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TMI Blog2018 (6) TMI 1688X X X X Extracts X X X X X X X X Extracts X X X X ..... A categorical finding has been given by TPO that the assessee has not established the difference in risk level of the tested party and uncontrolled comparables and this is also not established that it is possible to convert the difference in risk level, if there is any, into numbers. He has also given a finding that there is no reliable method to convert the qualitative difference into quantitative difference to make adjustment on account of risk level. The TPO has also referred to Rule 10B (3) of IT Rules which says that if any adjustment should be made, it should be reasonably accurate to eliminate the material effects of such differences. Before us also, as per the synopsis reproduced above, the assessee has pointed out three options for risk adjustment but these are general in nature and the assessee has not established that there is any risk difference between the tested party and the comparables. In the absence of any working having been provided by the assessee showing difference in risk between the tested party and comparables and in the absence of any working regarding the assessee s claim for risk adjustment, we find no reason to interfere in the order of DRP on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year in TP analysis. In this view of the matter, we find no infirmity in the order of authorities below on this aspect. Therefore, we decline to interfere in the orders of lower authorities on this aspect and various judgments cited by ld. AR of assessee in the synopsis are not rendering any help to assessee because these judgments are only on this aspect that provision for doubtful debts is an operating expenditure but in our considered opinion, even after accepting this contention that provision for doubtful debts is operating expenditure, the same has to be excluded in TP analysis for the reasons discussed above. Permissible RPT% Ffor selection of comparable - 25% RPT filter is proper and not 15%. Companies functionally dissimilar with that of assessee need to be deselected from final list. Exclusion of Larsen Toubro Infotech Ltd. and Persistent Systems Ltd. - It is seen that our decision regarding these two comparables to restore back the matter to the file of TPO is fortified by this Tribunal order also in which, the tribunal has considered one more Tribunal order rendered in the case of Microsoft Research Lab India (P.) Ltd. vs. ACIT [ 2017 (8) TMI 1585 - IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case. 3. The Ld. TPO has erred in justifying the motive of shifting of profits 3.1 On the facts and in the circumstances of the case and in law, the Ld. TPO / AO erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions which is a prerequisite condition to make any adjustment under the provision of Chapter X of the Act. 4. Comparability Analysis and Determination of Arm's Length Price Grounds of Appeal for rejection of comparables selected by the Ld. TPO in the order issued u/s 92CA of the Act 4.1 The Ld. AO/ TPO grossly erred on facts in benchmarking the transactions of the captive information technology services ( IT services') of the Appellant with companies operating as full-fledged entrepreneurs without considering the differences in the functions performed, assets employed and risk undertaken by the Appellant visa-vis comparable companies. 4.2 The Ld. TPO erred in selecting CG-VAK Software Exports Limited as comparable in the order u/s 92CA of the Act, despite the business of the company being functionally not comparable to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of segmental information whereas the said company is engaged in rendering software development services and earns majority of its revenue from rendering such services. 4.7 The Ld. TPO erred on facts in rejecting Helios and Matheson Information Technology Limited and R Systems international Ltd., selected by the Appellant as comparable in its transfer pricing study, despite the said companies being functionally comparable. Ld. AO/ TPO erred in computing a negative working capital adjustment on the margins of the comparable companies 4.8 The Ld. TPO/ AC) erred on facts and in law. and the Honorable DRP further erred in upholding / confirming the action of the Ld. TPO/ AO in computing a negative working capital adjustment on the margins of the comparable companies wherein the IT services segment of the Appellant operates as a captive service provider. Non-allowance of appropriate adjustments to the comparable companies by the Ld. AO/TPO 4.9 The Ld. AO / TPO erred in law and on facts in not allowing appropriate adjustments under Rule 10B to account for, inter alia, differences in (a) accounting practices. (b) marketing expenditure, (c) research and development expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power under section 133(6), which is grossly unjustified. 