Mariabs Software Pvt Ltd , Bangalore V. The Assistant Commissioner of Income TAx Circle-4(1)(2), Bangalore

ITA 1896/BANG/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4554 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 20-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C. BHARATH
• Keywords: Transfer pricing; International transaction
• Section: 142(1); 143(1); 143(2); 207; 64; 72; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No. 1896/Bang/2017 Assessment Year : 2013-14 M/s. Marlabs Innovations Pvt. Ltd., (successor of Marlabs Software Pvt. Ltd.), No. 2, 1 st Floor, S R Complex, Tavarekere Main Road, S G Palya, Bangalore – 560 029. PAN: AACCM6627Q Vs. The Assistant Commissioner of Income Tax, Circle 4 (1)(2), Bangalore. APPELLANT RESPONDENT Assessee by : Shri C. Bharath, CA Revenue by : Dr. Manjunath Karkihalli, CIT DR Date of Hearing : 17-03-2022 Date of Pronouncement : 13-04-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 20.07.2017 passed by the Ld. DCIT, Circle 4 (1) (2), Bangalore for assessment year 2013-14 on following revised grounds of appeal: “1. On the facts and in the circumstances of the case the order passed by the LAO based on the directions issued by the Hon'ble DRP is bad in law, to the extent the same are prejudicial to the Appellant. 2. The Hon'ble DRP and LAO erred in confirming the order of the Learned TPO which had held that profit and loss on the settlement, cancellation and restatement of forward Page 2 of 26 IT(TP)A No. 1896/Bang/2017 contract are operating in nature without appreciating the fact that same are part of financing / treasury function and are not operating in nature. 3. The LAO, based on the directions of Hon'ble DRP, erred in confirming the order off the Learned TPO who had incorrectly rejected the transfer pricing documentation maintained by the Appellant on the basis that: a. The Appellant has used prior year data pertaining to the FY 2010-11 and FY 2011-12. b. In computing the operating profit margin ('OPM') of the comparable companies chosen by Appellant, it has computed the same by adopting a 3-year average of the OPM of the respective comparable company. c. The Appellant, in its search process, has not applied the filter of excluding companies that have employee cost at less than 25% of their sales. d. The Appellant, in its search process, has not applied the filter of excluding companies that do not have any export revenue to sales. e. The Appellant has selected the comparable companies which have a financial different from that of the Appellant. 4. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO in rejecting the following comparable companies identified by the Appellant: a. Software development services i. Blue Star Infotech Limited; ii. Cat Technologies Limited; iii. Cigniti Technologies Limited; iv. Evoke Technologies Private Limited; v. Golds ton e T echnolog ies L i mite d; vi. Helios & Matheson Information Technology vii. Lucid Software Limited; viii. Maveric Systems Limited; ix. Priya Softweb Solutions Private Limited; x. R Systems International Limited; xi. Saven Technologies Limited; xii. Silverline Technologies Limited; xiii. Thinksoft Global Solutions Limited; xiv. Ybrant Digital Limited; xv. Zylog Systems Limited. IT-enabled services i. Caliber Point Business Solutions Limited; ii. Datamatics Financial Services Limited; iii. R System International Limited; iv. MPS Limited. Page 3 of 26 IT(TP)A No. 1896/Bang/2017 5. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which involved adoption of inappropriate filters for selection of comparable companies. 6. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which had selected the following comparable companies: a. Software development services i. Larsen and Toubro Infotech Limited; ii. Mindtree Limited; iii. Persistent System Limited. b. IT-enabled services i. Acropetal Technologies Limited; ii. Capgemini Business Services; iii. Micro Land Limited; iv. Infosys BPO Limited; v. Hartron Communication Limited. c. The Hon. DRP erred in considering the above companies as comparable by incorrectly considering the business and functional profile of Appellant. 7. The Hon'ble DRP erred in denying the benefit of the working capital adjustment to the Appellant. 