interest rate to be charged is on the basis of the mark-up on prevailing LIBOR rate during the year. The Ld.TPO had finally arrived the TP adjustment for the interest on delayed receivables at Rs. 71,41,762/-. The Ld.TPO had forwarded his order to the AO and the AO had passed a draft

The assessee filed their objections before the Ld.DRP against the draft assessment order made u/s. 144C of the Act. The Ld.DRP after considering the objections as well as the documents furnished by the assessee had given directions with regard to the verification of margins, adoption of figures as per the annual report and accordingly calculation of the PLI margin, inclusion of certain comparables, credit period of delayed trade receivables interest. Thereafter the said directions were complied with by the TPO and also two companies were deleted from the list of comparables and finally the TP adjustment of Rs. 18,55,60,354/- was arrived. As against the interest on delayed receivables, the Ld.TPO had made the TP adjustment at Rs. 30,20,843/-. The AO had made the above said additions to the total income of the assessee for the A.Y. 2021-22 in his final assessment order dated 29/10/2024.

As against the said order, the assessee is in appeal before this Tribunal.

At the time of hearing, the Ld.AR submitted that the Ld.TPO had rejected the Orangescape Technologies Ltd. and Infomile Technologies Ltd. as comparables since the said companies does not form part of the search results through the database used by the Ld.TPO. The Ld.AR submitted that the assessee as well as the two companies are functionally comparable companies and while doing the TP study, the assessee through the Prowess database had selected these companies as comparables and therefore the finding of the Ld.TPO is contrary to the TP study conducted by the assessee through the Prowess database. The Ld.AR further submitted that the assessee company as well as the two companies are functionally comparable companies and satisfied all the filters proposed by the TPO and therefore the exclusion of the two companies by the Ld.TPO is not in order. The Ld.AR further submitted that the assessee had demonstrated before the Ld.DRP

Insofar as the exclusion of the companies as per ground no. 5, the Ld.AR had restricted his submissions in respect of the three companies i.e. Net4Nuts Ltd., Aptus Software Labs Pvt. Ltd. and Consilient Technologies Pvt. Ltd. and relied on order of this Tribunal cited supra and prayed to follow the said order and exclude the three companies which were added by the AO while making the arms length price. The Ld.AR also submitted that the interest on delayed receivables should be computed on LIBOR + 200 basis points rather than the arbitrary mark-up applied by the TPO vide ground no. 7. The Ld.AR also disputed the short grant of tax credit vide ground no. 8. The Ld.AR also filed their written submissions and also furnished the copy of the order of the Coordinate Bench of this Tribunal cited supra and prayed to grant the relief. The Ld AR also filed paper books enclosing the annual reports of the comparable companies and also filed their written submissions.

The Ld.DR also filed the written submissions and submitted that the order of the Coordinate Bench of this Tribunal is no longer resintegra in view of the orders of this Tribunal reported in (2025) 180 taxmann.com 447 (Bangalore), (2025) 178 taxmann.com 229 (Bangalore), (2025) 180 taxmann.com 631 (Bangalore) and (2016) 177 TTJ 678 (Mumbai) and

We have heard the arguments of both sides and perused the materials available on record.

At the time of argument, the Ld.AR restricted his submissions to ground nos. 4, 5, 7 and 8.

In respect of the ground no. 4, it is the case of the assessee that the non-inclusion of the two companies on the pretext that the same were not found in the database of the TPO is not correct. The Ld.TPO had searched the Prowess and AceTP data base and gave a finding that the said companies were not found place in the said database and therefore not taken the two companies as comparables while computing the arms length price. To disprove the said contention, the assessee had relied on the same Prowess database in which both the companies are available and in fact filed a screenshot of the database and therefore the non-availability of the companies in the database is not a genuine one. Further, when similar dispute arose in the appeal of another assessee for the very same A.Y. 2021- 22, the Tribunal had given the following findings. “18. So far as five (5) comparables are concerned included by the assessee and rejected by the TPO i.e. i. Rate Gain Travel Technologies Ltd. ii. Toxsl Technologies Pvt, Ltd., iii. CES Ltd. (Segment Data of IT Services), iv. Infomile Technologies Ltd and v. Bennett Technologies Pvt. Ltd; 18.1 The assessee had provided the audited financials and functional profile of these comparables, and further

In respect of ground no. 5, the AO had included 14 companies as comparables even though the said companies are functionally dissimilar to the assessee. At the time of hearing, the Ld.AR made a submission that they are pressing to exclude the three companies Net4Nuts Ltd., Aptus Software Labs Pvt. Ltd. and Consilient Technologies Pvt. Ltd. since they are functionally dissimilar to the assessee. In support of their submissions, the assessee had also relied on the very same order of the Coordinate Bench of this Tribunal cited supra wherein this Tribunal had deleted the said companies as functionally dissimilar and therefore the same should not be taken as comparable companies. The relevant finding of the Tribunal is as follows: “24. Net4Nuts Ltd. The functional profile of this company is enclosed at Page 121 of the Factual PB-II. Perusal of the same reveals that, this company is engaged in the business of providing enterprise-wide solutions across multiple industries, ERP, cloud computing, custom software development, off-shore engineering services, designing, architecting developing and maintenance of high availability software products / solutions, mobile value-added services. The provision of such diversified services differs greatly from the SWD services provided by this company is thus not functionally comparable to that with assessee’s business. 25. Useful reference may be made to the decision of the Hon'ble ITAT, Mumbai in the case of Varian Medical Systems International (India) (P.) Ltd. Vs. DCIT (158 taxmann.com 84) [Refer Pg 102 of Legal PB] wherein it was held that, a company providing diversified services including enterprise solutions and IT enabled services, viz., cloud computing cannot be said to be comparable with the assessee providing SWD services to its AE 26. Aptus Software Labs Pvt. Ltd. The assessee has enclosed the functional profile of this company at Pages 122 to 125 of the Factual PB-l/. It shall be observed that, this company is engaged in several diversified businesses which vastly differ from those of the assessee, i.e. infrastructure management, cloud computing, content management systems, network operations center, quality assurance services such as functional testing, security

In the present case, it is not ascertainable that whether the transactions between assessee and its AE are in foreign currency. If the transactions are in foreign currency, the rate of interest should be applied LIBOR + 2% otherwise the SBI PLR interest rate should be adopted. In order to ascertain the said fact, we are remitting this ground no. 7 to the AO and on verification, apply the correct rate of interest as observed by us.

Insofar as ground no. 8, the assessee submitted that the AO had not granted the credit of self assessment tax paid by the assessee and therefore a short grant of tax credit of Rs. 25,85,990/- was computed by the AO. The contention of the assessee is based on the facts and on verification of records. We, therefore, remitting this issue also to the file of the AO to verify the said facts and records and if the contention is correct, grant the credit of

Accordingly, ground nos. 4 and 5 are allowed and ground nos. 7 & 8 are remitted to the file of the AO for computing the correct interest rate and also to verify the self assessment tax paid by the assessee.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.