5.8 The Ld. AO/TPO also erred on facts and in law in accepting comparable companies without considering the turnover and size of the Appellant and the comparable companies. GROUNDS OF APPEAL ON CORPORATE TAX ISSUES 6. Disallowance of commission expense on account of nondeduction of tax at source 6.1 On the facts and circumstances of the case and in law, the Ld. AO erred in disallowing the export commission expense amounting to ₹ 4,34,72,134 paid to non-resident parties under section 40(a)(i) of the Act without appreciating that such payments were not taxable in India and the Honorable DRP erred in confirming the same. 7. Non grant of set off of Minimum Alternate Tax ( MAT ) credit 7.1 On the facts and circumstances of the case and in law, the Ld. AO erred in not granting set off of MAT credit while computing tax liability and the Honorable DRP erred in not adjudicating on the same. 8. Levy of interest under sections 234B of the Act 8.1 On the facts and circumstances of the case, the Ld. AO erred in levying interest under section 234B of the Act amounting to ₹ 1,58,63,950. 9. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soever in the maintenance of its working capital. (b) 99.83% of the Appellant's share capital is held by Lifetree Cyberworks Pvt. Ltd., the Appellant's holding company and TecnotreeOyj, Finland, the Appellants ultimate holding company. Thus. the Appellant does not have any working capital risk at all. 3. A substantial portion of the Appellants working capital arises out of transactions with its related parties. For instance, out of the total trade receivables of ₹ 163,35,09.966 as at 31.03.2013, more than 77%. i.e., ₹ 126,40,42,576 is receivable from its holding and subsidiary companies. This reinforces the proposition that the Appellant bears no working capital risk. 4. The following orders of co-ordinate benches of this Tribunal have held that where the Appellant bears no working capital risk and incurs no expenditure on working capital, the Revenue cannot make a negative working capital adjustment. (a) Adaptec (India) Pvt. Ltd. v ACIT [2015] 57 taxmann.com 307 (Hyderabad-Trib.) (b) Lam Research (India) Pvt. Ltd. v. DCIT (I.T(TP). A. No. 1437/Bang/2014) (c) CAPCO IT Services India Pvt. Ltd. v ITO [2017] 79 taxmann.com 214 (Bangalore-Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of return while the PLR is considered the normal risk-bearing rate. For the relevant previous year, this risk premium would be 2.94% (i.e., 294 basis points) (being 10.25% (PLR notified by RBI during the year ended 31.03.2013) - 7.31% (bank rate notified by RBI for that period). 9. Option 3: The third option is based on the decision of a coordinate bench of this Honourable Tribunal in Motorola s case. This provides for the use of the Capital Asset Pricing Model (CAPM) along with the WACC (Weighted Average Cost of Capital) mechanism. First, the cost of equity is determined using the CAPM. Second, the cost of debt is determined on actual basis. The WACC is then computed applying the equity and debt mix as the weight to the cost of equity and the cost of debt. The riskadjustment is computed as the portion of the WACC that represents return attributable solely to risk This risk adjustment. as a percentage. is applied to the comparables' arithmetic mean to adjust it. The detailed method of computation is at Annexure 12 to Form 35A submitted before the learned DRP (at p. 76 thereof) read with the enclosures thereto which forms a part of the memorandum of appeal before this Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the adjustment were not furnished before the lower authorities. Both these are not true in the present case. Additionally, the learned DRP relied on the decisions in Zyme Solutions , CDC Software', Stryker Global, and Aptara Technologies. In Zyme Solutions, the attending circumstances were that the DRP had directed the TPO to grant a risk adjustment of 1% without considering any of the material. In the Appellant's case, it is plainly evident that the learned DRP has denied the risk adjustment on non-existent grounds. In Aptara's case. the Tribunal held that where no Arm's Length Price adjustment was being made at all by virtue of the margin provided for in the second proviso to section 920(2), the ground relating to the risk adjustment was infructuous. The learned DRP has misrepresented this as meaning that the 5% ipso facto implied that no risk adjustment could be made. All the precedents are thus distinguished. R SYSTEMS INTERNATIONAL. LTD. (SEGMENT) 15. This comparable was selected by the Appellant. It was rejected by both the learned TPO ant the learned DRP on the ground that it has a different financial year. i.e., year ending 31st December as opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod of extrapolation ought to be accepted and thus, the rejection of the comparable on the ground of its different financial year deserves to be set aside in accordance with the binding precedents. 