WM Global Technology Services (India) Pvt Ltd, Bangalore V. Deputy Commissioner of Income Tax, Circle-7(1)(2), Bangalore

ITA 1963/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5521 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 06-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PRAVIN KISHORE PRASAD; UMASHANKAR GAUTAM S
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Cost of acquisition

Judgement Text

IT(TP)A.1963/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.1963/BANG/2017) (ASSESSMENT YEAR : 2013-14) M/S. WM GLOBAL TECHNOLOGY SERVICES (INDIA) P. LTD, 3 RD FLOOR, BLOCK B, SALARPURIA TOUCHSTONE, 15/1A, 14P7, KADUBEESANAHALLI, OUTER RING ROAD, BENGALURU .. APPELLANT PAN : AABCW1354K V. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -7(1)(2), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. PRAVIN KISHORE PRASAD AND SHRI. UMA SHANKAR GAUTAM, ADVOCATES REVENUE BY : SHRI. ARUN KUMAR- CIT - DR HEARD ON : 07.02.2018 PRONOUNCED ON : 28.02.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER U /S.143(3) R.W.S.144C (13) OF THE IT ACT, 1961, PASSED BY THE ACIT, CIRCLE - 7(1)(2), BENGALURU, DT.28.04.2017, IN PURSUANCE TO THE DIRECTIONS OF THE DRP, FOR THE ASSESSMENT YEAR 2013-14, ON THE FO LLOWING GROUNDS: IT(TP)A.1963/BANG/2017 PAGE - 2 IT(TP)A.1963/BANG/2017 PAGE - 3 02. THE ASSESSEE HAS ASSAILED THE ADDITION OF RS.11 ,68,65,282/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE ASSESS EE IS A GROUP COMPANY OF WALMART DISCOUNT STORE IN ROGERS, ARK, U SA. THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNATIONAL T RANSACTIONS : THE ASSESSEE HAS SUBMITTED THAT THE OPERATING PROFI T / OPERATING COST OF THE ASSESSEE WAS 10% AND OPERATING PROFIT / OPER ATING REVENUE IT(TP)A.1963/BANG/2017 PAGE - 4 WAS 9.09%. AFTER RECEIVING REFERENCE FROM THE AO, THE TPO ASKED THE ASSESSEE TO SUBMIT THE STATUTORY DOCUMENT MAINT AINED BY IT U/S.92D(3) OF THE ACT. IT WAS THE CASE OF THE ASSE SSEE THAT THE INTERNATIONAL TRANSACTIONS HAVE BEEN CLASSIFIED INT O SOFTWARE DEVELOPMENT SEGMENTS IN THE TP DOCUMENT AND THE SEA RCH AND COMPARABILITY ANALYSIS WAS DONE USING THE SOFTWARE DEVELOPMENT SERVICES AS THE PRIMARY FUNCTION. AS A RESULT OF T HE SEARCH PROCESS THE ASSESSEE HAD ADOPTED 26 COMPANIES IN RESPECT OF SOFTWARE DEVELOPMENT ACTIVITIES AS COMPARABLES FOR BENCH MAR KING ANALYSIS AND HAS ADOPTED THE TNMM AS THE MOST APPROPRIATE ME THOD. 03. THE TPO WAS NOT CONVINCED WITH THE TP DOCUMENT MAINTAINED BY THE ASSESSEE AND HAS POINTED OUT VARI OUS DEFECTS IN THE TP STUDY PREPARED BY THE ASSESSEE, AS SUCCINCTL Y MENTIONED BY THE TPO IN PARA 4.1 OF HIS ORDER. THEREAFTER THE T PO HAS REJECTED THE TP STUDY OF THE ASSESSEE. IT IS MENTIONED AT B AR BY THE LD. AR THAT THE TPO HAS CONSIDERED AND SHORTLISTED SIX COM PARABLES AND HAS CALCULATED THE ARITHMETIC MEAN OF THE OPERATING PRO FIT / OC OF THESE COMPANIES AT 21.53%. THE TPO AT PAGE 27 HAS ARRIVE D AT THE FINAL SET OF COMPARABLES, WHICH ARE THE FOLLOWING SIX COM PANIES : 1. CGVAK SOFTWARE & EXPORTS LTD 2. LARSEN & TOUBRO INFOTECH LTD 3. MINDTREE LTD (SEG) 4. PERSISTENT SYSTEMS LTD (SEG) 5. R. S. SOFTWARE (INDIA) LTD 6. TECH MAHINDRA LTD (SEG) THE TPO ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE BY APPLYING VARIOUS FILTERS AS MENTIONED IN PARA 5 OF THE SHOW- CAUSE NOTICE AT IT(TP)A.1963/BANG/2017 PAGE - 5 PAGE 48 OF THE PAPER BOOK. THE TPO HAS USED THE FO LLOWING FILTERS / IDENTICAL CRITERIA FOR THE PURPOSE OF SELECTING THE PROPER COMPARABLES: I) COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING OR DATA OF THE COMPANY WHICH DOES NOT FALL WITHIN 12-MONTH PERIOD II) COMPANIES WHOSE INCOME WAS LESS THAN RS.1 CRORE III) COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE I NCOME IS LESS THAN 75% OF ITS TOTAL OPERATING REVENUES IV) COMPANIES HAVING MORE THAN 25% RELATED PARTY TR ANSACTIONS OF THE SALES. V) COMPANIES WHO HAVE EXPORT SERVICE INCOME LESS TH AN 75% OF THE SALES VI) COMPANIES WITH EMPLOYEE COST LESS THAN 25% OF T URNOVER ON THE BASIS OF THESE FILTERS, THE TPO HAD ANALYSED THE FIVE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE AND A CCEPTED ONLY THE TWO COMPANIES, NAMELY MINDTREE LTD AND R S SOFT WARE (INDIA) P. LTD. THUS THE TPO HAS REJECTED THE REMAINING TH REE COMPANIES NAMELY, AKSHAY SOFTWARE TECHNOLOGIES LTD, THINKSOFT GLOBAL SERVICES LTD AND IDBI INTECH LTD. AT THIS STAGE WE WOULD LIKE TO REPRODUCE THE REMARKS OF THE TPO IN RESPECT OF AKSH AY SOFTWARE TECHNOLOGIES LTD AND THINKSOFT GLOBAL SERVICES LTD (AS THE ASSESSEE HAD FILED THE GROUND FOR INCLUSION OF THES E TWO COMPANIES ALONG WITH OTHER FOUR COMPANIES), WHICH IS AS FOLLO WS : 1. AKSHAY SOFTWARE TECHNOLOGIES LTD : IN RESPONSE T O THE NOTICE U/S.133(6), THE COMPANY VIDE ITS REPLY DT.06 /03/2016 HAS STATED THAT THE COMPANY IS ENGAGED IN PROVIDING PROFESSIONAL SERVICES, PROCUREMENT, INSTALLATION, IT(TP)A.1963/BANG/2017 PAGE - 6 IMPLEMENTATION, SUPPORT AND MAINTENANCE OF ERP PRODUCTS AND SERVICES IN INDIA & OVERSEAS. THUS, T HE FUNCTIONAL PROFILE OF THE COMPANY IS DIFFERENT FROM THAT OF A SOFTWARE. 2. THINKSOFT GLOBAL SERVICES LTD : THINKSOFT GLOBAL SERVICES IS PRIMARILY ENGAGED IN SOFTWARE TESTING S ERVICES FOCUSSING ON BANKING, FINANCIAL AND INSURANCE SERVI CES INDUSTRY. THUS IT IS FUNCTIONALLY DIFFERENT AND HE NCE REJECTED. ON THE BASIS OF APPLICATION OF FILTERS MENTIONED AB OVE, THE TPO HAS SELECTED VARIOUS COMPANIES AND THEREAFTER FOR BETTE R CLARITY REGARDING THE FAR ANALYSIS, THE TPO ISSUED NOTICE U /S.133(6) CALLING FOR FURTHER DETAILS FOR FUNCTIONAL ANALYSIS . THE TPO ARRIVED AT THE CONCLUSION OF KEEPING THE FOLLOWING SEVEN CO MPARABLES FOR THE PURPOSE OF COMPUTING THE ALP OF THE ASSESSEE, A S UNDER : SL NO NAME OF THE COMPARABLE OP/OC 1 CG-VAK SOFTWARE EXPORTS LTD 20.45% 2 ICRA TECHNO AALYTICS LTD 17.10% 3 LARSEN & TOUBRO INFOTECH LTD 26.06% 4 MINDTREE LTD (SEG) 20.23% 5 PERSISTENT SYSTEMS LTD 28.27% 6 R S SOFTWARE (INDIA) P. LTD 17.41% 7 TECH MAHINDRA LTD (SEG) 21.18% UNADJUSTED AVERAGE MARGIN 21.18% THE ASSESSEE HAD FILED A REPLY TO THE SHOW CAUSE NO TICE AND HAD OBJECTED TO THE INCLUSION OF CG-VAK SOFTWARE EXPORT S LTD, LARSEN & TOUBRO INFOTECH LTD AND PERSISTENT SYSTEMS LTD. T HE TPO HAS CONSIDERED THE OBJECTIONS RAISED BY THE ASSESSEE WI TH RESPECT TO EXCLUSION OF THESE THREE COMPANIES. HOWEVER, THE T PO WAS NOT IT(TP)A.1963/BANG/2017 PAGE - 7 CONVINCED AND THEREFORE HAS REJECTED THE CONTENTION OF THE ASSESSEE AND HAS PROPOSED A TP ADJUSTMENT TO THE TUNE OF RS. 92,119,614/-. FEELING AGGRIEVED BY THE ABOVE ADDITION, THE ASSESS EE FILED OBJECTIONS BEFORE THE DRP. AT THE TIME OF FILING T HE OBJECTIONS, THE ASSESSEE ALSO SOUGHT INCLUSION OF THE FOLLOWING FOU R COMPANIES BEFORE THE DRP : I. ACROPETAL TECHNOLOGIES LTD II. CIGNITI TECHNOLOGIES LTD III. SASKEN COMMUNICATIONS LTD IV. SPRY RESOURCES INDIA P. LTD IT WAS THE CONTENTION OF THE ASSESSEE THAT THESE CO MPANIES ARE FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE AND TH EREFORE THESE COMPANIES SHOULD BE INCLUDED IN THE LIST OF COMPARA BLES. THUS THE ASSESSEE HAD EFFECTIVELY SOUGHT INCLUSION OF FOUR C OMPANIES BEFORE THE DRP. HOWEVER THE REQUEST OF THE ASSESSEE FOR I NCLUSION OF THESE FOUR COMPANIES WAS NOT ACCEDED BY THE DRP AND A SPE AKING ORDER AS MENTIONED IN PARA 10.3 WHICH IS REPRODUCED BELOW , REJECTED THE INCLUSION : 10.3 BESIDES, THE ASSESSEE HAS CHALLENGED THE REJEC TION OF FOLLOWING COMPANIES BY THE TPO IN ITS SUBMISSION AN D HAS ALSO FILED THEIR ANNUAL REPORTS: ACROPETAL TECHNOLOGIES LID. CIGNITITECHNOLOGIES LID. SASKEN COMMUNICATIONS LID. SPRY RESOURCES INDIA PVT LTD. HOWEVER, IT IS FOUND THAT THESE COMPANIES WERE NOT PART OF THE COMPARABLES SELECTED BY THE ASSESSEE. NEITHER ASSES SEE HAS TAKEN THEM UP BEFORE THE TPO AS ADDITIONAL COMPARAB LCS. THIS IT(TP)A.1963/BANG/2017 PAGE - 8 WAS CONFRONTED TO THE ASSESSEE DURING THE HEARING O N 09-03- 2017 AND COULD NOT BE CONTROVERTED BY THE ARS OF TH E ASSESSEE. HENCE, THE DETAILS SUBMITTED BY THE ASSESSEE IN REG ARD TO THESE COMPANIES ARE IN NATURE OF ADDITIONAL EVIDENC E, AS THE ISSUES WERE NEVER RAISED BEFORE THE TPO. HOWEVER, T HE ASSESSEE HAS NOT GIVEN ANY JUSTIFICATION FOR ADMISS ION OF THESE ADDITIONAL EVIDENCES AT THIS STAGE. THE ASSES SEE HAS NOT GIVEN ANY REASON FOR NOT TAKING UP THESE OBJECTIONS AND NOT FURNISHING THESE DOCUMENTS BEFORE THE TP() TO SUPPO RT ITS CASE. THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION AS TO WH AT PREVENTED IT FROM PRODUCING SUCH DOCUMENTS OR MAKIN G SUCH CLAIM BEFORE THE TPO AT THE TIME OF TRANSFER PRICIN G PROCEEDINGS BEFORE THE TPO, ESPECIALLY WHEN SUFFICI ENT OPPORTUNITY OF BEING HEARD WAS GIVEN TO IT BY THE T PO. THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE DETAILS/DOCUMENTS COULD NOT HAVE BEEN PRODUCED BY I T BEFORE TPO DESPITE ITS BEST EFFORTS. ADMISSION OF THE ADDI TIONAL EVIDENCE CANNOT BE CLAIMED AS A MATTER OF RIGHT AND IT IS THE DUTY OF THE ASSESSEE TO EXPLAIN THE CIRCUMSTANCES WHICH PREVENTED IT FROM SUBMITTING SUCH DOCUMENTS BEFORE THE LOWER AUT HORITIES. SINCE THE ASSESSEE WW TO PROVIDE SUFFICIENT CAUSE T O FURNISH THESE DOCUMENTS BEFORE THE TPO, THE SAME CANNOT ,BE RNITTED AT THIS STAGE. THE ITAT. BANGALORE IN CASE OF ANUPAM K OTHARI, ITA NO 837 (BANG)2012 HELD THAT FOR ADMISSION OF ADDITIONA L EVIDENCE, IT IS REQUIRED FOR THE ASSESSE TO SHOW THAT AUTHORITIES H AD DECIDED ITS GROUNDS WITHOUT GIVING SUFFICIENT OPPORTUNITY TO AD DUCE EVIDENCE. CONSIDERING THE ABOVE THE REQUEST OF ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE IS NOT ACCEPTED. THUS THE OBJECTION OF THE ASSESSEE IN RELATION TO THESE COMP ARABLES IS NOT ACCEPTED. THUS THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEF ORE THIS TRIBUNAL, ON VARIOUS GROUNDS MENTIONED HEREIN ABOVE. 04. FOR THE PURPOSES OF PURPOSE OF ADJUDICATING THE APPEAL, WE WILL BE DEALING WITH EACH COMPARABLE SEPARATELY / C OLLECTIVELY IN THE FOLLOWING PARAGRAPHS. IT(TP)A.1963/BANG/2017 PAGE - 9 CG VAK SOFTWARE EXPORTS LTD : 05. FIRST OF ALL THE LD. AR HAS DRAWN OUR ATTENTION FOR EXCLUSION OF M/S. CG VAK SOFTWARE EXPORTS LTD. IN THIS REGA RD IT WAS THE CONTENTION OF THE ASSESSEE THAT IT IS SEEKING EXCLU SION OF THE SAID COMPANY AS IT CANNOT BE COMPARED WITH THE ASSESSEE FOR THE FOLLOWING REASONS : I) THAT M/S. CG VAK SOFTWARE EXPORTS LTD IS ENGAG ED IN PRODUCT DEVELOPMENT II) THAT THE COMPARABLE IN ITS ANNUAL REPORT AT PAG E 698 OF THE PAPER BOOK UNDER THE HEAD FUTURE PLANS HAS MENTIONED AS UNDER : FUTURE PLANS THE GLOBAL MARKET FOR IT SERVICES IS EXPECTED TO EX PAND AND CORPORATIONS ARE INCREASINGLY USING THE OFFSHORE SE RVICE PROVIDERS LIKE US. THE COMPANY HAS BEEN GROWING PO SITIVELY IN THE OFFSHORE SOFTWARE SERVICES BUSINESS AND THIS MOMENTUM IS LIKELY TO CONTINUE THIS YEAR. OUR CLIENT RETENTION AND CLIENT SATISFACTION LEVELS HAVE BEEN GROWING STEADILY. WE HAVE RECEIVED MANY CLIENT APPRECIATIONS AND SIGNIFICANT AMOUNT OF REPEAT BUSINESS, IN ADDITION TO NORTH AMERICA , OUR BUSINESS AND CUSTOMER BASE FROM AUSTR ALIA AND EUROPE IS ALSO EXPENDING AS PLANNED. OUR MOBILITY PRACTICE HAS BEEN GROWING SIGNIFICANTL Y AND WE EXPECT A GOOD GROWTH IN THIS OFFERING. THE COMPANY WILL CONTINUE ITS FOCUS ON THE OPD (OUTSOUR CED PRODUCT DEVELOPMENT) MARKET SPACE WHERE IT HAS ACHI EVED SIGNIFICANT SUCCESS. GEOGRAPHICALLY THE COMPANY IS PLANNING TO STRENGTHEN ITS PRESENCE AT THE MARKETS IT IS OPE RATING. WE EXPECT TO CONTINUE ON POSITIVE GROWTH THIS YEAR AND THE COMPANY SHOULD PERFORM BETTER IN THE ENSUING YEAR F Y 2013-14. IT(TP)A.1963/BANG/2017 PAGE - 10 ON THE BASIS OF THE ABOVE IT WAS SUBMITTED THAT AS PER THE ANNUAL REPORT, CG VAK SOFTWARE EXPORTS LTD IS A PRODUCT COMPANY AND IS THEREFORE CANNOT BE COMPARED WITH THE ASSESSEE. III) CG VAK SOFTWARE EXPORTS LTD IS ENGAGED IN IT ES ACTIVITIES (BPO) AS IS CLEAR FROM PAGE 721, WHERE THE BPO REVE NUE HAS MENTIONED AS RS.14,43,421/- AND THE SOFTWARE SERVIC ES REVENUE IS MENTIONED AS RS.8,54,77,282/-. IT WAS SUBMITTED TH AT AS CG - VAK SOFTWARE EXPORTS LTD IS INTO BPO BUSINESS ALSO THIS COMPANY IS REQUIRED TO BE EXCLUDED IV) THAT THERE WAS AN EXCEPTIONAL RISE IN THE PROFI T OF THE ASSESSEE IN COMPARISON TO THE PREVIOUS YEAR AND THIS IS ALSO RE LATABLE TO OPD ACTIVITIES OF THE ASSESSEE. ON THE BASIS OF THE ABOVE IT WAS SUBMITTED THAT CG VAK SOFTWARE EXPORTS LTD BEING A PRODUCT COMPANY IS NOT COMPARAB LE WITH THE ASSESSEE COMPANY AND IT SHOULD BE EXCLUDED. 06. ON THE OTHER HAND, THE LD. DR HAS SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND HAS SUBMITTED THAT CG VAK S OFTWARE EXPORTS LTD IS NOT A PRODUCT COMPANY AND IS INTO SO FTWARE DEVELOPMENT AND THEREFORE THE SAME IS REQUIRED TO B E RETAINED AS COMPARABLE. 07. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORD. THE ACTIVITIES MENTIONED HEREIN ABOVE IN THE ANNUAL REPORT AND POINTED OUT BY THE LD. AR DURING THE COURSE OF ARGU MENT CLEARLY SHOWS THAT CG VAK SOFTWARE EXPORTS LTD IS A SOFTW ARE DEVELOPMENT COMPANY AND NOT A PRODUCT COMPANY. FOR THE IT(TP)A.1963/BANG/2017 PAGE - 11 PURPOSES OF BRANDING CG VAK SOFTWARE EXPORTS LTD AS A SOFTWARE PRODUCT DEVELOPMENT COMPANY, IT WAS INCUMB ENT UPON THE ASSESSEE, TO PROVE THAT CG VAK SOFTWARE EXPORTS L TD IS HAVING ITS OWN SOFTWARE PRODUCTS, OVER WHICH IT HAS PROPRI ETARY RIGHT OR ANY OTHER RIGHT. FROM THE BARE PERUSAL OF THE ANNUAL R EPORT AND THE FINANCIALS IT IS CLEAR THAT CG VAK SOFTWARE EXPOR TS LTD IS NOT HAVING ANY PRODUCTS IN ITS INVENTORY AND THERE IS N O MENTION OF ANY WORK-IN-PROGRESS IN RESPECT OF SOFTWARE PRODUCTS. IN FACT FROM THE PARAGRAPH CITED HEREIN ABOVE AT PAGE 698 OF THE PAP ER BOOK, IT IS CLEAR THAT CG VAK SOFTWARE EXPORTS LTD IS A SOFTW ARE DEVELOPMENT COMPANY AND IS DOING THE WORK OF INTEGR ATION, ASSIMILATION OR PATCH WORK FOR ITS CLIENT AND FOR T HAT PURPOSES IS ALSO RENDERING SOME SERVICES ON-SITE. THEREFORE IT CANNO T BE URGED THAT IT WAS A PRODUCT COMPANY. IN OTHER WORDS, THE PROFILE OF CG VAK SOFTWARE EXPORTS LTD MATCHES WITH THE PROFILE OF TH E ASSESSEE COMPANY. THEREFORE WE FIND NO INFIRMITY IN THE ORD ER PASSED BY THE AUTHORITIES BELOW. ACCORDINGLY THE GROUND RAISED B Y THE ASSESSEE FOR EXCLUSION OF CG VAK SOFTWARE EXPORTS LTD IS D EVOID OF ANY MERIT. WE DISMISS THE SAME. LARSEN & TOUBRO INFOTECH LTD & PERSISTENT SYSTEMS LTD : 08. IN THIS REGARD THE LD. AR HAS SUBMITTED THAT L & T INFOTECH LTD IS ENGAGED IN SOFTWARE PRODUCT DEVELOPMENT AND IS HAVING SUBSTANTIAL AMOUNT OF INTANGIBLES ASSETS. FURTHER IT ALSO HAS A SIGNIFICANT BRAND VALUE AND IS ENGAGED IN DIVERSITI ES INCLUDING IP LED BUSINESS ACTIVITIES. IT WAS ALSO THE CASE OF T HE ASSESSEE THAT SEGMENTAL INFORMATION IS NOT AVAILABLE AND THEREFOR E CANNOT BE IT(TP)A.1963/BANG/2017 PAGE - 12 COMPARED WITH THE ASSESSEE. SIMILAR ARGUMENT WAS S UBMITTED BEFORE US IN RESPECT OF PERSISTENT SYSTEMS LTD, WHE REIN THE ASSESSEE HAS SUBMITTED THAT THE COMPARABLE IS ENGAGED IN SOF TWARE PRODUCT DEVELOPMENT AND FURTHER ENGAGED IN DIVERSIFIED BUSI NESS IN IP LED AND THEREFORE THE SEGMENTAL INFORMATION IS NOT AVAI LABLE AND THEREFORE HAS SOUGHT THE EXCLUSION OF THESE TWO COM PANIES. FURTHER IT WAS SUBMITTED BY THE LD. AR THAT THE FACTS OF TH E PRESENT CASE ARE SIMILAR TO THAT OF MICROSOFT RESEARCH LAB INDIA P. LTD [TS-994- ITAT-2017(BANG)], WHEREIN THE COORDINATE BENCH, IN WHICH ONE OF US I.E., THE ACCOUNTANT MEMBER WAS A PARTY TO THE O RDER, REMANDED THE MATTER BACK TO THE FILE OF THE TPO FOR EXAMININ G AFRESH THE CONTENTION OF THE ASSESSEE AS WELL AS WITH RESPECT TO THE FUNCTIONALITY OF THESE TWO COMPARABLES. 09. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT IN TERMS OF THE DECISION OF THE TRIBUNAL IN MICROSOFT RESEARCH LAB INDIA P. LTD (SUPRA), THE MATTER MAY BE REMITTED BACK TO THE FIL E OF THE TPO FOR EXAMINING AFRESH IN THE LIGHT OF THE OBSERVATIONS M ADE BY THE TRIBUNAL IN THE SAID MATTER. 10. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORD. IN THE LIGHT OF THE RELIANCE BY BOTH PARTIES ON MICROS OFT RESEARCH LAB INDIA P. LTD (SUPRA), WE WOULD LIKE TO REMAND THE M ATTER TO THE FILE OF TPO TO THE SIMILAR EFFECT AS DONE IN THE MATTER OF MICROSOFT (SUPRA) HOWEVER WE WOULD LIKE TO ADD A WORD OF CAUT ION THAT IT WILL BE UNSAFE TO FOLLOW ONE DECISION PASSED BY THE TRIB UNAL IN ANY OTHER CASE UNLESS THE ASSESSEE DEMONSTRATES THAT T HE PROFILE OF THE ASSESSEE COMPANY AS WELL AS THE ASSESSEE IN OTHER C ASE ARE IT(TP)A.1963/BANG/2017 PAGE - 13 MATERIALLY COMPARABLE WITH EACH OTHER AND THERE IS NO ELEMENT OF DISTINCTION BETWEEN THE PROFILE OF THOSE TWO COMPAN IES. HOWEVER AT THIS STAGE WE DO NOT WISH TO EXAMINE THE PROFILE OF THE ASSESSEE COMPANY AS WELL AS THE PROFILE OF MICROSOFT RESEARC H LAB INDIA P. LTD(SUPRA) AS WE ARE REMITTING BACK THE MATTER AND WE LEAVE IT TO THE WISDOM OF THE TPO TO CONSIDER THE FACTS OF THE PRESENT CASE (ASSESSEE) WITH THAT OF MICROSOFT RESEARCH LAB INDI A P. LTD, AND APPLY THE DECISION OF MICROSOFT RESEARCH LAB INDIA LTD (SUPRA). 11. FOLLOWING THE ABOVE ORDER OF THE COORDINATE BEN CH, THESE TWO COMPARABLES NAMELY LARSEN & TOUBRO INFOTECH LTD & PERSISTENT SYSTEMS LTD ARE RESTORED BACK TO THE FILE OF THE TPO TO DECIDE AFRESH IN TERMS OF THE OBSERVATIONS MADE HEREINABOVE. 12. NOW WE ARE LEFT WITH THE FOLLOWING SIX COMPARAB LES : I) AKSHAY SOFTWARE TECHNOLOGIES LTD, II) THINKSOFT GLOBAL SERVICES LTD III ) ACROPETAI TECHNOLOGIES LID. IV) CIGNITITECHNOLOGIES LID. V) SASKEN COMMUNICATIONS LID. VI) SPRY RESOURCES INDIA PVT LTD. I) AKSHAY SOFTWARE TECHNOLOGIES LTD : 13. IT WAS SUBMITTED BY THE ASSESSEE THAT AKSHAY SO FTWARE TECHNOLOGIES LTD IS ENGAGED IN IT SERVICES WHICH IS IN THE NATURE OF SOFTWARE DEVELOPMENT AND THE INCOME EARNED BY THIS COMPANY FROM COMMISSION AND SALE OF LICENCE IS MINISCULE AND THE REFORE THIS COMPANY IS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE ORDER PASSED BY THE TPO AT PAGE 7, IT(TP)A.1963/BANG/2017 PAGE - 14 WHERE THE AO HAS REJECTED THIS COMPANY ON THE PREMI SE THAT IN RESPONSE TO NOTICE U/S.133(6) OF THE ACT, IT WAS ST ATED BY AKSHAY SOFTWARE TECHNOLOGIES LTD THAT IT IS ENGAGED IN PRO CURING, INSTALLATION, IMPLEMENTATION, SUPPORT AND MAINTENAN CE OF ARP SERVICES IN INDIA AND OTHER AREAS AND THEREFORE THE PROFILE OF THE COMPANY IS DIFFERENT FROM THAT OF THE ASSESSEE. THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ANNUAL REPORT AT PAGE 576 OF THE PAPER BOOK, WHERE IT IS MENTIONED THAT T HE REVENUE RECOGNITION, AS UNDER : REVENUE RECOGNITION REVENUES FROM CONTRACTS PRICED ON A TIME AND MATERI AL BASIS ARE RECOGNIZED WHEN SERVICES ARE RENDERED AND RELAT ED COSTS ARE INC URRED. REVENUES FROM TIME BOUND FIXED PRICE CONTRACTS, ARC R E COG NISE D OVER THE LIFE OF THE CONTRACT USING THE PROPORTIONATE OF COMPLETION METHOD, WITH CONTRACT C OSTS DETERMINING THE DEGREE OF COMPLETION. FORESEEABLE L OSSES O N SUCH CONTRACTS ARE RECOGNIZED WHEN PROBABLE. REVENUES F ROM MAINTENANCE CONTRACTS ARE RECOGNIZED PRO R ATA OVER THE PERIOD OF THE CONTRACT REVENUES FROM SALE OF SOFTWARE LICENSES, NET OF DISCOUNTS A R E RECOGNIZED UPON DELIVERY OF GOODS TO CUSTOMERS. DIV IDEND INCOME IS ACCOUNTED WHEN THE RIGHT TO RECEIVE IT IS ESTABLISHED. INTEREST INCOME IS ACCOUNTED ON ACCRUAL BASIS. FURTHER OUR ATTENTION WAS DRAWN TO PAGE 582 TO NOTE 20 REVENUE FROM OPERATIONS, WHERE INCOME FROM SOFTWARE SERVICE S WAS RS.19,83,23,358; COMMISSION RECEIVED WAS RS.5,68,69 0 AND SALE OF SOFTWARE LICENCES WAS SHOWN AT RS.5,91,780/-. IT W AS THE CASE THAT AKSHAY SOFTWARE TECHNOLOGIES LTD IS COVERED BY THE DECISION OF KOLKATA TRIBUNAL IN THE MATTER OF LABVANTAGE SOLUTI ON P. LTD V. IT(TP)A.1963/BANG/2017 PAGE - 15 DCIT [ITA.617/KOL/2015, DT.19.10.2016], AT PAGE 200 8 OF THE PAPER BOOK WHERE THE TRIBUNAL IN PARA 8.5 HAS DIRECTED FO R INCLUSION OF AKSHAY SOFTWARE TECHNOLOGIES LTD IN THE LIST OF COM PARABLES. 14. ON THE OTHER HAND THE LD. DR HAS MENTIONED THAT AKSHAY SOFTWARE TECHNOLOGIES LTD IS DEALING IN PROCUREMENT , INSTALLATION, IMPLEMENTATION, SUPPORT AND MAINTENANCE OF ARP PROD UCTS AND SERVICES AND IT WAS SUBMITTED THAT NO SEGMENTAL INF ORMATION WITH RESPECT TO THE VARIOUS ACTIVITIES WERE AVAILABLE AN D ONLY INFORMATION AVAILABLE IS WITH RESPECT TO SEPARATE REVENUE FOR C OMMISSION RECEIVED AND SALE OF SOFTWARE SERVICES. BUT OTHER ASPECTS WERE NOT AVAILABLE. THEREFORE IT WAS SUBMITTED THAT AKSHAY SOFTWARE TECHNOLOGIES LTD IS REQUIRED TO BE EXCLUDED FROM TH E LIST OF COMPARABLES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. AT PAGE 576 OF THE ANNUAL REPORT, FIXED ASSETS HAVE BEEN MENTIONED AS UNDER : FIXED ASSETS : FIXED ASSETS ARE RECORDED AT COST OF ACQUISITION OR CONSTRUCTION. THEY ARE STATED AT HISTORICAL COST L ESS ACCUMULATED DEPRECIATION, AMORTIZATION AND IMPAIRME NT LOSS, IF ANY. PRODUCT DEVELOPMENT COSTS ARE RECOGNISED AS FIXED A SSETS, WHEN FEASIBILITY HAS BEEN ESTABLISHED, THE COMPANY HAS COMMITTED TECHNICAL, FINANCIAL AND OTHER RESOURCES TO COMPLETE THE DEVELOPMENT AND IT IS PROBABLE THAT AS SET WILL GENERATE PROBABLE FUTURE BENEFITS. FROM A PERUSAL OF THE ABOVE, IT IS CLEAR THAT THE C OMPANY IS INCURRING COST FOR PRODUCT DEVELOPMENT AND HAD RECOGNISED IT AS FIXED ASSETS. IT(TP)A.1963/BANG/2017 PAGE - 16 THEREFORE THE COMPANY IS REQUIRED TO BE CONSIDERED AS A COMPANY DEALING IN SOFTWARE PRODUCTS AND IS INTO DEVELOPING AND SELLING THE PRODUCTS DEVELOPED