INFINEON TECHNOLOGIES INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against the assessment order passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, (in short “The Act”) dated 30.7.2022 for the assessment year 2018- 19. The assessee has raised following grounds of appeal:

General grounds

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 2 of 33 3. The Ld. AO/DRP erred in determining a sum of INR as payable by the Appellant. Ground of appeal on validity of the final assessment order 4. Without prejudice Appellant submits that the final assessment order and the notice of demand dated 30 July 2022 issued on the Appellant are without jurisdiction invalid and bad in law, as the same have been passed without following procedure laid down in law. Grounds of appeal relatinq to transfer pricinq matters:

7.2 The Ld. AO/ TPO/ DRP erred, in law and in facts, by incorrectly applying the following quantitative and qualitative filters: a) Rejecting certain comparable companies by applying export sales greater than 75 percent of total sales as a comparability criterion. b) Applying a filter of 75 percent of revenue from software development services, for rejecting comparable companies. Applying the current year data filter while undertaking search for c) comparable companies, thereby accepting only those companies whose data is available for FY 2017-18. Applying different accounting year filter as a comparability criterion d) (i.e., rejecting companies having accounting year other than March 31

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 3 of 33 or companies whose financial statements were fora period other than 12 months). Applying only the lower turnover filter of less than INR 1 crore as a e) comparability criterion and not applying a higher threshold limit for turnover filter. Applying persistent loss filter incorrectly and thereby rejecting f) companies reporting loss in two out of three years as persistent loss makers. g) Accepting certain companies reporting abnormal profits as comparable to the Appellant. Applying incorrect modified related party transaction ("RPT") filter to h) reject companies, which included application of the following filters separately: An RPT filter for the revenue transactions only (RPT revenue greater than 25% of total revenue) An RPT filter for the expense transactions only (RPT expenses greater than 25% of total expenses)

7.3 The Ld. AO/ TPO/ DRP erred, in law and in facts, by accepting following functionally non-comparable companies based on unreasonable comparability criteria: • Aptus Software Labs Private Limited Black Pepper Technologies Private Limited • Cybage Software Private Limited • Great Software Laboratory Private Limited • Infobeans Technologies Limited • Infosys Limited • Larsen & Toubro Infotech Limited • Mindtree Limited • Nihilent Limited • Persistent Systems Limited • Tata Elxsi Limited • Threesixty Logica Testing Services Private Limited • Wipro Limited

7.4 The Ld. AO/ TPO/ DRP erred, in law and in facts, by rejecting following functionally comparable companies identified by the Appellant in its TP documentation, based on unreasonable comparable criteria.

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 4 of 33 EC Info Systems India Private Limited Evoke Technologies Private Limited Orion India Systems Private Limited Rheal Software Limited Sasken Technologies Limited Sure IT Solutions India Private Limited 7.5 The Ld AO/ TPO pursuant to the directions of the Hon'ble DRP erred, in law and in facts, by rejecting functionally comparable companies additionally identified by the Appellant during the assessment proceedings, based on unreasonable comparable criteria. JECS Consultancy Limited Minvesta Infotech Limited Synfosys Business Solutions Limited 7.6 The Ld. TPO/ AO/ DRP erred, in law and in facts, by erroneously computing the operating margins of some of the comparable companies without verifying the arithmetical accuracy of the operating margins of the comparable companies.

7.7 The Ld. AO/ TPO/ DRP erred, in law and in facts, by not making suitable adjustments to account for differences in the working capital position of the Appellant vis-å-vis the comparable companies. 7.8 The I-d. AO/ TPO/ DRP erred, in law and on facts and circumstances of the case, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies.

8.4 Without prejudice to the above grounds of appeal, the Ld. TPO/ AO pursuant to the directions of the Hon'ble DRP erred, in law and in facts, by re-characterizing the outstanding receivables as advancement of interest free loan to the AES on 31 March 2018.

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 5 of 33 8.5 Without prejudice to above grounds, the Ld. TPO/ AO/ DRP erred in ignoring the fact that the Appellant invoices its AES in foreign currency and thereby erred in adopting SBI short terms deposit interest rate for computing the notional interest on outstanding receivables instead of LIBOR rate. 8.6 Without prejudice to the above, the Ld. DRP/TPO/ AO have erred in computing the period of 30 days as against the credit period allowed as per agreement with its associated enterprise Other qrounds:

9 The Ld. AO has erred in law and in fact, by levying an interest of INR 2,99,35,260 in the assessment order under Section 234B of the Act.

10 The Ld. AO has erred in law and in fact, by levying an interest of INR 8, 79,244 in the assessment order under Section 234C of the Act. 11 The Ld. AO has failed to appreciate that interest under section 234C is on the returned income and not on the assessed income and has erred in levying additional interest on the assessed income as against the interest on the returned income.

12 The Ld. AO has erred in law and in fact, in initiating penalty proceedings under Section 270A of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit, or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 6 of 33 3. The assessee has filed a petition for admission of additional grounds stating that all the facts relating to the above additional grounds were already on record and there is no question of investigation of any fresh facts otherwise on record. These grounds are not raised on earlier occasion due to inadvertence and non- admission of these additional grounds resulting in incomplete appreciation and adjudication of the matter and prayed that these additional grounds may be admitted. 4. We have heard the both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above grounds. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional grounds for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide. 5. At the time of hearing, the ld. A.R. confined his argument to ground Nos.5 to 7.8 and 8 on main grounds and additional ground Nos.1 to 3. As such we confine our adjudication to only these grounds and other grounds are dismissed as not pressed. 6. First, we consider ground Nos.5 to 7.8 along with additional ground No.3. However, the ld. A.R. made it clear that he is pressing the following comparables only in these grounds: a) Nihilent Limited b) Tata Elxsi Limited c) Larsen & Toubro Infotech Limited d) Persistent Systems Limited e) Wipro Limited f) Infosys Limited

