M/s Metric Stream Infotech India Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-4(1)(2) , Bangalore

ITA 2735/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2761 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-01-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 15-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Assessee Lawyers: NARENDRA JAIN
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Condonation of delay
• Section: 143(3); 133(6); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN , ACCOUNTANT MEMBER IT (TP) A NO S . 14 18 & 2735/BANG/2017 ASSESSMENT YEAR : 2013 - 14 M/S. METRICSTREAM INFOTECH (INDIA) PVT. LTD., AMR TECH PARK, 4B, NO.23 & 24, HONGASSANDRA VILLAGE, BEGUR HOBLI, BENGALURU SOUTH TALUK, BENGALURU 560 068. PAN: AACCM 4991K VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BANGALORE. APP ELL ANT RESPONDENT APPELLANT BY : SHR I NARENDRA JAIN, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 29 .0 1 .201 9 DATE OF PRONOUNCEMENT : 27 . 02 .201 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT BOTH THESE ARE APPEALS BY THE ASSESSEE AGAINST TH E FINAL ORDER OF ASSESSMENT DATED 21.04.2017 OF THE DY. COMMISSIONER OF INCOME-TAX I/C, CIRCLE 4(1)(2), BENGALURU PASSED U/S. 143(3) R.W.S. 144C(13) OF THE ACT. 2. THE APPEAL IN ITA NO.1418/BANG/2017 WAS FILED B Y THE ASSESSEE AGAINST THE ORDER REFERRED TO IN THE EARLIER PARA O N 19.06.2017 WHEREIN FORM 36 AND GROUNDS OF APPEAL WAS SIGNED BY THE COU NTRY CONTROLLER OF ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 2 OF 12 FINANCE & ADMINISTRATIVE OPERATIONS OF THE ASSESSEE . LATER ON, THE ASSESSEE REALISED THAT BEFORE THE TRIBUNAL FORM 36B AND GROUNDS OF APPEAL SHOULD BE SIGNED BY THE DIRECTOR WHERE THERE IS NO MANAGING DIRECTOR. ACCORDINGLY, ANOTHER APPEAL WAS FILED IN FORM 36B WITH GROUNDS OF APPEAL ON 15.12.2017. THE ASSESSEE HAS ALSO FIL ED AN APPLICATION FOR CONDONATION OF DELAY IN FILING THE APPEAL. IT HAS BEEN MENTIONED BY THE ASSESSEE THAT THE SECOND APPEAL FILED BY THE ASSESS EE ON 15.12.2017 WAS THE SAME AS THE FIRST APPEAL AND THE ONLY DIFFERENC E WAS THAT THE DIRECTOR OF ASSESSEE SIGNED THE SECOND APPEAL AND THEREFORE STR ICTLY SPEAKING, THERE IS NO DELAY, BUT NEVERTHELESS BY WAY OF ABUNDANT CAUTI ON, AN APPLICATION FOR CONDONATION OF DELAY IS BEING FILED SUPPORTED BY AN AFFIDAVIT OF THE DIRECTOR OF THE ASSESSEE. 