M/s LAM Research India Pvt Ltd , Bangalore V. Deputy Commissioner of INcome TAx Circle-4(1)(1), Bangalore

ITA 2490/BANG/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6268 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-07-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 23-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Question of law
• Section: 271(1)(c); 143(3); 92A; 234B; 133(6); 13

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.2490/BANG/2017 ASSESSMENT YEAR : 2013-14 LAM RESEARCH (INDIA) PVT. LTD., MARUTHI INFOTECH CENTER, 2 ND FLOOR, A BLOCK, 11/1 AND 21/1, AMARJYOTHI LAYOUT, INNER RING ROAD, BENGALURU-560 071 PAN AA BCN 2063 Q VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI DARPAN KIRPALANI, ADVOCATE RESPONDENT BY : SMT. MUZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 19-01-2021 DATE OF PRONOUNCEMENT : 03-02-2021 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST F INAL ASSESSMENT ORDER DATED 22/09/2017 PASSED BY LD.DCIT CIRCLE 4 (1) (1), BANGALORE FOR ASSESSMENT YEAR 2013-14 ON FOLLOWING GROUNDS OF APPEAL: PAGE 2 OF 14 IT(TP)A NO.2490/BANG/2017 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, LAM RESEARCH (INDIA) PRIVATE LIMITED (HEREINAFTER REFER RED TO AS APPELLANT'), RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAIN ST THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER [HEREINAFTE R REFERRED TO AS THE LEARNED AO] UNDER SECTION 143(3) READ WITH SECTION 1440 OF THE INCOME-TAX ACT., 1961 (THE ACT') ON THE FOLLOWING GROUNDS: 1. THE LEARNED AO/TRANSFER PRICING OFFICER ('TPO') AND THE LEARNED DRP HAVE ERRED, IN LAW AND IN FACTS, BY MAKING AN ADDIT ION OF RS 1,36,50,206 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES T RANSACTION ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE; 2. THE LEARNED AO / TPO AND THE LEARNED DRP HAVE ER RED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDER TAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ W ITH THE INCOME TAX RULES, 1962 ('RULES'), CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ALP IN CONNECTION WITH THE IMP UGNED INTERNATIONAL TRANSACTION, AND HOLDING THAT THE APPELLANT'S INTER NATIONAL TRANSACTION IS NOT AT ARM'S LENGTH; 3. THE LEARNED AO / TPO HAVE ERRED, IN LAW AND IN F ACTS, BY EXERCISING HIS POWERS UNDER SECTION 133(6) OF THE ACT TO OBTAI N INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN AND RELYING ON THE S AME FOR COMPARABILITY PURPOSES; 4. THE LEARNED AO / TPO AND THE LEARNED DRP HAVE ER RED, IN LAW AND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN/ PRIC E USING DATA PERTAINING ONLY TO FY 2012-13 WHICH WAS NOT AVAILABLE TO THE A PPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION R EQUIREMENT; 5. THE LEARNED AO/TPO AND THE LEARNED DRP HAVE ERRE D, IN LAW AND FACTS BY REJECTING CERTAIN COMPARABLE COMPANIES CON SIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPLYING DIFFERENT QUANTITATIVE AND QUALITATIVE FILTERS: I. THE LEARNED AO I TPO AND THE LEARNED DRP HAVE ER RED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES ID ENTIFIED BY THE APPELLANT FOR HAVING DIFFERENT ACCOUNTING YEAR (I.E . COMPANIES HAVING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WH OSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 12 MONTHS); II. THE LEARNED AO I TPO AND THE LEARNED DRP HAVE E RRED, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPE LLANT USING EMPLOYEE COST GREATER THAN 25% OF THE TOTAL REVENUES AS A CO MPARABILITY CRITERION; III. THE LEARNED AO / TPO AND THE LEARNED DRP HAVE ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES ID ENTIFIED BY THE APPELLANT USING EXPORT EARNINGS GREATER THAN 75% OF THE SALES AS A COMPARABILITY CRITERION; IV. THE LEARNED AO I TPO AND THE LEARNED DRP HAVE E RRED, IN LAW AND IN FACTS, IN APPLYING ONLY THE LOWER CAP ON THE TURNOV ER FILTER OF RS.1 CRORE AND NOT APPLYING ANY UPPER CAP FOR THE COMPARABILITY CR ITERION; PAGE 3 OF 14 IT(TP)A NO.2490/BANG/2017 6. THE LEARNED AO/ TPO AND THE LEARNED DRP HAVE ERR ED, IN LAW AND IN FACTS, BY ACCEPTING REJECTING COMPANIES BASED ON UN REASONABLE COMPARABILITY CRITERIA; 7. THE LEARNED AO / TFO AND THE LEARNED DRP HAVE ER RED, IN LAW AND IN FACTS, BY PROVIDING AN ADVERSE WORKING CAPITAL ADJU STMENT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT IS A CAPTI VE SERVICE PROVIDER; 8. THE LEARNED AO / TPO AND THE LEARNED DRP HAVE ER RED, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUN T FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARA BLE COMPANIES; 9. THE LEARNED AO HAS ERRED, IN LAW AND FACTS, BY NOT CONSIDERING THE SELF-ASSESSMENT TAX AMOUNTING TO RS.4,78,1 11 PAID BY THE APPELLANT; 10. THE LEARNED AO HAS ERRED, IN LAW AND FACTS, IN IMPOSING INTEREST UNDER SECTION 234B AND SECTION 2340 OF THE ACT; 11. THE LEARNED AO HAS ERRED, IN LAW AND IN FACTS, BY INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANYTIME B EFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IN ENGAGED IN THE BUSINESS OF PROVI SION OF SOFTWARE DEVELOPMENT SERVICES (SWD SERVICES), TO IT S WHOLLY OWNED HOLDING COMPANY. IN TERMS OF THE PROVISIONS O F SECTION 92A OF THE ACT, THE ASSESSEE AND ITS WHOLLY OWNED H OLDING COMPANY WERE ASSOCIATED ENTERPRISES ('AES'). IN TER MS OF SEC.92B(1) OF THE ACT, THE TRANSACTION OF PROVIDING SWD SERVICES AND ITES WERE 'INTERNATIONAL TRANSACTION' I.E., A TRANSACTION BETWEEN ASSESSEE AND THE ASSOCIATED ENTERPRISE, THE DETAILS OF WHICH ARE AS UNDER: PARTICULARS AMOUNT RECEIVED (IN RS.) AMOUNT PAID (IN RS.) SOFTWARE DEVELOPMENT SERVICES 1874,28,190 PAGE 4 OF 14 IT(TP)A NO.2490/BANG/2017 IT ENABLED SERVICES / EDS (CAD/CAM) (INCLUDING SAP IMPLEMENTATION SERVICES) 1704,78,609 REIMBURSEMENT OF EXPENSES 49,044 RECOVERY OF EXPENSES 4,36,224 3. IN TERMS OF ITES SERVICES THERE HAS BEEN NO DISP UTE BETWEEN REVENUE AND ASSESSEE. THE ONLY DISPUTED SEG MENT IS SOFTWARE DEVELOPMENT SERVICE SEGMENT. 4. LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING FUNC TIONS UNDER THE SOFTWARE DEVELOPMENT SERVICE SEGMENT: 2.2. FUNCTIONAL ANALYSIS OF THE TAXPAYER: SOFTWARE DEVELOPMENT SERVICES: LAM INDIA IS ENGAGED IN THE RENDITION OF SOFTWARE DEVELOPMENT SERVICES TO NOVELLUS US. IT ASSISTS WITH THE DESIGN, DEVELOP MENT, AND IMPROVEMENT OF NOVELLUS PRODUCTS. NOVELLUS US. ('SDG US') IS RESPONSIBLE FOR DEVELO PING THE EMBEDDED SOFTWARE THAT IN NOVELLUS GROUP PRODUCTS THAT COMPR ISE THE SEMICONDUCTOR CHIP MARKETING MACHINERY. IT FOCUSES ON THREE DISTI NCT AREAS IN SOFTWARE DEVELOPMENT, COMPRISING OF: 1. SOFTWARE RELATED TO EQUIPMENT; 2. SOFTWARE FOR PROTEUS GRAPHIC USER INTERFACE GROU P; AND 3. PRODUCT SPECIFIC SOFTWARE. LAIN INDIA ALSO SUPPORTS THE TESTING OF THE SOFTW ARE PRODUCT BUILDS MADE BY THE SDG US/INDIA. SPS GROUP IS ENGAGED IN PROVIDING ON-LINE PRODUCT SUPPORT TO CUSTOMERS OF NOVELLUS MACHINERY IN THE US, JAPAN, KOREA, TAIW AN AND EUROPE. IT ENABLES (CAD/CAM) SERVICES LAM INDIA IS ENGAGED IN RENDERING IT ENABLED SERV ICES IN THE NATURE OF CAD/CAM, TO NOVELLUS US. LAM INDIA PROVIDES TECHNICAL RESOLUTIONS FOR QNS AND SUPPORTS NOVELLUS US IN CREATING ACOS IN WIND-CHILL PLM SYSTEM, BASED ON DESIGN CHANGE REQUIREMENTS. LAM INDIA SUPPORTS NOVELLUS US IN TERMS OF ENGINE ERING DOCUMENTATION USING CAD TOOLS LIKE PRO/ENGINEER, AUTO CAD AND INT ERLINK FOR SPECIFIC ENGINEERING TASKS BASED ON THE REQUIREMENTS OF NOVE LLUS US. LAM INDIA HAS ALSO ENTERED INTO AN AGREEMENT WITH NOVELLUS US TO RENDER SAP MAINTENANCE AND ENHANCEMENT SERVICES. 5. THE LD.TPO OBSERVED THAT ASSESSEE HAS USED TNMM AS MOST APPROPRIATE METHOD WITH OP/OC AS PLI. IT COMPU TED ITS PAGE 5 OF 14 IT(TP)A NO.2490/BANG/2017 MARGIN AT 13.96%.ASSESSEE USED FOLLOWING 7 COMPARAB LES WITH AN AVERAGE OF 13.78%. SI.NO NAME OF THE COMPANY WEIGHTED AVERAGE CA) 1 AKSHAY SOFTWARE TECHNOLOGIES LIMITED 4.45% 2 HELIOS & MATHESON INFORMATION 15.78% 3 RS SOFTWARE (INDIA) LIMITED 15.67% 4 SPRY RESOURCES INDIA PVT. LTD., 21.01% 5 THINKSOFT GLOBAL SERVICES LIMITED 6.34% 6 ID B I INTECH LTD., (INFORMATION TECHNOLOGY) 15.78% 7 MINDTREE LIMITED (I T SERVICES) . AVERAGE 13.78% PAGE 6 OF 14 IT(TP)A NO.2490/BANG/2017 6. LD.TPO DID NOT APPROVE THE SELECTION CRITERIA OF COMPARABLES BY ASSESSEE. THE LD.TPO ON HIS OWN IDEN TIFIED FIVE COMPANIES AS COMPARABLE WITH THE ASSESSEE COMPANY A ND WORKED OUT THE AVERAGE ARITHMETIC MEAN OF THEIR PRO FIT MARGINS AS FOLLOWS: SI. NO. NAME OF THE TAXPAYER OP/OC 1 CG-VAK SOFTWARE EXPORTS LTD 20.45% 2 I C R A TECHNO ANALYTICS 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) PVT LTD 17.41% 7 TECH MAHINDRA LTD (SEG) 21.90% UNADJUSTED AVERAGE MARGIN 21.63% 7. THE LD.TPO PROPOSED THE ADJUSTMENT TO ALP BEING SHORTFALL AT RS.1,36,50,206/-. 8. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE S RESOLUTION PANEL (DRP) AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE LD.AO WHEREIN THE ADDITION SUGGESTED BY THE LD.TPO AS ADJUSTMENT TO ALP WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE LD.AO. THE ASSESSEE FILED OBJEC TIONS BEFORE THE DRP AND THE DRP GAVE CERTAIN DIRECTIONS. BASED ON THE DIRECTIONS OF THE DRP, THE LD.AO PASSED THE FINAL O RDER OF ASSESSMENT. TO THE EXTENT THE ASSESSEE DID NOT GET RELIEF FROM THE DRP, THE ASSESSEE HAS PREFERRED APPEAL BEFORE T HIS TRIBUNAL . 9. AT THE TIME OF HEARING, THE LD.AR SUBMITTED THAT GROUNDS 6(I), 6.2 & 7 WERE ONLY PRESSED. PAGE 7 OF 14 IT(TP)A NO.2490/BANG/2017 10. THE LD.AR SUBMITTED THAT GROUNDS 9-11 WERE CONSEQUENTIAL IN NATURE. ACCORDINGLY ARGUMENTS WERE RAISED ONLY IN RESPECT O F FOLLOWING GROUNDS ADJUDICATED HEREIN ABOVE. GROUND NO. 6.1 : 11. LD.AR SUBMITTED THAT EXCEPT FOR CG VAK SOFTWARE EXPORTS LTD AND ICRA TECHNO ANALYTICS LTD, OTHER COMPARABL ES HAVE BEEN DISPUTED BY ASSESSEE ON TURNOVER FILTER. IT HA S BEEN SUBMITTED THAT LD.TPO WHILE APPLYING THE TURNOVER F ILTER FAILED TO APPLY THE UPPER LIMIT OF RS.200 CRORES. HE THUS SUBMITTED THAT, FOLLOWING COMPARABLES HAVE TURNOVER MORE THAN 200 CRORES AND THEREFORE DESERVES TO BE EXCLUDED: RS SOFTWARE (INDIA) PVT.LTD. MINDTREE LTD. LARSEN AND TOUBRO INFOTECH LTD. PERSISTENT SYSTEMS LTD. TECH MAHINDRA LTD. 12. ON THE CONTRARY, LD.CIT.DR RELIED ON ORDERS PAS SED BY AUTHORITIES BELOW. 13. WE HAVE PERUSED SUBMISSIONS ADVANCED BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 14. ONE OF THE ARGUMENTS BY THE ASSESSEE BEFORE THE LD.TPO AS WELL AS DRP WAS THAT THESE COMPANIES HAD TURNOVE R WHICH WAS IN EXCESS OF RS. 200 CRORES AND THEREFORE THESE COMPANIES CANNOT BE REGARDED AS A COMPARABLE IN THE CASE OF T HE ASSESSEE WHOSE TURNOVER WAS ONLY RS. 18 CRORES. THE LD.TPO A S WELL AS PAGE 8 OF 14 IT(TP)A NO.2490/BANG/2017 DRP TOOK THE VIEW THAT THE FUNCTIONAL COMPARABILITY OF THE COMPANIES WERE ALONE TO BE SEEN AND TURNOVER WAS NO T AN IMPORTANT CRITERION. IN GROUND NO. 5(IV), THE ASSES SEE 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 B OILS DOWN ON APPLICATION OF TURNOVER FILTER IN CHOOSING COMPA RABLE COMPANIES. AS FAR AS EXCLUDING THE COMPANIES ON THE BASIS OF TURNOVER IS CONCERNED, THE ISSUE HAS BEEN SETTLED I N 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 5 00 CRORES HAS TO BE REGARDED AS ONE CATEGORY AND THOSE COMPAN IES CANNOT BE REGARDED AS COMPARABLES WITH COMPANIES HAVING TU RNOVER OF LESS THAN 200 CRORES, THE TRIBUNAL HELD AS FOLLOWS: '17.