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 7 of 33 6.1 Facts of the case are that the assessee is a wholly owned subsidiary of Infineon Singapore. It provides software development services to Infineon group companies for application in Automotive, Chip card and Security (SWD Segment). It also provides making support services to Infineon group companies (MSS Segment). It is compensated at Net Cost Plus Mark Up of 15% for provision of software development services and Net Cost-Plus Mark up of 9% for the provision of marketing support services. International transactions undertaken by assessee in aforesaid segments were benchmarked using Transactional Net Margin Method (TNMM) using OP/OC-PLI. Post consideration of ld. DRP’s direction in order giving effect dated 22.7.2022, the ld. TPO determined the TP adjustments on two accounts: 1. Adjustment of Indian Rupees in 11,60,23,041/- software development segment (SWD) 2. Adjustment in Indian Rupees as 3,25,19,952/- interest on receivables

6.2 MSS segment was held to be at Arm’s Length. Thus, remaining adjustment of ALP in SDS segment and interest on receivables are subject matter of present appeal. 7. The assessee wants exclusion of following comparables: (a) Nihilent Limited: The ld. A.R. submitted that Nihilent Limited is not functionally comparable to assessee’s case. Its services cover a broad spectrum of services, which include business consulting in the area of enterprise transformation, change and performance management and related IT services. Further, the website mentions a host of other services under the broad category of services mentioned in the annual report, including integrated digital marketing, product engineering and development, etc. Accordingly, Nihilent provides high-end KPO services which is not comparable to the routine SWD services provided by the assessee. For this purpose, he brought on record, the financials of Nihilent Limited for the financial year 2017-

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 8 of 33 18 and financials for the financial year 2015-16, which is placed in assessee’s paper book page nos.1107, 1018, 1024 for the FY 2017- 18 and paper book page nos.4884 & 4994 for the FY 2015-16 (PB part V). 7.1 On the other hand, ld. D.R. relied on the order of the lower authorities. 8. We have heard the rival submissions and perused the materials available on record. This company Nihilent Limited has been considered in the case of M/s. Mandiant Cyber Security Pvt. Ltd. in IT(TP)A No.292/Bang/2021 for the AY 2016-17, the Tribunal vide order dated 10.11.2022 has observed as under:

“7.6 The Ld.AR thus submitted that, the above comparables are to be excluded for having turnover more than 200 crores and hence not a fit comparable with that of assessee. On the contrary, the Ld.DR relied on the orders passed by authorities below. He also relied on the decision of Coordinate Bench of this Tribunal in case of BORQS Software Solutions Pvt. Ltd. v. ACIT in IT(TP)A No. 310/Bang/2021 by order dated 25.10.2021. We have perused the submissions advanced by both sides in the light of records placed before us

7.7 Be that as it may we note that Coordinate Bench of this Tribunal in case of M/s. SanDisk India Device Design Centre Pvt. Ltd. vs. JCIT (supra) observed and held following comparables to be excluded on functional dissimilarities:

“17.3 At the outset, the Ld.AR submitted that the above comparables have been considered by Coordinate Bench of this Tribunal, Hon’ble Hyderabad Tribunal as well as Hon’ble Mumbai Tribunal in other cases having similar facts it is also been submitted by Ld.AR that these comparables do not satisfy the turnover filter that has been applied by the Ld.TPO and at the outset deserves to be eliminated. The Ld.AR referring to the annual reports, placed in the paper books filed before this Tribunal reveals that turnover is more than Rs.200 crores and does not match even 10 times the turnover of assessee. The Ld.AR thus submitted that applying either the turnover filter of Rs. 1 crore to Rs. 200 crores or 10 times the assessee’s turnover to 1/10th , these comparables deserves to be excluded.

17.4 It is also submitted that these comparables are not functionally similar with that of the assessee as has been observed by Coordinate Bench of this Tribunal in following cases:

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 9 of 33 1. Decision of Hon’ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT in ITA No. 1379/M/2021 by order dated 25.02.2022 for A.Y. 2016-17. 2. Decision of Hon’ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. DCIT in ITA-TP.No. 198/Hyd/2021 by order dated 06.10.2021 for A.Y. 2016-17. 3. Decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT in IT(TP)A No. 182/Bang/2021 by order dated 28.09.2021 for A.Y. 201617. 17.5 On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 17.6 We have perused the submissions advanced by both sides in the light of records placed before us. 17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded

17.8 Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: “3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5- 2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- "5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co- ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No. 1673/Bang/2012. 6. We notice that the co-ordinate bench has excluded M/s Infosys Ltd in AY 2008-09 by following the decision rendered by another co- ordinate bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No.

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 10 of 33 1303/Bang/2012 dated 28-11-2013, wherein the decision rendered in the case of Triology E Business Software India P Ltd (ITA No. 1054/Bang/2011) was followed and it was held that M/s Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of revenue from software services and software product is not available. 6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008- 09, we direct exclusion of M/s Infosys Ltd. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008- 09, we direct exclusion of M/s Persistent Systems Ltd. We also notice that in AY 2008-09, the co-ordinate bench has excluded M/s Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd. (supra), where in it was held that M/s Thirdware solutions Ltd is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Thirdware Solutions Ltd. 17. As far as exclusion of Larsen & Toubro Infotech Ltd., is concerned, the Tribunal in the very same case of LG Soft (P.) Ltd. (supra) in another order dated 27-9-2019 in MP No. 95/Bang/2019 held that exclusion of Larsen & Toubro Infotech Ltd., was omitted to be adjudicated in the original order dated 28-5-2019 passed by the Tribunal referred in the earlier paragraph and held that Larsen & Toubro Infotech Ltd., is also not a comparable company because there were extraordinary events that occurred in the relevant previous year and that it possessed brand and intangibles and there was no segmental information of sub-contracting expenses”.

