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TMI Blog2022 (7) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... RI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER Assessee by : Ms. Amulaya, Advocate Revenue by :Shri Sumer Singh Meena, CIT DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by the assessee against the order dated 25/01/2022 passed by National Faceless Assessment Centre, Delhi for A.Y. 2017-18 on following grounds of appeal: 2. At the outset, the Ld.AR submitted that assessee wish to press Ground no. 2.8, wherein it seeks exclusion of a) Infosys Ltd. b) Persistent Systems Ltd. c) Larsen & Toubro Infotech Ltd. d) Mindtree Ltd. 3. In Ground nos. 2.10 - 2.11, the assessee is seeking working capital adjustment and in Ground no. 3.1, the assessee is seeking rectification of tax credit eligible to assessee under 115JAA. 4. The Ld.AR submitted that Coordinate Bench of this Tribunal in assessee's own case in IT(TP)A No. 2657/Bang/2018 & IT(TP)A No. 2365/Bang/2019 for A.Ys. 2014-15 & 2015-16 by order dated 28.02.2020 excluded Infosys Ltd., Mindtree Ltd., L&T Infotech Ltd. and Persistent Systems Ltd. by observing as under: "32. At the time of hearing, the ld. counsel for the assessee has prayed for exclusion of 4 comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se as Associated Enterprise. if the limit is reduced further it would only result in eliminating more and more companies, on the other hand if the limit is relaxed then companies with predominantly related party transactions would get included which would not represent uncontrolled transactions. Therefore, on a balancing note, 25% is a proper threshold limit for related party transactions. The companies having more than 25% related party transactions should therefore be rejected as comparables. The Hon'ble IT.AT has upheld the application of this filter by the TPO in its order in the case of M/s. Supporisoft India Pvt. Ltd for AY 2005-G6 in IT (TP)A 1372/B/11 & 20/2012 dated 28.03.2013 following its own decision in the case of M/s. Actis Advertisers Pvt. Ltd vide ITA No.5277/De1/2011 dated 12.10.2012. On perusal of the Annual Report of Persistent, we observe that the company has RPT in excess of 25% of the sales. The calculation of the same has been provided below for your ease of reference: RPT to Sales ratio for FY 2014-15 Particulars Amount (INR Million) Sale of services 2,410.02 Commission received 10.26 Purchase of software 1.49 Cost of technical professional 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vider with a revenue composition of more than 75% from onsite software services as comparable. As rightly observed by the TPO, the pricing is different in onsite when compared to offshore operations. The further observations of the TPO that the reasons for the same lie in the fact that while in the case of OFFSHORE projects most of the costs are incurred in India; an ONSITE project has to be carried out abroad significantly increasing the employee cost and other costs. 65. The next objection of the Assessee is with regard to Assets employed. The companies, which predominantly generate revenues from onsite activity, do not have significant assets as most of the work is carried on the site of customer outside India. The argument that the TPO has himself observed that software service providers do not require much assets cannot be basis to accept the Assessee's plea. Those observations are made by the TPO in the context of application of turnover filter and have been quoted out of context by the Assessee. 66. The next argument of the Assessee is that TPO has held that margins are lower in onsite software services and that margin is not a criteria to select or reject a comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered on the facts of its own case. 37. On the issue of RPT filter, we notice that the TPO in para 16 has accepted that the RPT filter should be @ 25%. In the case of Persistent Systems Ltd., the RPT is at 31.32% as extracted in the earlier part of this order and therefore this company should be excluded by application of RPT filter. In view of the above, we do not wish to go into other grounds on which this company is sought to be excluded viz., that it is a product company and there is no segmental data between product and services segment, presence of onsite activity and the impact of extra-ordinary event of acquisition during the relevant previous year. Therefore, this company is directed to be excluded from the list of comparable company. 38. As far as L&T Infotech Ltd. is concerned, the ld. counsel for the assessee brought to our notice the decision of ITAT Delhi Bench in the case of Saxo India Pvt. Ltd. v. ACIT, ITA No.6148/Del/2015 for AY 2011- 12, order dated 5.2.2016, wherein the Tribunal took note of the fact that this company was also trading in software and owned insignificant intangible assets. The company was excluded from the list of comparable companies with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before us. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessee. 41. The next company sought to be excluded is Mindtree Ltd. The submissions made before us were as follows:- "Functionally dissimilar, diversified operation, significant R&D spend, ownership of intangibles. - Also engaged in business of rendering IP-Led revenue, infrastructure management, package implementation, consultancy services, etc. constituting 45% of overall revenue during FY 2014-15. - Diversified operation i.e. engaged in infrastructure management services, business process management, technology consulting, product engineering and SAP services. Also lacks segmental data. - Significant research & development activity. By incurring R&D expenses, it was able to deliver IP based video surveillance management, recording and analytic products and solutions. It has filed 4 patents in India and US so far in the area of Video analysis. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence which is possible only by computing the working capital adjustment in the hands of the comparables. Coordinate Bench relied on the decision of Hon'ble Chennai Tribunal observed that, the OECD guidelines are very clear and advocates adopting the rates of interest applicable to commercial enterprise operating in the same market as that of a tested party. 8. We are therefore of the opinion that the revenue was not justified in denying the working capital adjustment in order to bring the comparable companies for the purposes of broad comparison it is necessary to grant working capital adjustment that would eliminate the differences. The Ld.AO/TPO is directed to allow the working capital adjustment on actuals based on the materials already available on record. Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 10. Ground no. 3.1 is in respect of short grant of credit under 115JAA. Assessee is directed to provide all necessary information which shall be considered by the Ld.AO and compute the credit available to the assessee in accordance with law. Accordingly t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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