19. The PLI of R Systems, so computed, is 15.95%. This computation is as follows. Particulars Amount (in Rs.) FYE 31.12.2012(A) B=A*9/12 FYE 31.12.2013 D=C*3/12 FYE 31.03.2013 Segment Revenue (A) Less: Segment Result 1,99,04,50,611 26,75,09,209 1,49,28,37,958 20,06,31,906 2,35,64,00,658 49,03,89,126 58,91,00,164 12,25,97,282 2,08,19,38,123 32,32,29,188 Segment Expenditure 1,72,29,41,402 1,29,22,06,052 1,86,60,11,532 46,65,02,883 1,75,87,08,935 Add:Apportioned Operating Expenditure 3,47,04,136 2,60,28,102 4,34,24,035 1,08,56,009 3,68,84,111 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,87,38,171 1,87,38,171 39,97,218 - 1,28,661 55,000 5,54,004 55,000 1,46,85,953 1,80,00,506 63,45,039 63,45,039 Total Expenditure (B) 7,34,10,206 7,67,24,759 Operating Profit (C = A - B) 1,50,77,646 1,18,21,693 PLI 20.54% 15.41% 22. Submissions are separately addressed on each of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this comparable deserves to be rejected as it fails even the learned TPO's own related party transactions (RPT) filter, adopted by him at 25%. This is demonstrated below, with two alternative computations both yielding the same result. (Amounts are in thousands of Rs.) Particulars of RPT Nature of RPT Amount Option 1 Amount Option 2 Professional services received Interest Reimbursement of expenses Other Income Income Income Income Income 32,008 409 6,862 355 32,008 409 6,862 355 Numerator (A) 39,634 39,634 Professional services availed Reimbursement of expenses Interest Other expenses Expenditure Expenditure Expenditure Expenditure 1,867 5,281 479 71 1,867 5,281 479 71 NUMERATOR (B) 7,698 7,698 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This comparable was selected by the learned IPO and upheld by the learned DRP. The Appellant submits that this comparable is to be rejected on the following two grounds. (a) Brand Value,: The second page (numbered S-623) of L T Infotech's director's report throws light on that company's substantial brand value. Further, on the third page (S-624), the long list of awards and recognitions earned by that company further evidence the strength of its brand. (b) Functionally Different: The segment reporting information at p. S-653 of the annual report shows the multifarious nature of this comparable's operations. It has been held by a co-ordinate Bengaluru Bench in Cisco Systems (India) Pvt. Ltd. v. DCIT [2014] 50 texmann.com 280 (Bangalore-Trib.) that L T Infotech, being a global IT services and solutions provider, cannot be compared to a captive software development service provider. (c) High Turnover: L T Infotech has a turnover of X3,613.42 crore. This is more than 18 times the Appellant's turnover. In the following cases, co-ordinate Benches of this Honourable Tribunal have held that a turnover filter of one-tenth the turnover of the tested company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its customers where the intellectual property would eventually vest in such customers) or both. iv) In the Appellant s case, software development falls in the latter of these categories. Even if the whole of Mindtree's 25% of development revenue was considered to be software development of the kind comparable with the Appellant, it is impossible to determine how much of the IT Services segment of Mindtree actually constitutes software development. Thus the information used by the TPO is unreliable. v) Further, from the graphs on page 57. it emerges that as much as 22% of Mindtree s revenue is from maintenance. Maintenance would certainly be in the nature of IT Services and not PES . Thus, the ''IT Services segment itself is heterogenous and not functionally comparable to the Appellant's homogenous software development activities. vi) Further, in the segmental information at page 90 (identical to the segmental information at page 58) shows that IT Services Constitutes about 69.47% of Mindtree s revenue, but as seen above, development is only about 25% while maintenance is itself 22%. Thus it is clear that the segment IT Services is a heterogen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that the company is in many lines of businesses such as product engineering, technology consulting, strategic partnership to build platforms, and 1P-led business. The activities are thus wide and multifarious. (b) Page 19, 27 and 31 of the annual report show a focus on IP-led business and the acquisition of IP during the year. (c) Acquisitions: Page 27 shows (d) The nature of Persistent's services is different too. Page 21 of the annual report shows the nature of services as being cloud computing, analytics. social enterprise and enterprise mobility. (e) R D: Pages 21 and 28 show that Persistent has an in-house research lab recognised by the Department of Scientific and Industrial Research (DSIR), Government of India. 