3.3 There is nothing on record brought by the Ld.CIT.DR in order to establish that these are comparable with assessee that is a captive service provider which functions at the strict supervision and instructions by the AE’s. Further we note that turnover criteria has to

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 11 of 33 be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration.” 17.8 Before us, the Ld.DR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L& T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list.

In respect of Nihilent Ltd., Infobeans Technologies Ltd. and Aspire Systems (India) Pvt. Ltd., Hon’ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT (supra) observed as under: “Comparable Sought to be excluded by the assessee Aspire System India Pvt. Ltd. (Aspire) 40. The assessee sought exclusion of Aspire from the final set of comparables for benchmarking SDS segment on the ground that it fails Related Party Transaction (RPT) filters as its RPT/ sales ratio is more than 25%. The assessee computed the significant related party transactions at 37.58% whereas the Ld. TPO computed it at 23.55%. The TPO is directed to recalculate the RPT/sales ratio by providing opportunity of being heard to the assessee. So this comparable is remitted back to the Ld. TPO to decide afresh.”

“Nihilent Analytics Ltd. (Nihilent) 44. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No.405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of the disclosure of enterprise’s reportable segment explanatory available at page No.A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing and financials of Nihilent available at page No.A304, A405-A406 of the paper book shows that Nihilent has only one business segment and in the absence of segmental financials, as it is into diversified business, this company cannot be a valid comparable visà-vis assessee, who is a low risk entity working on cost + markup model. Hence, Nihilent is ordered to be excluded as a comparable.

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 12 of 33 Nihilent Ltd. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis-à-vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded.” .................. 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon’ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set.”

We thus direct the Ld.TPO/AO to exclude Persistent Systems Ltd., Thirdware Solution Ltd., Larsen & Toubro Infotech Ltd., Infosys Ltd., Nihilent Ltd. and Aspire Systems (India) Pvt Ltd. for not satisfying functional similarity under SWD segment.”

8.1 In view of the above order of the Tribunal, we direct the ld. AO that Nihilent Limited is not functionally comparable to the assessee’s case, as such it is to be excluded from the list of comparables. (b) Tata Elxsi Limited: 9. The ld. A.R. submitted that Tata Elxsi Limited is functionally dissimilar to the assessee company. It was the software segment comprising of hardware, software and animation services. The company is under the software development unit, is engaged in diversified activities i.e. Product design services, Innovation design engineering, Visual computing labs, etc. He drew our attention to

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 13 of 33 the annual report placed in page Nos.2504, 2524, 2556, 2490 of PB Part III for the FY 2017-18 and pages Nos.4734, 4766 of annual report of PB Part V for the FY 2016-17. He submitted that product development cannot be considered comparable to software development since there was no proper bifurcation of various services provided under software development and services segment and same should be rejected. 9.1 The ld. D.R. relied on the order of lower authorities. 10. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration in the case of Wipro GE Healthcare Pvt. Ltd. in IT(TP)A 803/Bang/2022 for the AY 2018-19 the Tribunal vide order dated 17.5.2023 has held as under: 14.8 Regarding the comparable Tata Elxsi Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable. However, the TPO and DRP rejected the objections of the assessee. The ld. A.R. submitted that the TPO in assessee’s own case for earlier assessment years 2013-14 and 2016-17 has rejected Tata Elxsi as functionally dissimilar to that of the assessee. Further the company Tata Elxsi has been rejected as functionally dissimilar in a catena of decisions till date for all the assessment years. Recently, the Hyderabad Tribunal in the case of ADP Pvt Ltd vs DCIT - ITA 227 & 228/Hyd/2021 dt.03.02.2022 for AY 2016-17 has rejected Tata Elxsi as a comparable. Relevant portion is extracted hereunder: ‘’5. Tata Elxsi Ltd. (Segmental): The ld. AR of the assessee submitted that this company renders high-end KPO services i.e. digital content creation, technology and product engineering, chip design, embedded production design, visual computing lab, AI design services. He further submitted that this company earns revenue from sale of trades goods of Rs. 33.74 crore and the same corroborated by existence of inventory in P&L statement about Rs. 2.89. He, therefore, submitted that this company may be excluded as comparable in the comparable list for determining ALP. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-15 wherein this company is excluded as comparable.

5.1 The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that this company Tata Elxsi is engaged in rendering of software services and, hence, functionally comparable to the assessee company.

5.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this Tribunal in assessee's own case in ITA No. 2233/Hyd/2018, for AY

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 14 of 33 2014-15, directed the AO/TPO to exclude this company from the list of comparables for determining ALP by observing as under: "27. As regards Persistent Systems Ltd, the objections of the assessee are as under: a) The Company is functionally not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions & Integration); and iii) services (product engineering) b. There are no segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corpoprate Information "Tata Elxsi Ltd was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry" 29. We find that in the case of Infor (India) (P) Ltd vs. ACIT in ITA No.2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from the final list of ITA No 2233 of 2018 ADP Private Ltd Hyderabad comparables. Thus, assessee's ground of appeal No.2 is partly allowed."

5.3 In the said decision, it has been held that the company is functionally different and engaged in diversified activities and since the revenue could not controvert the said decision nor brought any contrary decision, following the same, we direct the AO/TPO to exclude this company from the final list of comparables.’’ 14.9 The Tribunal in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 considering the above decision in ADP Pvt Ltd has rejected Tata Elxsi as comparable. In consideration of the same, we direct

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 15 of 33 the ld. DRP to remove Tata Elxsi Ltd. from the list of comparables for the impugned year.”