8. Without prejudice to the above, the Hon'ble DRP erred in directing the Learned TPO to disallow the working capital adjustment while determining the arm's length price on the following grounds: a. Average working capital will not show the actual working capital employed during the year. b. The segmental working capital is not disclosed in the annual reports of the comparable companies c. Disclosures in the annual report of the comparable companies does not contain a break up of trade debtors and creditors d. Cost of capital is different for different companies 9. Without prejudice to the above, the Hon. DRP erred in not providing the benefit of the working capital adjustment which has been allowed by both the TPO and the Hon. DRP consistently in earlier years without there being any changes in facts of the current years vis-a-vis previous years. Page 4 of 26 IT(TP)A No. 1896/Bang/2017 10. Without prejudice to the above, the Ld. TPO erred in considering incorrect receivable and payable of the Appellant for the computation of the working capital adjustment. 11. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which had failed to provide adequate adjustment towards differences in risk as claimed by the Appellant to improve degree of comparability. On the above and such other grounds as may be urged at the time of hearing your appellant prays your Honour to consider the facts and circumstances of the case and render justice.” 2. Brief facts of the case are as under: The assessee is into the business of software development and IT enabled services. It filed its return of income for year under consideration on 30/11/2012 declaring total income of Rs.8,31,01,610/-. The same was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny. Notice under section 143(2) was issued to assessee along with notice under section 142(1) of the Act. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO observed that assessee had international transaction exceeding Rs.15 crores and accordingly the case was referred to Transfer Pricing officer to determined the arm’s length price of the international transactions entered into by assessee with its associated enterprises. 3. On receipt of reference under section 92CA of the act, the Ld. TPO called upon assessee to file economic details of the international transactions entered into by assessee with its Page 5 of 26 IT(TP)A No. 1896/Bang/2017 associated enterprises in Form 3CEB. The assessee filed all the relevant information based on which the Ld.TPO observed as under: “Functions Performed  Functions performed by Marlabs India. Marlabs India is engaged in the business of providing IT and ITES services to Marlabs Inc. Marlabs India shall, at the request of Marlabs Inc. and in accordance with such performance standards and rules as Marlabs Inc. The services include providing software development or support for software development services and process outsourcing services as follows:  Support services for Marlabs Inc.'s staffing business;  Legal support services;  HR Support Services;  IT Support services;  Corporate marketing services; and  Sales support services. For all the above services (and as explained in detail below) provided by Marlabs India to its associated enterprise Marlabs Inc. Marlabs India is compensated on cost plus predetermined mark up in accordance with the 'Services Agreement' entered into between Marlabs India and Marlabs Inc. The details of the activities undertaken and the functions performed by Marlabs India in rendering/providing the above services to Marlabs Inc are explained in the ensuing paras. Global Development India Centre - software development services. Marlabs India has an offshore development centre in Bengaluru and Mysore in India form where it undertakes the software development activity for its associated enterprise Marlabs Inc.. The various functions performed by Marlabs India and Marlabs Inc. in the development projects are as illustrated below: 1. Requirement Analysis 2. High Level Design 3. Low Level Design 4. Coding 5. Testing 6. Implementation Support” Page 6 of 26 IT(TP)A No. 1896/Bang/2017 4. The Ld.TPO observed that assessee had following international transactions with its associated enterprise: Segment ALP determined under section 92CA(3) Price received Adjustment under section 92CA SWD 55,50,37,250 50,77,91,697 4,72,45,553 ITES 13,73,15,547 12,58,59,210 1,14,56,337 Total 5,87,01,890 5. From the TP documentation the Ld. TPO observed that assessee computed its margin by using OP/OC at 8.96% by using TNMM as most appropriate method for software development service segment and ITES segment. It was observed that assessee used 26 comparables for software development service segment having average margin of 11.37% and 10 comparables for IT enabled service segment having average margin of 11.89%. 6. Dissatisfied with the TP documentation, the Ld.TPO rejected the comparables selected by the assessee, and the filters used. The Ld.TPO applied fresh filters, and searched comparables that were finalised under SWD & ITES segment as follows: SWD Segment: Sl.No. Name of the taxpayer OP/OC 1 CG-VAK Software Exports Ltd. 20.54% 2 I C R A Techno Analytics Ltd. 17.10% 3 Larsen & Toubro Infotech Ltd. 26.06% 4 Mindtree Ltd. (Seg) 18.19% 5 Persistent Systems Ltd. 28.27% 6 R S Software (India) Pvt. Ltd. 17.41% 7 Tech Mahindra Ltd (Seg) 18.72% Unadjusted average margin 20.90% Page 7 of 26 IT(TP)A No. 1896/Bang/2017 ITES Segment: S.No. Company Name PLI (OP/OC) 1 Acropetal Technologies Ltd. 24.16 2 Microgenetic Systems Ltd. 16.34 3 Jindal Intellicom Ltd. -3.00 4 Hartron Communications Limited (seg) 44.07 5 Microland Ltd. 8.62 6 Capgemini Business Services (India) Pvt. Ltd. 26.78 7 Tech Mahindra Ltd. (Seg) 22.27 8 E4E Healthcare business private limited 17.26 9 Infosys B P O Ltd. 29.28 AVERAGE 20.64 7. The Ld.TPO only rejected the risk adjustment however granted the working capital adjustment. The Ld.TPO considered foreign exchange to be operating in nature. The shortfall under both segment was proposed to be the adjustment under section 92CA of the act: Segment Adjustment (in Rs.) Software development Services 472,45,553 IT enabled Services 114,56,337 Total 587,01,890 On receipt of the Transfer Pricing order, the Ld.AO passed draft assessment order by making an addition computed by the Ld.TPO towards Transfer Pricing adjustment. 8. Aggrieved by the draft assessment order, the Ld.AR preferred objections before the DRP. The DRP upheld the comparables selected by the Ld.TPO, however did not considered the Page 8 of 26 IT(TP)A No. 1896/Bang/2017 objections of assessee in foreign exchange loss to be non operating income for computing assessee’s margins. On receipt of the draft assessment order, the Ld.AO passed the final assessment order by making addition in the hands of assessee at Rs.15,24,02,588/-. Aggrieved by the order passed by the Ld. AO, assessee is in appeal before this Tribunal. 9. At the outset, the Ld.AR submitted that assessee do not wish to press Ground Nos. 1, 3, comparables sought for exclusion in 4 (i)-(iii), (v), (vii)-(ix), (xi)-(xiv) under software development service segment and in comparable sort for exclusion in (ii) for IT enabled service segment. Ground No.5, 6 (b) (i), Ground No. 8, 10, 11. Accordingly these grounds are dismissed as not pressed. 10. Before we undertake the comparability analysis it is an acorn on to understand functions performed, assets owned and risk assumed by assessee under software development service segment and ITeS service segment. Apart from the functions noted by the Ld.TPO reproduced herein above, the assessee performed following functions under the IT and ITeS segment. As per TP documentation the assessee is engaged in the business of providing IT and ITES services to Marlabs US. It has been recorded that the assessee at the request of Marlabs US in accordance with performance standards and rules as specified by Marlabs US provides services to Marlabs US. Ld.TPO has analysed functions performed by is assessee under both segments as under: "As per the Service Agreement: Page 9 of 26 IT(TP)A No. 1896/Bang/2017 "Exhibit A: Services description of services: provider shall, at customers request and in accordance with such performance standards and rules as customer makes available to provide from time to time provide services to customers. These services include but are not limited to providing support services for the customers staffing business, software development or support for software development, various business process supports, accounting and related services, etc,......as per the TP document Marlabs India is engaged in the business of providing IT and ITES services to Marlabs US. Marlabs India shall, at the request of Marlabs US and in accordance with such performance standards and rules as Marlabs US makes available to Marlabs India from time to time, provide services to Marlabs U.S. The services include providing software development or support for software development services and process outsourcing services as follows: Support services for Marlabs U.S. staffing businesses: • legal support services: • accounting support services: • HR support services: • IT support services: • corporate marketing services: and • sales support services Software Development Services: • requirements gathering/knowledge transfer face • design face • low-level design • coding • quality assurance/testing • implementation support Other Services-IT enabled services • professional services • legal support services • accounting support services • HR support services • corporate marketing services Page 10 of 26 IT(TP)A No. 1896/Bang/2017 • sales support services • IT support services Characterisation: Based on above FAR analysis assessee has been characterised as captive service provider. It has been submitted that assessee is compensated with cost plus markup 15% excluding forex variation component as given in the agreement with the AE for provision of services both under software development and IT enabled services. Assessee has therefore excluded forex loss as non-operating in nature. Based on the above we shall undertake the comparability analysis of the alleged comparables by assessee sought for exclusion. 11. Ground No. 2 is raised by assessee against treating the Foreign exchange loss as operating in nature. 11.1 The Ld.AR submitted that assessee bears foreign exchange risk on account of the transactions with the AE and therefore assessee enters into forward contracts to hedge foreign exchange losses. The assessee enters into one-year forward exchange contracts with its bank. It is submitted that assessee, for receivables in the FY 2012-13 enters into contracts in FY 2011- 12. A summary of the date of entry into the forward contract and the date of settlement is enclosed in Annexure 1 to the synopsis filed before us. This was also furnished to the DRP. He submitted that it is this change that resulted in the abnormal loss of approx. Rs. 4.67 crores out of Rs. 4.79 crore foreign exchange loss incurred the Company. He also submitted that similar abnormal loss was derived in FY 2008-09; in the assessment proceedings for this period, the foreign exchange loss was considered as non-operating. Page 11 of 26 IT(TP)A No. 1896/Bang/2017 11.2 The Ld.AR submitted that assessee consistently has considered foreign exchange gain and loss as non-operating in nature as part of its inter-company agreement. He referred to pages 352-361 of the paper book for the inter-company agreement and pages 206-207 of the paper book compilation to substantiate the consistent approach in previous years. 11.3 He submitted that the foreign exchange loss earned by comparable companies average to 1.31% against operating cost as against 4.80% for the assessee. This also demonstrates that the loss derived by the assessee is abnormal and extraordinary and should be excluded. 11.4 Assessee thus submitted that the adjustments in respect of foreign exchange loss is to be considered as non-operating to be in the hands of assessee rather than the uncontrolled comparables. In support he placed reliance on following decisions:  decision of Hon’ble Delhi Tribunal in case of Honda Trading Corporation India Pvt.Ltd., in ITA No.5297/Del/2017 by order dated 08/03/2013  decision of Hon’ble Mumbai Tribunal in case of Pengea3 and Legal Database Systems Pvt.Ltd. in ITA numbers to 128/M/2014, 1958/M/2014 by order dated 06/03/2017  decision of Hon’ble Bombay High Court in case of CIT versus in the sun Unilever Ltd reported in (2016) 72 taxman.com 325  decision of Cochin Bench of the Tribunal in case of US Technology International Pvt. Ltd. vs. ACIT in IT(TP)A No. 592/Coch/2018 for AY 2014-15 dt. 11.12.2019 Page 12 of 26 IT(TP)A No. 1896/Bang/2017 11.5 The Ld.DR submitted that the losses are related to the operations services provided by the assessee and therefore are to be treated as a part of operating expenses. He thus supported the orders passed by the authorities below. 11.6 We have perused the submissions advanced by both sides in light of records placed before us. The issue contested by assessee is in respect of adjustment to be considered in the hands of assessee rather than the uncontrolled comparables. The justification for such submission is that the comparable companies have not incurred similar kind of expenditure. It is the submission of Ld.AR that, appropriate adjustment therefore is called for on account of differences between the uncontrolled and controlled transactions. We have perused the decisions relied by the LD.AR. Rule 10B(1)(e) of the Rules states that adjustments should be made to account for the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market. Rule 10B(2) of the Rules provides comparability of an international transaction with an uncontrolled transaction needs to be judged with reference to certain specified factors. Rule 10B(3) of the Rules provide that: "An uncontrolled transaction shall be comparable to an international transaction if — (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost Page 13 of 26 IT(TP)A No. 1896/Bang/2017 charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." The OECD Guidelines on this aspect is as follows:- Para 1.35. Where there are differences between the situations being compared that could materially affect the comparison, comparability adjustments must be made, where possible, to improve the reliability of the comparison. Therefore, in no event can unadjusted industry average returns themselves establish arm's length conditions" Para 1.36 . ............ material differences between the compared transactions or enterprises should be taken into account. In order to establish the degree of actual comparability and then to make appropriate adjustments to establish arm's length conditions (or a range thereof), it is necessary to compare attributes of the transactions or enterprises that would affect conditions in arm's length dealings. Attributes that may be important include the characteristics of the property or services transferred, the functions performed by the parties (taking into account assets used and risks assumed), the contractual terms, the economic circumstances of the parties, and the business strategies pursued by the parties." Para 2.74 states as follows: "..... Thus where the differences in the characteristics of the enterprises being compared have a material effect on the net margins being used, it would not be appropriate to apply the transactional net margin method without making adjustments for such differences. The extent and reliability of those adjustments will affect the relative reliability of the analysis under the transactional net margin method' (Emphasis supplied) US transfer pricing Regulations on this aspect is as follows:- Regulation 1.482-1(d)(2) of the US regulation states as follows: "In order to be considered comparable to a controlled transaction, an uncontrolled transaction need not be identical to the controlled transaction, but must be sufficiently similar that it provides a reliable measure of an arm's length result. If there are material differences between the controlled and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results. For purposes of this section, a material difference is one that would materially affect the measure of an arm's length result under the method being applied." The Indian transfer pricing regulations, OECD Guidelines and the US transfer pricing regulations call for an adjustment to be made in case of material differences in the transactions or the enterprises being compared so as to arrive at a more reliable arm's length price/ margin. Page 14 of 26 IT(TP)A No. 1896/Bang/2017 While the Indian transfer pricing regulations refer to the adjustments on uncontrolled transactions, however the same has to be read with Rule10B(3) of the Rules which clearly emphasizes the necessity and compulsion of undertaking adjustments. Hence in case appropriate adjustments cannot be made to the uncontrolled transaction, due to lack of data, then in order to read the provisions of transfer pricing regulations in harmony, the adjustments should be made on the tested party. The reliability and accuracy of adjustments would largely depend on availability of reliable and accurate data. For certain types of adjustments, relevant data for comparables may either not be available in public domain or may not be reliably determinable based on information available in public domain, whereas, it may be possible to make equally reliable and accurate adjustments on the tested party (whose data would generally be easily accessible). In such a scenario, one has to resort to the provisions of Rule 10B(3)(ii) which provides for making “reasonably accurate adjustments” for eliminating any material differences between the two transactions being compared. Therefore, keeping in mind the aforesaid objective, the net profit margin of the tested party drawn from its financial accounts can be suitably adjusted to facilitate its comparison with other uncontrolled entities/transactions as per subclause (i) of Rule 10B(1)(e) of the Rules itself. The absence of specific provision in Rule 10B(1)(e)(iii) of the Rules does not impede the adjustment of the profit margin of tested party. This view is laid down in the following decisions:- • Capegemini India Pvt. Ltd. (ITA No.7861/Mum/2011) • Demang Cranes & Components (India) Pvt Ltd. [49 SOT 610 (Pune)] Forex loss/gain may arise in the normal course of the business, and can be reckoned as operating in nature, however the loss/gain arising on account of abnormal fluctuation or on account of abnormal movement in forward exchange contracts Page 15 of 26 IT(TP)A No. 1896/Bang/2017 has to be treated as non-operating in nature. We place reliance on following decisions: Decision of Hon’ble Delhi Tribunal in case of Schneider Electric India (P.) Ltd. v. Dy. CIT reported in (2016) 75 taxmann.com 115 Decision of Hon’ble Delhi Tribunal in case of Honda Trading Corpn. India (P.) Ltd. reported in (2013) 33 taxmann.com 21; Decision of co-ordinate bench of this Tribunal in case of SAP Labs India (P.) Ltd. reported in (2010) 8 taxmann.com 207 Decision of co-ordinate bench of this Tribunal in case of CISCO Systems (India) (P.) Ltd. reported in (2014) 50 taxmann.com 280 The reliability and accuracy of adjustments would largely depend on availability of reliable and accurate data. For certain types of adjustment relevant data for comparables may either not be available in public domain or may not be readily determinable based on information available in public domain. Whereas it may be possible to make equally reliable and accurate adjustment of the tested party whose data is easily accessible. The purpose and intent of comparability analysis, is to examine as to whether, or not, the values stated for the international transactions are at arms length. It means, it is an exercise to ascertain, whether the price charged in case of a controlled transaction is comparable to the price charged under the uncontrolled transaction of similar nature. In our view the regulations do not cast any restriction to provide adjustment to be made on the tested party. Therefore if the data in respect of uncontrolled transactions are not sufficiently available in order to iron out the differences, the adjustment is to be made in the hands of the tested party. Accordingly we remand these issues back to the Ld.AO, with the direction to consider the claim of assessee based on the above discussions in respect of the forex loss earned by assessee for Page 16 of 26 IT(TP)A No. 1896/Bang/2017 year under consideration, as non operative in the hands of assessee. Accordingly ground 2 stands allowed for statistical purposes. 12. Ground No.4: The assessee is seeking inclusion of following comparables under the respective segments: Software development service segment: Evoke Technologies Pvt.Ltd. Helios & Matheson information technology Ltd R Systems International Ltd Zylog Systems Ltd IT enabled service segment Calibre Point business Solutions Ltd R Systems International Ltd MPS Ltd 13. The Ld.AR submitted that, Helios & Matheson information technology Ltd, R Systems International Ltd, Calibre Point business Solutions Ltd was rejected for use of different financial year. It is submitted that merely because these comparables have different financial year cannot lead to the conclusion that they are not comparable with that of assessee. The Ld. CIT.DR relied on orders passed by authorities below. We have perused submissions advanced for both sides in light of records placed before us. 14. Admittedly, there is no dispute in respect of this comparables on functional the similarities by the revenue authorities. We also note that, coordinate bench of this Tribunal in identical circumstances have remanded the comparables back to the Page 17 of 26 IT(TP)A No. 1896/Bang/2017 Ld.AO/TPO to extrapolate the quarterly results that are available and to consider the comparables accordingly. Accordingly, we remand these comparables to Ld.AO/TPO to take necessary steps in order to ascertain the annual results to compute the margin of the comparables accordingly. 15. Ld.AR submitted that, Evoke Technologies Pvt.Ltd., was rejected based on the information in the director’s report regarding inflow and not the fire of foreign exchange earnings. The Ld.AR submitted that, this comparable satisfies all the filters applied by the Ld.TPO. 16. In case of Zilog Systems Ltd, it is submitted that this comparable was rejected for the reason that it did not satisfy the employee cost filter. The Ld.AR submitted that, the employee cost filter has been incorrectly applied by the Ld.TPO. The Ld.AR submitted that, as MPS Ltd., did not appear in the search metrics of the Ld.AO/TPO this was not considered. The Ld. CIT.DR relied on orders passed by authorities below. We have perused submissions advanced for both sides in light of records placed before us. 17. We note that, none of these comparables functional similarities have been disputed by the revenue authorities. The factual differences in application of filters therefore deserves to be readjudicated by the Ld.AO/TPO. Accordingly all these comparables are remanded to Ld.AO/TPO to consider in accordance with the correct data available on public domain. Assessee is directed to file all requisite details in support of these comparables. Ld.AO/TPO shall verify the details and consider these comparables in accordance with. Page 18 of 26 IT(TP)A No. 1896/Bang/2017 Accordingly, Ground No.4 stands partly allowed for statistical purposes. 18. Ground No.6(a) & (b): The assessee is seeking exclusion of following comparables under the respective segments: Software development service segment: Larsen and Toubro Infotech Ltd minded tree Ltd persistent Systems Ltd ITeS service segment Capgemini Business Services Infosys BPO Ltd Harton Communications Ltd Micro land Ltd The Ld.AR submitted that Larsen and Toubro Infotech Ltd, Mindtree Ltd., Persistent Systems Ltd do not satisfy the turnover filter. He submitted that these comparable also had functionally not compatible as they are basically product companies and owns high IP which is not akin to the assessee under consideration. On the contrary the Ld.CIT.DR relied on orders passed by authorities below. 19. We have perused submissions advanced for both sides in light of records placed before us. Before us the Ld.AR placed reliance on the decision of coordinate bench of this Tribunal in case of Software paradigms Infotech Ltd vs. ACIT in IT(TP)A No.2828/B/2017 for assessment A 2013-14 by order dated 27/12/2021, wherein the comparables alleged for exclusion by Page 19 of 26 IT(TP)A No. 1896/Bang/2017 the assessee has been dealt with in identical circumstances in a captive service provider for failing in turnover filter. This Tribunal observed and held as under: “12. We have perused submissions advanced both sides in light of records placed before us. 13. One of the arguments by the assessee before the Ld.TPO as well as DRP was that these companies had turnover which was in excess of Rs. 200 crores and therefore these companies cannot be regarded as a comparable in the case of the assessee whose turnover was only Rs. 64 crores. The Ld.TPO as well as DRP took the view that the functional comparability of the companies were alone to be seen and turnover was not an important criterion. In ground No. 5(iv), the assessee has challenged the order of DRP in holding that higher turnover is not a relevant criterion for disregarding a company, when it is functionally found to be comparable. The question boils down on application of turnover filter in choosing comparable companies. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263. This Tribunal in case of Autodesk India (P.) Ltd. v. Dy. CIT (supra) decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores to 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores. The said decision has been followed in case of Lam Research (India) Pvt. Ltd. vs. DCIT in IT(TP)A No. 2490/Bang/2017 dated 03.02.2021 by coordinate bench by the Tribunal in case of Autodesk India (P.) Ltd. (supra) held as follows:- "17.7 We have considered the rival submissions. The substantial question of law (Question No. 1 to 3) which was framed by the Hon'ble Delhi High 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 Page 20 of 26 IT(TP)A No. 1896/Bang/2017 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 IT(TP)A No.2490/Bang/2017 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 follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5-8-2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding coordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Page 21 of 26 IT(TP)A No. 1896/Bang/2017 Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer 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)." 14. In the light of the aforesaid decision of the Tribunal, comparables sought for exclusion in Ground No.4 raised by the assessee is allowed.” 20. The Ld.CIT.DR has not been able to bring out any factual differences in respect of the comparables in the present facts of the case. Therefore respectfully following the above view we direct the Ld.Ao/TPO to exclude these comparables from the finalist under the SWD segment. Under ITeS segment assessee is seeking exclusion of Capgemini Business Services, Infosys BPO Ltd., Harton Communications Ltd., and Micro land Ltd. 21. The Ld.AR placed reliance on the decision of coordinate bench of this Tribunal in case of Software paradigms Infotech Ltd vs. ACIT in IT(TP)A No.2828/B/2017 for assessment A 2013-14 by order dated 27/12/2021, wherein the comparables alleged for exclusion by the assessee has been dealt with in identical circumstances in a captive service provider like present assessee. On the contrary the Ld.CIT.DR relied on orders passed by authorities below. 22. This Tribunal observed and held as under: “12. We have perused submissions advanced both sides in light of records placed before us. 13. One of the arguments by the assessee before the Ld.TPO as well as DRP was that these companies had Page 22 of 26 IT(TP)A No. 1896/Bang/2017 turnover which was in excess of Rs. 200 crores and therefore these companies cannot be regarded as a comparable in the case of the assessee whose turnover was only Rs. 64 crores. The Ld.TPO as well as DRP took the view that the functional comparability of the companies were alone to be seen and turnover was not an important criterion. In ground No. 5(iv), the assessee has challenged the order of DRP in holding that higher turnover is not a relevant criterion for disregarding a company, when it is functionally found to be comparable. The question boils down on application of turnover filter in choosing comparable companies. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263. This Tribunal in case of Autodesk India (P.) Ltd. v. Dy. CIT (supra) decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores to 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores. The said decision has been followed in case of Lam Research (India) Pvt. Ltd. vs. DCIT in IT(TP)A No. 2490/Bang/2017 dated 03.02.2021 by coordinate bench by the Tribunal in case of Autodesk India (P.) Ltd. (supra) held as follows:- "17.7 We have considered the rival submissions. The substantial question of law (Question No. 1 to 3) which was framed by the Hon'ble Delhi High 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 IT(TP)A No.2490/Bang/2017 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 Page 23 of 26 IT(TP)A No. 1896/Bang/2017 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 follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5-8-2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding coordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on Page 24 of 26 IT(TP)A No. 1896/Bang/2017 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)." 14. In the light of the aforesaid decision of the Tribunal, comparables sought for exclusion in Ground No.4 raised by the assessee is allowed.” Ground no. 9 23. Ground No. 9 is against working capital adjustment computed by Ld.AO/TPO at 1.98% for software development service segment and 0.23% for IT enabled service segment. 23.1 Ld.AR submitted that working capital adjustment computed by authorities below are unreasonable. It has been submitted that DRP had directed Ld.AO to grant working capital adjustment which was not followed while passing final assessment order. Ld.AR emphasised that in the present facts of the case assessee does not have any impact of working capital on its own and therefore it is necessary that adjustment has to be provided in case of comparables in order to reduce the differences. 23.2 Ld.CIT.DR submitted that the issue may be set aside to Ld.AO/TPO for reconsideration. 23.3 We have perused submissions advanced by both sides in light of records placed before us. On perusal of order passed by Ld.AO is observed that the working capital adjustment has been denied since assessee did not filed requisite details in respect of comparables. As held by various decisions of coordinate benches of this Tribunal, we direct Ld.TPO to recompute working capital adjustment in actual, and to consider the same for purposes of computing arm's length margin as per the view expressed by this Tribunal in case Page 25 of 26 IT(TP)A No. 1896/Bang/2017 of Huawei Technologies India Pvt. Ltd vs JCIT reported in (2019) 101 taxman.com 313. 23.3.1 Assessee is directed to provide for necessary details in respect of all the comparables finally selected. If that information is insufficient, it is beyond the power of Assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s.133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required, then it is no defence to say that Assessee has not furnished required details to deny any adjustment on account of working capital. Ld.AO/TPO shall then compute working capital adjustment in accordance with law. Accordingly, Ground No.9 of assessee's appeal stands allowed for statistical purposes. In the result, the appeal filed by assessee stands partly allowed. Order pronounced in open court on 13 th April, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 13 th April, 2022. /MS / Page 26 of 26 IT(TP)A No. 1896/Bang/2017 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore