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Facts
The assessee, M/s. MatchMove India Private Limited, is a subsidiary of a Singapore-based company and operates in software development services and digital payment platform distribution. The Assessing Officer (AO) made additions to the total income concerning the arm's length price (ALP) of international transactions, specifically for software development services and interest on delayed receivables.
Held
The Tribunal held that the rejection of the assessee's segmental financial statements by the lower authorities was not justified and restored the issue to the Assessing Officer for fresh examination. Regarding interest on overdue receivables, the Tribunal directed reconsideration of the working capital adjustment claim and, if not granted, upheld the addition with a direction to use LIBOR plus markup for benchmarking.
Key Issues
Whether the assessee's segmental financial statements for determining ALP are valid, and whether interest on overdue receivables constitutes a separate international transaction requiring separate benchmarking.
Sections Cited
143(3), 144C(13), 144B, 92B, 234A, 234B, 270A, 10B(1)(e)
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Income Tax Appellate Tribunal, “B” BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNADARARAJAN K.
O R D E R
PER PRASHANT MAHARISHI, VICE PRESIDENT
1. IT(TP)A No. 2255/Bang/2024 is filed by M/s. MatchMove India Private Limited [ Assessee / Appellant] for Assessment Year 2021-22 against Assessment Order passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (the Act) by the Assessment Unit, Income Tax Department (the Ld. Assessing Officer/ AO] pursuant to the direction of the Ld. Dispute Resolution Panel [ the ld. DRP] raising following grounds of Appeal:-
Based on the facts and circumstances of the case and in law, the Appellant respectfully craves leave to prefer an appeal against the assessment order passed under section 143(3) r.w.s. 144C(13) r.w.s. 1448 ("Assessment Order") of the Income-tax Act, 1961 ("the Act") by Assessment Unit, Income IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 2 of 13 Tax Department ("Ld. AO") pursuant to the direction of Dispute Resolution Panel, Bengaluru ("Hon'ble DRP"), on the following grounds , each of the grounds is referred to separately, which may kindly be considered independent/ without prejudice of each other. In the facts and circumstances of the case and in law, the Ld. AO/ Learned Transfer pricing officer (" Ld. TPO") and the Hon'ble DRP has: General Grounds:
1. Erred in law and in facts, in computing the assessed income at INR 7,60,38,820 as against the returned income / (loss) of INR (2,79,48,903) filed by the Appellant under normal provisions of the Act.
Erred in making an addition of INR 10,39,78,433 to the total income of the Appellant on account of adjustment in the arm's length price ("ALP") for international transactions entered by the Appellant with its Associated Enterprises ("AEs") as follows: a) Adjustment of INR 10,25,38,320 in respect of provision of software development services; and b) Adjustment of INR 14,40,113 in respect of interest on delayed receivables. Transfer Pricing Grounds: 3. Adjustment on account of re-determination of ALP for software development services rendered by the Appellant to its AEs amounting to INR 10,25,38,320 3.1. Erred by not accepting the economic analysis undertaken by the Appellant in accordance with the Act and the corresponding Rules, conducting a fresh economic analysis for the determination of the ALP and holding that the Appellant's impugned international transactions are not at arm's length. 3.2. Erred in rejecting certified segmental financials statements and undertaking a company-wide analysis, and not restricting the adjustments to only transactions with AES:
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 3 of 13 a) Undertaking benchmarking analysis on a company wide basis, despite acknowledging in the TP order, DRP directions and Assessment order that the Appellant is engaged in two distinct and separate businesses viz., a distribution segment and a software development service segment. b) Erred in not considering that the distribution segment is a third-party segment and only the software development service segment provides services to AE; c) Erred in not considering the certified segmental financials of the Company and undertaking an analysis on a companywide basis; d) Erred in providing flawed/ baseless reasons for rejecting the segmental provided by the Appellant without appreciating the business operations of the App e) Without prejudice to the above, not restricting the adjustment on a proportionate basis to the software development service transaction. 3.3. Erred in using the following additional/modified filters in undertaking a fresh economic analysis: (a) One sided turnover filter (b) Service income filter 3.4. Erred in not undertaking objective comparative analysis and inter-alia rejecting certain functionally comparable companies: (a) Rheal Software Private Limited (b) Infomile Technologies Limited (c) Batchmaster Software Private Limited (d) Toxsl Technologies Limited (e) Harbinger Systems Private Limited 3.5. Erred in rejecting certain functionally comparable companies additionally identified by the Appellant during the assessment proceedings:
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 4 of 13
(a) Orchasp Limited (b) Kcube Consultancy Services Private Limited (c) Orangescape Technologies Private Limited 3.6. Erred in not undertaking objective comparative analysis and inter-alia selecting the following companies as comparable which are functionally not comparable to the Appellant: (a) Infosys Limited (b) Wipro Limited (c) Tata Consultancy Services Limited (d) Nihilent Limited (e) Tata Elxsi Limited (f) Cybage Software Private Limited (g) L&T Infotech Limited (h) Consilient Technologles Limited (i) Net4Nuts Limited (j) Aptus Software Labs Private Limited (k) CG-Vak Software & Exports Ltd (l) Mindtree Limited (m) Great Software Laboratory Private Limited
3.7. Erred in not excluding companies which are earning supernormal profits. 3.8. Erred in not adjusting the net margins of comparable companies for differences in working capital in accordance with the provisions of rule 10B(1)(e) of the Rules. 3.9. Erred in not adjusting the net margins of comparable companies for differences in financial and risk position in accordance with the provisions of rule 10B(1)(e) of the Rules.
