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TMI Blog2020 (8) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... imilarity and business restructuring. Zylog is not a valid comparable on ground of extra ordinary event vis- -vis taxpayer hence, order to be excluded. Grant of working capital adjustment - TPO / DRP have denied the benefit of working capital adjustment while computing the ALP on the ground that the assessee has not demonstrated that there is a difference in levels of working capital employed by the taxpayers vis- -vis comparables - HELD THAT:- TP study referred to by the taxpayer for benchmarking its International Transaction shows that the complete detail has been provided to grant working capital adjustment. So, in view of the matter, we are of the considered view that the matter is required to be reconsidered by the TPO by providing opportunity of being heard to the assessee. Moreover working capital adjustment has been granted to the taxpayer in the earlier years and since then there is no change in the business model of the assessee. So, this issue is remitted back to the Ld. TPO. - ITA No.1751/Del./2015 - - - Dated:- 31-8-2020 - SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER and SHRI KULDIP SINGH, JUDICIAL MEMBER For the Assessee : Shri Ravi Sharma, Sh. Anubhav Rasto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TP documentation/ fresh search and conducting a fresh comparability analysis based on application of additional/ revised filters, or disregarding Appellant s filters in determining the ALP for the international transactions; 2.6 including companies having high margin / volatile operating profit margins in the final comparables set for benchmarking a low risk service provider such as the Appellant; 2.7 including certain companies in the final set of comparables that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2.8 resorting to arbitrary rejection of low-profit/ loss making companies and companies with diminished revenues based on erroneous and inconsistent reasons; 2.9 excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2.10 by committing a number of factual /computational errors in selection/ rejection of proposed comparables and/ or in the operating profit margins of the comparables; 2.11 ignoring the business/ commercial reality that the Appellant undertakes l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer is into providing customized business solutions and software services to its Associated Enterprises (AE). Customised business solutions are provided in the areas of ERP, Bar-coding solutions, supply chain management (SCM), Business Intelligence, Workflow automation, Device Interface solutions and Network Management. MIND has been catering to manufacturing automotive, banking industries and the government sector. 3. During year under assessment, taxpayer entered into International Transaction with its associated enterprises (AE) reported in Form No. 3 CEB as under :- S. No. International Transaction Amount (In Rs.) 1. Services rendered 28,25,40,187 2. Services received 14,92,933 3. Reimbursement paid 38,85,945 4. Reimbursement received 3,44,606 5. Payment of interest on loan 6,98,011 Total 28,89,61,682 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Mindtree Ltd. (segment) 13.92% 10. Persistent System Limited 29.02% 11. Persistent Systems Solutions Ltd. 11.37% 12. Quintegra Solutions Ltd. -8.20% 13. R S Software (India) Ltd. 10.18% 14. Sasken Communication Technologies Ltd. 17.54% 15. Sonata Software 35.87% 16. Tata Elxsi (Segment) 20.29% 17. Thinksoft Global Services Ltd. 17.35% 18. Zylog Systems Limited 25.07% 19. LGS Global Limited 12.78% AVERAGE 24.40% 9. Consequently Ld. TPO computed the arm s length price of the International Transactions as under :- Operational Cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n grounds of functional dissimilarity as E-zest is a product Engineering and software development company and has been excluded by the Tribunal in taxpayer s own case in AY 2007-08 and 2011-12. 16. Undisputedly there is no change in the business model and FAR of the taxpayer during the year under assessment since 2007- 08. Perusal of annual report available at page 452 and 453 of annual Compendium report (ARC) shows that E-zest is a product engineering and software development company whereas taxpayer is a captive software development service provider to its AE. 17. Ld. DR for the revenue relied upon the order passed by the TPO and drew our attention towards para 10.6 and contended that TPO has examined FAR of the company and found it a suitable comparable. But, we are of the considered view that when functional dissimilarity are apparent between E-zest Solutions vis- -vis taxpayer as discussed in the preceding para comprehensive exercise carried out by the Ld. TPO is a futile exercise. 18. Coordinate Bench of Tribunal in taxpayer s own case for AY 2011-12 excluded E-zest Solutions ltd. vide order dated 30.10.2019 passed in ITA No. 5801/Del/2011 on ground of its diversifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis- -vis taxpayer, hence, order to be excluded from the final set of comparables. Infosys Limited (Infosys) 22. Taxpayer sought exclusion of Infosys as a comparable on the ground that Infosys deals in both product and services and that Infosys incurred huge research and development expenses and having huge brand value. It is brought on record by the ld. AR that Infosys has been excluded as a comparable by the Tribunal in Taxpayer s own case in AY 2007-08 and 2011-12. In AY 2011-12 Infosys was also excluded by Ld. DRP in assessee s own case. 23. Ld. DR for the revenue relied on order passed by TPO and drew our attention towards para 10.2 wherein he has discussed all the objections raised by the taxpayer regarding brand profits, significant intangibles, product development sales and marketing expenses and significant R and D expenses. 24. We are of the considered view that Infosys as a comparable has been found to be not a suitable comparable having huge brand value and significant expenses on R D vis- -vis captive software development service provider in number of judgement. Coordinate Bench of Tribunal in assessee s own case in A.Y. 2007-08 and 2011-12 excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded by the Coordinate Bench of Tribunal in taxpayer s own case by returning following findings :- 21. On hearing the rival contentions, we are of the view that first step which has to be seen is functional comparability. The concerns are providing variety of services and application of service filter of 75% would come in the next rung of comparability. M/s Sasken Communication Technologies Limited was developing mobile enterprise applications and solutions across various mobile platforms including iOS, Android, Blackberry, RIM and Symbiam platform; which are clearly mentioned in the annual report of the said concern. The assessee on the other hand was only providing Software Development Services to its AE. Hence the concern Sasken Communication Technologies Limited is not functionally comparables to the assessee and same needs to be excluded from the final list of comparable. Accordingly, we hold so. 31. So, in view of the discussion made in preceding para, we are of the considered view that Sasken is not a suitable comparable on ground of functional dissimilarity and business restructuring. Zylog Systems Ltd. 32. Taxpayer sought to exclude Zylog on g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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