10.1 Accordingly, we direct the ld. AO/TPO to exclude this company M/s. Tata Elxsi Ltd. from the list of comparables on the basis of functionality. (c) Larsen & Toubro Infotech Ltd.: 11. The ld. A.R. submitted that M/s. Larsen & Toubro Infotech Ltd. is functionally dissimilar to the assessee company. It offers extensive range of IT services like application development, maintenance and outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions and platform based solutions to the clients in diverse industries such as Banking, Financial services, Insurance, Media & Entertainment, Travel, Logistics and Healthcare. He drew our attention to the annual report placed in page Nos.1775 of PB Part II for the FY 2017-18, page No.3846 of annual report of PB Part IV for the FY 2016-17 and page No.4025 of annual report PB Part V for the FY 2015-16. 11.1 The ld. D.R. relied on the order of lower authorities. 12. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration in the case of M/s. Yahoo Software Development India Pvt. Ltd. in IT(TP)A No.178/Bang/2022 for the AY 2017-18 the Tribunal vide order dated 11.7.2022 has held as under: “4. The Ld.AR submitted that Coordinate Bench of this Tribunal in assessee’s own case in IT(TP)A No. 2657/Bang/2018 & IT(TP)A No. 2365/Bang/2019 for A.Ys. 2014-15 & 2015-16 by order dated 28.02.2020 excluded Infosys Ltd., Mindtree Ltd., L&T Infotech Ltd. and Persistent Systems Ltd. by observing as under: “32. At the time of hearing, the ld. counsel for the assessee has prayed for exclusion of 4 comparable companies that remain after the order of the DRP viz., Persistent Systems Ltd., Infosys Ltd., Mindtree Ltd. and L&T Infotech Ltd. He brought to our notice that as far as Persistent Systems Ltd. is concerned, the reasoning given for excluding this company for AY 2014-15 will equally hold good for the present year as well. In this regard, our attention was drawn to page 601 of the assessee's PB wherein in the annual report of this company, Notes forming part of financial statement in Note (i) which gives the

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 16 of 33 description of income from software services, there is a reference to revenue from licensing & software, which sufficiently indicates that the assessee is not a pure SWD services provider. It was also brought to our notice that the profit & loss account which is at page 596 read with Notes forming part of the financial statement at page 604 wherein the segmental reporting is not based on different segments and the statement presents a consolidated financial statement without any segmental reporting. This company has also significant RPT transaction of 25% on sales. He pointed out that the TPO & DRP on the application of RPT filter has not expressed any opinion. The ld. DR relied on the order of DRP wherein the DRP has made extensive reference to each of the objections regarding absence of segmental revenue in the accounts and has also noticed that the software products segment had an insignificant revenue and that the ownership of intangibles by the assessee has had no effect whatsoever. 33. We have considered the rival submissions. We find that on the question of application of RPT filter, the assessee had made the following submission before the DRP:- 4. Fails the Related Party Transaction to Sales filter applied by the learned TPO In the show-cause notice issued, the learned TPO has excluded companies for which the ratio of RPT to sales exceeds 25% during the current year i.e., during FY 2014-15. The relevant extract from the show-cause notice is reproduced below for ease of reference: e) Companies who have more than 25% related parry transactions of the sales were excluded. Companies having related party transactions of more than 25% are proposed to be excluded. A threshold of 25% is being applied following the provisions of Section 92A(2)(a) which provides a limit of 26% of the equity capital carrying voting rights for treating an enterprise as Associated Enterprise. if the limit is reduced further it would only result in eliminating more and more companies, on the other hand if the limit is relaxed then companies with predominantly related party transactions would get included which would not represent uncontrolled transactions. Therefore, on a balancing note, 25% is a proper threshold limit for related party transactions. The companies having more than 25% related party transactions should therefore be rejected as comparables. The Hon'ble IT.AT has upheld the application of this filter by the TPO in its order in the case of M/s. Supporisoft India Pvt. Ltd for AY 2005- G6 in IT (TP)A 1372/B/11 & 20/2012 dated 28.03.2013 following its own decision in the case of M/s. Actis Advertisers Pvt. Ltd vide ITA No.5277/De1/2011 dated 12.10.2012. On perusal of the Annual Report of Persistent, we observe that the company has RPT in excess of 25% of the sales. The calculation of the same has been provided below for your ease of reference:

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 17 of 33 RPT to Sales ratio for FY Amount 2014-15 (INR Million) Particulars Sale of services 2,410.02 Commission received 10.26 Purchase of software 1.49 Cost of technical professional 1,339.1 Commission paid on sales 111.79 Traveling and conveyance 19.27 Total related party transactions 3,891.93 (A) Total Sales (B) 12,424.98 RPT % of Sales (A/B) 31.32%

From the above computation, it is clear that the controlled transactions of Persistent constitutes 31.32% of sales. Based on the above, it can be seen that Persistent fails the `RPT to sales ratio' filter applied by the learned TPO and should therefore not be considered as a comparable." 34. This argument has been addressed by the DRP in its order as follows:- "4.4.9 We note that the approach of the TPO in treatment of related party transaction into two sets, are for revenue transactions and other for expense transaction is logical and correct. We also note that the RPT filter was adopted by the TPO was with the above conditions and has adopted consistently. Hence, we do not find any infirmity the approach. Hence, we reject the assessee's plea. We hold that onsite expenses do not adversely affect comparability and hence, such plea is rejected." 35. Further, the assessee had also raised plea with regard to onsite revenue filter by pointing out that onsite revenue is substantial and therefore this company should not be regarded as a comparable company with a company which does not have any onsite revenue. In this regard, the ld. counsel for the assessee placed reliance on the decision of the ITAT Bangalore Bench in the case of Trilogy e- business Software India P. Ltd. v. DCIT, ITA No.1054/Bang/2011 for AY 2007-08 dated 23.11.2012 wherein this Tribunal took the following view:-

"64. The next objection of the Assessee is that when the most appropriate method selected for determining ALP is the TNMM there is no reason as to why one should look at price difference in offshore software development and onsite software development. It is no doubt true that in