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 5 of 13
4. Adjustment on account of Interest on outstanding receivables amounting to INR 14,40,113 4.1. Erred in not appreciating that outstanding receivables is not covered in the definition of international transaction as defined u/s 92B of the Act in the facts and circumstances of the case. 4.2. Erred in not appreciating that receivables are consequential/closely linked to principal transaction of provision of services and have been aggregated for determination of ALP under TNMM. 4.3. Erred in re-characterising the outstanding receivables as unsecured loans advanced to AES. 4.4. Erred in not following any statutorily prescribed method and without doing any comparability benchmarking as prescribed under Chapter X of the Act. 4.5. Erred in not appreciating that the Appellant is fully funded by AE with no working capital risk. 4.6. Erred in not appreciating the fact that the Appellant, in its third-party segment also does not receive interest on outstanding receivables from third parties. Without prejudice to the above
4.7. Erred in not appreciating the fact that the working capital adjustments undertaken take into account impact of outstanding receivables of controlled transactions vis-à-vis uncontrolled transactions in determining arm's length margin and no separate benchmarking is required. 4.6. Erred in not providing justification or benchmarking analysis for selection of State Bank of India's ('SBI') short term deposit rates to benchmark the Appellant's outstanding receivables. 4.9. Erred in not appreciating that the receivables due from overseas AEs are in foreign currency and hence interest, if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans.
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 6 of 13
4.10. Erred in considering an ad-hoc credit period of 30 days instead of the industry average credit period. 4.11. Erred in not appreciating that the Act itself provides for a longer credit period of 90 days for repatriation of money in the event of primary adjustment. 4.12. Erred in not allowing credit period as allowed by RBI. Other Grounds:
5. Ground on erroneous levy of interest 5.1 The Ld. AO has erred in facts and in law by levying interest u/s 234A of the Act in the computation sheet wherein the return of income for the year was filed within the due date specified u/s 139(1) of the Act and the same ought to be deleted.
5.2 The Assessment Unit has erred in law and on facts by levying interest under section 234B of the Act, which is consequential to the aforementioned additions and disallowances.
6. Ground on erroneous initiation of penalty under section 270A of the Act 6.1 The Ld. AO was not justified and rather grossly erred in law and in facts by initiating penalty proceedings under section 274 read with 270A of the Act on account of under reporting income. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant prays for leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal. Prayer: The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 7 of 13 2. The facts of the case indicate that the Assessee is a Private Limited Company and a wholly owned subsidiary of M/s. MatchMove Pay Pte Ltd, Singapore. The Assessee operates in two distinct business segments: distribution of digital payment solution platforms and provision of software development services. Each segment functions independently, and the assessee claims that Assessee maintains separate segmental financial statements to accurately determine profitability.
The assessee submitted its income tax return on 04.03.2022, reporting a total loss of Rs. 2,79,48,903/-. The return was selected for scrutiny. Due to the assessee’s involvement in international transactions with associated enterprises, a reference was made to the Learned Transfer Pricing Officer to determine the arm's length price for these international transactions.
The Assessee has disclosed an international transaction involving the provision of technology support services to its associated enterprise, M/s. MatchMove Pay Pte Limited, amounting to Rs. 24,40,51,340/-.
The Assessee benchmarked this transaction adopting the transactional net margin method as the most appropriate method considering the profit level indicator of operating profit/operating cost for this segment at 12.69%. The Ld. Transfer Pricing Officer asked for the breakup of the segmental details which were not provided by the Assessee till the Assessment Order was passed and therefore a show cause notice was issued which was not replied to providing the above detail.
In the Software Development Segment, the margin shown by the Assessee is 18.03% including the gain on foreign exchange fluctuations. As the Assessee could not provide evidence to the Ld. Transfer Pricing Officer about the working of marking of 18.03%, he considered the foreign exchange loss/gain not part of the margin computation and further rejected the transfer pricing study report. The Ld. Transfer Pricing Officer then proceeded to determine the arm’s length price wherein he decided the filters were adopted by the Assessee and out of 12 filters he modified 4 of them and carried out a fresh search. On fresh search, he also IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 8 of 13 examined the 11 comparables selected by the Assessee and selected 5 of them rejected 6. He further carried out a search on Prowess database as well as on AceTP database and after dealing with the comments of the Assessee reached at final list of 18 comparables whose 35th percentile was determined at 19.95%, median margin was determined at 25.09% and 65th percentile at 32.14%. On the operating revenue of the Assessee of Rs. 25,23,48,474/-, he computed the arm’s length price considering the taxpayers PLI of 12.69% at Rs. 36,15,63,684/- and made an adjustment of Rs. 10,92,15,210/-.
For the outstanding receivable, he noted that there is delay in recovery from associated enterprises through adopting a SBI PLR at the rate of 12.27% and computed the arm’s length price of the interest at Rs. 1,53,90,857/- adopting SBI PLR. Total adjustment proposed at Rs. 12,46,06,067/- by order dated 28.10.2023.
Consequently, the draft Assessment Order passed on 20.11.2023 which was objected to before the Ld. Dispute Resolution Panel and the Ld. Dispute Resolution Panel passed its direction on 29.08.2024. On the basis of the direction of the Ld. Dispute Resolution Panel, the Ld. Transfer Pricing Officer passed an order giving effect to the direction of the Ld. Dispute Resolution Panel on 25.09.2024 wherein the arm’s length price of software development international transaction was retained at Rs. 10,25,38,320/- and interest on overdue outstanding receivable was computed at Rs. 14,40,113/- resulting in the total transfer pricing adjustment of Rs. 10,39,78,433/-. The final Assessment Order was passed on 27.09.2024 determining the total income of the Assessee at Rs. 7,60,38,820/-. This order is in challenge before us.
At the time of hearing, the Ld. Authorized Representative, Shri Chavali Narayan, Chartered Accountant first pressed ground no. 3.2 and submitted that rejection of the segmental result furnished by the Assessee is incorrect. He referred to ground no. 3.2 stating that Assessee is engaged in two distinct and separate business maintaining separate segmental financial statements which could not have been rejected by the IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 9 of 13 Ld. Transfer Pricing Officer. He referred to page no. 339 of the Appeal set which is the transfer pricing order wherein the margin computed by the Assessee of software development segment was shown at 18.03%, which was reduced by the Ld. Transfer Pricing Officer to 12.69%. He further referred to the direction of the Ld. Dispute Resolution Panel at para no. 3.3 wherein the Assessee provided a certified segmental detail by the Chartered Accountant before the Ld. Dispute Resolution Panel.
The Ld. Dispute Resolution Panel rejected the same holding that basis of allocating revenue and expenses between associated enterprises and non-associated enterprises transactions is an unaudited financial statement. The second observation is that Assessee has incurred huge loss in the non-AE segment of platform segment whereas there is a profit in the technology support service segment of the Associated Enterprises and margin shows wide variance. It was further stated that the wide variance for no readily apparent reasons casts doubts on the methodology adopted by the Assessee for the allocation of the cost between different segments.
The Ld. Authorized Representative submitted that this could not have been the reason for rejecting the financial statement. He further referred to the transfer pricing study report and the submission made before the Ld. Transfer Pricing Officer. He further referred to several judicial precedents stating that when the tax payer maintains a segmental account, same cannot be rejected without pointing out any reason.
He further referred to ground no. 4 of the Appeal and submitted that interest on outstanding receivable adjustment made by the Ld. Transfer Pricing Officer is not correct because Assessee is a zero-debt company and does not have any borrowings. It did not levy any interest on third party customers and if the working capital adjustment is granted to the Assessee, which was claimed before the Ld. Transfer Pricing Officer, no separate transfer pricing adjustment is warranted. Even otherwise, he submitted that the rate of interest taken by the Ld. Dispute Resolution Panel and Ld. Transfer Pricing Officer are State Bank of India PLR rate
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 10 of 13 which could not have been taken because invoices are made in foreign currency.
The Ld. Departmental Representative Dr. Divya K, J-CIT vehemently supported the order of the Ld. Transfer Pricing Officer and the direction of the Ld. Dispute Resolution Panel. It was submitted that Assessee did not furnish the information before the Ld. Transfer Pricing Officer of segmental margins. Further, when the segmental margins were produced before the Ld. Dispute Resolution Panel, it had several flaws as pointed out by the Ld. Dispute Resolution Panel at para no. 3.3 of the direction. She further submitted that how it could be possible that there is a huge loss in case of a non-AE transaction and huge profit in case of AE transaction. Even the audited statement did not show which allocation key has been used for allocating the expenditure. In absence of all these details, there is no infirmity in rejecting the segmental financial statement prepared by the Assessee. On the issue of interest on overdue receivables, she submitted that it is a separate international transaction, unless the Assessee proves it to be connected with the original transaction then only working capital adjustment can be granted. Here both the transactions are separate and therefore working capital adjustment is rightly rejected. Further, the interest payment by the Assessee or interest free status of the Assessee does not help as a separate international transaction is required to be benchmarked separately.
We have carefully considered the rival contentions and perused the orders of the Ld. Lower Authorities. The simple issue involved in this case is that Assessee has prepared a segmental financial statement wherein the margin of the Software Development Segment is computed as per the TPSR is 18%. The Ld. Transfer Pricing Officer has computed such margin at 12.69%. But, in the end rejected the same. The reason for rejection of the segmental financial statement by the Ld. Transfer Pricing Officer is that Assessee did not provide any information before him. However, before the Ld. Dispute Resolution Panel, Assessee provided a Chartered Accountant certified segmental analysis. According to that, Assessee
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 11 of 13 prepared two segments, namely technology support service segment of transactions with AE and further platform segment with non-associated enterprises. The revenue from operation from both the segment is Rs. 24,26,50,999/- and Rs. 82,97,135/- respectively. The Assessee has shown profit from AE segment of Rs. 3,98,02,294/-. However, loss in platform non-AE segment of Rs. 7,27,40,382/-. Thus, there is wide variation between the profitability of AE segment and non-AE segment. Certain expenditure such as network cost, partners and programs, processor cost etc., were not at all allocated to AE segment but were considered as part of the total cost of non-AE segment. All these facts were noted by the Ld. Dispute Resolution Panel and they rejected it. The rejection was because this is an unaudited financial statement and further there is a wide variation in the margin. We find that the segmental results submitted by the Assessee are Chartered Accountant certified segments. Undisputedly, this fact is not disputed by either of the lower authorities. Further, we also find that while preparing the AE segment and non-AE segment, segmental profitability statements are assessed, what is the allocation key and on what basis the expenses are stated to be only pertaining to non-AE segment. All these answers are required to be provided by the Assessee before his segmental financial statement can be further looked into. Further, the Ld. Dispute Resolution Panel also could not have rejected the same statement that it is not an audited financial statement. Neither is there a provision of law, nor is it also a requirement. Assessee in its own interest has got this segmental analysis certified by a Chartered Accountant. Further, merely the wide variance could not have been the reason for rejection of the same. It should have been the first point of testing or investigating the segment financial statements. Throwing away the evidence at the threshold by the Ld. Revenue Authorities is not acceptable. The evidence produced by the Assessee must be thoroughly examined, there should be subjective evaluation of these evidences, if required further investigation, confrontation with the assessee from findings and based on this an independent decision should have been taken for its acceptance or its rejection. If the same is accepted, the Assessee must be granted use of such evidence for IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 12 of 13 determining the price of arm’s length. In view of these facts, we restore ground no. 3.2 of this Appeal back to the file of the Ld. Assessing Officer. The Ld. Assessing Officer may obtain report of the Ld. Transfer Pricing Officer and then pass a draft Assessment Order after examination of the segmental financial statement and determination of the arm’s length price.
With respect to the interest on overdue receivable, Assessee has claimed working capital adjustment and submitted that if WCA is granted then this addition will obliterate. We find that as the Ld. Transfer Pricing Officer has adopted its own comparable but has rejected the request of the Assessee vide para no. 13 of the TP order for WCA requires to be reconsidered as the onus is now not on the Assessee but on TPO to compute the arm’s length price of international transaction in its completeness. As the comparables are selected by him, he could not have stated that segmental working capital is not disclosed in the Annual Reports and further the cost of capital is different from different companies on examination of annual accounts of comparable companies. To reject the claim of the Assessee, he has to examine the adjustment of working capital on the basis of principles of determination of the arm’s length price of the transaction. If the Ld. Transfer Pricing Officer finds that Assessee is eligible for working capital adjustment, he may grant so by obliterating adjustment made on interest on overdue receivables. However, if he finds that Assessee is not eligible for working capital adjustment, we upheld the order of the Ld. Transfer Pricing Officer that it is a separate international transaction and further as different company or non-charging of interest on third party customers would not make any impact. Further, as the invoices are raised in US dollars, the adoption of SBI PLR by the Revenue Authorities is unjustified. The interest may be calculated by adopting the LIBOR rate with appropriate markup base, if any.
In the result, ground no. 4 of the Appeal is allowed with above direction.
No other grounds are pressed before us. Therefore, those are dismissed.
IT(TP)A No. 2255/Bang/2024 M/s. MatchMove India Private Limited Page 13 of 13 18. Appeal of the Assessee is allowed for statistical purposes as indicated above.
Order was pronounced in the open court on 08th April, 2026.