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2022 (7) TMI 1349 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - Admittedly the functions, assets owned and risks assumed by the assessee under the segment is similar with A.Ys. 2014-15 2015-16 - Respectfully following the above view, we direct the Ld.AO to exclude Infosys Ltd., Persistent Systems Ltd., Mindtree Ltd. and L T Infotech Ltd. from the final list. Working capital adjustment was not been granted while computing the margin of the comparables - We are of the opinion that the revenue was not justified in denying the working capital adjustment in order to bring the comparable companies for the purposes of broad comparison it is necessary to grant working capital adjustment that would eliminate the differences. AO/TPO is directed to allow the working capital adjustment on actuals based on the materials already available on record - Accordingly, this ground raised by assessee stands allowed for statistical purposes.
Issues Involved:
1. Exclusion of specific companies (Infosys Ltd., Persistent Systems Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd.) as comparables. 2. Working capital adjustment. 3. Short grant of credit under Section 115JAA. Detailed Analysis: 1. Exclusion of Specific Companies as Comparables: The assessee sought the exclusion of Infosys Ltd., Persistent Systems Ltd., Larsen & Toubro Infotech Ltd., and Mindtree Ltd. from the list of comparable companies for the assessment year 2017-18. The Tribunal referred to its own earlier decisions for AY 2014-15 and 2015-16, where these companies were excluded based on various factors. - Persistent Systems Ltd.: The Tribunal noted that Persistent Systems Ltd. had more than 25% related party transactions (RPT), specifically 31.32% of sales, failing the RPT filter. Additionally, it lacked segmental reporting and had significant onsite revenue, making it functionally dissimilar to the assessee. - Larsen & Toubro Infotech Ltd.: The Tribunal cited the ITAT Delhi Bench's decision in Saxo India Pvt. Ltd., which excluded this company due to its involvement in trading software and owning intangible assets. The Tribunal observed that L&T Infotech Ltd. had substantial onsite revenue and lacked segmental data, making it incomparable to the assessee. - Infosys Ltd.: Infosys was excluded due to its functional dissimilarities, including owning intellectual properties, incurring significant R&D costs, and having substantial onsite activities. The Tribunal emphasized the difference in business models and the significant turnover disparity. - Mindtree Ltd.: The Tribunal noted that Mindtree Ltd. had diversified operations, significant R&D expenses, ownership of intangibles, and substantial onsite revenue (46% of total revenue). These factors, along with the lack of segmental data, rendered it incomparable to the assessee. The Tribunal directed the Assessing Officer (AO) to exclude these companies from the final list of comparables. 2. Working Capital Adjustment: The assessee argued that working capital adjustment was not granted while computing the margin of the comparables. The Tribunal acknowledged that the assessee had provided the working capital adjustment computation to the authorities, but it was ignored by the AO and the Dispute Resolution Panel (DRP). Citing the decision in Mobis India Ltd., the Tribunal emphasized the necessity of working capital adjustments to eliminate differences and ensure broad comparability. The AO/TPO was directed to allow the working capital adjustment based on the materials already available on record, ensuring proper opportunity for the assessee to be heard. 3. Short Grant of Credit under Section 115JAA: The assessee raised the issue of short grant of credit under Section 115JAA. The Tribunal directed the assessee to provide all necessary information to the AO, who shall then compute the credit available to the assessee in accordance with the law. This ground was allowed for statistical purposes. Conclusion: The appeal filed by the assessee was allowed, with the Tribunal directing the exclusion of the specified companies from the comparables list, granting working capital adjustment, and addressing the short grant of credit under Section 115JAA. Grounds 4 and 5 were deemed general in nature and did not require adjudication. The order was pronounced in open court on 11th July 2022.
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