3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESS EE AND WE FIND THAT IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2012-13 AND THIS TRIBUNA L CONDONED THE DELAY IN FILING THE APPEAL OBSERVING AS FOLLOWS:- 6. ORIGINALLY THIS APPEAL WAS FILED ON 1.3.2017 A LONG WITH APPEAL MEMO - IN FORM NO.36, GROUNDS OF APPEAL AND OTHER DOCUMENTS WHICH WERE SIGNED, BY AUTHORIZED SIGNATOR Y OF THE PEE. THE APPEAL SO FILED WAS WELL WITHIN THE TIME. LATER ON IT WAS NOTICED BY THE ASSESSEE THAT FORM 36, GROUNDS OF AP PEAL AND OTHER DOCUMENTS HAVE TO BE SIGNED BY THE DIRECTOR OF THE COMPANY. ACCORDINGLY, THE REVISED FORM NO.36, GROUNDS OF APP EAL AND OTHER DOCUMENTS WERE FILED DULY SIGNED BY THE DIRECTOR OF THE COMPANY. REGISTRY HAS NOT RAISED ANY OBJECTION IN THIS REGAR D THAT THERE IS A DELAY IN FILING THE APPEAL. THE ASSESSEE, HOWEVER, ON ITS OWN HAS FILED PETITION FOR CONDONATION OF DELAY, IN THE EVE NT THE REVISED FORM NO.36, MEMOR OF GROUNDS ETC., FILED ON 1.3.201 7 IS TREATED AS NOT PROPER AND THE TIME OF FILING THE APPEAL IS TO BE RECKONED ONLY FROM THE DATE ON WHICH FORM '36, GROUNDS OF APPEAL AND OTHER ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 3 OF 12 DOCUMENTS SINGED BY THE DIRECTOR IS CONSIDERED AS T HE DATE, OF FILING OF THE APPEAL. THERE WILL BE A DELAY OF 130 DAYS IN FILING THE APPEAL IF IT IS CONSTRUED THAT FORM 36, GROUNDS OF APPEAL AND OTHER DOCUMENTS SIGNED BY THE DIRECTOR OF THE COMPANY ALO NE IS CONSIDERED AS PROPER FILING OF THE APPEAL. IT HAS B EEN EXPLAINED IN THE PETITION OF CONDONATION OF DELAY THAT THE DIREC TORS CONTROLLING THE AFFAIRS OF THE ASSESSEE WAS OUTSIDE INDIA AND T HEREFORE THEY COULD NOT SIGN THE SAME. IT HAS ALSO BEEN SUBMITTED THAT THERE WAS NO DELIBERATE OR INTENTIONAL REASON FOR THE DEFECTI VE FILING OF THE APPEAL, IF ANY. 6. THOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS PRAYED AND SUBMITTED THAT THE DELAY IF ANY SHOULD N OT BE CONDONED, WE ARE OF THE VIEW THAT THE QUESTION OF DELAY IS ON LY A TECHNICAL AS THE ASSESSEE HAS FILED THE APPEAL WITHIN THE TIME O N 1.3.2017 THOUGH THE SAME WAS DEFECTIVE. ACCORDINGLY, WE HOLD THAT THE APPEAL FILED IS WITHIN TIME AND IN ANY EVENT THERE WAS A R EASONABLE CAUSE FOR THE DELAY IN FILING THE APPEAL. 4. IN VIEW OF THE ABOVE CONCLUSION, WE ARE OF THE V IEW THAT THE APPEAL WHICH REQUIRES ADJUDICATION IS IT(TP)A NO.2735/BANG /2017 AND THEREFORE THE APPEAL IN ITA NO.1418/BANG/2017 IS DISMISSED AS SUPERFLUOUS AND INFRUCTUOUS. 5. AS FAR AS THE MERITS OF THE APPEAL FILED BY THE ASSESSEE IS CONCERNED, THE ISSUE RAISED THEREIN IS WITH REGARD TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONAL TRAN SACTION OF RENDERING SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO IT S ASSOCIATED ENTERPRISE (AE) U/S. 92 OF THE INCOME-TAX ACT, 1961 ['THE ACT']. AS FAR AS DETERMINATION OF ALP OF INTERNATIONAL TRANSACTION I S CONCERNED, IT IS NOT IN DISPUTE THAT TNMM IS THE MOST APPROPRIATE METHOD OF DETERMINATION OF ALP AND THAT THE PROFIT LEVEL INDICATOR (PLI) CHOSEN FO R THE PURPOSE OF COMPARISON WAS PROFIT MARGINS OF THE ASSESSEE AND T HAT OF THE COMPARABLE COMPANIES WAS OPERATING PROFIT (OP) TO OPERATING CO ST (OC). THE OP TO ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 4 OF 12 OC OF ASSESSEE WAS 13.01%. THE ASSESSEE HAD CHOSEN 26 COMPARABLE COMPANIES AND ARITHMETIC MEAN OF PROFIT MARGIN OF T HOSE COMPARABLE COMPANIES WAS 11.83%. THE ASSESSEE CLAIMED THAT SI NCE ITS MARGIN WAS MORE THAN THE COMPARABLE COMPANIES CHOSEN, THE PRIC E RECEIVED IN THE INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH. 6. THE TPO TO WHOM A REFERENCE WAS MADE BY THE AO F OR DETERMINATION OF ALP U/S. 92CA OF THE ACT, ACCEPTED SOME OF THE COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE AND FIN ALLY CHOSE 7 COMPANIES AS COMPARABLES AND BASED ON THE ARITHMETI C MEAN OF THE PROFIT MARGIN OF THOSE COMPANIES AFTER GIVING ALLOWANCE FO R WORKING CAPITAL ADJUSTMENT, DETERMINED THE ALP AND ADDITION TO BE M ADE TO THE TOTAL INCOME AS FOLLOWS:- SL. NO. NAME OF THE COMPANY OPERATING MARGIN ON COST WOKING CAPITAL ADJUSTED MARGIN ( OP/OPC) 1 CG-VAK SOFTWARE & EXPORTS LIMITED (SEGMENT) 14.31% 13.12% 2 I C R A TECHNO ANALYTICS LTD. 17.10% 12.15% 3 LARSEN & TOUBRO I N FOTECH LTD. 26.06% 24.70% 4 MINDTREE LTD. (SEG) 18.19% 16.51% 5 PERSISTENT SYSTEMS LTD. 28.27% 26.04% 6 R S SOFTWAR E (INDIA) LTD. 17.41% 17.52% 7 TECH MAHINDRA LTD. (SEGMENTAL) 18.72% 17.24% ARITHMETIC MEAN 20.01% 18.18% ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 5 OF 12 COMPUTATION OF ARMS LENGTH PRICE BY THE AO/TPO AND THE ADJUSTMENT MADE: ARM'S LENGTH MEAN MARGIN 20.01% LESS: WORKING CAPITAL ADJUSTMENT 1.83% ADJUSTED MEAN MARGIN AFTER WORKING CAPITAL ADJUSTME NT 18.18% OPERATING COST (A)* 81,90,91,343 ARM'S LENGTH PRICE - 119.05% OF OPERATING COST (B) 97,50,88,448 TOTAL OPERATING REVENUE (C) 92,56,57,818 SHORT FALL BEING ADJUSTMENT U/S 92CA (B - C) 4,94,3 0,630 7. CONSEQUENTLY, A SUM OF RS.4,94,30,630 WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SHORTFALL IN T HE PRICE CHARGES IN THE INTERNATIONAL TRANSACTION. 8. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. T HE DRP EXCLUDED ICRA TECHNO ANALYTICS FROM THE 7 COMPARABLE COMPANI ES CHOSEN BY THE TPO AND RETAINED THE OTHER COMPARABLE COMPANIES CHO SEN BY THE TPO. 9. IN THIS APPEAL, THE ASSESSEE HAS PRAYED FOR EXCL USION OF 3 MORE COMPARABLE COMPANIES OUT OF 6 COMPANIES RETAINED AF TER THE ORDER OF DRP. THE 3 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE ARE L&T INFOTECH LTD., PERSISTENT SYSTEMS LTD. AND TECH MAHINDRA LTD . 