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 18 of 33 TNMM it is only the margins in an uncontrolled transaction that is tested with reference to the controlled transaction but it is not possible to ignore the fact that pricing will have an effect on the margins obtained in a transaction. The argument that if pricing structure were to be considered as criteria, then it will have to be seen as to what is the pricing structure of all the comparable for various projects cannot be accepted because the TPO has not chosen any other onsite software service provider with a revenue composition of more than 75% from onsite software services as comparable. As rightly observed by the TPO, the pricing is different in onsite when compared to offshore operations. The further observations of the TPO that the reasons for the same lie in the fact that while in the case of OFFSHORE projects most of the costs are incurred in India; an ONSITE project has to be carried out abroad significantly increasing the employee cost and other costs. 65. The next objection of the Assessee is with regard to Assets employed. The companies, which predominantly generate revenues from onsite activity, do not have significant assets as most of the work is carried on the site of customer outside India. The argument that the TPO has himself observed that software service providers do not require much assets cannot be basis to accept the Assessee's plea. Those observations are made by the TPO in the context of application of turnover filter and have been quoted out of context by the Assessee. 66. The next argument of the Assessee is that TPO has held that margins are lower in onsite software services and that margin is not a criteria to select or reject a comparable under Rule I0B(2) of the I.T. Rules. We are of the view that this argument again ignores the fact that the approach of the TPO has been to highlight the fact that there can be no functional comparability, if the assets employed and risks assumed are taken into consideration. It is in that context the TPO has referred to the margins. 67. The companies who generate more than 75% of the export revenues from onsite operations outside India are effectively companies working outside India having their own geographical markets, cost of labour etc., and also return commensurate with the economic conditions in those countries. Thus assets and risk profile, pricing as well as prevailing market conditions are different in predominantly onsite companies from predominantly offshore companies like the taxpayer. Since, the entire operations of the tax payer are taking place offshore i.e. in India; it is but natural that it should be compared with companies with major operations offshore, due to the reason that the economics and profitability of onsite operations are different from that of offshore business model. As already stated the Assessee has limited its analysis only to functions but not to the assets, risks as well as prevailing market conditions in which both the buyer and seller of services located. Hence, the companies in which more than 75% of their export revenues come from onsite operations are to be excluded from the comparability study as they are not functioning in similar

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 19 of 33 economic circumstances to that of the tax payer. Hence, it is held that this filter is appropriately applied by the TPO. 68. Admittedly the onsite revenue in the case of the following comparable companies identified by the Assessee was more than 75% of its export revenues viz., a) Visu International Ltd. b) Maars Software International Ltd. c) Akshay Software Technologies Ltd. d) VJIL Consulting Ltd. e) Synfosys Business Solutions Ltd. The above companies were therefore rightly not considered as comparable by the TPO. We hold accordingly." 36. It is seen that the TPO in coming to the conclusion that the onsite revenue filter is not applicable has placed reliance on the decision of the ITAT Mumbai Bench in the case of Capegemini as quoted in para 16 in para 14 of the TPO's order, but that decision does not deal with a case of onsite revenue filter and the decision was rendered on the facts of its own case. 37. On the issue of RPT filter, we notice that the TPO in para 16 has accepted that the RPT filter should be @ 25%. In the case of Persistent Systems Ltd., the RPT is at 31.32% as extracted in the earlier part of this order and therefore this company should be excluded by application of RPT filter. In view of the above, we do not wish to go into other grounds on which this company is sought to be excluded viz., that it is a product company and there is no segmental data between product and services segment, presence of onsite activity and the impact of extra-ordinary event of acquisition during the relevant previous year. Therefore, this company is directed to be excluded from the list of comparable company. 38. As far as L&T Infotech Ltd. is concerned, the ld. counsel for the assessee brought to our notice the decision of ITAT Delhi Bench in the case of Saxo India Pvt. Ltd. v. ACIT, ITA No.6148/Del/2015 for AY 2011- 12, order dated 5.2.2016, wherein the Tribunal took note of the fact that this company was also trading in software and owned insignificant intangible assets. The company was excluded from the list of comparable companies with reference to SWD services provider such as the assessee. The ld.Counsel pointed out that though this decision was rendered with reference to AY 2011-12, the same reasoning would apply to AY 2015-16 also and in this regard, he drew our attention to page 696 of assessee's PB, which gives the details of the revenue generated by this company without any segmental break-up. Our attention was also drawn to page 682 of PB which shows that there is substantial onsite revenue activity as well as cost incurred on onsite software development. We notice from page 676 of assessee's PB that this company as part of its operating profit in Schedule- O of profit & loss account contains expenditure for 'cost of bought out items for resale' and this is a significant part of the operating expenditure. When we see the revenue in Schedule M of the profit & loss account, there is no break- up of the revenue with regard to software services and software product. In our opinion, this distinction is enough to exclude this

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 20 of 33 company from the list of comparable companies as held by the Hon'ble Delhi ITAT in the case of Saxo India Pvt. Ltd. (supra) which decision was also confirmed by the Hon'ble Delhi High Court. 39. The next company which the assessee seeks to exclude is Infosys Ltd. As far as this company is concerned, it is seen that the following are the functional dissimilarities brought to our notice:- "Functionally dissimilar - owns intellectual properties, incurs significant R&D costs & onsite activity. - Engaged in diversified business activities. - Involved in development of software products in addition to software services. - Owns intellectual property rights. - Incurs significant research and development costs. - Carries out significant activities based on onsite business. - Owns products such as Finacle, Edge Verve and other product based solutions. Extra-ordinary event of merger with Infosys Consulting India Ltd. Segmental profit & loss account not available. Commands substantial brand value. 40. The DRP, however, has not thought it fit to exclude this company by observing that this company has substantial pre- dominant revenue from software services and the growth was not attributable to any brand value. Presence of onsite activity and the expenses on R&D have all been brushed aside. In our view, the difference pointed out by the ld. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before us. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessee. 41. The next company sought to be excluded is Mindtree Ltd. The submissions made before us were as follows:- "Functionally dissimilar, diversified operation, significant R&D spend, ownership of intangibles. - Also engaged in business of rendering IP-Led revenue, infrastructure management, package implementation, consultancy services, etc. constituting 45% of overall revenue during FY 2014- 15. - Diversified operation i.e. engaged in infrastructure management services, business process management, technology consulting, product engineering and SAP services. Also lacks segmental data. - Significant research & development activity. By incurring R&D expenses, it was able to deliver IP based video surveillance management, recording and analytic products and solutions. It has filed 4 patents in India and US so far in the area of Video analysis.

