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TMI Blog2019 (7) TMI 1923X X X X Extracts X X X X X X X X Extracts X X X X ..... egative working capital adjustment. - ITA No.2093(Bang)/2017, ITA No.2112(B)/2017 - - - Dated:- 19-7-2019 - SHRI J. SUDHAKAR REDDY, AM AND SMT.BEENA PILLAI, JM Appellant by : Shri Chavali Narayan, CA Revenue by : Shri R.N.Siddappaji, Add.CIT O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : Present cross appeals has been filed by assessee as well as revenue against order dated 31/08/17 passed by Ld. CIT (A)-3, Bangalore for assessment year 2012-13 on following grounds of appeal; 2. ITA No.2093(B)/2017 (Assessment year 2012-13) Based on the facts and circumstances of the case and in law, iPass India Private Limited (hereinafter referred to as 'Appellant'), respectfully craves leave to prefer an appeal against the appeal order passed by the learned Commissioner of Income Tax (Appeals) - 3 [hereinafter referred to as the 'learned CIT(A)'] under section 250 of the Income Tax Act, 1961 ('the Act') on the following grounds: On the facts and circumstances of the case and in law: 1. The order of the learned CIT(A) is based on incorrect interpretation of law and facts, and therefore bad in law; 2. The learned CIT(A) has erred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant wherein consolidated results have been used for analysis. The appellant had considered the consolidated results only in those cases where the software development services related income of the Indian operations constituted more than 75% of the consolidated company-wide / segmental revenues. 6. The learned CIT(A) has erred, in law and in facts, by upholding the action of the learned AO/ TPO in accepting / rejecting companies based on unreasonable comparability criteria; 7. The learned CIT(A) has erred, in law and in facts, by not making suitable adjustments on account of differences in the risk profile of the Appellant vis-a-vis the comparables. while conducting comparability analysis; 8. The learned CIT(A) has erred, in upholding the action of the learned AO/TPO in computing the arm's length price without giving benefit of +/-5 percent under the proviso to section 92C(2) of the Act: 9. The learned CIT(A) has erred, in confirming the imposition of interest under Section 234B of the Act; 10 The learned CIT(A) has erred, by upholding the initiation of penalty proceedings u/s 271(1)(c) of the Act. The Appellant submits that each of the above grounds is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d margin at 14.29% as against following 25 comparables which had average mean of 19.22%. B.4 Comparables selected by Assessee and their arithmetic mean: Sl. No. Name of the company Weighted Average (%) 1 Akshay Software Technologies Limited 12.93% 2 Blue Star Infotech Limited 15.14% 3 Caliber Point Business Solutions Limited 7.93% 4 Cat Technologies Limited 6.50% 5 CG-VAK Software Exports Limited 0.30% 6 Cigniti Tchnologies Limited 8.73% 7 Evoke Technologies Private Limited 21.21% 8 e-Zest Solutions Limited 35.71% 9 Goldstone Technologies Limited 5.50% 10 Helios Matheson Information Technology Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Infosys Limited 43.10 48.68 5 Larsen Toubro Infotech Limited 25.47 32.76 6 Mindtree Limited 15.01 22.20 7 Persistent Systems Limited 27.20 34.11 8 R S Software (India) Limited 15.34 24.96 9 Sasken Communication Technologies Ltd. 12.15 20.67 10 Spry Resources India Pvt. Ltd. 26.18 18.48 AVERAGE MARGIN 22.63% 28.02% Ld.TPO also computed negative working capital adjustment. 4. Aggrieved by adjustment proposed by Ld.TPO assessee preferred appeal before Ld.CIT (A). Ld.CIT on going through objections raised by assessee excluded two comparables being, Datamatics Global Services Ltd and ICRA Techno Analytics Ltd., and upheld the balance 8 comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as it is received in foreign exchange. Otherwise all risk service liability risk, product liability risk, credit and collection risk etc are borne by AE. Thus assessee is characterized to be functioning in a risk mitigated environment which does not carry out significant entrepreneurial activities nor does it bear significant risk associated with such activities. Accordingly assessee has been characterised as a risk mitigated contract service provider for provision of software development services. From TP order, it is observed that Ld.TPO do not dispute to this functional analysis carried out in TP study. With this FAR analysis of assessee, we shall undertake comparability of assessee with comparables objected for inclusion. 7. At the outset Ld. AR submitted that these comparables have been considered by this Tribunal vide order dated 14/06/19 passed in case of VeriSign Services India Pvt.Ltd., in ITA No. 3151/Bang/2018 for assessment year 2012-13 placed at page 779-790 of paper book. 8. Genesis International Corporation Ltd It has been submitted that this company is functionally not comparable with that of assessee as it is engaged in geophysical information syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in 36 Taxmann.com 289. The discussion is contained in paragraph 4.5 to 4.7 of the tribunal s order. The tribunal accepted that Infosys is a giant risk ranking company and engaged in development and sale of software product and also owns intangible assets and therefore not comparable with a software development service provider such as assessee in that case. Respectfully following the same we are of considered opinion that this company deserves to be excluded from the final list. 10 Larsen and Toubro Infotech Ltd It has been submitted by Ld. counsel that this company has been included by ld.TPO though it is not comparable with that of assessee, as it is huge company owning large intangibles. It has been submitted that Delhi ITAT in case of Agnity Inida Technologies Private Limited (Supra)has excluded this company and the same has been upheld by Hon ble Delhi High Court. 10.1. Ld. CIT DR placed reliance upon orders passed by authorities below and insisted on the inclusion of this company. 10.2. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that Delhi ITAT in case of Aginity India Technologies India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ground No. 1 is general in nature and therefore do not require any adjudication. 13. Both parties submitted that only effective ground in revenue s appeal is in respect of Ground No. 2-4 is in respect of negative working capital adjustment worked out by the Ld. AO/TPO. 14. Ld.AR submits that this issue stands covered in favour of assessee by decision of this Tribunal in case of F F India Private Limited in ITA No.195/Bang/2016 495/Bang/2017 for assessment year 2011-12 and 2012-13 passed on 03/07/19. 14.1 Ld. CIT DR placed reliance upon the authorities below however could not controvert that this issue is covered by decisions relied upon by Ld.AR. We have perused the submissions advanced by Ld sides in the light of records placed before us. 14.2 We have also perused the decision relied upon by Ld. counsel. It is observed that this issue has been decided by this Tribunal in F F India Pvt.Ltd.,(Supra) as under: 14. Ground No.11 : Negative Working 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 lear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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