BY IT. THEREFORE WE DO NOT FIND ANY ERROR IN THE FINDING OF THE CIT (A). IF WE GO THROUGH THE DECIS ION CITED BY THE LD.AR IN THE MATTER OF LABVANTAGE SOLUTION P. LTD ( SUPRA), WHEREIN THE TRIBUNAL CONSIDERED QUALCOMM INDIA P. LTD V. AC IT [ITA 5239/DEL/2010, DT.10.06.2013] WHEREIN THE FUNCTIONS OF AKSHAY SOFTWARE TECHNOLOGIES LTD IS MENTIONED AS ENGAGED I N SAO AND REMOTE INFRASTRUCTURE MANAGEMENT SOFTWARE APPLICATI ONS, AS AGAINST DESIGN WORK ON EMBODIED SOFTWARE, DSP AN INTEGRATED CIRCUIT. THE FUNCTIONS AS PER THE SUBMISSION OF THE ASSESSEE AS WELL AS THE ANNUAL REPORT IS, AKSHAY SOFTWARE TECHNOLOGIES LTD IS ENGA GED IN PROVIDING PROFESSIONAL SERVICES, PROCUREMENT, INSTA LLATION AND SUPPORT OF ARP PRODUCTS AND SERVICES IN INDIA. THE REFORE THE FUNCTION AS PERFORMED BY THE ASSESSEE AS MENTIONED IN THE DECISION OF LABVANTAGE (SUPRA) FOR AY 2009-10 CANNOT BE COMP ARED WITH THAT OF THE FUNCTIONS PERFORMED BY AKSHAY SOFTWARE TECHNOLOGIES LTD IN THE AY 2013-14. MOREOVER THE DIRECTION FOR INCLUSION OF AKSHAY SOFTWARE TECHNOLOGIES LTD WAS ALSO RENDERED IN THE CONTEXT THAT IN THAT CASE THE TPO HAS INCLUDED AKSHAY SOFTW ARE TECHNOLOGIES LTD AS COMPARABLE IN THE AY 2007-08. IN OUR CONSIDERED OPINION THE FACTS OF THE PRESENT CASE AR E DIFFERENT THAN THE FACTS NARRATED HEREIN ABOVE IN THE MATTER OF LA BVANTAGE (SUPRA). THEREFORE THIS COMPANY CANNOT BE INCLUDED IN THE LI ST OF COMPARABLES. ACCORDINGLY THIS GROUND IS REJECTED. IT(TP)A.1963/BANG/2017 PAGE - 17 II) THINKSOFT GLOBAL SERVICES LTD : 16. IN RESPECT TO THINKSOFT GLOBAL SERVICES LTD, T HE ASSESSEE HAS URGED BEFORE US FOR INCLUSION OF THIS COMPANY AS AC CORDING TO THE ASSESSEE, IT IS FUNCTIONALLY COMPARABLE COMPANY AS IT IS ENGAGED IN SOFTWARE TESTING. OUR ATTENTION WAS DRAWN BY THE L D. AR TO PAGES 627 & 628 WHICH AS UNDER : FURTHER OUT ATTENTION IS ALSO DRAWN TO PAGE 647 WHE RE IN THE NOTES TO FINANCIAL STATEMENT FOR THE YEAR ENDED 31.03.2013, IT IS MENTIONED AS UNDER : IT(TP)A.1963/BANG/2017 PAGE - 18 .. THE COMPANY IS AN INDIA BASED SOFTWARE SERVICE PROVIDER PRIMARILY DELIVERING SOFTWARE VALIDATION A ND VERIFICATION SERVICES TO THE BANKING AND FINANCIAL SERVICES INDUSTRY WORLDWIDE. THE COMPANY HAS INVESTED IN FI VE WHOLLY OWNED SUBSIDIARIES IN SINGAPORE, USA, GERMAN Y, UK AND UAE FOR MARKET DEVELOPMENT AND SERVICE DELIV ERY IN THE RESPECTIVE REGIONS. ON THE BASIS OF THE ABOVE IT WAS SUBMITTED THE PRED OMINANT CHARACTER OF THINKSOFT GLOBAL SERVICES LTD IS OF SO FTWARE DEVELOPMENT AND THE HAIR-SPLIT APPROACH TREATING A COMPANY INTO SOFTWARE DEVELOPMENT AND SOFTWARE TESTING CANNOT BE CLASSIFIED DIFFERENTLY. IT WAS SUBMITTED THAT TESTING OF THE SOFTWARE IS A PART AND PARCEL OF SOFTWARE DEVELOPMENT BECAUSE WITHOUT TESTING OF THE SOFTWARE, IT CANNOT BE SAID TO BE DEVELOPED AND THE REFORE IT WAS SUBMITTED THAT THE COMPANY IS REQUIRED TO BE INCLUD ED. 17. ON THE OTHER HAND THE LD. DR HAS DRAWN OUR ATTE NTION TO PAGE 8 OF THE TP ORDER WHERE THE TPO HAS DEALT WITH THE ARGUMENT OF THE ASSESSEE AND MENTIONED IN TABULATION THAT THINKSOFT GLOBAL SERVICES LTD IS PRIMARILY ENGAGED IN SOFTWARE TESTING SERVIC ES FOCUSSING ON INSURANCE AND BANKING INDUSTRY AND THUS FUNCTIONALL Y DIFFERENT. FURTHER AT PAGE 10 THE DRP HAS REPRODUCED THE SAME ARGUMENT AND THEREAFTER HAS REJECTED THE COMPARABLE. 18. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORD. THE REVENUE RECOGNITION MENTIONED IN ANNUAL REPORT AT PAGE 648, IS AS UNDER : IT(TP)A.1963/BANG/2017 PAGE - 19 FURTHER THE FUNCTIONS PERFORMED BY THINKSOFT GLOBAL SERVICES LTD IS AVAILABLE FROM THE PROFILE OF THE COMPANY TO SHOW T HAT IT IS INTO SOFTWARE TESTING COMPANY. IN OUR VIEW FOR THE SOFT WARE DEVELOPING, DIFFERENT SKILLS ARE REQUIRED FOR THE PURPOSE OF TE STING THE SOFTWARE, THE REQUIREMENT OF THE VENDORS ARE REQUIRED TO BE C ONSIDERED AND KEEPING THAT REQUIREMENT IN MIND THE SOFTWARE IS RE QUIRED TO BE TESTED. IN OUR VIEW THE EXISTENCE OF THE SOFTWARE IS A PREREQUISITE FOR TESTING OF THE SOFTWARE AND HENCE THE FUNCTIONS OF THE ASSESSEE WERE OF SOFTWARE DEVELOPMENT, THOUGH AFTER DEVELOPING IT , IT MAY BE REQUIRED TO BE TESTED. BUT FOR THE PURPOSES OF COM PARING THE FUNCTIONS PROFILE OF THE TWO COMPANIES, NAMELY THE ASSESSEE AND THINKSOFT GLOBAL SERVICES