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TMI Blog2019 (1) TMI 1548X X X X Extracts X X X X X X X X Extracts X X X X ..... Coordinate Bench, we direct the AO/TPO to consider the provision for bad and doubtful debts both in the assessee as well as comparable cases as part of operating expenses. This ground of appeal is accordingly allowed. Working capital adjustment - denial on the ground that there is a negative working capital adjustment and therefore, no adjustment shall be made - HELD THAT:- In the case of M/s Intoto Software (India) P Ltd vs. ITO, Bengaluru [2013 (10) TMI 599 - ITAT HYDERABAD] the decision of the Hyderabad Bench of the Tribunal in the case of Adaptec (India) P Ltd vs. ACIT [2015 (6) TMI 288 - ITAT HYDERABAD] was considered to direct the AO not to make any negative working capital adjustment. Respectfully following the same, we direct the AO not to make any negative working capital adjustment. Correct numbers with respect to average receivables/payables of the comparables selected in the TP order - we direct the TPO to adopt the correct figure of average receivables/payables for computing the working capital adjustment. Assessee’s grounds are accordingly treated as allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the fact that Company is engaged in the provision of diversified operations and having high scale of operations. Error in computation of margin of comparable companies 7. That on the facts and the circumstances of the case and in law, the AO/DRP erred in confirming the TPO's stand of treating the provision for bad and doubtful debts and bad debts written off as non-operating expenses for the purpose of margin computation of comparable companies as selected by TPO. Rejection of comparable companies 8. That on the facts and the circumstances of the case and in law, the TPO/AO/DRP erred by not including following companies as comparables: 1. Ace BPO Services Private Limited; 2. Informed Technologies India Limited and 3. Jindal Intellicom Limited 4. Crystal Voxx Ltd 9. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred by not including companies as per ground no 8 which are functionally comparable and meets the filter adopted by the TPO. 10. That on the facts and circumstances of the case and in law, the TPO j AO j DRP erred by not appreciating that Informed Technologies India Limited and Jindal Intellicom Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept direction to the AO for giving consequential relief, if any, to the assessee. 4. As regards Grounds 4 to 6 are concerned, brief facts are as under. The assessee company furnished its return of income for the A.Y 2013-14 on 29.11.2013 electronically u/s 139(1) of the IT Act, declaring a total income of ₹ 5,01,65,750. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has reported international transactions with its AEs and therefore, the determination of the ALP was referred to the TPO u/s 92CA of the Act. The TPO issued notices to the assessee, in response to which the assessee's representative appeared and submitted the details. 5. The TPO observed that the assessee is incorporated as a Private Limited Company and is engaged in the business of providing IT enabled back office services and infrastructure support to Harsco Group of Companies. He observed that the assessee has set up a Unit under the Software Technology Parks of India (STPI) Scheme at Hyderabad, India. He opined that the services offered by the assessee to Harsco Infrastructure Services are in the nature of application support & monitoring, global IT governance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he comparability of Capgemini Business services (India) Limited and Hartron Communications Limited on account of functional dissimilarities. 8. The learned Counsel for the assessee while reiterating the submissions made before the authorities below submitted that the comparability of these two companies with ITeS companies have been considered by the Coordinate Bench of the Tribunal in the case of Hyundai Motor India Engineering (P) Ltd vs. Dy.CIT in ITA No.1807/Hyd/ 2017) for the A.Y 201314 and after considering similar set of facts have held that these companies not to be comparable. A copy of the order of the Tribunal is also filed before us. 9. The learned DR however, supported the orders of the authorities below. 10. Having regard to the rival contentions and the material on record, we find that the assessee has been treated as an ITeS back office service provider and even Hyundai Motor India Engineering (P) Ltd has been considered as ITeS service provider and the assessment year involved in the appeal before us as well as in the appeal of Hyundai Motor India Engineering (P) Ltd is A.Y 2013-14. We also find that the comparables taken by the TPO are exactly the same. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, Technical Solutions, Medical Building, etc., and that the segmental information is not available. It was also brought to our notice that the Auditor has clarified about the non-compliance regarding provisions for retirement benefits and impairment of the assets. Further, he submitted that the assessee has taken the objection about this company before the DRP, but the DRP has not discussed the same and has simply confirmed the order of the TPO. 10. Having regard to the rival contentions and the material on record, we find that before the TPO, the assessee had only taken an objection that the said company is functionally dissimilar. Before the DRP also, the assessee had also stated that in addition to the BPO, LPO and ITeS services, this company is also engaged in providing Intellectual Property Services in the nature of patent search, patent protection, and obtaining the trade-mark services, IP Management and further in software development services such as Web page Application, Standalone software Application, Distributed Applications, Desktop/Laptop Applications and Mobile Applications. The assessee had relied upon the Annual Report as well as Website information of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that it fails income from ITeS more than 75% to total operating revenue filter. The learned Counsel for the assessee submitted that the said company is engaged in ITeS services as per the Annual Report and was accepted as a comparable in the assessee's own case for the A.Ys 2011-12 and 2012-13. With regard to the DRP's finding that it fails income from ITeS more than 75% to total operating revenue filter, he submitted that neither the TPO nor the assessee have made such comment or submission. The learned DR was also heard who relied on the orders of the authorities below. 17. On going through the material on record, particularly on page Nos. 1407, 1427 an 1477 of the Paper Book, we find that the said company is also providing ITeS and back office BOP services and as seen from Page 1425 in the column of segmental reporting, it is stated that the company is provisionally engaged in the business process outsources which is only reportable as per AS-17 standard issued by the Institute of Chartered Accounts of India on segmental reporting. Thus, we find that this company can be considered as a comparable. Further, the TPO has not mentioned about the filter of operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating expenses for the purpose of margin computation of comparable companies selected by TPO. The learned Counsel for the assessee relied upon the decision of the Coordinate Bench of the Tribunal in the case of Kenexa Technologies Pvt. Ltd vs. Dy.CIT in ITA No.243/Hyd/2014 for the A.Y 2009-10 for this purpose while, the learned DR relied upon the orders of the DRP. We have gone through the order of the Tribunal in the case of Kenexa Technologies Pvt Ltd (Supra) and we find that at Para 40 to 42, the Tribunal has held as under: "40. With respect to ground No. 2.6.3 and 2.6.4, it was argued by the learned counsel that the TPO erred in computing the margins of comparable companies by considering the provision for bad and doubtful debts and bad debts as nonoperative expenditure. 41. We place reliance on the decision of ITAT Delhi Bench in the case of Sony India Pvt. Ltd. vs. DCIT, ITA No. 1189/Del/2005, 819/Del/2007 and 820/Del/2007. The relevant portion is extracted below: "106.2 Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carried everywhere in accounts to have true picture of profits of the relevant period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntoto Software (India) P Ltd vs. ITO, Bengaluru IT (TP)A No.529/Bang/2016) and (IT(TP)A No.491/Bang/2016) for the A.Y 2011-12. 17. Having gone through the material on record, we find that the Coordinate Bench of the Tribunal in the case of Adaptec (India) P Ltd vs. ACIT (Supra) at Para 10 & 11 has held as under: "10. Ground No.8 pertains to the issue of negative working capital. As briefly stated above, after arriving at the arithmetic mean of all comparables at 22.03%, the A.O. worked out negative working capital adjustment of 3.22% thereby, making arms length price at 25.25%. Even though, DRP refused to interfere with the objections of the assessee in its order, we were informed that DRP has directed the TPO/A.O. not to make any negative working capital adjustment in some of the cases in the next assessment year, in the cases of Market Tools Research P. Ltd., and Mega Systems Worldwide India P. Ltd., assessee placed on record copies of orders of DRP. In that DRP considered the issue and directed the TPO as under : "14. Ground No.11 : Negative Working Capital adjustment - Making a negative working capital adjustment without appreciating the fact that the company does no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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