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TMI Blog2020 (5) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... rable companies. Revenue on the other hand has sufficient powers u/s.133(6) to compel production of required details from comparable companies. If this power is not exercised to find and get information required, then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital/risk differences. Ld.AO/TPO shall then compute risk as adjustment in accordance with law. Revenue s appeal stands allowed for statistical purposes. Computing deduction under section 10A - excluding band width expense and travel expense incurred in foreign currency from export turnover - HELD THAT:- DRP while considering the issue referred to view of Hon ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT [ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] correctly directed Ld.AO to follow the view taken therein, while computing deduction under section 10 A. In the absence of segmental details companies need to be rejected. Inclusion of companies functionally comparable with assessee that is rendering captive services to its associated enterprises. Exclusion of companies as undergone acquisition which is an extraordinary event and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Persistent Systems Solutions Limited. b. With respect to IT-enabled services: (a) Accentia Technologies Limited; (b) ICRA Online Limited. 3. The Hon'ble DRP and the Learned AO erred in confirming the order of the Learned TPO which arbitrarily restricted the working capital adjustment at 1.98% to the software development services and at 0.23% to the IT- enabled services segment. 4. The Hon'ble DRP and Learned AO erred in not allowing the set-off of the brought forward loss pertaining to AY 2009-10 of ₹ 1,58,84,554/- (which was claimed by the Appellant in its income-tax return). On the above and such other grounds as may be urged at the time of hearing your appellant prays your Honour to consider the facts and circumstances of the case and render justice. Grounds raised by revenue in its appeal are as under: On the facts and in the circumstances of the case the Learned Dispute Resolution Panel erred in directing the AO to exclude the expenditure incurred towards bandwidth expenses and travel expenses from both the total turnover and export turnover for the purpose of computation of deduction u/s 10A of the ACT. 2. The Ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware Development Services 32,04,99,033/- 2. ITES 7,82,60,272/- 4. Ld.TPO observed that assessee used TNMM as most appropriate method and OP/OC as PLI to determine arm s length margin of both segments, being software development service segment and IT enabled service segment. 5. Assessee computed its margin at 15% under both segments by using 16 comparables under software development service segment and 15 comparables under IT enabled service segment. On the basis of average margin determined by assessee, transactions were held to be at arms length as it was within +/- 5% range. 6. Ld.TPO applied various filters to the comparables enlisted by assessee in the TP study for both segments and shortlisted a set of 11 comparables with an average margin of 22.71% and set of 10 comparables with an average margin of 26.86%. The details of comparables finally selected by Ld.TPO for both segments are as under: Software Development Service Segment: Sl.No Name PLI 1 ICRA Techno Analytics Ltd.(seg) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t service segment and 0.23% for IT Enabled service segment. 8. Aggrieved by proposed adjustments and additions made by Ld.AO/TPO, assessee raised objections before DRP. 8.1. DRP after considering submissions raised by assessee, partially accepted exclusion of certain comparables for not fulfilling turnover criteria. DRP directed Ld.AO/TPO to recompute relief under section 10A in compliance with ratio laid down by Horn ble Karnataka High Court in case of CIT vs M/s.Tata Elxi Ltd reported in 349 ITR 98. As regards the working capital adjustment, objection raised by assessee was rejected whereas DRP suo moto directed Ld.AO/TPO to grant risk adjustment at 1% to the average margin of comparables. 9. On receipt of directions from DRP, Ld.AO passed final assessment order by reducing transfer pricing adjustment to ₹ 1,80,55,479/- and allowed 10A deduction as claimed by assessee. 10. Ld.AO while passing final assessment order disallowed bandwidth expenses and travel expenses in foreign currency from export turnover for purposes of computing deduction under section 10 A of the act thereby reducing the deduction eligible to assessee at ₹ 5,59,89,229/- as against ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess than ₹ 200 crore. This preposition has been accepted by Hon ble Bombay High Court in case of CIT vs Pentair Water Pvt.Ltd., by order dated 16/09/2015 in ITA No. 18/2015. Hon ble court upheld rejection of companies having turnover holding that turnover is a relevant factor in considering comparability of companies. 12.3.1. The objection raised by Ld.CIT.DR by placing reliance upon decision of Hon ble Delhi High Court in case of Chris Capital (supra) has been dealt with by this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT in (2018) 96 taxmann.com 263 for assessment year 2005-06. This Tribunal reviewed gamut of case laws to consider, whether companies having turnover more than ₹ 200 crores should be regarded as comparable with a company having turnover less than ₹ 200 crore. This Tribunal held as under: 17.7 We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT reported in 349 ITR 98 has been granting deduction. 14.2. Ld.CIT.DR placed reliance upon orders passed by authorities below. 14.3. We have perused submissions advanced by both sides in light of records placed before us. It is observed that DRP while considering the issue referred to view of Hon ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT (supra), directed Ld.AO to follow the view taken therein, while computing deduction under section 10 A of the Act. 14.3.1. We do not find any infirmity in such directions. Ld.AO to recompute export turnover in the light of ratio laid down by Hon ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT (supra). Accordingly this ground raised by revenue stands dismissed. In the result appeal filed by revenue stands dismissed. Assessee s appeal along with Cross objection 15. Ground No.1 raised by assessee is a catalyst and therefore do not require adjudication. 16. Ground No.2 raised by assessee in regarding alleged comparables included by Ld.TPO under SWD Segment and ITES, which are as under: A. SWD Segment: Seeks exclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT support services Characterisation: Based on above FAR analysis assessee has been characterised as captive service provider. It has been submitted that assessee is compensated with cost plus markup 15% excluding forex variation component as given in the agreement with the AE for provision of services both under software development and IT enabled services. Assessee has therefore excluded forex loss as non-operating in nature. SWD Segment: a) Persistent Systems and Solutions Ltd This comparable has been included by Ld.TPO though it has been objected by assessee on functional dissimilarities. Ld.AR submitted that segmental information is in respect of this company is not available in annual report. Ld. CIT DR placed reliance upon the orders of authorities below. We have perused submissions advanced by both sides in light of the records placed before us. Annual report of this company is placed at page 1011 to 1022 of paper book index to annual reports volume 1. We find that this company earned income from sale of software services and products and no segmental details are available in respect of the same. It is also observed that income gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is noted that DRP has not verified these issues, though they have been raised by assessee in objection No. 5. We are therefore setting aside this back to DRP for proper verification. DRP is directed to verify the objections raised by assessee in respect of this comparable and to pass a detailed order. Accordingly this comparable is sent back to DRP. ITES segment Comparables sought for exclusion a) Accentia technologies Ltd Assessee had objected for inclusion of this company before authorities below. Ld.AR submitted that this company is engaged in services are akin to knowledge process outsourcing which is evident from the annual report. It has been submitted that under this segment assessee is rendering back-office services which is merely supportive in nature. He also submitted that further this company does only medical transcription but has also ventured into healthcare receivable cycle management and high end consultancy to start-ups requiring field experts. Ld.AR submitted that segmental details of various activities carried out by this company is not available and also has significant intangibles. In support of his contentions he placed relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 1.98% for software development service segment and 0.23% for IT enabled service segment. 17.1. Ld.AR submitted that working capital adjustment computed by authorities below are unreasonable. It has been submitted that DRP had directed Ld.AO to grant working capital adjustment which was not followed while passing final assessment order. Ld.AR emphasised that in the present facts of the case assessee does not have any impact of working capital on its own and therefore it is necessary that adjustment has to be provided in case of comparables in order to reduce the differences. 17.2. Ld.CIT.DR submitted that the issue may be set aside to Ld.AO/TPO for reconsideration. 17.3. We have perused submissions advanced by both sides in light of records placed before us. On perusal of order passed by Ld.AO is observed that the working capital adjustment has been denied since assessee did not filed requisite details in respect of comparables. As held by various decisions of coordinate benches of this Tribunal, we direct Ld.TPO to recompute working capital adjustment in actual, and to consider the same for purposes of computing arm s length margin as per the view expressed by this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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