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TMI Blog2021 (2) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts, by making an addition of Rs. 1,36,50,206 to the total income of the Appellant on account of adjustment to the arm's length price of the software development services transaction entered into by the Appellant with its associated enterprise; 2. The learned AO / TPO and the learned DRP have erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ('Rules'), conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction, and holding that the Appellant's international transaction is not at arm's length; 3. The learned AO / TPO have erred, in law and in facts, by exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes; 4. The learned AO / TPO and the learned DRP have erred, in law and in facts, by determining the arm's length margin/ price using data pertaining only to FY 2012-13 which was not available to the Appellant at the time of complying with the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, omit or substitute any of the aforesaid grounds of appeal at anytime before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law." Brief facts of the case are as under: 2. The Assessee in engaged in the business of provision of Software Development Services (SWD services), to its wholly owned holding company. In terms of the provisions of section 92A of the Act, the Assessee and its wholly owned holding company were Associated Enterprises ("AEs"). In terms of sec.92B(1) of the Act, the transaction of providing SWD Services and ITeS were "international transaction" i.e., a transaction between assessee and the associated enterprise, the details of which are as under: Particulars Amount Received (in Rs.) Amount Paid (in Rs.) Software Development Services 1874,28,190 IT Enabled Services / EDS (CAD/CAM) (Including SAP Implementation services) 1704,78,609 Reimbursement of Expenses 49,044 Recovery of expenses 4,36,224 3. In terms of ITES services there has been no dispute between revenue and assessee. The only disputed segment is software developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the average arithmetic mean of their profit margins as follows: SI. No. Name of the taxpayer OP/OC 1 CG-VAK Software Exports Ltd 20.45% 2 I C R A Techno Analytics Ltd. 17.10% 3 Larsen & Toubro Infotech Ltd. 26.06% 4 Mindtree Ltd. (Seg) 20.23% 5 Persistent Systems Ltd. 28.27% 6 R S Software (India) Pvt Ltd 17.41% 7 Tech Mahindra Ltd (Seg) 21.90% Unadjusted average margin 21.63% 7. The Ld.TPO proposed the adjustment to ALP being shortfall at Rs. 1,36,50,206/-. 8. The Assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the Ld.AO wherein the addition suggested by the Ld.TPO as adjustment to ALP was added to the total income of the assessee by the Ld.AO. The Assessee filed objections before the DRP and the DRP gave certain directions. Based on the directions of the DRP, the Ld.AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP, the assessee has preferred appeal before this Tribunal. 9. At the time of hearing, the Ld.AR submitted that grounds 6(i), 6.2 & 7 were only pressed. 10. The Ld.AR submitted that Grounds 9- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer 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 following the ratio laid down in the case of Genisys Integrating (supra)." 15. In the light of the aforesaid decision of the Tribunal, comparables sought for exclusion in Ground No.6.1 raised by the assessee is allowed. Accordingly this ground stands allowed partly . Ground No. 6.2 16. Assessee seeks inclusion of only 1 comparable being, Akshay Software Technologies Ltd. It has been submitted that, the Ld.TPO and DRP accepted this comparable in the final list in previous years, however for the year under consideration the same has been excluded. Ld.AR placed reliance on coordinate bench of this Tribunal in case of M/s NXP India Pvt Ltd. vs DCIT in IT(TP)A No. 692 & 2861/B/2017 for assessment year 2012-13 and 2013-14. 17. On the contrary, the Ld.CIT.DR submitted that DRP for excluding this comparable during the year under consideration has held that the on-site revenue filter of this comparable is less than 75% and hence rejected it from the finalist. He submitted that in the preceding y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve working capital does not arise. 22. The Ld.AR placed reliance on decision of coordinate bench of this Tribunal in assessee's own case reported in (2020) 120 taxmann.com 122 and Lam Research India (P.) Ltd. v. Dy. CIT in [IT Appeal Nos. 1473 & 1385 (Beng.) of 2014, dated 30-4-2015], Tivo Tech (P.) Ltd. v. Dy. CIT [2020] 117 taxmann.com 259, and Dy. CIT v. Software AG Bangalore Technologies (P.) Ltd. [IT Appeal No. 1628 of 2014, dated 31-3-2016], where it has been held that negative working capital adjustment shall not be made. 23. We have considered the rival submissions. We find that in the case of Lam Research India (P.) Ltd. (supra) and Software AG Bangalore Technologies (P.) Ltd. (supra) passed by this Tribunal, it has been held that negative working capital adjustment shall not be made in case of a captive service provider as there is no risk and it is compensated on a total cost plus basis. We therefore direct Ld.TPO to compute the ALP in accordance with the directions contained in this order after affording assessee opportunity of being heard. Accordingly ground No. 7 raised by assessee stands allowed for statistical purposes. Ground No. 9-11 are consequential in natu ..... 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