SASKEN TECHNOLOGIES LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No. 404/Bang/2017 Assessment Year : 2012-13 M/s. Sasken Technologies Ltd., (Formerly known as The Deputy Sasken Communication Commissioner of Technologies Ltd.), Income Tax, No. 139/25, Domlur Circle – 6(1)(1), Ring Road, Vs. Bangalore. Bangalore – 560 071. PAN: AAECS6424R APPELLANT RESPONDENT : Shri Padam Chand Khincha, Assessee by CA : Shri K. Sankar Ganesh, JCIT Revenue by DR ITAT Date of Hearing : 15-11-2022 Date of Pronouncement : 30-11-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the assessment order dated 31.01.2017 passed by Ld.DCIT, Circle – 6(1)(1), Bangalore for A.Y. 2012-13 on following concise grounds of appeal: “1. General:- The learned AO and the DRP erred in passing the order / directions in the manner passed by them. The orders passed being bad in law is liable to be quashed.

Page 2 IT(TP)A No. 404/Bang/2017 2. Grounds relating to Transfer Pricing – Legal issues :- The learned AO erred in (i) making a reference to TPO for determining arm's length price without demonstrating as to why it was necessary and expedient to do so; (ii) making transfer pricing adjustments totally amounting to Rs. 5,57,22,444; (iii) passing the orders without demonstrating that the appellant had motive of tax evasion; (iv) not appreciating that no addition can be made under Chapter X as Transfer pricing adjustment under Chapter X is not included in the definition of ‘income’ u/s 2(24) or under Chapter IV of the IT Act, 1961; Grounds on Transfer Pricing adjustment in respect of Interest received from Sasken, Inc, USA 3.1 The learned TPO, AO and DRP erred in (i) determining and making adjustment under section 92CA amounting to Rs. 1,96,54,734 in respect of interest earned on loan given to Sasken Inc; (ii) obtaining information from M/s CRISIL Ltd under section 133(6) and using the same against the assessee in making the TP adjustment in the order passed under section 92CA without allowing the Assessee to cross examine the entity / authorized signatory providing the said information; (iii) adopting flawed methodology in the process of computing arm’s length price of interest received, determining ALP without considering any comparables; (iv) determining the arm’s length interest rate @ 14.47% stating the same as yield from BB grade corporate bond (investment grade bonds) for a 5 year period during the FY 2011-12; (v) benchmarking the interest received against the rates of corporate bonds without appreciating the facts and circumstances of the case; and not appreciating the business, commercial and economic realities. 3.2 On facts and circumstances of the case and law applicable, the impugned TP adjustment of Rs. 1,96,54,734 should be deleted fully. Grounds on Transfer Pricing adjustment in respect of Corporate Guarantee 4.1 The learned TPO, DRP erred in (i) concluding that corporate guarantee given to M/s Sasken OY, Finland constituted ‘international transaction’ under section 92B of the Act (ii) not appreciating that corporate guarantee given to Sasken OY had no bearing on the profits, income, losses or assets of the Assessee and consequently it cannot be

Page 3 IT(TP)A No. 404/Bang/2017 considered as an ‘international transaction’ under section 92B of the IT Act. (iii) determining / confirming the adjustment of Rs. 275,238/- under section 92CA in respect of the corporate guarantee given to Sasken OY (iv) computing adjustment under section 92CA at 0.925% of the corporate guarantee amount given to Sasken OY; (v) using the information obtained from M/s CRISIL Ltd under section 133(6) for the purpose of determining the adjustment under section 92CA of the Act, without giving an opportunity to rebut and to cross examine the parties who gave the said information is contrary to the principles of natural justice, bad in law and consequently the adjustment determined and the order passed under section 92CA is liable to be quashed. 4.2 On facts and circumstances of the case and law applicable, the impugned TP adjustment of Rs. 275,238/- should be deleted fully. Grounds on TP Adjustment in respect of ‘Royalty’ 5.1 The learned TPO has erred in: 5.2 Determining TP adjustment of Rs. 1,90,75,332/- under section 92CA in respect of the royalty on alleged usage of brand ‘SASKEN’ by the AEs. 5.3 Not appreciating that the AEs have not received any financial benefit from use of trademark ‘SASKEN’, owned by the Assessee. 5.4 Not performing any Functional Analysis of brand usage by AE. 5.5 Not appreciating that work in the service industry depends of the competency and not on brand alone. 5.6 Inappropriately concluding that the AE’s have no identity or competitive value without the support of brand ‘SASKEN’. 5.7 Not quantifying the financial benefit, if any, derived by the AE’s by use of trademark ‘SASKEN’; 5.8 Determining, without basis, ALP of royalty 2% of the external turnover of the AEs without appreciating the facts and circumstances of the case; and 5.9 computing the ALP without adopting any method or uncontrolled comparable data. 5.10 Making the rate of adjustment which is arbitrary, without any basis and computing the royalty rate excessively. 5.2 On facts and circumstances of the case and law applicable, the impugned TP adjustment of Rs. 1,90,75,332 should be deleted fully.

Page 4 IT(TP)A No. 404/Bang/2017 Grounds on Transfer Pricing adjustment in respect of Software Development Services 6.1 The lower income tax authorities have erred in: a. Rejecting Comparable Uncontrolled Price Method adopted by the Appellant as the most appropriate method; b. Rejecting the transfer pricing analysis undertaken by the Appellant under the CUP Method without giving any cogent reasons and on unjustifiable grounds; c. Rejecting the CUP Method without appreciating that the Assessee had rendered/received similar services to/from unrelated parties outside India, on terms and conditions similar to that of the AE’s; d. Not appreciating that internal comparables are more appropriate and are to be given precedence over external comparables; and e. Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant. 6.2 The lower authorities have erred in: a. Relying on information collected u/s 133(6) of the Act without providing the Assessee information so collected or providing an opportunity to cross examine the companies concerned or their authorized representative; b. Adopting a flawed process in issuing notices u/s133(6) and relying upon the replies thereto to compute the ALP; and c. Not detailing the process as to how and to whom the notices had been issued and whether all the replies thereto had been considered while concluding the proceedings. 6.3 The lower authorities have erred in: a. Adopting Transaction Net Margin Method (TNMM) as the most appropriate method. Without prejudice, the learned TPO has erred in not adopting internal comparables under TNMM. b. Adopting inappropriate filters like 25% RPT filter, one sided turnover filter, etc in the process of selecting comparables; c. Adopting companies as comparables even though they are not comparable in respect of functions performed, risks assumed, assets utilized, size, turnover, despite having unusual business circumstances or high margins, etc.; d. Inappropriately computing the operating margins of comparables and the Assessee; e. Not making proper adjustment for enterprise level and transactional level differences between the Assessee and the comparable companies.

Page 5 IT(TP)A No. 404/Bang/2017 f. Ignoring the business, commercial and industry realities and economic circumstances applicable to the Assessee vis a vis the comparables; g. Not recognizing that the Assessee was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account; and Hon'ble Not appropriately computing the working capital adjustment while computing the ALP. 6.4 On facts and circumstances of the case and law applicable, the impugned TP adjustment should be deleted fully. Grounds on reduction of communication expenses, travelling, conveyance and insurance expenses from export turnover while calculating deduction under section 10AA 7.1 The learned AO has erred in: i. Calculating deduction section 10AA on combined basis for all the eligible units rather than each undertaking wise. ii. Excluding Rs. 13,08,04,000 being communication expenses, travelling & conveyance and insurance from export turnover of the eligible units without appreciating that the Assessee had already reduced the communication expense related to the eligible unit attributable to delivery of software outside India and expenses incurred in foreign currency from export turnover. iii. Not appreciating that his action of reducing the above has resulted double reduction. iv. Excluding insurance charges of Rs. 1,23,10,000/- and communication charges of Rs. 2,72,97,000/- from export turnover of SEZ units without appreciating the fact that the aforesaid expenditure were not incurred for the purpose of export / delivery of computer software outside India. v. Excluding communication expenses of Rs. 2,72,97,000 from export turnover of eligible units without appreciating that the Assessee had already reduced the communication expense related to the eligible unit attributable to delivery of software outside India. vi. Not appreciating that the insurance expenses of Rs. 1,23,10,000/-, communication expenses of Rs. 2,72,97,000/- and traveling and convenience expense of Rs. 9,11,97,000/- are incurred during the year is at entity level and not incurred for eligible SEZ units only. 7.2 On facts and circumstances of the case and law applicable, computation of deduction under section 10AA as determined by the appellant be accepted.

Page 6 IT(TP)A No. 404/Bang/2017 Grounds on disallowance under section 14A 8.1 The learned AO has erred in making disallowance under section 14A amounting to Rs. 69,64,735/- by invoking rule 8D(2)(iii) of the Income Tax Rules, 1962 without demonstrating as to how the claim of the Assessee regarding attribution of expenses relatable to income not chargeable to tax is incorrect. 8.2 Without prejudice, while computing the disallowance under section 14A the learned AO has erred in : (i) Considering the value of investment in foreign subsidiaries, without appreciating that income earned from investment in foreign subsidiaries are subject to tax and are out of purview of section 14A. (ii) Considering the value of investment in joint ventures without appreciating that there is no income from such investment nor any related costs were incurred and hence are out of purview of section 14A. (iii) Not appreciating that no disallowance under section 14A can be made in view of amended / substituted rule 8D. 8.3 On facts and circumstances of the case and law applicable, disallowance under section 14A read with rule 8D amounting to Rs. 69,64,735 should be fully deleted. 8.4 In any case and without prejudice, disallowance under section 14A is very very excessive and the same may be restricted to 0.5% or 1% of dividend income. Prayer 9. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the orders / directions passed by the Income tax authorities and the DRP be quashed or in the alternative, the aforesaid grounds including relief as prayed for in these grounds be allowed. The Appellant prays accordingly.” 2. Brief facts of the case are as under: 2.1 The assessee is engaged in the business of providing software development services and network engineering services. For the AY 2012-13, original return of income was filed by the assessee on 28.11.2012 declaring a total income of Rs. 47,99,96,320/- and long term capital loss of Rs. 87,49,969/-. Notice u/s 143(2) dated 08.08.2013 was issued. A revised return of income was filed on 26.3.2014 declaring total income of Rs. 43,57,97,090/-

Page 7 IT(TP)A No. 404/Bang/2017 and long term capital loss of Rs. 87,49,969/-. Various details called for during the assessment were filed by the assessee from time to time. 2.2 A reference under section 92CA of the Act was made to the TPO after getting the approval of the Commissioner of Income- tax, Bangalore - III. This was made for examining the reported Arm’s Length Price (ALP) in respect of the international transactions entered into by the assessee. The Ld.TPO called for various details and the same were filed from time to time. The TPO passed the order under section 92CA(3) on 24.1.2016. Since there were mistakes apparent on record in the TP Order, the assessee filed an application for rectification of the order u/s 154 on 05.02.2016. The Ld.TPO passed the order under section 154 on 22.02.2016. 2.3 The TPO made the following adjustments in the TP order read with the rectification order: Amount Particulars (Rs.) Interest on loan to subsidiaries 1,96,54,734 Corporate Guarantee 2,75,238 Royalty from AEs for using trademark 1,90,75,332 Shortfall in receipts from AEs for software development services by the assessee 1,10,62,095 Excess in payments to AEs for software development services by AEs 69,45,962 Total 5,70,13,361 2.4 The learned AO passed the draft assessment order under section 144C r/w 143(3) of the Act on 31.03.2016. The learned AO incorporated the TP addition and also made the following disallowances.

Page 8 IT(TP)A No. 404/Bang/2017 Amount Particulars (Rs.) Disallowance under section 14A 69,64,735 Excess claim of deduction under section 10AA on account of reduction of communication expenses, insurance expenses and foreign currency expenses from export turnover and without similar reduction from total turnover 2,78,48,633 Total 3,48,13,368 2.5 The DRP objections were filed on 29.4.2016. The DRP directions were passed on 19.12.2016 with partial relief. The final assessment order under section 143(3) rws 144C(13) was passed on 31.1.2017 with the following adjustments. Amount Particulars (Rs.) Interest on loan to subsidiaries 1,96,54,734 Corporate Guarantee 2,75,238 Royalty from AEs for using 1,90,75,332 trademark Transfer pricing adjustment in respect of software development 1,67,17,140 services Disallowance under section 14A 69,64,735 Total 6,26,87,179 2.6 It is submitted that the proposed disallowance of deduction under section 10AA was dropped and the deduction as claimed by the assessee under section 10AA was granted. 2.7 Aggrieved by the final assessment order, the assessee filed present appeal before this Tribunal. 3. Ground Nos. 1 and 2 are general in nature and therefore do not require adjudication. 4. Ground Nos. 3.1 and 3.2: - Ld.AR submitted that the assessee had advanced loan to its overseas subsidiary viz., Sasken Inc. The assessee charged interest of Rs. 48,30,677 at the rate of 3.24% per annum from Sasken Inc on the loan

Page 9 IT(TP)A No. 404/Bang/2017 outstanding. The interest was charged at LIBOR plus 300 points. It is submitted that the assessee adopted the CUP Method to justify the interest charged. 4.1 It is submitted that in the TP report, the assessee adopted the Emerging Market v3.1 RiskCalc model for analyzing the credit quality of the assessee and the AE. The Ld.AO noted that, a comparable loan search was done by the assessee using comparables within the same geography of the borrower, i.e., USA, and adjustments in relation to the tenure of the loan were done. The spread obtained from the set of comparable loans was within the interquartile range of 3.02% to 3.80% with a median for 3.16% for the facility arrangement. The assessee thus concluded that the interest rate of 3.24% charged by the assessee was at arm’s length. 4.2 The Ld.TPO rejected the analysis carried by assessee. In the TPO order, the annual average yield for BB rated bond for 5 year or more terms was taken at 14.47% by increasing the rate of BBB rated bond at 12.06% by 20% (120% of 12.06% = 14.47%). The above rates were taken from CRISIL rating for the FY 2011-12. The rate of 14.47% was applied by the Ld.TPO on the loan receivable amounting to Rs. 16,92,15,000/- and ALP of interest received was computed at Rs. 2,44,85,411/-. After reducing the interest already received amounting to Rs. 48,30,677/-, the ALP adjustment was proposed at Rs. 1,96,54,734/- 4.3 The DRP followed its own directions given for AY 2011-12 and held that the approach of the Ld.TPO does not call for any interference.

Page 10 IT(TP)A No. 404/Bang/2017 5. Before us, the Ld.AR submitted that the Coordinate Bench of this Tribunal in assessee’s own case for the AY 2011-12 in IT(TP)A Nos. 550 & 627/Bang/2016 dated 16.11.2018 remanded the issue of TP addition on interest received from AE to the TPO. The TPO was directed to benchmark the transaction by adopting the legal position as enunciated in the decisions viz., CIT v Cotton Naturals (I) (P) Ltd [2015] 55 taxmann.com 523 (Del) and CIT v Tata Auto Comp System Ltd [2015] 56 taxmann.com 206 (Bom). This Tribunal observed as under: “11. Ground No.5 challenges addition on account of ALP adjustment in respect of interest on loan given to Sasken Inc.USA. Learned AR of the assessee submitted that the assessee had advanced loans to its subsidiary in USA, Sasken Inc USA for its business purpose i.e. for expansion and working capital requirements and as a result of these arrangement of funds, assessee had benefited by way of improved efficiency etc. Thus it was submitted that the loans were advanced out of business exigency and no ALP adjustment is required to be made. Without prejudice to this, it is argued that the assessee had charged interest at the rate of 3.24% as against LIBOR rate 0.54%. Since interest charged is higher than LIBOR rate, interest charged should be held to be at arm's length. Without prejudice to the above, it was submitted that rating of subsidiary company adopted by the TPO is incorrect. The TPO should have adopted LIBOR rate, for the purpose of bench marking, instead of adopting domestic lending rates. He also placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Cotton Naturals (I) (P.) Ltd. (55 taxman.com 523), in support of his contention. We heard rival submissions and perused material on record. We also perused TP study report placed at pages 179 to 182 of the paper book. It is undisputed that transactions of advancing loan are international transactions. The dispute is only with regard to rate of interest to be applied for the purpose of bench marking the transaction. The Hon'ble Delhi High Court, in the case of Cotton Naturals (I) (P.) Ltd. (supra) has held in para.14 that in order to ascertain ALP in respect of international transactions of advancing money to its foreign subsidiary. The Hon'ble Delhi High Court, in the case of Cotton

Page 11 IT(TP)A No. 404/Bang/2017 Naturals (I) (P.) Ltd. (supra) held that in order to ascertain ALP return of income international transaction of advancing loan to its subsidiary, interest rate what would have been earned by the assessee by advancing loan to unrelated party in India with a similar financial health as tested party subsidiary cannot be applied. The Hon'ble High Court further held that financial position and credit rating of subsidiary will be broadly same as that of holding company. It further ruled that domestic prime rate lending or yield rate on corporate bonds in India have no applicability and LABOR rate should be taken as bench mark for international transactions. The Hon'ble Bombay High Court in the case of CIT vs. Tata Auto Comp. System Ltd. (374 ITR 316) rules that ALP in case of loans advanced to AE would be determined on the basis of rate of interest being charged in the country where loan is received and consumed. In the light of this position of law, we are required to adjudicate the issue of rate of interest to be charged by the assessee from its AE. In the present case, we find from the perusal of TP study report filed before us at pages 179 to 182, we find that assessee as well as TPO had not undertaken the exercise of analyzing the transaction. No material was brought on record indicating the terms of loan i.e. tenure of loan, security offered, terms of repayment of loan, currency in which loan is to be repaid etc. and RBI policy governing advancing of loans by Indian holding company to its foreign subsidiary companies credit rating etc. determination of credit rating of the lender and borrower, identification of comparable, third party loan agreements. Therefore, we remand the matter back to the TPO with a direction that assessee- company shall submit the TP study on the above loans and the TPO shall consider the analysis and bench mark the transaction by adopting legal position as enunciated in the case law cited above. Thus, this ground of appeal is partly allowed for statistical purposes.” 5.1 It is submitted that for A.Y. 2011-12, the Ld.TPO passed the order under section 92CA read with section 254 on 12.01.2021 and held that the assessee received interest at 3.24% and the arm’s length rate of interest was determined at 3.32% (Average of 6 month LIBOR + 281.286 bps). In view of the same, the interest charged by the assessee was considered to be at arm’s length.

Page 12 IT(TP)A No. 404/Bang/2017 Hence, no adjustment was made by the Ld.TPO in respect of interest on loan for the AY 2011-12. The Ld.AR also submitted that for the AY 2013-14, the Ld.TPO vide order passed under section 92CA dated 28.10.2016 [Page 1306 to 1313 of the compilation filed on 9.7.2020] accepted the ALP of interest on loan given at LIBOR + 300 bps. The relevant observation is at pages 1306 to 1313 of the paper book filed on 09/07/2020. 5.2 For the year under consideration, it is submitted that the assessee charged interest on loan at 3.24% p.a. This fact is also evident from para 13 of page 155 of paper book 1 filed on 4.6.2018 which is the notes to Audit report in Form No 3CEB. During the year under consideration, average USD LIBOR was 0.58%. Interest rate considering LIBOR + 300 bps would be 3.58%. This rate is within +/- 5% range applicable for the year under consideration as per second proviso to section 92C(2). Hence, the interest received from loan given to Sasken Inc, USA amounting to Rs. 48,30,677 should be considered at arm’s length price. The TP addition of Rs. 1,96,54,734 should therefore be deleted. We direct the Ld.AO/TPO to consider the claim of the assessee based on the observation hereinabove. Accordingly this ground raised by the assessee stands allowed. 6. Ground Nos. 4.1 and 4.2 6.1 The assessee in its notes to Form No 3CEB stated that corporate guarantee given by it in respect of loan from banks availed by Sasken OY came to an end in September 2011.

Page 13 IT(TP)A No. 404/Bang/2017 The learned TPO issued letter dated 5.11.2015 asking the assessee to submit its analysis of arms length margin of corporate guarantee given on behalf of its AE – Sasken OY. The assessee filed the written submissions on 23.12.2015 and submitted that it had given a Corporate Guarantee (CG) to Nordea Bank on behalf of Sasken Communication Technologies Oy (“Sasken Finland” or ‘AE’), its wholly owned subsidiary in Finland amounting to Euro 17 Million, equivalent to INR 98.43Cr during the financial year (FY) 2006-07 as a part of the shareholder activity. During the FY 2011-12, Sasken Finland repaid the outstanding loan of Euro 1,625,000. Copy of letter issued by Nordea Bank Finland Plc, confirming that the loan has been repaid in full and therefore it has ended the guarantee given by the Company w.e.f. 9.9.2011 was submitted to Ld.TPO during the hearing. It was submitted that since the loan was repaid during the year, the CG also ceased to exist. The Ld.TPO however while passing the transfer pricing order u/s. 92CA, held that, corporate guarantee if is charged as a risk premium by the corporate guarantor being the assessee. The Ld.TPO also held that the credit rating of the subsidiary is equivalent to that of the junk bonds and the credit rating of the taxpayer is far better than the subsidiary. The credit rating from CRISIL were relied on for this purpose. The difference between 11.51% (BBB+ grade corporate bond) and 9.66% (AA+ corporate bond) was computed at 1.85% and 50% of the same (at 0.925%) was considered as the arm’s length corporate guarantee rate. It is stated that the advantage is shared between the taxpayer and subsidiary in equal ratio.

Page 14 IT(TP)A No. 404/Bang/2017 6.2 The Ld.AR submitted that there was some computation error in the corporate guarantee, it was pointed out to the Ld.TPO vide a rectification application. The Ld.TPO rectified the said by computing the corporate guarantee at Rs.2,75,238/- as the proposed adjustment. On objection being filed before the DRP, the DRP upheld the view taken by the Ld.TPO. 6.3 The Ld.AR submitted that in assessee’s own case, in IT(TP)A Nos. 550 & 627/Bang/2016 for A.Y. 2011-12 dated 16/11/2018 there has been remanded with certain directions issued to the Ld.TPO on this issue. The Ld.TPO while passing the OGE to the order of this Tribunal for A.Y. 2011-12, determined the adjustment at 2%. The DRP in the second round, reduced the adjustment on corporate guarantee at 0.92% vide directions dated 20/06/2022 and on further appeal before this Tribunal, this Tribunal directed the Ld.AO/TPO apply the rate of 0.5% on the closing balance of the corporate guarantee as on 31/03/2011 for the purposes of TP adjustment. 6.4 The Ld.AR thus submitted that, the corporate guarantee adjustment should be restricted to 0.5% based on the outstanding payables to Nordea Bank during F.Y. 2011-12. On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 6.5 We refer to the observations of this Tribunal vide order dated 11/11/2022 for A.Y. 2011-12 in IT(TP)A No. 788/Bang/2022 which is reproduced as under:

Page 15 IT(TP)A No. 404/Bang/2017 “16. We heard the rival submissions and perused the material on record. We notice that this issue is covered by the orders of the Tribunal in Medrich Ltd. v. Asstt. CIT [ITA No. 1574 (Bang.) of 2019, dated 12-4-2021], in the case of Manipal Global Education Services (P.) Ltd. v. Dy. CIT [2018] 95 taxmann.com 94 (Bang - Trib.), in the case of Xchanging Solutions Ltd. v. Dy. CIT [2017] 78 taxmann.com 54 (Bang - Trib.) and in the case of ACIT v Tejas Networks Ltd. [2022] 139 Taxmann.com 430 (Bangalore Trib.), wherein it was directed to AO/TPO to make TP adjustments in respect of corporate guarantee at 0.50% for the assessment years under consideration. With respect to the balance on which the TP adjustment needs to be made, we see merit in the contention of the ld AR that the TPO himself has applied the rate on the closing balance of the outstanding guarantee in Appellant’s own case for AY 2012-13 and we therefore direct the AO to apply the rate @ 0.50% on the closing balance the of the corporate guarantee as of 31.03.2011 for the purpose of TP adjustment. It is ordered accordingly.” 6.6 The issue as to whether LIBOR is to be taken as the basis of interest benchmarking for foreign currency denominated loans or whether Indian PLR will be relevant for the same, is no longer res integra. 6.7 In the case of CIT Vs Tata Autocomp Systems Ltd., reported in (2015) 56 taxmann.com 206 , Hon’ble Court observed as follows: “7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law.”

Page 16 IT(TP)A No. 404/Bang/2017 6.8 Similar is the ratio laid down Hon’ble Delhi High Court in case of CIT vs. Cotton Naturals (I)(P) Ltd., reported in (2015) 55 taxman.com 523. 6.9 Further in case of Xchanging Solutions Ltd. vs. DCIT reported in [2017] 78 taxmann.com 54 (Bangalore-Trib.), Coordinate Bench of this Tribunal on identical issue observed and held as under: “15. We have considered the rival submissions as well as the relevant material on record. At the outset we note that the assessee has raised the objection before the DRP as recorded in paras 6.1 and 6.2 as under : '6.1 Grounds 1, 2 and 3 are considered together for convenience. Briefly stated the assessee provides software development and information technology enabled services (ITES) to its AEs. During the FY 2005-06 the assessee provided a corporate guarantee to a third party bank on behalf of an AE but failed to charge a fee for the guarantee. The assessee conducted a TP study and concluded that this transaction was at arm's length however during audit proceedings the TPO rejected the analysis of the assessee and made adjustments to this transaction. The taxpayer cites the order of Four soft Ltd wherein the Hon'ble ITAT Hyderabad observed as under: "We find that the TP legislation provides for computation of income from international transaction as per section 92B of the Act. The corporate guarantee provided by the assessee company does not fall within the definition of international transaction. The TP legislation does not stipulate any guidelines in respect to guarantee transactions. In the absence of any charging provision, the lower authorities are not correct in bringing aforesaid transaction in the TP study. In our considered view, the corporate guarantee is very much incidental to the business of the assessee and hence, the same cannot be compared to a bank guarantee transaction of the Bank or financial institution." 6.2 It has also been submitted by the assessee that the transaction arising on account of ownership linkage and which derives large from the reputation of the group necessarily implies that there can be no guarantee acceptable to the banker which can be provided by the independent third party. The guarantee provided by financial institutions are characteristically different compared to the guarantee provided by the parent. The advantages arising to the parent itself from providing guarantee in lieu of equity support or financial support is also not capable of being evaluated satisfactorily. These differences between the alleged controlled transaction and the guarantee provided by independent parties in the uncontrolled transaction are not capable of being evaluated so as to arrive at determination of the fair uncontrolled price. In the circumstances, computation methodology of TP exercise may fail. It

Page 17 IT(TP)A No. 404/Bang/2017 is undisputed that failure of computation mechanism results in failure of the charge.' Thus it is clear that grievance of the assessee against the order of the TPO on the issue of ALP in respect of guarantee fees is limited only regarding the correct ALP. We further note that prior to the decisions of Mumbai Bench in the case of Siro Clinpharm Pvt. Ltd. Vs. DCIT (supra) there are series of decisions of this Tribunal including the decision in cases of Four Soft Pvt. Ltd. Vs,. DCIT (supra) and Nimbus Communication Ltd. Vs. ACIT (supra) wherein the Tribunal has taken a consistent view that providing corporate guarantee to AE is an international transaction however, the ALP of such transaction was to be computed having regard to the financial consideration as the nature of transaction between the related parties. The Tribunal has taken a view that the guarantee fees for providing corporate guarantee should not be more than 0.5%. The Hyderabad Benches of this Tribunal in the case of Four Soft Pvt. Ltd. Vs.DCIT (supra) has considered an identical issue in paras 24 to 26 as under : 24. It is noted by the TPO, during the F.Y. 2005-06 the assessee has provided bank guarantees on behalf of its Overseas subsidiary, Foursoft BV, Netherlands for an amount of Rs.69,81,16,000/- which is continuing for the year under consideration also. The TPO following the order passed for A.Y. 2006-07 treated the commission changed by ICICI Bank at 3.75% arms length price for the corporate guarantee provided by the assessee to its AE worked out the TP adjustment of Rs.2,61,79,350/-. The DRP also rejected assessee’s objection on the issue. 25. We have heard the parties and perused the material on record. The sum and substance of the submissions made by the learned AR is, the corporate guarantee provided by the assessee cannot be equated to bank guarantee and resultantly the commission rate for bank guarantee cannot be applied to the corporate guarantee. It was submitted that the corporate guarantee is nothing but an additional guarantee provided by the parent company and it does not involve any cost or risk to the shareholders. It was submitted that since the corporate guarantee was given keeping in view paramount business interest of the parent company it has to be allowed as business expenditure. It is the further submissions of the learned AR that the retrospective amendment effected to section 92B of the Act, by Finance Act, 2 012 by insertion of Explanation (i)(c) to section 92B also has not enlarged the scope of the ‘international trans action’ to include the corporate guarantee in the nature provided by the assessee. The learned AR further contended that the issue is covered in favour of the assessee b y virtue of the order passed by the Tribunal in assessee’s own case for AY 2006-07 (supra). 25. 1 The learned DR, on the other hand, submitted that by virtue of the amendment made to section 92B of the Act with retrospective effect from

Page 18 IT(TP)A No. 404/Bang/2017 01/04/2002, the corporate guarantee provided by the assessee is to be considered as an international transaction, and, therefore, the Assessing Officer was justified in determining arm ’s length price of such transaction. 25. 2 Having considered the submissions of the parties, we are unable to accept the contention of the learned AR that corporate guarantee of the nature provided by the assessee will not come within the meaning of international transaction in term s with section 92B of the Act. It is not disputed that section 9 2B of the Act has been amended by the Finance Act, 201 2 with t he insertion of Explanation I (c) with retrospective effect from 01/ 04/200 2. Explanation (i)(c) t o section 92B, reads as under: “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. ” 25. 3 A reading of the aforesaid clause from the Explanation would make it clear that the corporate guarantee provided by the assessee comes within the scope and ambit of ‘ international transaction’ as per the aforesaid clause. Therefore, the contention of the learned AR that the issue is covered in favour of the assessee by virtue of the order passed in assessee ’s own case for A Y 2006-07 no longer holds good since the order passed by the coordinate bench is prior to the amendment made to provision of sect ion 9 2B of the Act. It will be pertinent to mention here that this issue was also considered by the ITAT Mumbai Bench in case of Mahindra & Mahindra Vs. DCIT in ITA No. 8597/Mum/2010, 54 SOT (UR) 146. The coordinate bench of this Tribunal while considering similar argument advanced on behalf of the assessee by placing reliance on the decision of the Four Soft Ltd.(supra), held as under: “15. 2 After hearing the rival submissions we feel that Assessing Officer will have to follow the decision of the ITAT Hyderabad or the amended provision of the Act in this regard. If the Finance Bill of 2012 is passed by the Parliament amending the provisions of section 92B, with effect from 1st April , 2002, he will have to ignore the decision of the ITAT Hyderabad. In case section 92B is not amended with retrospective effect, he should grant relief to the appellant. ” 25.4 In the aforesaid view of the matter, we agree with the TPO that ALP of the corporate guarantee has to be determined as it falls within the scope and ambit of an international transaction after the retrospective amendment to section 92B. However, it appears that the TPO has applied the rate of 3.75 %, which is applicable to bank guarantee issued by the bank. As the corporate guarantee is not in the nature of bank guarantee, the rate applicable to bank guarantee provided

Page 19 IT(TP)A No. 404/Bang/2017 by the bank cannot be applied to corporate guarantee which is provided by a group company. In case of Glenmark Pharmaceuticals V s. ACIT in ITA No. 5031/Mum / 2012, dated 13/11/2013, the Mumbai Bench of the Tribunal after analysing the facts in that case had held that 0.53 % corporate guarantee rate in that case was appropriate. The ITAT Hyderabad Bench in case of Infotech Enterprises Ltd. in ITA No.115/Hyd/ 2011 and in ITA No. 2184/Hyd/ 2011, dated 16/01/2014 while considering identical issue of determining ALP of corporate guarantee provided by the assessee to its AE followed the ratio laid down in case of Glenmark Pharmaceuticals Vs. ACIT (supra) and remitted the issue back to the TPO to decide the quantum of corporate guarantee rate by following the method adopted in case of Glenmark Pharmaceuticals (supra). 26. Since the issue in the present case is identical to the issue decided by the ITAT, Hyderabad Bench in case of Infotech Enterprises (supra), following the same, we also remit this issue to the file of the TPO to decide the quantum of corporate guarantee rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes.” It is pertinent to note that in case of corporate guarantee provided to a bank or financial institution on behalf of the AE, the assessee creates a charge on its assets in favour of the bank/financial institution and to that extent the transaction of providing corporate guarantee is having bearing on the assets of the assessee and in turn the assessee cannot use those assets under charge for the purpose of availing further financial credit/loans from the bank/financial institution. Thus this Tribunal held that by providing corporate guarantee falls in the definition of international transactions as per Section 92B(1) without considering the Explanation to the said Section. As we have discussed in the foregoing part of this order that the Tribunal has been taken a consistent view that corporate guarantee provided to the AE falls in the ambit of international transactions as per Section 92B(1) even without considering the Explanation inserted vide Finance Act, 2012. The Mumbai Bench of this Tribunal in the case of Siro Clinpharm Pvt. Ltd. Vs. DCIT (supra) has restricted its finding only to the applicability of Explanation in the cases where the assessment was completed prior to the insertion of the said Explanation retrospectively. Even otherwise the earlier decisions of the Tribunal on this issue were not considered by the Delhi Bench of the Tribunal. In the case of M/s. Nimbus Communication Ltd. Vs. ACIT in ITA Nos.6816/Mum/2010 and 7105/Mum/2011, the Tribunal vide order dt.7.8.2013 has considered an identical issue in paras 4 & 5 as under :

Page 20 IT(TP)A No. 404/Bang/2017 “ 4. As regards the issue raised in ground No. 2 relating to TP adjustment made on account of guarantee commission in respect of corporate guarantee given by the assessee to its Associated Enterprises (AEs) for obtaining bank loans, the ld. representatives of both the sides have agreed that a similar issue was involved in assessee's own case for the immediately preceding year i.e. A.Y. 2005-06 and the Tribunal vide its order dated 12-06-2013 passed in ITA No. 3664 & 2359/Mum/2010 has already decided the same vide para No. 9 & 10 which read as under:- "9. We have considered the rival submissions and also perused the relevant material available on record. For the guarantee given to the bank against the financial assistance given to its AEs, no commission was charged by the assessee company on the ground that the said AEs were not benefited by the guarantee so given and it was the assessee who benefited as a result of commercial benefits secured for future. In support of this stand of the assessee, the ld. counsel for the assessee has contended that business strategy should be taken into consideration while making any TP adjustments in respect of such transactions and has relied on the OECD Transfer Pricing Guidelines issued in 2010. As stated in para 1.59 of the said guidelines, the business strategies should also be examined in determining comparability for transfer pricing purposes and certain illustrations of such business strategies are also given therein. As stated in para 1.60 of the said guidelines which has been relied upon by the ld. Counsel for the assessee, business strategies also could include market penetration schemes and taxpayer seeking to penetrate a market or to increase its market share might temporarily charge a price for its product that is lower than the price charged for otherwise comparable products in the same market. As explained further, a tax payer seeking to enter a new market or expand (or defend) its market share might temporarily incur higher costs and hence achieve lower profit levels than other taxpayers operating in the same market. In our opinion, the relevant facts of the present case do not indicate that there was any such business strategy adopted by the assessee in not charging commission in respect of guarantees issued for its Associated Enterprises. As a matter of fact, there is nothing to suggest that any such business strategy was adopted by the assessee with specific intention or motive and the case has been sought to be made out merely on the basis of commercial expediency by claiming that the assessee was benefited as a result of giving the guarantees in the form of commercial benefits secured for future. In our opinion, such commercial expediency cannot be equated with business strategy, which is specific and well laid out. As rightly held by the ld. CIT(A), a financial loan guarantee is a commitment entered into by the assessee company with a third party lender of its Associated Enterprises which obliges the assessee company to cover the risk of default by its Associated Enterprise and this act thus involves performance or carrying out of service to cover the risk of default

Page 21 IT(TP)A No. 404/Bang/2017 for which "price" has to be charged. Even the OECD Transfer Pricing Guidelines 2010 supports this view in para 7.13 where it is explained that where higher credit rating of Associated Enterprise is due to a guarantee by another group member, such association positively enhances the profit making potential of that Associated Enterprise. We, therefore, find ourselves in agreement with the contention of the ld. D.R. that there was a clear benefit accrued to the Associated Enterprises by the guarantee provided by the assessee and when such benefit was passed on by the assessee to the said Associated Enterprises, guarantee commission should have been charged at arm's length price. The commercial relationship between the assessee and its Associated Enterprises is distinct and separate from the transactions of giving guarantee and such transactions have to be considered and examined independently in order to determine the arm's length price. 10. As regards the rate of guarantee commission, it is noted that the arm's length price of guarantee commission was determined by the TPO by applying CUP method and the arithmetic mean of 1.5% of the guarantee commission charged by the HSBC Bank in the range of 0.15 to 3% was taken as arm's length price. The ld. CIT(A) upheld the CUP method applied by the TPO but adopted the rate of 0.25% of guarantee fee as arm's length price relying on the decision of French Court in the case of Societe Carrefour. The ld. D.R., at the time of hearing before us has relied on the decision of the co- ordinate Bench of this Tribunal in the case of M/s Everest Kanto Cylinder Ltd. (supra) wherein while accepting the CUP method as the most appropriate method for benchmarking the guarantee fee, the Tribunal accepted 0.5% guarantee fee/commission to be at arm's length after taking into consideration the rates of guarantee commission charged by various banks including the guarantee commission charged by the HSBC Bank in the range of 0.15% to 3%. Since the facts involved in the present case are materially similar to the facts involved in the case of Everest Kanto Cylinder Ltd. (supra), we prefer to follow the decision rendered by the co- ordinate Bench of this Tribunal in the said case over the decision of French Court in the case of Societe Carrefour (supra). We, accordingly modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to recompute the commission for guarantee given by the assessee to its Associated Enterprises @ 0.5% being the arm's length price. Ground No. 1 of Revenue's appeal is thus partly allowed whereas ground No. 2 of assessee's appeal is dismissed". 5. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2005-06, we respectfully follow the order of the co-ordinate Bench of this Tribunal for A.Y. 2005-06 and direct the A.O. to restrict the TP adjustment by recomputing the commission for guarantee given by the assessee to its AEs at 0.5% being the arm's length price. Ground No. 2 of the assessee's appeal for A.Y. 2006-07 is partly allowed.”

Page 22 IT(TP)A No. 404/Bang/2017 As it is clear that the Tribunal has followed the decision of the Tribunal for the earlier assessment year and while taking a consistent view held that guarantee provided by the assessee gives the benefit to the AE and such benefit was passed on by the assessee to the said AE and therefore should have been charged at ALP.” 6.10 In the above decision, this Tribunal has considered the commission on guarantee fee at 0.5%. In view of the above, we direct the Ld.AO/TPO to recomputed the rate of commission attributable to the corporate guarantee in the present facts, in the light of the above. 6.11 There is a consistent approach taken by this Tribunal in adopting the rate of corporate guarantee at 0.5% in assessee’s own case. We direct the Ld.AO/TPO to restrict the corporate guarantee adjustment at 0.5% based on the outstanding payables from Nordea Bank during F.Y. 2011-12. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 7. Ground no. 5 is in respect of the adjustment made on use of trademark “sasken” as royalty. 7.1 During the proceedings under section 92CA, the learned TPO enquired as to why no Royalty was charged by the assessee for the use of trademark “SASKEN” by the assessee’s subsidiaries outside India. In response, the assessee made submissions on 23.12.2015, in which the Assessee explained that the AEs (subsidiaries) which are a part of Sasken group, though using the name ‘SASKEN’, were not financially benefitted from such use. Therefore, the Assessee contended that question of AE’s paying royalty does not arise. 7.2 It is submitted by the Ld.AR that the Ld.TPO opined the computation of royalty for use of the name “Sasken” as, it is a

Page 23 IT(TP)A No. 404/Bang/2017 recognised brand. For this, the Ld.TPO relied on the decision of Hon’ble Delhi High Court in case of Sasken Communication Technologies Ltd. vs. Mr. Anupam Aggarwal & Ors. C.S(OS) No. 1119/2007 and L.A. No. 6970/2007, wherein it was held that, the third party had infringed the assessee’s brand name by using the name ‘SASKEN’. The Ld.TPO concluded that, the subsidiaries (AEs) of the Assessee in different countries have piggy backed on the trademark ‘SASKEN’ and achieved sales. Accordingly, the TPO has made an addition of Rs. 1,90,75,332/- towards royalty computed at 2% on the external total turnover of the AEs. On objection being filed before the DRP, the view taken by the Ld.TPO was upheld. 7.3 Before us, the Ld.AR submitted that identical TP adjustment was made by the TPO for the AY 2013-14. On appeal, the ITAT Bangalore in Assessee’s own case in IT(TP)A No 2471/Bang/2017 dated 31.8.2021 rejected the TPOs addition of 2% in respect of ‘royalty’ and remanded the issue back to TPO with specific directions. 7.4 He submitted that the facts and circumstances prevailing for both the assessment years being 2012-13 and 2013-14 are similar and the royalty was charged by the Ld.TPO on identical reasoning and therefore the view taken by this Coordinate Bench in assessee’s own case for A.Y. 2013-14 should be considered. On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us.

Page 24 IT(TP)A No. 404/Bang/2017 7.5 We note that identical issue has been considered by Coordinate Bench in assessee’s own case (supra) for A.Y. 2013-14 as under: “4.15 We have perused submissions advanced by both sides in the light of records placed before us. 4.16 The AE’s considered in the present facts are admittedly 100% subsidiaries of assessee. These subsidiaries have further acquired other companies to expand the client base and to acquire niche technologies owned by such companies in the respective geographical locations. With specific reference to Sasken Finland OY. Sasken Inc, USA, was set up to make strategic investments in USA and other overseas markets. Admittedly, the Ld. AO recorded that subsidiaries of assessee is working as full-fledged entrepreneurs in USA, Finland and other countries and that Sasken brand is registered by the assessee in India as well as Russia, USA and a host of other countries. The Ld. TPO observed that assessee owns 25 websites with the names “ Sasken” as the domain name. 4.17 We note that, the Ld.TPO attributed royalty towards the use of brand name, “Sasken”, by the subsidiaries in the respective countries based on a decision by Hon’ble Delhi High Court in case of Sasken Communications Technologies Ltd. vs Anupam Agarwal &Ors. Hon’ble High Court therein found that Sasken brand is proprietorily owned by assessee before us, and that the respondent before Hon’ble Delhi High Court had to pay damages for using the name Sasken, in a company opened by him. 4.18 The entire attribution of royalty is based on the observations of Hon’ble Delhi High Court wherein damages for loss of reputation and goodwill on account of infringement of the assessee’s rights was directed to be payable by one Mr. Anupama Agarwal. We note that the respondent before Hon’ble Delhi High Court was owning a company independently without having any connection with that of assessee based on which, Hon’ble Delhi High Court held that “Sasken” is an inalienable brand of assessee and cannot be used by Anupam Agarwal’s company. The Ld. TPO went on a footing that assessee claimed damages and file suit on multiple issues from third-party for using the same brand name but allowed its own sister concern to use the brand name without paying a penny. He thus computed 2% of the turnover of AEs being royalty payable to the assessee.

Page 25 IT(TP)A No. 404/Bang/2017 4.19 We note that apart from the observations of Hon’ble Delhi High Court in case of a third-party, Ld.TPO do not have any other evidence material on record to establish that assessee transferred any of the assets like technical knowhow and R&D owned by it, to the subsidiaries, based on which royalty could be attributed. On one hand the Ld. TPO observes that the subsidiaries are full-fledged entrepreneurs whereas on the other hand he proposes an adjustment for use of trade name and holds that the subsidiaries cannot stand on its own legs without the use of brand name Sasken. In our view assessee cannot blow hot and cold at the same time. 4.20 We note that, in certain cases there has been increase in profits or reduction of loss during the year under consideration vis-a-vis preceding assessment year. But that alone cannot ipso facto lead to the conclusion that the subsidiaries were able to get premium price due to the use of brand name ‘SASKEN’ thereby to pay royalty. We refer to the following extract from OECD BEPS Action Plan 8-10: “7.13 similarly an associated enterprise should not be considered to receive on intragroup services and it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed. For example, no service would be received where an associated enterprise by reason of its affiliation alone has a credit rating higher than it would if it were unaffiliated, but and intragroup services would usually exist is where the higher credit rating were due to a guaranteed by another group member or where the enterprise benefited from deliberate concerted action involving global marketing and public relations campaigns. In this respect passive Association should be distinguished from active promotion of the many groups attributes that positively enhance the profit-making potential of particular member of the group. Each case must be determined according to its own facts and circumstances.” 4.21. There is nothing on record brought by the authorities below to establish that, use of the name ‘SASKEN’ provided financial benefit to the members of the group other than the member legally owning such intangible as required under BEPS action plan 8-10. 4.22 Brand licensing is when a brand owner licenses the right to their brand assets to a licensee, letting the licensee use their brand for a set period of time, in a set way, within an agreed market. The brand owner and licensee must agree on the terms and scope of the licensing agreement, which is a legal written contract between the

Page 26 IT(TP)A No. 404/Bang/2017 two parties. This will outline exactly what brand assets are being licensed, how they can be used, for how long they can be used, in what market they can be used, and what remuneration is required in return. We not that there is nothing brought on record by the revenue to establish that there is transfer of asset or technology by assessee. Provisions of Section 9 reads as under: ……….. 4.23 Explanation 4 and 5 inserted by the Finance Act, 2012 w.e.f. 1.6.1976 were introduced to the definition of royalty u/s.9(1)(vi) of the Act. ……….. 4.24 Therefore, as per the aforesaid provisions, consideration for transfer of rights (including granting of a licence) in respect of a trade mark or similar property or for use of a trademark or transfer of rights (including granting of a licence) in respect of any copyright, literary, artistic or scientific work, falls under the definition of ‘Royalty’ under the IT Act. 4.25 The revenue has not been able to produce any agreement to establish the payment of royalty by the associated enterprises to assessee. It is also not been established that by the use of brand “Sasken” the subsidiary associated enterprises were able to get premium price which could be ultimately translate into profits to pay royalty. 4.26 Admittedly, in the present facts of the case, Appellant has registered the trademark at all the jurisdiction where the subsidiaries are located. It is also not brought on record that Appellant has incurred any expenditure or contributed any money for establishment of its name in the geographical areas that benefited the associated enterprises. Based on the above, we cannot uphold 2% royalty computed on the turnover of the AE’s by the Ld.AO/TPO. 4.27 However, we remand this issue back to the Ld.TPO for fresh consideration. The Ld.TPO shall verify all the agreements entered into by Appellant with its subsidiaries, to check: • Whether there exist a licensor-licensee relationship between the Appellant and each of the associated enterprises. Appellant is directed to file all details before the Ld.TPO to analyse impact of the use of brand “SASKEN” by the subsidiaries on their profits on year to year basis. • The Ld.TPO is directed to verify not just the terms and conditions for use of brand “SASKEN “ by the AE’s, but

Page 27 IT(TP)A No. 404/Bang/2017 also the facts and circumstances surrounding the agreement. • The Ld.TPO is to verify if the AE’s acquired any right in the brand “SASKEN”, for the purpose of selling their products, and that whether at any point of time the AE’s were entitled to become the exclusive owner of the technical know how and the trade mark. • Whether there is an active promotion of group’s attributes that positively enhances the profit making potential of a particular member of the group. 4.28 The Ld.TPO while carrying out necessary verification keep in mind the following extract from OECD BEPS Action Plan 8-10: “7.13 Similarly, an associated enterprise should not be considered to receive an intra group service when it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed. For example, no service would be received where an associated enterprise by reason of its affiliation alone has a credit-rating higher than it would if it were unaffiliated, but an intra-group service would usually exist where the higher credit rating were due to a guarantee by another group member, or where the enterprise benefitted from deliberate concerted action involving global marketing and public relations campaigns. In this respect, passive association should be distinguished from active promotion of the MNE group's attributes that positively enhances the profit-making potential of particular members of the group. Each case must be determined according to its own facts and circumstances.” 4.29 The Ld.TPO shall carry out necessary verification based on the which it must first be determined whether there is any Royalty that could be attributed. In the event Royalty is to be attributed, proper benchmarking needs to carried out the accordance with section 92CA of the Act, by selecting an authorised method and comparables. We place reliance on para 6.83-6.85 of BEPS action plan reproduced herein above. Needless to say that proper opportunity of being heard must be granted to Appellant. Accordingly these grounds raised by Appellant stands allowed for statistical purposes. 7.6 There is no factual distinguishing features submitted by the Ld.DR. We accordingly direct the Ld.AO/TPO to carry out

Page 28 IT(TP)A No. 404/Bang/2017 necessary verification based on the directions given by this Tribunal for A.Y. 2013-14 reproduced hereinabove. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 8. Ground no. 6 filed by assessee is in respect of adjustment proposed on software development segment. 8.1 It is submitted that most of its customers are OEM’s in the telecom space. The Assessee’s operations support its customers in their backend operations. It is submitted that the support comprises of onsite support and offshore support. The onsite support is provided either by working with the customer’s team or executing project independently through its offices in various countries. 8.2 The Ld.AR submitted that, during the year under consideration, the total revenue of the Assessee was at Rs.38,808.64 lakhs. This revenue comprised of the following: Particulars Amount in INR (in lakhs) Revenue from services rendered to 5,805.40 Associated Enterprises Revenue from services rendered to 30,331.62 Non-Associated Enterprises Revenue from software products – 2,672.00 Non AE Total 38,808.64 8.3 The assessee had entered into following international transactions during the year under consideration. Amount(Rs.) Description Rendering of Software Development Services 15,01,20,788 Rendering of Sales and Marketing Services 1,50,38,267 Receipt of Software Development Services 8,16,60,440

Page 29 IT(TP)A No. 404/Bang/2017 Receipt of Sales and Marketing Services 3,03,57,507 Receipt of Hardware Support services 3,47,12,700 Cross Charge of SAP License Cost 55,27,988 Interest received on Loan 48,30,677 Purchase of fixed assets 3,16,202 Reimbursement of expenses (Net) Receivable/Received 68,01,427 Reimbursement of expenses (Net) Payable/Paid 14,60,531 8.4 It was further submitted that the Assessee adopted the following methods to justify the above international transactions to be at arms length. International Method used/Basis of Associated Enterprise transactions justification Receipt of Software Sasken China Cost Plus Method ("CPM") Development Services Rendering of Sales and Sasken Inc CPM Marketing Services Receipt of Software Development Services Sasken Japan CPM and Receipt of Sales and Marketing services Sasken Rendering of Sales and Network CPM Marketing Services Solutions Inc Sasken Receipt of Sales and CPM1 Finland Marketing services Rendering and Receipt of Software Sasken Development Services Comparable Uncontrolled Finland and Receipt of Price Method ("CUP Method") Hardware Support services Rendering of Software Development Services Sasken Inc CUP Interest received on Loan

Page 30 IT(TP)A No. 404/Bang/2017 Purchase price of Assessee is Purchase of fixed same as purchase price of AE, Sasken Japan assets hence considered as at arm's length The purchase price is based Sasken Mexico Purchase of fixed on written down value of assets laptops and hence considered as at arm’s length Cost Allocated on basis of Sasken Cross Charge of SAP number of licenses used. Finland & License Cost Hence considered as at arm’s Sasken Inc length. Sasken Reimbursement of Reimbursement of actual Finland & expenses (Net) expenses and hence Sasken Inc Paid/Payable considered as at arm's length Sasken Reimbursement of Reimbursement of actual Network expenses (Net) expenses and hence Solutions Inc Received/ Receivable considered as at arm's length 8.5 For these international transactions, the Assessee performed the transfer pricing analysis by adopting the CUP Method. Towards this, the Assessee adopted the billing rates charged to unrelated parties as the comparable uncontrolled rate for the transaction with AE’s. Such Comparable Uncontrolled rate was taken as the starting point in the comparability study. Similarly for services received, the Assessee adopted the rate charged by AE to third parties as basis of comparison. 8.6 The Ld.TPO rejected the TP analysis of the assessee in respect of the software services rendered and received by assessee which was done based on internal comparables. The Ld.TPO instead carried out new TP analysis based on external comparables by adopting TNMM as the most appropriate method. The Ld.TPO considered 9 companies and proposed the TP adjustment. The Ld.TPO considered the entity level margin of the assessee and computed operating cost at Rs.13,37,61,729/- wherein the Ld.TPO considered the revenue received by AE for rendering

Page 31 IT(TP)A No. 404/Bang/2017 software development services. The average net profit operating margin to operating cost of the comparable was computed at 23.80% and downward adjustment of 3% was made towards the working capital adjustment. The Ld.AR submitted that the Ld.TPO determined the ALP of international transaction under software development service segment rendered by assessee at Rs.16,11,82,883/-. He also submitted that the operating cost determined on the proportionate basis was increased by 20.50% being the mark-up as per the Ld.TPO. The Ld.TPO thus computed the arms length price of software services rendered to Sasken Finland and Sasken Inc. and receipt of software and hardware support services from Sasken Finland as above. The Ld.AR submitted that in respect of the services received by the Assessee from its AEs, the cost incurred by the Assessee towards receipt of services is considered at Rs. 7,43,63,079/-. Total operating revenue is computed at 8,34,57,684/- (i.e. 112.23% of Rs.7,43,63,079/-). Operating margin on Operating revenue is considered as PLI. Average margin of 9 comparables has been computed at 19.22%. However no working capital adjustment was given. The arm’s length cost has been arrived at Rs. 6,74,17,117/-. The operating cost has been computed at 80.78% (100-19.22%) of operating revenue as determined by the TPO. The payment to AE for the services received has been considered at Rs. 7,43,63,079/-. Thereafter, the transfer pricing adjustment for services received was determined at Rs. 69,45,962/- being the difference between arm’s length cost and price paid to AE for receipt of services.

Page 32 IT(TP)A No. 404/Bang/2017 8.7 On an objection raised before the DRP, the DRP directed the Ld.TPO to treat foreign exchange gain / loss as operating in nature in case of assessee as well as the comparables for computing the operating margin. The DRP also directed the exclusion of 1) Datamatics Global Services Ltd. and 2) ICRA Techno Analytics 8.8 All other objections raised by assessee were rejected. Before this Tribunal, the Ld.AR submitted that on giving effect to the directions of the DRP, the margin of assessee would be +5% range of the margin computed by the Ld.TPO post the working capital adjustment. He also submitted that, the Ld.TPO considered the entity level margin instead of segmental margins. It is the submissions of the Ld.AR that the segmental margins details are submitted before the authorities below which forms part of the paper book at page 852 which has been accepted by the Ld.TPO himself. It is submitted that the Ld.TPO while passing 92CA order for A.Y. 2013-14 had considered the segmental results for computing the margins of the assessee. On the contrary, the Ld.DR relied on the orders passed by the authorities below. 8.9 We note that in the order giving effect to the DRP direction, the Ld.TPO computed the assessee’s margin at 17.7% and the comparables margin was computed at 20.5%. Admittedly this is within +5% as per proviso to section 92CA(2). 8.10 Further we note that the Ld.TPO has not considered the entity level margins even though the segmental details were provided to him. The said details are filed vide letter dated

Page 33 IT(TP)A No. 404/Bang/2017 04/06/2018 which is placed at page 852 of the paper book as per which the computation, OP/OC % for AE segment – provision of services and receipt of services is 31.72% and 37.67% respectively. The margins of comparables as per the TPO for provision of services and receipt of services is 20.5% and 19.22% respectively and the above details have been not considered by the Ld.TPO/AO. In the interest of justice, we remand this issue to the Ld.AO/TPO to verify the above details. In the event, the margins computed at segmental levels are found to be within +5%, no adjustment is warranted. The Ld.AO/TPO is directed to consider the claim of assessee based on the above observations in accordance with law. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 8.11 As we have directed the Ld.AO/TPO to verify the margins, the comparables sought for exclusion as without prejudice ground is not considered and left open to be contested in an appropriate circumstances. 9. Ground nos. 7.1 & 7.2 are in respect of exclusion of communication charges, foreign currency expenses and insurance charges from export turnover / total turnover in computing deduction under section 10AA. 9.1 The Ld.AO reduced communication charges, foreign currency expenses and insurance charges only from export turnover in computing deduction under section 10AA as per the draft assessment order. The addition proposed on this ground amounted to Rs. 2,78,48,633. The DRP at para 10.1, page 16 of its directions directed the AO to reduce the above expenditure

Page 34 IT(TP)A No. 404/Bang/2017 from both export turnover and total turnover. In the final assessment order, at page 7, para 4.9, the learned AO has reduced the above expenditure from both export turnover and total turnover and also dropped the proposed addition of Rs.2,78,48,633. Hence, the above ground has become infructuous. This ground has become infructuous as the Ld.AO has reduced the expenditure from both the export turnover and total turnover. Accordingly, this ground is dismissed as infructuous. 10. Ground nos. 8.1 to 8.4 are in respect of the disallowance computed u/s. 14A of the Act. 10.1 During the year under consideration, assessee earned dividend of Rs. 359.27 lakhs which was treated as exempt. The assessee had computed the suomoto disallowance of Rs.8,60,643/- in respect of the same u/s. 14A. The Ld.AO while passing the draft assessment order, disallowed a sum of Rs.69,64,735/- by computing 0.5% of average value of investment u/s. 14A r.w.Rule 8D(2)(iii). The Ld.AR submitted that the Ld.AO included the investment made in shares of Indian subsidiaries, joint ventures, foreign subsidiaries and mutual funds which did not yield any dividend income during the year. The DRP further confirmed the order of the Ld.AO. 10.2 Before us, the Ld.AR submitted that the assessment order does not contain any satisfaction as to why the disallowance made by assessee voluntarily is not correct. He relied on the decision of Hon’ble Supreme Court in case of Maxopp Investment Ltd. vs. CIT reported in [2018] 91 taxmann.com 154. He also relied on Coordinate Bench of this Tribunal in case of Infosys BPM

Page 35 IT(TP)A No. 404/Bang/2017 Ltd. vs. DCIT in ITA Nos. 492 & 493/Bang/2018 for A.Y. 2013-14 by order dated 23/08/2021. 10.3 The Ld.AR without prejudice submitted that if at all any disallowance is to be made over and above the voluntary disallowance made by assessee, only such investment which have yielded exempt income should be considered for computing the average value of investment under Rule 8D(2)(iii). On the contrary, the Ld.DR submitted that the moment assessing officer goes into the accounts of the assessee, there is a verification that has been made based on which a further disallowance has been computed. This act of the Ld.AO amounts to a satisfaction though not expressly mentioned in the assessment order that warrants further disallowance. He thus submitted that merely because an express satisfaction has not been mentioned in the draft assessment order, the disallowance made cannot be nullified. We have perused the submissions advanced by both sides in the light of records placed before us. 10.4 We note that admittedly there is an exempt income earned by assessee. While computing the voluntary disallowance, assessee has not considered the provisions of Rule 8D(2) as the disallowance has to be made as per Rule 8D(2). The Ld.AO has not made any disallowance under Rule 8D(2)(ii) whereas the disallowance has been computed under Rule 8D(2)(iii). There is a conscious application of mind by the Ld.AO because of which no disallowance has been made under interest. We therefore cannot agree with the submissions of assessee that there needs to be an expressed satisfaction recorded by the Ld.AO. The act of the

Page 36 IT(TP)A No. 404/Bang/2017 Ld.AO in computing the disallowance reveals that the accounts of the assessee has been verified. We therefore do not find any merit in the Ld.AR’s argument that an expressed satisfaction has to be recorded by the Ld.AO. 10.5 Now coming to the computation of disallowance under Rule 8D(2)(iii), the ratio laid down by Hon’ble Special Bench of Delhi Tribunal in case of ACIT vs. Vireet Investment Pvt. Ltd. reported in [2017] 82 taxmann.com 415 has to be followed. We direct the Ld.TPO to restrict the disallowance only to the extent of the investment that has yielded exempt income during the year under consideration under Rule 8D(2)(iii). Accordingly, this ground raised by assessee stands partly allowed. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 30th November, 2022.

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 30th November, 2022. /MS /

Page 37 IT(TP)A No. 404/Bang/2017 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, ITAT, Bangalore