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TMI Blog2021 (10) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... , whereas, segmental details relating to various segments are not available in the annual report. Considering the aforesaid aspect, the co-ordinate bench in case of Skillnet Solutions Pvt. Ltd. vs. DCIT [ 2021 (2) TMI 1208 - ITAT MUMBAI] has rejected this company from being treated as a comparable to a software development service provider. Thirdware Solutions Ltd. company cannot be considered as a comparable to a software development service provider. Cyber Infrastructure Pvt. Ltd., on perusal of the annual report of the company placed in the paper book, we find that it has reported revenue from software development services as well as business process outsourcing (BPO) services. However, segmental details relating to the revenue earned are not discernible from the annual report.Thus, in absence of substantial details/data relating to various segments of the comparables, they cannot be included in the list of comparables. Denial of working capital adjustment and risk adjustment - TPO alleging that the assessee neither claimed such adjustment in the TP study report nor furnished the detailed working justifying the adjustment - HELD THAT:- Though, in assessment year 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas associated enterprises (AEs) and earned revenue of ₹ 28,26,79,000/-. In the TP study report, the assessee had benchmarked the transaction with the AEs by applying transactional net margin method (TNMM) as the most appropriate method with operating profit/operating cost (OP/OC) as the profit level indicator (PLI). Undertaking search process in the database, the assessee had selected fifteen companies as comparables with average margin of 9.51%. Since, the assessee had shown operating margin at 12.31%, the transaction with AEs was claimed to be at arm's length. The Transfer Pricing Officer (TPO), however, did not find the assessee's benchmarking acceptable. After verifying the details and materials available on record, he observed that three comparables selected by the assessee, viz. CAT Technologies Ltd., Lucid Sofware Ltd. and Silverline Technologies Ltd. are having wide variations in operating margin over the last years. He was of the view that the fluctuating margin suggests the unstable nature of the comparable's business and revenue. Thus, he concluded that the aforesaid three companies cannot be treated as comparables. Further, he held that Calibre Point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not dispute inclusion of Aspire Systems (I) Pvt. Ltd. as a comparable. Proceeding further, he submitted, CAT Technologies Ltd., Lucid Software Ltd. and Silverline Technologies Ltd. have been rejected as comparables only for the reason that there is wide variation in their operating margin over the years. He submitted, once the companies are accepted to be functional similar to the assessee, they cannot be rejected merely because of variation in their margin. He submitted, CAT Technologies has been accepted by the TPO himself in assessee's own case in assessment years 2011-12, 2012-13 and 2015-16. Thus he submitted, there is no justifiable reason to exclude the company as a comparable. He submitted, Lucid Sofware Ltd. also was not rejected due to any functional difference. Drawing our attention to the annual reports of the company, he submitted, both the companies are functionally similar to the assessee. As regards, Silverline Technologies Ltd., he submitted, it has made loss in the current year and in the preceding assessment year. Whereas, it has made profit in assessment year 2011-12. Therefore, it cannot be treated as a consistent loss making company. Thus, he submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion of certain companies selected by the TPO, the learned departmental representative submitted, while undertaking comparative analysis under TNMM, only broad comparability has to be seen. If functions of the comparables are broadly similar to the assessee, they can be treated as comparables. He submitted, though a number of companies came out in assessee's search process, as would be evident from the TP study report; however, the assessee did not consider them as comparables due to their relatively high margin. Thus, he submitted, the assessee has resorted to cherry-picking. In this context, he specifically referred to Thirdware Solutions Ltd. The learned departmental representative submitted, software development service also includes development of software product. Therefore, a company cannot be rejected simply for the reason that it has developed a software product. As regards the decisions relied upon by the learned counsel for the assessee, the learned departmental representative submitted, unless it is demonstrated that the assessees, in relation to whom the decisions have been rendered, are functionally similar to the present assessee, the decisions cannot be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2012-13 and the impugned assessment year it has reported abnormally high negative margin. Whereas, the assessee has reported a profit margin of 12.31% in the impugned assessment year. As per generally accepted legal principle, in many cases comparables having super normal profit are not considered as comparables. Reverse is the situation in case of Silverline Technologies Ltd. Compared to assessee's margin, this comparable has shown abnormally high negative margin in two consecutive assessment years. Therefore, in our considered opinion, it will not be safe to include this company as a comparable. Therefore, we agree with the decision of the departmental authorities insofar as Silverline Technologies Ltd. is concerned. 13. As regards Infobean Technologies Ltd. and Thirdware Solutions Ltd. and Cyber Infrastructure Ltd. are concerned, undoubtedly, these comparables were selected by the TPO. After taking note of the rival contentions and perusing materials on record, we find that as per the information available from the annual report of Infobean Technologies Ltd. it is involved in sale of software products, whereas, the transaction of the assessee with its AE being cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the comparables, they cannot be included in the list of comparables. Pertinently, in case of Emerson Electric Co. India Pvt. vs. ACIT, Cyber Infrastructure Pvt. Ltd. was excluded for the very same reason. In view of the aforesaid, we direct exclusion of Cyber Infrastructure Pvt. Ltd. as well. 16. In nutshell, the assessing officer is directed to include CAT Technologies Ltd. and Lucid Software Ltd. in the list of comparables. Further, he directed to exclude Infobean Technologies Ltd., Thirdware Solutions Ltd. and Cyber Infrastructure Pvt. Ltd. from the list of comparables. 17. In grounds 5 and 7 assessee has challenged the denial of working capital adjustment and risk adjustment. 18. We have considered rival submissions and perused materials on record. Before us, the learned counsel for the assessee submitted that though in the TP study report, the assessee has not provided detailed working of the working capital adjustment and risk adjustment, since, the transaction with AE was found to be at arm's length; however, the assessee has reserved its right to claim such adjustment at a later stage. He submitted, before the TPO, the assessee had furnished detailed work ..... 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