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SUBSTANTIAL QUESTION OF LAW (QUESTION NO. 1 TO 3) WHICH WAS FRA MED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVEST MENT ADVISORS (INDIA) PVT. LTD., (SUPRA) WAS AS TO WHETHER COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPTIONALLY HIGH PROFIT MAR GINS OR FLUCTUATION PROFIT MARGINS, AS COMPARED TO THE ASSESSEE IN TRAN SFER PRICING ANALYSIS. THEREFORE AS RIGHTLY SUBMITTED BY THE LEARNED COUNS EL FOR THE ASSESSEE THE OBSERVATIONS OF THE HON'BLE HIGH COURT, IN SO F AR AS IT REFERS TO TURNOVER, WERE IN THE NATURE OF OBITER DICTUM. JUDI CIAL DISCIPLINE REQUIRES THAT THE TRIBUNAL SHOULD FOLLOW THE DECISION OF A N ON-JURISDICTION HIGH COURT, EVEN THOUGH THE SAID DECISION IS OF A NON-JU RISDICTIONAL 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 PAGE 9 OF 14 IT(TP)A NO.2490/BANG/2017 JUDGMENT DATED 16-9-2015 HAS TAKEN THE VIEW THAT TU RNOVER IS A RELEVANT CRITERION FOR CHOOSING COMPANIES AS COMPAR ABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICING CASES. THE RE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE CIRCUMSTANCES, FOLLOWING THE PRINCIPLE THAT WHERE TWO VIEWS ARE AV AILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPT ED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE U PHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES FROM THE LIST OF COMPARAB LE 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 SHO ULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WERE ADVANCED ON THE CORR ECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THAT TAKEN IN THE CASE OF GENISY S 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 TH E CASE OF GENISYS INTEGRATING (SUPRA) WAS THE EARLIEST DECISION RENDE RED ON THE ISSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED AS EARLY AS 5-8-20 11. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES CITED BY THE LE ARNED DR BEFORE US IN THE CASE OF WILLIS PROCESSING SERVICES (SUPRA ) AND CAPEGEMINI INDIA PVT. LTD. (SUPRA) ARE TO BE REGARDED AS PER I NCURIUM AS THESE DECISIONS IGNORE A BINDING COORDINATE BENCH DECISIO N. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR TH E ASSESSEE SUPPORTS THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE. T HE DECISIONS RENDERED IN THE CASE OF M/S.NTT DATA (SUPRA), SOCIETE GENERA LE 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 INC URIUM. THESE THREE DECISIONS ALSO PLACE RELIANCE ON THE DECISION OF TH E HON'BLE DELHI HIGH COURT IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA ). WE HAVE ALREADY HELD THAT THE DECISION RENDERED IN THE CASE OF CHRI SCAPITAL INVESTMENT (SUPRA) IS OBITER DICTA AND THAT THE RATIO DECIDEND I LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR (S UPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THER EFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US CANNOT BE THE BAS IS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CRITERIA FOR DECIDING ON C OMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRANSFE R PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN AB OVE, 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 RATI O LAID DOWN IN THE CASE OF GENISYS INTEGRATING (SUPRA).' PAGE 10 OF 14 IT(TP)A NO.2490/BANG/2017 15. IN THE LIGHT OF THE AFORESAID DECISION OF THE TRIBUNAL , COMPARABLES SOUGHT FOR EXCLUSION IN GROUND NO.6.1 R AISED BY THE ASSESSEE IS ALLOWED. ACCORDINGLY THIS GROUND STANDS ALLOWED PARTLY . GROUND NO. 6.2 16. ASSESSEE SEEKS INCLUSION OF ONLY 1 COMPARABLE B EING, AKSHAY SOFTWARE TECHNOLOGIES LTD. IT HAS BEEN SUBMI TTED THAT, THE LD.TPO AND DRP ACCEPTED THIS COMPARABLE IN THE FINAL LIST IN PREVIOUS YEARS, HOWEVER FOR THE YEAR UNDER CONSI DERATION THE SAME HAS BEEN EXCLUDED. LD.AR PLACED RELIANCE ON CO ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S NXP INDIA PVT LTD. VS DCIT IN IT(TP)A NO. 692 & 2861/B/2017 FOR ASSESSMENT YEAR 2 012-13 AND 2013-14 . 17. ON THE CONTRARY, THE LD.CIT.DR SUBMITTED THAT D RP FOR EXCLUDING THIS COMPARABLE DURING THE YEAR UNDER CON SIDERATION HAS HELD THAT THE ON-SITE REVENUE FILTER OF THIS CO MPARABLE IS LESS THAN 75% AND HENCE REJECTED IT FROM THE FINALIST. H E SUBMITTED THAT IN THE PRECEDING YEARS THIS OBSERVATION WAS NO T RECORDED BY THE AUTHORITIES BELOW AND HENCE FACTUALLY CANNOT BE CONSIDERED IDENTICAL. 18. IN THE REPLY BY THE LD.AR, IT WAS SUBMITTED THA T IS IN THE DECISION RELIED IN CASE OF M/S NXP INDIA PVT LTD. VS DCIT (SUPRA) THIS TRIBUNAL HAD ANALYSED THIS ASPECT OF ON-SITE REVENUE FILTER IN THE FOLLOWING MANNER: PAGE 11 OF 14 IT(TP)A NO.2490/BANG/2017 IV AKSHAY SOFTWARE TECHNOLOGIES LTD 32. IT WAS REJECTED BY THE TPO FOR THE REASON THAT THE FUNCTION OF THIS COMPANY APPEARS TO BE MORE IN THE NATURE OF SUPPORT SERVICES AND I T ENABLED SERVICES. HOWEVER THIS COMPANY IS ENGAGED IN PROVIDING PROFESSIONAL SERVIC ES, IMPLEMENTATION, SUPPORT AND MAINTENANCE OF ERP PROD UCTS AND OTHER SERVICES. THESE ARE NOTHING BUT SOFTWARE DEVELOPMENT SERVICES, AS IS EVIDENT FROM THE NOTES FORMING PART OF FINANCIAL STATEMENTS WHICH IS PLACED IN PAP ER BOOK AT PAGE 1825. FURTHER THE REVENUE FROM SOFTWARE SER VICES ACCOUNTS FOR 99.45% OF THE TOTAL REVENUE OF THE COM PANY IS EVIDENT FROM THE FINANCIAL STATEMENTS PLACED ON REC ORD OF PAPER BOOK AT PAGE NO. 1831. BEING SO, WE DIRECT TP O TO CONSIDER THIS COMPANY AS COMPARABLE TO ASSESSEES C ASE WHILE SELECTING THE COMPARABLES. 19. BASED ON THE ABOVE OBSERVATION THE OBJECTION RA ISED BY DRP CANNOT BE UPHELD. ACCORDINGLY WE DIRECT LD. AO/TPO TO CONSIDER THIS COMPARABLE THE FINALIST. 