LTD, THEY SHOULD FALL WIT HIN THE BROAD PARAMETERS OF FUNCTIONAL COMPARABILITY. IN THE CAS E OF SOFTWARE DEVELOPMENT, VARIOUS LANGUAGES, SKILLS AND EXPERIEN CE IS REQUIRED TO DEVELOPMENT A SOFTWARE AND CUSTOMISE IT FOR THE REQ UIREMENT OF THE CUSTOMER. FOR THE PURPOSE OF TESTING THE SOFTWARE THE REQUIREMENTS OF TOOLS AND SKILLS ARE DIFFERENT. THEREFORE THE A SSETS EMPLOYED IN THE FORM OF EXPERTISE OF THE EMPLOYEES IN THE FORM OF TESTING THE SOFTWARE WILL BE QUITE DIFFERENT AND THEREFORE IN O UR CONSIDERED OPINION, BOTH THE COMPANIES CANNOT BE COMPARED AND THEREFORE, WE IT(TP)A.1963/BANG/2017 PAGE - 20 HAVE NO OTHER OPTION BUT TO REJECT THE CONTENTION O F THE LD. AR. THE BANGALORE BENCH OF THE TRIBUNAL IN VARIOUS MATTERS INCLUDING TRILOGY E BUSINESS SOFTWARE LTD V. DCIT [(2013) 29 TAXMANN.COM 310], HAD CONSIDERED THE EXCLUSION OF THINKSOFT GLO BAL SERVICES LTD FOR THE AY 2010-11, AS THE DRP HAS APPLIED THE ON-S ITE FILTER. SIMILARLY IN THE MATTER OF KODIAK NET WORKS [(2017) 87 TAXMANN.COM 2], THE TRIBUNAL HAS NOT AGREED WITH TH E CONTENTION OF THE LD. DR FOR EXCLUDING THIS COMPANY ON THE PREMIS E OF REVENUE EARNED BY IT ON ACCOUNT OF FOREIGN EXCHANGE GAINS. HOWEVER THE ARGUMENT OF A TESTING COMPANY WAS NOT RAISED IN ANY OF THE MATTERS CITED BEFORE US. NO OTHER DECISION WAS CITED BEFOR E US BY BOTH THE PARTIES FOR AY 2013-14, DEALING WITH THE INCLUSION OR EXCLUSION OF THINKSOFT GLOBAL SERVICES LTD. THEREFORE IN THE FA CTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE ASSESSEE AND ACCORDINGLY THE GROU ND RAISED BY THE ASSESSEE FOR INCLUSION OF THINKSOFT GLOBAL SERVICES LTD IS REJECTED. ACROPETAL TECHNOLOGIES LID. CIGNITITECHNOLOGIES LID. SASKEN COMMUNICATIONS LID. SPRY RESOURCES INDIA PVT LTD. 19. IN RESPECT TO ASSESSEES GROUND FOR INCLUSION O F THESE FOUR COMPANIES, IT WAS FAIRLY CONCEDED BY THE LD. AR THA T THESE COMPARABLES WERE NOT PART OF THE TP STUDY OF THE AS SESSEE AND IT WAS ALSO CONCEDED BEFORE US THAT EVEN THE ASSESSEE HAS NOT IN ITS REPLY SUBMITTED FOR INCLUSION OF THESE COMPARABLES BEING FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE. HOWE VER THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAS FILED THE DETAILED S UBMISSIONS ALONG IT(TP)A.1963/BANG/2017 PAGE - 21 WITH THE SUPPORTING DOCUMENT BEFORE THE DRP AND HAS SUBMITTED THAT THESE COMPARABLES WHICH WERE NOT PART OF THE T P PROCEEDINGS SHOULD BE CONSIDERED AND THE ADDITIONAL EVIDENCE FI LED BY THE ASSESSEE BE ALSO EXAMINED WHICH WILL DEMONSTRATE TH AT THESE COMPARABLES ARE FUNCTIONALLY COMPARABLE WITH THAT O F THE ASSESSEE. HOWEVER THE DRP REJECTED THE CONTENTION OF THE ASSE SSEE ON THE PRETEXT THAT THESE COMPARABLES WERE NOT FORMING PAR T OF THE PROCEEDINGS BEFORE THE TPO. THE CONCLUSION OF THE DRP IN PARA 10.3 OF ITS ORDER IS REPRODUCED ELSEWHERE IN THIS O RDER. 20. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT AS THE FACTS WERE NOT BEFORE THE TPO NOR RAISED BY THE ASSESSEE, THEREFORE THE ASSESSEE CANNOT BE GIVEN A SECOND CHANCE TO AGITATE THE INCLUSION OF COMPARABLES BEFORE THE DRP BECAUSE IT WAS FOR THE A SSESSEE TO RAISE ALL ITS CLAIM BEFORE THE TPO 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL. IT IS AN ADMITTED POSITION THAT THE ASSESSEE HAS RA ISED THE GROUND FOR INCLUSION OF THESE FOUR COMPANIES BEFORE THE DRP AN D FILED THE SUPPORTING DOCUMENTS / EVIDENCE WHICH SHOW THAT THE SE FOUR COMPANIES ARE FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. HOWEVER, THE DRP HAS DISMISSED THE CONTENTION OF TH E ASSESSEE ON THE GROUND THAT THESE WERE NOT RAISED BEFORE THE TP O. IN OUR CONSIDERED OPINION APPROACH OF THE DRP WAS NOT CORR ECT AS IS CLEAR FROM THE SCHEME OF INCOME-TAX ACT, THE PROCEEDINGS BEFORE THE DRP IS A CONTINUATION OF THE ASSESSMENT PROCEEDINGS AND THE PURPOSE OF PROVIDING THE PROCEEDINGS BEFORE THE DRP IS TO ENSURE DUE AND FAIR ADJUDICATION OF THE ALP BY COMPARING T HE OPERATING IT(TP)A.1963/BANG/2017 PAGE - 22 PROFIT / OPERATING COST OF THE ASSESSEE WITH THAT O F THE FUNCTIONALLY COMPARABLE COMPANIES. FIRSTLY IT IS THE DUTY OF TH E TPO TO BRING ON RECORD THE FUNCTIONALLY COMPARABLE COMPANIES AND IN CASE BOTH THE PARTIES FAILED TO BRING ON RECORD AT THE TPO LEVEL, THEN FOR THAT PURPOSES EVEN THE DRP CAN ALSO BRING IN COMPANIES W HICH ARE FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE W ITH A SMALL CAVEAT THAT IN CASE THE ASSESSEE IS BRINGING IN A N EW COMPARABLE THEN IN BOTH THE CASES THE TPO / DRP SHOULD BE GIVE N OPPORTUNITY TO DEAL WITH THOSE COMPARABLES. IN THE PRESENT CAS E NEEDFUL HAS NOT BEEN DONE, THEREFORE IN THE CONSIDERED OPINION OF T HE BENCH THESE ASPECTS OF EXAMINING THE FUNCTIONAL PROFILE OF THES E FOUR COMPANIES, NAMELY, ACROPETAL TECHNOLOGIES LTD. CIGNITITECHNOLO GIES LTD, SASKEN COMMUNICATIONS LTD AND SPRY RESOURCES INDIA PVT LTD, IS REQUIRED TO BE REMANDED BACK TO THE FILE OF THE TPO FOR EXAMINING AFRESH. IN ANY CASE, WE ARE REMITTING BACK THE TWO COMPANIES, NAMELY PERSISTENT SYSTEMS LTD (SEG) AND LARSEN & TO UBRO INFOTECH LTD TO THE FILE OF THE TPO. THEREFORE THESE FOUR C OMPANIES ARE ALSO DIRECTED TO BE REMANDED BACK TO THE FILE OF TPO FOR THE PURPOSES OF DUE ADJUDICATION. NEEDLESS TO SAY THAT THE TPO SHA LL GIVE OPPORTUNITY TO THE ASSESSEE BEFORE FINALIZING THE I NCLUSION / EXCLUSION OF THESE COMPARABLES AFTER APPLYING THE S AME FILTERS. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. SUMMARY OF THE RESULT OF TP GROUNDS : I) THE ASSESSEE GROUND FOR EXCLUSION OF CG-VAK SOFT WARE AND EXPORTS LTD, IS REJECTED II) LARSEN & TOUBRO LTD & PERSISTENT SYSTEMS LTD, A RE REMITTED BACK TO THE FILE OF TPO TO DECIDE AFRESH; IT(TP)A.1963/BANG/2017 PAGE - 23 III) THE GROUND FOR INCLUSION OF AKSHAY SOFTWARE TECHNOLOGIES LTD IS REJECTED; IV) THE GROUND FOR INCLUSION OF THINKSOFT GLOBAL SE RVICES LTD IS REJECTED V) THE FOUR COMPARABLES NAMELY, ACROPETAL TECHNOLOGIES LTD, CIGNITI TECHNOLOGIES LTD, SASKEN COMMUNICATI ONS LTD AND SPRY RESOURCES INDIA P. LTD ARE REMITTED BACK T O THE FILE OF THE TPO FOR FRESH EXAMINATION. 22. THE NEXT GROUND RAISED BY THE ASSESSEE BY WAY O F GROUND NO.5 IS IN RESPECT TO DISALLOWANCE OF WORKING CAPITAL AD JUSTMENT. THE LD. AR HAS SUBMITTED THAT THE TPO HAS DETERMINED TH E WORKING CAPITAL ADJUSTMENT AT 1.94% THEREBY REDUCING THE AL P MEAN MARGIN. THE DRP HAS SOUGHT THE DETAILED WORKING JU STIFYING THE ALLOWABILITY OF WORKING CAPITAL ADJUSTMENT AS TO HO W IT HAD ADVERSELY AFFECTED THE WORKING CAPITAL POSITION, VI S-A-VIS THE COMPARABLES. BUT THE ASSESSEE HAD WAS NOT ABLE TO DEMONSTRATE THAT THE WORKING CAPITAL DIFFERENCES HAD IMPACTED ITS PR OFITS AND THE DETAILED SUBMISSIONS WERE MADE BEFORE THE DRP AS GI VEN IN PARA 12.1 OF THE DRP ORDER. THE LD. AR HAS SUBMITTED BE FORE US THAT AS THE TRIBUNAL IS REMANDING SIX COMPANIES TO BE EXAMI NED BY THE TPO, THEREFORE THIS ISSUE OF WORKING CAPITAL ADJUST MENT ALSO BE REMANDED BACK TO THE FILE OF THE TPO FOR EXAMINING AFRESH. 23. ON THE OTHER HAND THE LD. DR OPPOSED THE CONTEN TION OF THE LD. AR. 24. WE HAVE GONE THROUGH THE RECORDS AND PERUSED TH E ORDERS PASSED BY THE DRP AS WELL AS THE TPO. IN OUR VIEW, IT IS FOR THE ASSESSEE TO PROVE AS TO HOW THE WORKING CAPITAL HAD AN IMPACT ON ITS IT(TP)A.1963/BANG/2017 PAGE - 24 PROFIT AND IS REQUIRED TO FOLLOW THE ANALYSIS AS ME NTIONED IN PARA 12.1 OF THE DRP ORDER. NEEDFUL HAS NOT BEEN DONE D ESPITE OPPORTUNITY GRANTED BY THE DRP. HOWEVER CONSIDERIN G THE TOTALITY OF THE CIRCUMSTANCES, WE ARE REMITTING BACK SIX COM PANIES FOR CONSIDERATION BY THE TPO. WE DEEM IT FIT TO REMAND THIS ISSUE AFRESH. NEEDLESS TO SAY THAT THE TPO SHALL BE BOUN D BY THE DECISION OF THE ITAT, CHENNAI BENCHES IN MOBIS INDIA LTD [38 TAXMANN.COM 231]. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSE. 25. IN THE GROUND 3(K) ASSESSEE HAS SOUGHT THE RISK ADJUSTMENT. WE FIND THAT THE ASSESSEE HAS NOT GIVEN ANY DETAILS OR REASON FOR RISK ADJUSTMENT QUA COMPARABLES AND THE ASSESSEE. IT IS FOR THE ASSESSEE TO DEMONSTRATE AS TO HOW THE ASSESSEE WHO IS A CAPT IVE SERVICE PROVIDER TO ITS AE HAS MORE RISK IN COMPARISON TO T HE OTHER COMPARABLES RETAINED BY THE TRIBUNAL. SINCE NO DET AILS AND WORKING HAS BEEN PROVIDED, THEREFORE, WE DO NOT DEEM IT APP ROPRIATE TO GRANT ANY RISK ADJUSTMENT TO THE ASSESSEE. ACCORDINGLY T HIS GROUND IS REJECTED. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF FEBRUARY, 2018. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 28 TH FEBRUARY, 2018 MCN* IT(TP)A.1963/BANG/2017 PAGE - 25 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.