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 21 of 33 - Ownership of intangibles in the form of intangible property. Significant onsite activity: - 46% of revenue earned under Onsite model. - Incurred overseas branch office expenses amounting to INR 1582 crores - Receives incentives from State of Florida in relation to the development center located overseas. Lack of segmental data - Does not maintain segmental information in respect of profitability reported from business activities in the nature of infrastructure management services, technology consulting and SAP services. - Acquisition of subsidiary - Discoverture Solutions LLC. 42. The DRP while dealing with the aforesaid objections has merely taken the view that the presence of IPR revenue was insignificant and so also expenses of brand value, R&D & intangibles. More importantly, the DRP did not dispute the presence of 46% of revenue from onsite model, but went on to hold that the presence of revenue is not sufficient to exclude a company, when it is otherwise functionally comparable. On this aspect, we have already referred to the decision of the ITAT Bangalore Bench in the case of Trilogy e-business Software India P. Ltd. (supra) and in the light of this decision and the admitted factual position regarding presence of onsite revenue over and above the threshold limit of 25% of total revenue, we are of the view that this company should be excluded from the list of comparable companies. We hold and direct accordingly.”

12.1 In view of the above order of the Tribunal, we are of the opinion that M/s. Larsen & Toubro Infotech Ltd. cannot be considered to be comparable to the assessee’s case on functionality basis, accordingly we direct the ld. AO/TPO to exclude this company from the list of comparables. (d) Persistent Systems Limited: 13. The ld. A.R. submitted that M/s. Persistent Systems Ltd. is functionally dissimilar to the assessee company since this company has significant related party income transactions and accordingly, fails the RPT filter of less than 25% of sales for the year under

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 22 of 33 consideration, applied by the ld. TPO. Further, this company’s key products and services include (i) Enterprise Digital Transformation (ii) Product engineering services and solutioning for Internet of things (iii) Product and Engineering Services to ISV’s and enterprises and (iv) IP Products. In this regard, he drew our attention to the annual report placed in page Nos.2013, 2033,2111, 2025 1775 of PB Part III for the FY 2017-18 and page No.4526 of PB Part V for the FY 2016- 17. 13.1 The ld. D.R. relied on the orders of lower authorities. 14. We have heard the rival submissions and perused the materials available on record. As discussed in the earlier paras in the case of L&T Infotech Ltd., this has came for consideration as reproduced in earlier para No.12 of this order in the case of M/s. Yahoo Software Development India Pvt. Ltd. cited (supra). Accordingly, this company M/s. Persistent Systems Limited is excluded from the list of comparables on the basis of functionality. (e) Wipro Limited: 15. The ld. A.R. submitted that M/s. Wipro Limited is functionally dissimilar to the assessee company since it is engaged in providing cognitive computing, hyper automation, robotics, cloud, analytics and emerging technologies. Also, the company is engaged in offering software products. In this regard, he drew our attention to annual report which is placed in page Nos.2328, 2293 & 2181 of PB part III for the FY 2017-18. 15.1 The ld. D.R. relied on the orders of lower authorities. 16. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration in assessee’s own case for the AY 2008-09 in IT(TP)A No.1670/Bang/2012 dated 6.11.2015 wherein held as under: 12. “Wipro Ltd. 12.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables on several grounds like functional dis-similarity, brand

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 23 of 33 value, size, etc. The TPO, however, brushed aside the objections of the assessee and included this company in the set of comparables. 12.2 Before us, the learned Authorised Representative of the assessee contended that this company i.e. Wipro Ltd., is not functionally comparable to the assessee for the following reasons :- (i) This company owns significant intangibles in the nature of customer related intangibles and technology related intangibles, owns IPRs and has been granted 40 registered patents and has 62 pending applications and its Annual Report confirms that it owns patents and intangibles. (ii) the ITAT, Delhi observation in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856(Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and a market leader assuming all risks leading to higher profits, cannot be considered as comparable to captive service providers assuming limited risk; (iii) the co-ordinate bench of the ITAT, Mumbai in the case of Telecordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) has held that Wipro Ltd. is not functionally comparable to a software service provider. (iv) this company has acquired new companies pursuant to a scheme of amalgamation in the last two years. (v) Wipro Ltd. is engaged in both software development and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (vi) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO’s own filter of rejecting companies with consolidated financial statements. 12.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 24 of 33 comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 12.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration.” 16.1 Being so, we direct the ld. AO/TPO to exclude this company M/s. Wipro Ltd. from the list of comparables. (f) Infosys Limited: 17. The ld. A.R. submitted that M/s. Infosys Limited is functionally dissimilar to the assessee company since the turnover of this company is 61941 crores against the turnover of assessee company at Rs.192.81 crores for the assessment year under consideration. Further, M/s. Infosys Ltd. provides business consulting, technology, outsourcing, next generation services and software. The company also provides products business platforms and solutions to accelerate intellectual property led innovation. Also, the company’s new service offerings cover area like digital, big data and analytics, cloud, data and mainframe modernization, cyber security, IoT engineering services and API and micro services. In this regard, he drew our attention to the annual report placed at page Nos.2641, 2753, 2780 of paper book Part III for the FY 2017-18, page Nos.5052, 5199 of PB part VI for the FY 2016-17 and page Nos.5312, 5394 of PB part VI for the FY 2015-16. 17.1 The ld. D.R. relied on the order of lower authorities. 18. We have heard the rival submissions and perused the materials available on record. This company M/s. Infosys Ltd. has

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 25 of 33 been considered as not comparable on the basis of functionality in the case of M/s. Yahoo Software Development India Pvt. Ltd. in IT(TP)A No.2657/Bang/2018 & IT(TP)A No.2365/Bang/2019 for the AY 2014-15 & 2015-16 dated 28.2.2020, wherein held as under: “39. The next company which the assessee seeks to exclude is Infosys Ltd. As far as this company is concerned, it is seen that the following are the functional dissimilarities brought to our notice:- "Functionally dissimilar - owns intellectual properties, incurs significant R&D costs & onsite activity. - Engaged in diversified business activities. - Involved in development of software products in addition to software services. - Owns intellectual property rights. - Incurs significant research and development costs. - Carries out significant activities based on onsite business. - Owns products such as Finacle, Edge Verve and other product based solutions. Extra-ordinary event of merger with Infosys Consulting India Ltd. Segmental profit & loss account not available. Commands substantial brand value. 40. The DRP, however, has not thought it fit to exclude this company by observing that this company has substantial pre-dominant revenue from software services and the growth was not attributable to any brand value. Presence of onsite activity and the expenses on R&D have all been brushed aside. In our view, the difference pointed out by the ld. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before us. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessee.”

18.2 Accordingly, we direct the ld. AO/TPO to exclude this company on the basis of functionality as well as on turnover basis. 19. In the result, the main ground Nos.5 to 7.8 and additional ground No.3 are allowed. 20. Regarding the next main ground No.8 and additional ground Nos.1 & 2 the ld. A.R. submitted that the Ld. TPO vide order dated 21.07.2022 while giving effect to DRP directions proceeded to make an adjustment of INR 3,25,19,952/-. The ld. A.R. submitted that

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 26 of 33 receivables in the present assessment year arose from international transaction pertaining to SWD and MSS services. Thus, the same are not just closely linked but are a part of the said transactions. He prayed for deletion of this adjustment on account of interest on receivables on the following grounds:

(a) Upon exclusion of 6 comparables from the final set of comparbales in SWD segment, the Appellant would have earned excess margin of 1.63% (15% - 13.37%) which would amount to INR 2,73,29,126 of excess income earned over ALP by the assessee in this segment. Further since the assessee has earned excess margin of 5.76% (9% - 3.24%) in the MSS segment, an excess income of INR 1,30,48,116 has been earned. The total excess income earned by the Appellant in MSS and SWD is INR 4,03,77,243 being greater than the proposed adjustment of INR 3,25,19,952 on account of interest on receivables. Thus, it can be seen that the assessee has already recovered the alleged shortfall on account of delayed receivables by way of excess service income received from its AEs and no further adjustment is warranted/ justified in the present case. This principle of set off in the context of transfer pricing adjustment was recognised by the Hon’ble Delhi High Court in case of Sony Ericsson Mobile Communications India (P.) Ltd. vs. CIT: [2015] 374 ITR 118 (Delhi). (b) Without prejudice to above, all the receivables which are earned by the assessee arising from international transaction pertaining to SWD and MSS services were received from invoicing in Euro. In this regard, he submitted that since receivables are denominated in Euro, even if a notional interest is to be charged, the same should be benchmarked using EUR- LIBOR as interest rate. Our attention in this regard is invited by the ld. A.R. to the cases as under:

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 27 of 33 CIT v. Vaibhav Gems Ltd. [2017] 88 taxmann.com 12 - (Rajasthan) – Revenue’s SLP dismissed in [2018] 259 Taxman 130 (SC) Mahindra & Mahindra Ltd. v. DCIT [2020] 117 - taxmann.com 518 (Mumbai - Trib.) (c) He submitted that without prejudice to above, all benchmarking of international transactions under Chapter X of the Income-tax Act is mandatorily to be done by comparison with independent functionally similar comparable companies. Reliance on agreement for holding 30 days credit period is incorrect as the very basis for transfer pricing adjustment in such an international transaction will be tainted. Consistent with argument of department that agreement between related parties has to be assumed to be tainted, it would be absurd to contend that credit period of 30 days mentioned therein is sacrosant. Such selective reliance on the agreement is impermissible. In terms of principle laid down in Chapter X comparison on all aspects with independent third parties is necessary, hence he submitted that the average credit period of comparable companies being 78 days may be directed to be used for imputation of interest. 20.1 The ld. A.R. for the assessee requested for granting working capital adjustment in terms of decision of Bangalore Tribunal in case of Huawei Technologies India Pvt Ltd. vs. ACIT: IT(TP)A No.731/Bang/2022. 21. The ld. D.R. relied on the order of the Tribunal in the case of M/s. Thought Focus Information Technologies Pvt. Ltd. in IT(TP)A No.742/Bang/2022 dated 11.1.2023 for the AY 2018-19 wherein the ld. DRP referred to the decision of jurisdictional High Court in the case of DCIT Vs. AMD India Pvt. Ltd. in ITA No.274/2018 dated 31.8.2018 wherein held that the deferred receivables would constitute “an independent international transaction and hence,

