2021 (8) TMI 633 - AT - Income Tax

TP Adjustment - comparable selection - inclusion of Crystal Voxx Limited in the final list of comparable companies with respect of ITES segment - HELD THAT - As in the case of FNF India Limited 2019 (7) TMI 1760 - ITAT BANGALORE we direct the AO/TPO to include Crystal Voxx Limited as a comparable company. Negative working capital adjustment should not be allowed - HELD THAT - We hold that since the assessee is a capital service provider, negative working capital adjustment need not be given in the facts of this case.

Summary

Issues:
1. Inclusion of Crystal Voxx Limited in the final list of comparable companies for ITES segment.
2. Disallowance of negative working capital adjustment.

Inclusion of Crystal Voxx Limited in the final list of comparable companies for ITES segment:
The Tribunal, in response to the assessee's prayer regarding the inclusion of Crystal Voxx Limited in the final list of comparable companies for the ITES segment, referred to a previous decision by the Co-ordinate Bench of the Bangalore Tribunal in the case of FNF India Private Limited. The Tribunal noted that the list of comparable companies and the assessment year were identical in both cases. Relying on the previous decision, the Tribunal directed the AO/TPO to include Crystal Voxx Limited as a comparable company, stating that the company should be regarded as comparable due to its status as a Business Process Outsourcing (BPO) company. Consequently, ground No. 4.7 was allowed in favor of the assessee.

Disallowance of negative working capital adjustment:
Regarding the assessee's submission that negative working capital adjustment should not be allowed, the Tribunal considered various judicial pronouncements, including cases such as Lam Research India Pvt. Ltd., Adaptec India Pvt. Ltd., Software AG Bangalore Technologies Pvt. Ltd., and E4E Business Solutions India Pvt. Ltd. The Tribunal noted that in situations where the assessee is a capital service provider entirely funded by its Associated Enterprises (AEs), no negative working capital adjustment is necessary. Citing the decision in the case of E4E Business Solutions India Pvt. Ltd., the Tribunal emphasized that as a risk-insulated service provider to the parent company, the assessee does not carry working capital risk. Therefore, the Tribunal held that negative working capital adjustment should not be given in the present case. Consequently, ground No. 4.9 was allowed in favor of the assessee.

In conclusion, the appeal filed by the assessee was partly allowed by the Tribunal on the specified issues. The order was pronounced on August 9, 2021, after considering the arguments presented by both the appellant and the respondents.