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US THAT IN THE CASE OF SOFTWARE DEVELOPMENT SERVICES PROVIDED BY T HE ASSESSEES SUCH AS THE ASSESSEE IN THE PRESENT CASE, THE EXCLUSION OF AFORESAID 3 COMPANIES ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 6 OF 12 HAVE BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL I N SEVERAL DECISIONS FOR THE VERY SAME ASSESSMENT YEAR VIZ., AY 2013-14. 11. AS FAR AS L&T INFOTECH LTD. AND PERSISTENT SYST EMS LTD. ARE CONCERNED, OUR ATTENTION WAS DRAWN TO THE DECISION OF ITAT HYDERABAD BENCH IN THE CASE OF M/S. EPAM SYSTEMS (I) P. LTD. V. ACIT, ITA NO.2122/HYD/2017 FOR AY 2013-14, ORDER DATED 20.11. 2017. VIDE PARA 12 OF THE DECISION, THE TRIBUNAL TOOK THE VIEW THAT PE RSISTENT SYSTEMS LTD. WAS INTO SOFTWARE PRODUCTS AND SOFTWARE SOLUTIONS AND N O SEGMENTAL DETAILS WERE AVAILABLE AND THEREFORE THE PROFIT MARGIN IN T HE SOFTWARE DEVELOPMENT SERVICES SEGMENT COULD NOT BE COMPARED WITH THE ASS ESSEES PROFIT MARGIN. AS FAR AS L&T INFOTECH LTD. IS CONCERNED, THE TRIBU NAL VIDE PARA 17 OF THE AFORESAID ORDER CAME TO A SIMILAR CONCLUSION TO HOL D THAT L&T INFOTECH SHOULD NOT BE REGARDED AS A COMPARABLE COMPANY. I N THE LIGHT OF JUDICIAL PRECEDENTS WHICH REMAIN UNCONTROVERTED, WE ARE OF T HE VIEW THAT THE AFORESAID TWO COMPARABLE COMPANIES SHOULD BE EXCLUD ED FROM THE LIST OF COMPARABLE COMPANIES. 12. AS FAR AS TECH MAHINDRA LTD. IS CONCERNED, THE ASSESSEE MADE A SPECIFIC PRAYER BEFORE THE DRP THAT THE RELATED PAR TY TRANSACTION (RPT) OF THIS COMPANY WAS MORE THAN 25%. OUR ATTENTION WAS DRAWN TO PAGE 641 OF THE ASSESSEES PB, WHICH IS OBJECTIONS FILED BY THE ASSESSEE BEFORE THE DRP WHEREIN THE FOLLOWING SUBMISSION WAS MADE:- THE ASSESSEE WOULD LIKE TO SUBMIT THAT TECH MAHIND RA FAILS THE RPT FILTER APPLIED BY YOUR GOOD SELF. THE WORKING FOR THE SAME IS PROVIDED BELOW FOR YOUR REFERENCE: ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 7 OF 12 RELATED PARTY TRANSACTION NET SALES RELATED PARTY TRANSACTION /NET SALES 25,739,000,000 60,019,000,000 42.88% (SOURCE: AR 2012-13 0 PG. 69, 70 & 71) HENCE, THE COMPANY FAILS THE RPT FILTER APPLIED BY THE TPO AND HENCE SHOULD BE REJECTED. 13. THE DRP, HOWEVER, HAS NOT CONSIDERED THIS SUBMI SSION, BUT HAS CONFIRMED THE ORDER OF TPO. WE ARE OF THE VIEW THA T IT WOULD BE JUST AND PROPER TO SET ASIDE THE ORDER OF DRP ON THIS ISSUE AND REMAND THE ISSUE TO AO/TPO FOR CONSIDERATION OF THE CONTENTION OF THE A SSESSEE WITH REGARD TO THE EXCLUSION OF THIS COMPANY BY APPLICATION OF RPT FILTER. 14. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO GROUND NO.13 OF THE GROUNDS OF APPEAL OF THE ASSESSEE AS FOLLOWS :- THE LD. AO/LEARNED TPO/HONBLE DRP HAS GROSSLY ERR ED IN REJECTING COMPANIES THAT OUGHT TO HAVE BEEN INCLUDE D AS COMPARABLE TO THE APPELLANT: - AKSHAY SOFTWARE TECHNOLOGIES PVT. LTD. - CAT TECHNOLOGIES LTD. - CIGNITI TECHNOLOGIES LTD. - SASKEN COMMUNICATION TECHNOLOGIES LTD. - FCS SOFTWARE SOLUTIONS LTD. - LUCID SOFTWARE LTD. - MAVERIC SYSTEMS LTD. - THINKSOFT GLOBAL SERVICES LTD. - YBRANT DIGITAL LTD. 15. IT WAS SUBMITTED THAT THE ASSESSEE SEEKS TO INC LUDE THE FOLLOWING 3 COMPANIES VIZ., LUCID SOFTWARE LTD., MAVERICK SYSTE MS LTD. AND THINKSOFT GLOBAL SERVICES LTD. THESE COMPANIES WERE REGARDED AS NOT COMPARABLE BY THE TPO FOR THE REASON THAT NO DATA RELATING TO RESULTS OF THESE ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 8 OF 12 COMPANIES WERE AVAILABLE IN THE PUBLIC DOMAIN. OUR ATTENTION WAS DRAWN BY THE LD. COUNSEL FOR THE ASSESSEE TO PAGE NOS. 76 4 TO 828 OF THE ASSESSEES PB WHICH GIVES THE FINANCIAL RESULTS OF THESE COMPANIES AS AVAILABLE IN THE PUBLIC DOMAIN. THE LIMITED REQUES T OF THE LD. COUNSEL FOR THE ASSESSEE WAS TO REMAND TO THE TPO THE ISSUE OF CONSIDERING THESE COMPANIES AS COMPARABLE COMPANIES 16. APART FROM THE ABOVE, THE ASSESSEE ALSO SEEKS T O INCLUDE AKSHAY SOFTWARE TECHNOLOGIES LTD. IN THE LIST OF COMPARABL E COMPANIES. AS FAR AS THIS COMPANY IS CONCERNED, OUR ATTENTION WAS DRAWN TO THE ANNUAL ACCOUNTS OF THIS COMPANY WHICH IS AT PAGES 742-753 OF ASSESS EES PB. THIS COMPANY WAS EXCLUDED ON THE GROUND THAT IN RESPONSE TO NOTICE U/S. 133(6) OF THE ACT, THIS COMPANY HAD MENTIONED THAT IT WAS ENGAGED IN PROVIDING PROFESSIONAL SERVICES, PROCUREMENT, INSTALLATION, I MPLEMENTATION, SUPPORT & MAINTENANCE OF ERP PRODUCTS AND SERVICES. SINCE TH E ABOVE SERVICES WERE NOT IN THE NATURE OF SOFTWARE DEVELOPMENT, THE TPO CONSIDERED THIS COMPANY AS NOT COMPARABLE. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAGES 742 TO 743 OF THE ASSESSEES PB WHICH CONTAINS THE FINANCIAL STATEMENTS OF THIS COMPANY. OUR ATTENTIO N WAS DRAWN TO NOTE NO.20 TO THE FINANCIAL STATEMENTS WHEREIN INCOME FR OM SOFTWARE SERVICES FORMS MORE THAN 98% OF ASSESSEES TOTAL REVENUE. F URTHER IN NOTE 29 TO THE FINANCIAL STATEMENTS, EXPORT OF SOFTWARE SERVIC ES IS SHOWN AT RS.18.65 CRORES OUT OF THE TOTAL REVENUE FROM OPERATIONS OF RS.19.94 CRORES. POINTING OUT TO THE ABOVE DETAILS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ACTUALLY IN SOFTWARE DEVELOPMENT SERVICES. IT WAS SUBMITTED THAT IN AY 2009-10 IN ASSESSEES O WN CASE, THIS COMPANY WAS ACCEPTED AS A COMPARABLE. ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 9 OF 12 17. THE LD. DR, ON THE OTHER HAND, HAD POINTED OUT THAT WHEN THE COMPANY ITSELF HAS ACCEPTED THAT IT IS PROVIDING ER P PRODUCTS AND SERVICES, IT CANNOT BE SAID THAT THIS COMPANY WAS IN SOFTWARE DEVELOPMENT SERVICES. HE RELIED ON PARA 15.3 OF THE DRPS ORDER IN WHICH THE DRP HAS GIVEN THE FOLLOWING FINDINGS:- 15.3 AS REGARDS ASSESSEE'S ARGUMENT THAT ERP SYSTE MS ARE SOFTWARE SYSTEMS AND AS SUCH THE SAME SHOULD BE CON SIDERED AS SOFTWARE DEVELOPMENT, THE SAME IS DEVOID OF ANY MER IT. FOR DETERMINING THE FUNCTIONALITY OF A COMPANY, IT NEED S TO BE DETERMINED AS TO WHAT IS THE EXACT NATURE OF FUNCTI ONS. IN CASE A COMPANY IS IN SOFTWARE DEVELOPMENT, IT WOULD NOT MA TTER AS TO WHAT KIND OF CUSTOMER IT SERVES AS THE BROAD RANGE OF SERVICES REMAIN THE SAME AND THAT IS THE DEVELOPMENT OF SOFT WARE. FURTHER, IT WILL NOT MATTER WHETHER THE COMPANY DEVELOPS COM PLETE SOFTWARE FOR ITS CLIENT E.G. DEVELOPS A FINAL PRODUCT AS PER DEMAND OF THE CLIENT OR DEVELOPS ONLY SOME SOFTWARE MODULES, AS P ER THE REQUIREMENTS OF ITS CLIENT, THE FUNCTION REMAINS SA ME. HOWEVER, A COMPANY NEEDS TO BE CONSIDERED IN THE BUSINESS OF S OFTWARE PRODUCTS, IF IT IS ITSELF DEVELOPING AND SELLING TH E PRODUCTS DEVELOPED BY IT AS THEN IT OWNS THE TPR OF THE PROD UCT AND EXPLOITS IT BY SELLING THE PRODUCT/SOFTWARE LICENSE TO DIFFE RENT CUSTOMERS. IN THE CASE OF M/S. AKSHAY, AS DISCUSSED SUPRA, IT IS OPERATING IN MULTIPLE SEGMENTS INCLUDING SOFTWARE PRODUCTS, HOWE VER SEGMENTAL DATA OF THE SAME IS NOT AVAILABLE. FOR ERP PRODUCTS , ITS ANNUAL REPORT REFERS TO 'SUPPORT AND MAINTENANCE' AND THER E ISN'T ANY DETAIL ABOUT THE NATURE OF THIS ACTIVITY AS TO WHETHER THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT ACTIVITIES RELATING TO ERP OR JUST OFFERING IT ENABLED SERVICES IN RELATION TO THE SAID PRODUCT. T HE RELIANCE OF THE ASSESSEE ON 'RANGACHARY REPORT' IS ALSO MISPLACED A S THE ISSUE UNDER CONSIDERATION IS 'SOFTWARE DEVELOPMENT SERVIC ES' AND THE SAME HAS NOT BEEN DEFINED THEREIN. FURTHER PURPOSE OF THE SAID REPORT WAS TO 'REVIEW TAXATION OF DEVELOPMENT CENTE R AND THE IT SECTOR' AND NOT TO DEFINE 'SOFTWARE DEVELOPMENT', ` IT ENABLED SERVICES', OTHER IT SERVICES ETC. FOR THE PURPOSES OF DEFINING THE FUNCTIONALITY FOR CARRYING OUT TP STUDIES. THE REPO RT DISCUSSES ENTIRE IT SECTOR AND THE SERVICES WHICH WOULD COME WITHIN ITS ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 10 OF 12 PURVIEW RATHER THAN WHAT IS SOFTWARE DEVELOPMENT SE RVICES AND WHAT IS NOT. SO, THESE OBJECTIONS OF THE ASSESSEE D O NOT HAVE ANY MERIT. CONSIDERING ABOVE, THE OBJECTION OF THE ASSE SSEE IS NOT ACCEPTED. 18. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT EVERY IMPLEMENTATION OF ERP ALSO INCLUDES DEVELOPME NT OF ERP FOR A CLIENT AND HAS TO BE REGARDED AS SOFTWARE DEVELOPMENT SERV ICES. 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE ARE OF THE VIEW THAT THE REASONS ASSIGNED BY THE DRP FOR REGARDING THIS COMPANY AS NOT COMPARABLE ARE CORRECT AND DOES NOT CALL FOR ANY IN TERFERENCE. WHEN THE NATURE OF SERVICES ARE DOUBTFUL, IT IS ALWAYS BETTE R TO EXCLUDE A COMPANY FROM THE LIST OF COMPARABLE COMPANIES. IN THAT VIE W OF THE MATTER, WE UPHOLD THE ORDER OF DRP AND DISMISS THE RELEVANT GR OUND OF APPEAL OF THE ASSESSEE. 20. THE LAST SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT THE TPO WHILE CONCLUDING HIS ORDER U/S.92CA OF THE ACT, ALLOWED ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL AT 1.85% BUT THE DRP IN ITS ORDER HELD THAT WORKING CAPITAL ADJUSTMENT NEED NOT BE GIVEN. ON T HIS ASPECT, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO A DE CISION OF ITAT BANGALORE BENCH IN THE CASE OF MICROSOFT RESEARCH C ABLE P. LTD. V. DCIT, IT(TP)A NO.1276/BANG/2017 FOR AY 2013-14, ORDER DAT ED 3.11.2017, WHEREIN ON IDENTICAL REASONING OF DRP, THIS TRIBUNA L HELD AS FOLLOWS:- 8.2 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SETTLED PR INCIPLE BY A PLETHORA OF JUDICIAL PRONOUNCEMENTS BY VARIOUS BENC HES OF THE TRIBUNALS THAT THE TAXPAYER SHALL BE GRANTED WORKIN G CAPITAL ADJUSTMENT IN ORDER TO BRING THE ASSESSEE ON PAR WI TH THE COMPARABLE COMPANIES SELECTED. AFTER PERUSAL OF THE DRP'S ORDER, ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 11 OF 12 WE ARE OF THE VIEW THAT THE STATEMENT OF THE DRP IN ITS ORDER THAT THE TRIBUNALS HAVE NOT EXAMINED THE ISSUES HIGHLIGH TED IN ITS ORDER IS A GENERAL SWEEPING STATEMENT BEREFT OF ANY BASIS . HOW TO COMPUTE THE WORKING CAPITAL ADJUSTMENT AND THE EXTE NT OF ADJUSTMENT TO BE GRANTED TO A PARTICULAR ASSESSEE W OULD DEPEND ON THE FACTS OF EACH INDIVIDUAL CASE. WE, HOWEVER, OBS ERVE THAT THE FACTORS MENTIONED BY THE DRP IN ITS ORDER COULD BE OF RELEVANCE ONLY IN DECIDING THE QUANTUM OF WORKING CAPITAL ADJ USTMENT. WE, THEREFORE, SET ASIDE THE FINDING OF THE DRP THAT TH E ASSESSEE IS NOT TO BE GRANTED WORKING CAPITAL ADJUSTMENT AND IN THE INTEREST OF JUSTICE, WE DIRECT THE TPO TO EXAMINE, RECOMPUTE AN D GRANT THE ASSESSEE'S WORKING CAPITAL ADJUSTMENT AS PER LAW AF TER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS / SUBMISSIONS REQUIRED. CONSEQUENTLY G ROUND NO.8 OF ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. 21. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL RENDERED AGAINST A SIMILAR ORDER OF THE DRP, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO DIRECT THE TPO TO ALLOW WORKING CAPITAL A DJUSTMENT. WE HOLD AND DIRECT ACCORDINGLY. 22. ALL OTHER GROUNDS RELATING TO TRANSFER PRICING WAS NOT PRESSED FOR ADJUDICATION AND ACCORDINGLY THOSE GROUNDS ARE DISM ISSED AS NOT PRESSED. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 27 TH FEBRUARY, 2019. / D ESAI S MURTHY / ITA NOS. IT(TP)A NOS.1418 & 2735/BANG/2017 PAGE 12 OF 12 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.