35. Without prejudice, the learned TPO and the learned DRP have wrongly treated provision for doubtful debts as being nonoperating in nature. If this is treated as operating, the margin will come to 27% as opposed to the 28.27% determined by him. Detailed arguments have been advanced in this respect in relation to the comparable CG-VAK. OTHER ISSUES TDS ON COMMISSION 36. The Appellant paid commission of ₹ 4,34,72,134 to parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one comparable i.e. R Systems International Ltd. (segment) and exclusion of five comparables i.e. 1) CG-VAK Software and Exports Ltd., 2) ICRA Techno Analytics Ltd., 3) L T Infotech Ltd., 4) Mindtree Ltd. (segment) and 5) Persistent Systems. In addition to TP issues, there is one issue on corporate taxation i.e. TDS on commission. We decide this appeal by deciding various issues one by one. 7. We first examine and decide the issue in respect of negative working capital adjustment. In this regard, this is the submission of the assessee that 99.83% of the assessee s share capital is held by Lifetree Cyberworks Pvt. Ltd., the assessee s holding company and TecnotreeOyj, Finland, the assessee s ultimate holding company and thus, the assessee does not have any working capital risk at all. This is also the assessee s submission that a substantial portion of the assessee s working capital arises out of transactions with its related parties and in support of this contention, it was submitted that out of total trade receivables of ₹ 163.35 Crores as on 31.03.2013, more than 77% i.e. ₹ 126,40,42,576/- is receivable from its holding and subsidiary companies and this is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred any expense for meeting the working capital requirement. We have gone through the submissions and the order of the TPO. The assessee pleaded that the DRP has acceded such a plea in some other case. On examination, we find that the DRP, Hyderabad in the case of Cordys Software India P. ltd., for A.Y. 2008-09 in its directions dated 03.08.2012 has given a finding as under : 7.7. 4 Thus, working capital adjustment is made for the time value of money lost when credit time is provided to the customers. The applicant is not an entrepreneur but a captive service provider. Its entire funding needs are provided by the A.E. This being so, the applicant does not stand to lose anything as it is compensated on a total cost plus basis. The TPO probably was carried away by the large amount of receivables appearing in the books of the applicant. But the applicant is running its business without any working capital risk while comparable companies have such a risk for them. If at all any working capital adjustment is to be made to t his situation, only a positive adjustment has to be made to the comparables so that they are brought on par with the applicant. In view of the same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to third customer with payment terms of two months outstanding then the prices charged to the first customer having cash payment terms will be minimum and the prices charged for the second customer with the payment terms of one month credit will be more as compared to the prices charged to first customer and the prices charged to the third customer with the payment terms of two months credit will be more than the prices charged to the first customer also. Similar is the situation for creditors because if the assessee makes payment to its suppliers on cash basis, the assessee will get least price and if the assessee is making payment after one or two months then the prices charged to the assessee by the supplier will be extra. Such extra pricing depending on the payment terms is not for this reason that the supplier is making payment of interest because even if a supplier has its own money and has no interest burden then also he will charge extra if the payment terms is for two months credit as against payment terms of one month credit and payment terms of cash payment i.e. immediately on supply. Hence it is seen that the very basis adopted by DRP in those cases is wrong and the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above Para from the order of TPO, it is seen that as per the TPO in the present case, working capital position affects the pricing of any service in open market as discussed above. The TPO also held that whether positive or negative working capital difference is not material and the purpose of the working capital adjustment is this that it increases comparability and the purpose of working capital adjustment is not to benefit the assessee but to increase comparability and be just. In our considered opinion, working capital risk and whether there is interest burden or not are not relevant factors for deciding working capital adjustment because in our considered opinion, working capital adjustment is done because working capital position affects the pricing of any service or goods in the open market. Since this aspect has not been considered by Tribunal in that case, in our considered opinion, this Tribunal order is not binding precedence for the purpose of deciding this aspect that working capital position affects the pricing of any service or goods in the open market because in the present case, this is the objection of the TPO as per relevant paras reproduced above and this aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the case of Chryscapital Investment Advisors (India) (P) Ltd. v. Dy. CIT [2015] 376 ITR 183/232 Taxman 20/56 taxmann.com 417 (Delhi), wherein the Hon'ble Court has held that appropriate adjustments should be carried out in situations where there are differences between the tested parties and comparables and in case such differences perceptible in the comparables cannot be eliminated on account of adjustments or otherwise, then such comparables have to be rejected. 16. We direct the TPO to work out appropriate risk adjustment. 17. The learned AO/DRP erred in not providing appropriate working capital adjustment The learned TPO determined the ALP for the international transactions with A.Es by making a negative working capital adjustment for the differences in working capital between the assessee and the companies considered as comparables. It is submitted that working capital adjustment is made for the time value of money lost when credit time is provided to the customers. It was submitted that the assessee is not an entrepreneur but a captive service provider and its entire funding needs are provided by the A.E. This being so, the assessee does not static to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital adjustment - Making a negative working capital adjustment without appreciating the fact that the company does not bear any working capital risks. On this issue, the assessee submitted as under : The learned TPO determined the ALP for the international transactions with A.Es by making a negative working capital adjustment for the differences in working capital between the assessee and the companies considered as comparables. The assessee does not agree with the learned TPO as : The company does not bear any working capital risk since it is been fully funded by it's A.E. from its inception and has no working capital contingencies. The company has never taken any loans till date from the date of incorporation nor has incurred any expense for meeting the working capital requirement. We have gone through the submissions and the order of the TPO. The assessee pleaded that the DRP has acceded such a plea in some other case. On examination, we find that the DRP, Hyderabad in the case of Cordys Software India P. ltd., for A.Y. 2008-09 in its directions dated 03.08.2012 has given a finding as under : 7.7. 4 Thus, working capital adjustment is made for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 of case law compilationand before us, it was pointed out that para 8.1 on page nos. 298 299 is relevant and hence, we reproduce para 8.1 from pages 298 299 of the compilation of case laws. The same is as under. 8.1. This ground pertains to incorrect computation of working capital adjustment. It was submitted that working capital adjustment was wrongly considered by considering the total receivables and arrivals including third party transactions and making a negative working capital adjustment. AO/TPO is directed to examine this issue and work out the working capital adjustment afresh, as certain comparable companies are being considered separately. In case the working capital adjustment comes negative, AO/TPO is directed not to make any negative working capital adjustment as the same is not approved in various Co-ordinate Bench decisions. The Co-ordinate Bench of ITAT in the case of Adaptec (India) P. Ltd., Vs. ACIT in ITA. No. 206/Hyd/2014 (AY 2009-10) dt. 25-03-2015, has decided the issue of negative working capital 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is to be made to t his situation, only a positive adjustment has to be made to the comparables so that they are brought on par with the applicant. In view of the same, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made. In view of the above, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made. 11. In view of the above, we are of the opinion that assessee's case being similar, there is no need for making any negative working capital adjustment when assessee does not carry any working capital risk. In fact, TPO should have done necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to the assessee. In view of this, we direct the TPO not to make negative working capital adjustment . 16. From the above paras, we find that in this case also, the issue is decided by Tribunal by following Tribunal order rendered in the case of Adaptec (India) Pvt. Ltd. Vs. ACIT (supra) and we have already seen that this Tribunal order is not relevant in the present for the reasons m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment can be made for want of method to do so nor has it been established that there is a material effect that is affecting the comparisons due to risk level. If the taxpayer is suggesting that there exists a difference in the risk level assumed by the tested party and uncontrolled comparables, it is academic in nature and not based on any study whose results has been validated. Further, it is not out of place to reiterate that single customer risk is a huge risk which the uncontrolled comparables are not assuming. By having more customers, the risk is shared or spread. In other words, if one customer goes out of business still there are others which will sustain the business of the tested party. But in case of the taxpayer there being only one client, the entire risk is concentrated on one client, and therefore, if the client is out of business the taxpayer will also be out of business. Moreover, the proviso to Sec. 92C (2) of the Act provides for adopting arithmetical mean of the different prices. This provision neutralizes the effect of difference in the risk profile, if any between the tax payer and the comparables as realized risk may pull down the profitability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such difference results in deflation or inflation of financial result of the comparables, it is not general rule of standard adjustment. The assessee has not brought on record how such functional difference and risk has influenced the result of the comparables with quantified data to the satisfaction of the authorities. The assessee did not quantify the alleged adjustments on account of difference in risk. However, the assessee, first time filed certain calculation before the DRP in support of its claim. The said calculation is also not on the basis of any formula or principle rather it is general in nature. In our opinion, second proviso to sub.sec. 2 of sec. 92C cover and take care of these aspects. Since it is impossible to have a perfect comparable without any difference or variation regarding turnover risk profile and functional differences; therefore, the legislature has provided a margin of + 5% while determining the ALP. Therefore, when the assessee is having benefit of choice/option as per the said provision as existed at the relevant point of time, no separate adjustment is required on account of risk and functional differences. Therefore, we do not find any merit and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was seeking and the basis thereof. But the assessee just sought of adhoc adjustments on this account based on various Tribunal decisions. The DRP has given a categorical finding that the assessee does not have any scientific backing and the assessee s claim is only a theoretical one. As per para 13 of the order of TPO also, a categorical finding has been given by TPO that the assessee has not established the difference in risk level of the tested party and uncontrolled comparables and this is also not established that it is possible to convert the difference in risk level, if there is any, into numbers. He has also given a finding that there is no reliable method to convert the qualitative difference into quantitative difference to make adjustment on account of risk level. The TPO has also referred to Rule 10B (3) of IT Rules which says that if any adjustment should be made, it should be reasonably accurate to eliminate the material effects of such differences. Before us also, as per the synopsis reproduced above, the assessee has pointed out three options for risk adjustment but these are general in nature and the assessee has not established that there is any risk d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable. If they are, the Transfer Pricing Officer must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the arm's length price. 29. As noted by the Tribunal, the audit accounts of R System International Ltd. for the year ending December 31, 2008 had been given under one column and the data for the quarter ending March 31, 2009 and March 31, 2008 (both audited) had been given in two other columns. Thus, as rightly held by the Tribunal, if from the yearly data ending December 31, 2008, the results of the quarter ending March 31, 2008 are excluded and if the results for the quarter ending March 31, 2009 are included, it is possible to obtain the data for the financial year April 1, 2008 to March 31, 2009. 30. This View is not contrary to rule 10B(4) which reads as under : 10B. (4) The data to be used in analyzing the comparability of any uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. 31. The Rule does not exclude from consideration the data of an entity m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from audited accounts of that company then it should be adopted and this comparable should be included in the list of comparables. If the assessee is not in a position to do so, then the TPO may again exclude the same. 22. In addition to this, the assessee has also placed reliance on three Tribunal orders as per the synopsis reproduced above. But since, we are deciding the issue by following the judgment of Hon ble Punjab Haryana High Court; we feel that those Tribunal orders are not required to be considered separately. Hence on this issue, we restore the matter back to the file of TPO for fresh decision in the light of above discussion in the light of judgment of Hon ble Punjab Haryana High Court after providing reasonable opportunity of being heard to assessee. 