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 28 of 33 separate bench marking has to be done and TP adjustment is to be made as per law”. Therefore, interest imputation is not hypothetical as per the requirement of TP regulation. Further, she submitted that the credit period is only 30 days. As such, credit period is to be restricted to the actual period of 30 days only. 21.1 We have heard the rival submissions and perused the materials available on record. In our opinion, this issue came for consideration before this Tribunal in the case of M/s. Huawei Technologies India Pvt. Ltd. in IT(TP)A No.731/Bang/2022 for the AY 2018-19 the Tribunal vide order dated 5.12.2022 held as under: 32. “We heard the rival submissions and perused the material on record. In our opinion, the impugned issues of whether the interest on receivable is a separate international transaction and the rate of interest to be considered has been considered in the decision of the coordinate Bench of the Tribunal in the case of Swiss Re Global Solutions India Pvt. Ltd. (Order dated 21.01.2022 passed in IT(TP)A No. 397/Bang/2021). wherein it was held as under:- “35. The only other issue that remains for adjudication is ground No.15 with regard to re-characterizing certain trade receivables as unsecured loans and computing notional interest on such trade receivables. The main contention of the ld. AR is that deferred receivables would not constitute a separate international transaction and need not be benchmarked while determining the ALP of the international transaction. In our opinion, this issue was considered by the Tribunal in assessee’s own case for AY 2014-15 and in para 23 to 23.9 of the order dated 21.5.2020 this Tribunal held as under:-

“23. Ground No. 14-17 alleged by assessee against adjustment of notional interest on outstanding receivables. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore separate addition is not called for. 23.1. Ld.TPO computed interest on outstanding receivables under weighted average method using LIBOR + 300 basis points applicable for year under consideration that worked out to 3.3758% on receivables that exceeded 30 days. It has been argued by Ld.AR that

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 29 of 33 authorities below disregarded business/commercial arrangement between the assessee and its AE's, by holding outstanding receivables to be an independent international transaction. 23.2. Ld.AR placed reliance on decision of Delhi Tribunal in Kusum Healthcare (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT v. Kusum Health Care (P.) Ltd. [2018] 99 taxmann.com 431/[2017] 398 ITR 66, held that no interest could have been charged as it cannot be considered as international transaction. He also placed reliance upon decision of Delhi Tribunal in case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxman.com 6 which subsequently upheld by Hon'ble Delhi High Court vide order in Pr. CIT v. Bechtel India (P.) Ltd. [IT Appeal No. 379 of 2016, dated 21-7- 16] also upheld by Hon'ble Supreme Court vide order, in CC No. 4956/2017. 23.3. It has been submitted by Ld.AR that outstanding receivables are closely linked to main transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 23.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of the contentions, he placed reliance on decision of Delhi Tribunal order in Ameriprise India (P.) Ltd. v. Asstt. CIT [2015] 62 taxmann.com 237 wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include— . . . . . (c) capital financing, including any type of long-term or short- term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;. . . ' 23.5. Ld.CIT.DR submitted that expression 'debt arising during the course of business' refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 30 of 33 within transfer pricing adjustment, on account of interest income short charged or uncharged. It was argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non-payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon'ble Delhi Bench in this case noted a decision of the Hon'ble Bombay High Court in the case of CIT v. Patni Computer Systems Ltd. [2013] 33 taxmann.com 3/215 Taxman 108 (Bom.), which dealt with question of law: "(c) 'Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?" 23.6. Ld.CIT.DR submitted that, while answering above question, Hon'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, Hon'ble Bombay High Court restored the issue to file of Tribunal for fresh decision in light of legislative amendment. It was thus argued that non/under-charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction and ALP of such international transaction has to be determined by Ld.TPO. Insofar as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing-up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 23.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT (IT) [2016] 71 taxmann.com 193/160 ITD 1 (Kol. - Trib.), held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per Explanation to section 92B of the Act. We also perused decision relied

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 31 of 33 upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR.

23.8. Alternatively, it has been argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and loans and advances to associated enterprise would amount to double taxation. Hon'ble Delhi Tribunal in case of Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT [2018] 91 taxmann.com 286 has observed that: "There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon'ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd v. DCIT [2017] 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon'ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterised as international transactions." 23.9. In view of the above, we deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law.” 36. Accordingly, we are of the opinion that deferred receivables would constitute an independent international transaction and the same is required to be benchmarked independently as held by the Hon’ble Karnataka High Court in PCIT v. AMD (India) Pl. Ltd., ITA No.274/2018 dated 31.8.2018. 33. In so far as the question of rate of interest is concerned, we find that this issue is no more res integra in view of the judgment of the Hon'ble Delhi High Court in the case of Cotton Naturals (I) (P.) Ltd (supra) in which it has been held that it is the currency in which the loan is to be repaid which determines

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 32 of 33 the rate of interest and hence the prime lending rate should not be considered for determining the interest rate. 34. During the course of hearing the ld AR drew our attention to the the invoice- wise receivable collection of the assessee with with the average receivable days computed for the comparable companies proposed by the assessee where, it is observed that the weighted average number of days for which the invoices remained overdue during the year worked out to 43 days (Page 1096 and 1097 of Paper Book I - Factual Document - Part 2) and that of the comparable companies average came to 51 days. (Internal Page 387 of the DRP submission/ Page 664 of Paper Book I - Factual Document - Part 1/ Page 494 to 495 of Appeal set). The ld AR without prejudice submitted that a similar analysis on the comparable set proposed by the learned TPO it is noticed that the average receivable days of the learned TPO’s set came up to 79 days and therefore it is the submission of the ld AR that that the comparable companies are allowing higher credit days than the assessee. (Internal Page 388 of the DRP submission/ Page 494 to 495).

IT(TP)A No.913/Bang/2022 M/s. Infineon Technologies India Private Limited, Bangalore Page 33 of 33 21.2 Accordingly, this issue is remitted to the file of ld. AO/TPO on similar direction with the rider that period of credit should be for 30 days only. 22. In the result, main ground No.8 and additional ground Nos.1 & 2 are partly allowed for statistical purposes. 23. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 10th Jan, 2024

Sd/- Sd/- (Madhumita Roy) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 10th Jan, 2024. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.