20. GROUND NO. 7 ALLEGED BY ASSESSEE IS AGAINST PROVIDING NEGATIVE WORKING CAPITAL ADJUSTMENT WITHOUT APPRECI ATING THE FACT THAT ASSESSEE IS A CAPTIVE SERVICE PROVIDER. THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO NEG ATIVE WORKING CAPITAL ADJUSTMENT CARRIED OUT BY THE LD.TPO WHICH WAS CONFIRMED BY THE DRP. IT IS THE PLEA OF THE ASSESSE E THAT THOUGH THE LD.TPO HAS OBSERVED THAT THE ASSESSEE HAS A HEA LTHY MARGIN, THE LD.TPO HAS ERRED IN MAKING AN ADJUSTMEN T TOWARDS WORKING CAPITAL AND THE DRP FURTHER ERRED IN UPHOLD ING THE SAME. PAGE 12 OF 14 IT(TP)A NO.2490/BANG/2017 21. IT WAS SUBMITTED THAT WORKING CAPITAL ADJUSTMEN T IS MADE FOR THE TIME VALUE OF MONEY LOST WHEN CREDIT TIME I S GIVEN TO THE CUSTOMERS. THE ASSESSEE HOWEVER DOES NOT BEAR ANY R ISK AND HAS NO WORKING CAPITAL CONTINGENCIES. THE ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR MEETING THE WORKING CAPIT AL REQUIREMENT. THE ASSESSEE IS RUNNING THE BUSINESS W ITHOUT ANY WORKING CAPITAL RISK AS COMPARED TO THE COMPARABLES . THE ASSESSEE DOES NOT BEAR ANY MARKET RISK AS THE SERVI CES ARE PROVIDED ONLY TO TAVANT US. THEREFORE, REQUIREMENT FOR ADJUSTMENT OF NEGATIVE WORKING CAPITAL DOES NOT ARI SE. 22. THE LD.AR PLACED RELIANCE ON DECISION OF COORDI NATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE REPORTED IN (2020) 120 TAXMANN.COM 122 AND LAM RESEARCH INDIA (P.) LTD. V. DY. CIT IN [IT APPEAL NOS. 1473 & 1385 (BENG.) OF 2014, DATED 30-4-2015], TIVO TECH (P.) LTD. V. DY. CIT [2020] 117 TAXMANN.C OM 259, AND DY. CIT V. SOFTWARE AG BANGALORE TECHNOLOGIES (P.) LTD. [IT APPEAL NO. 1628 OF 2014, DATED 31-3-2016] , WHERE IT HAS BEEN HELD THAT NEGATIVE WORKING CAPITAL ADJUSTMENT SHALL NOT BE MADE. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN THE CASE OF LAM RESEARCH INDIA (P.) LTD . ( SUPRA ) AND SOFTWARE AG BANGALORE TECHNOLOGIES (P.) LTD . ( SUPRA ) PASSED BY THIS TRIBUNAL , IT HAS BEEN HELD THAT NEGATIVE WORKING CAPITAL ADJU STMENT SHALL NOT BE MADE IN CASE OF A CAPTIVE SERVICE PROVIDER A S THERE IS NO RISK AND IT IS COMPENSATED ON A TOTAL COST PLUS BAS IS. WE THEREFORE DIRECT LD.TPO TO COMPUTE THE ALP IN ACCOR DANCE WITH PAGE 13 OF 14 IT(TP)A NO.2490/BANG/2017 THE DIRECTIONS CONTAINED IN THIS ORDER AFTER AFFORD ING ASSESSEE OPPORTUNITY OF BEING HEARD. ACCORDINGLY GROUND NO. 7 RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 9-11 ARE CONSEQUENTIAL IN NATURE AND THE REFORE DO NOT REQUIRE ADJUDICATION. 24. ASSESSEE HAS NOT PRESSED GROUND 1-4, GROUND 5 ( I)-(III), GROUND 6.1 (C )& (G) AND GROUND 6.2 (B)-(J) AND GRO UND 8. ACCORDINGLY THESE GROUNDS STANDS DISMISSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 3 RD FEBRUARY, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 14 OF 14 IT(TP)A NO.2490/BANG/2017 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -2-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -2-2021 JM/AM 4. DRAFT DISCUSSEDAPPROVED BY SECOND MEMBER. -2-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -2-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -2-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -2-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -2-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS