Emids Technologies Pvt. Ltd. .(“Assessee”) engaged in rendering software development services to its Associated Enterprise, benchmarked its international transactions under the TNMM using selected comparable companies. The TPO rejected two comparables, included additional companies in the final set of comparables, and made an adjustment on delayed receivables. Assessee filed an appeal before the Bangalore ITAT.
Assessee’s Contentions | Revenue’s Contentions | Tribunal’s Judgment |
Emids Technologies Pvt. Ltd. submitted that Orangescape Technologies Ltd. and Infomile Technologies Ltd. satisfied the TPO's filters and were functionally comparable. | The TPO rightly excluded the two companies as they did not appear in the search results generated from the databases used during benchmarking. | The Tribunal directed inclusion of the two companies after necessary verification, holding that a comparable cannot be excluded solely because it does not appear in the TPO's database search if it is otherwise functionally comparable. |
Net4Nuts Ltd., Aptus Software Labs Pvt. Ltd., and Consilient Technologies Pvt. Ltd. were functionally different from a captive software development service provider. | The TPO's selected comparables were appropriate and no exclusion was warranted. | Following earlier coordinate bench decisions, the Tribunal excluded these three companies on account of functional dissimilarity. |
Interest on delayed receivables should be computed, if at all, using LIBOR + 2%, as the transactions were with foreign AEs. | The TPO applied the SBI PLR rate while computing notional interest on delayed receivables. | The Tribunal remitted the issue to the AO to verify whether the receivables were denominated in foreign currency. If so, interest should be computed at LIBOR + 2%; otherwise, SBI PLR would apply. |
Ruling Summary -
Bangalore ITAT held that comparables cannot be excluded solely based on database search results, directed exclusion of functionally dissimilar companies, and remitted the issue of interest on delayed receivables for applying the appropriate benchmark rate.