23. Now we take up the issue in respect of CG-VAK Software and Exports Ltd. Regarding this comparable, this is the case of the assessee that the assessee does not challenge the selection of this comparable and therefore, does not press the relevant ground. The assessee s case is only to determine the PLI of this company correctly. As per the assessee, the PLI of this company should be adopted at 15.41% as agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for doubtful debts is against the turnover of the present year, it should be considered as provision against the turnover of an earlier year and therefore, the same cannot be considered as operating expenses for the current year in TP analysis. In this view of the matter, we find no infirmity in the order of authorities below on this aspect. Therefore, we decline to interfere in the orders of lower authorities on this aspect and various judgments cited by ld. AR of assessee in the synopsis are not rendering any help to assessee because these judgments are only on this aspect that provision for doubtful debts is an operating expenditure but in our considered opinion, even after accepting this contention that provision for doubtful debts is operating expenditure, the same has to be excluded in TP analysis for the reasons discussed above. 24. Now we examine and decide about the assessee s claim is for exclusion of four comparables i.e. ICRA Techno Analytics Ltd.,L T Infotech Ltd.,Mindtree Ltd. (segment) andPersistent Systems. 25. Regarding ICRA Techno Analytics Ltd., this is the case of the assessee that RPT% of this company is either 26.76% or 26.19% and since it is more t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR of assessee that this company is having high turnover of ₹ 3,613.42 Crores which is 18 times of the turnover of the assessee company. Reliance has been placed on several Tribunal orders as noted in Para 28 of synopsis reproduced above. But on this aspect of the matter, we are following the judgement of Hon ble Delhi High Court rendered in the case ofChryscapital Investment Advisors (India) (P.) Ltd. vs. DCIT as reported in 376 ITR 183in which it was held that huge profit or huge turnover, ipso facto does not lead to exclusion of a comparable and the TPO first, has to be satisfied that such differences do not materially affect the price or cost and secondly, an attempt should be made to make reasonable adjustment to eliminate the material effect of such differences. Hence on this issue, we restore the matter back to the file of AO/TPO for fresh decision in the light of this judgement of Hon ble Delhi High Court. 28. The next company for which the assessee is requesting for exclusion is Mindtree Ltd. (seg.). The contentions raised by the assessee regarding exclusion of Mindtree Ltd. are contained in Para nos. 29 to 31 of the synopsis reproduced above. As per the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that for this issue, the same arguments should be considered which were advanced for the other company i.e. CG-VAK Software and Exports Ltd. While deciding the issue in respect of CG-VAK Software and Exports Ltd., we have held that provision for doubtful debts can be accepted as operating expenditure but the same cannot be considered for the purpose of TP analysis because it is not possible to find out whether such provision for doubtful debts is in relation to the turnover of the present year or earlier year. Hence it should be accepted that such provision is in relation to the turnover of earlier year and therefore, it cannot be considered in TP analysis. Accordingly, on the same line, this argument is rejected for this company also. The third contention of assessee regarding this comparable company is that this company is not functionally comparable. 30. Regarding functionality difference aspect of this company, it is submitted in synopsis that page no. 4 of annual report of that company shows that company is in many lines of businesses such as product engineering, technology consulting, strategic partnership to build platforms and IP-led business and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in terms of the decision of the Tribunal in Microsoft Research Lab India P. Ltd (supra), the matter may be remitted back to the file of the TPO for examining afresh in the light of the observations made by the Tribunal in the said matter. 10. We have heard the rival contention and perused the record. In the light of the reliance by both parties on Microsoft Research Lab India P. Ltd (supra), we would like to remand the matter to the file of TPO to the similar effect as done in the matter of Microsoft (supra) however we would like to add a word of caution that it will be unsafe to follow one decision passed by the Tribunal in any other case unless the assessee demonstrates that the profile of the assessee company as well as the assessee in other case are materially comparable with each other and there is no element of distinction between the profile of those two companies. However at this stage we do not wish to examine the profile of the assessee company as well as the profile of Microsoft Research Lab India P. Ltd(supra) as we are remitting back the matter and we leave it to the wisdom of the TPO to consider the facts of the present case (assessee) with that of Microsof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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