M/s. kodiak Networks India Private Ltd, Bangalore V. Assistant Commissioner of Income-Tax, Bangalore

ITA 284/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9978 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 07-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MATHIVANAN M
• Keywords: Related party transaction; Transfer pricing; International transaction; Working capital adjustments; Revenue expenditure; TDS
• Section: 143(3); 92D; 115JB; 40(a)(ia); 201; 144C; 251; 143(2); 13; 22; 92CA; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI A.K. GARODIA , ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT (TP) A NO. 284 /BANG/201 7 (ASSESSMENT YEAR: 201 2 - 13 ) M/S. KODIAK NETWORKS INDIA PVT. LTD., 9 TH FLOOR, MFAR MANYATA TECH PARK, GREENHEART, PHASE IV, NAGAWARA, BANGALORE - 560 045 .APPELLANT PAN AACCK 0978J VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 4(1)( 1), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI NARENDRA KUMAR JAIN, ADVOCATE. REVENUE BY: SHRI MATHIVANAN M, CIT (D.R) DATE OF HEARING : 16.06 .20 20 DATE OF PRONOUNCEMENT : 30 .06. 20 20 O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ASSESSMENT ORDER PASSED U/S . 143(3) R.W.S. 144C(1) OF THE INCOME TAX ACT, 1961 (THE ACT) DT.26.12.2016 IN 2 IT (TP) A NO. 284/BANG/2017 PURSUANCE TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL UNDER SECTION 144C(5) OF THE ACT DT.13.12.2016. 2. AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEAL AND IS PRESSING ONLY GROUND OF APPEAL NOS.4(D), 4(H), 5(D), 5(H), 6 & 7 AND MADE ENDORSEMENT IN THE GROUNDS OF APPEAL. ACCORDINGLY, THE OTHER GROUNDS OF APPEAL ARE TREATED AS NOT PRESSED AND DISMISSED . THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 4(D) ADOPTING FOLLOWING COMPANIES AS COMPARABLES EVEN THOUGH THEY ARE NOT COMPARABLE IN RESPECT OF FUNCTIONS PERFORMED, RISKS ASSUMED, ASSETS UTILIZED, SIZE, TURNOVER, DESPITE HAVING UNUSUAL BUSINESS CIRCUMSTANCES OR HIGH MARGINS, ETC.; GENESYS INTERNATIONAL CORPORATION LTD. INFOSYS LTD. LARSEN & TOUBRO INFOTECH LTD. PERSIS TENT SYSTEMS LTD. 4(H) MAKING NEGATIVE WORKING CAPITAL ADJUSTMENT WHICH IS IMPERMISSIBLE AND NOT APPROPRIATELY COMPUTING THE WORKING CAPITAL ADJUSTMENT WHILE COMPUTING THE ALP. 5(D) ADOPTING FOLLOWING COMPANIES AS COMPARABLES EVEN THOUGH THEY ARE NOT C OMPARABLE IN RESPECT OF FUNCTIONS PERFORMED, RISKS ASSUMED, ASSETS UTILIZED, SIZE, TURNOVER DESPITE HAVING UNUSUAL BUSINESS CIRCUMSTANCES OR HIGH MARGINS, ETC; UNIVERSAL PRINT SYSTEMS LTD. (SEG) INFOSYS BPO LTD. TCS E - SERVE LTD. BNR UDYOG LTD. (SEG) EXCEL INFOWAYS LTD. (SEG) 5(H) MAKING NEGATIVE WORKING CAPITAL ADJUSTMENT, WHICH IS IMPERMISSIBLE AND NOT APPROPRIATELY COMPUTING THE WORKING CAPITAL ADJUSTMENT WHILE COMPUTING THE ALP. 3 IT (TP) A NO. 284/BANG/2017 CORPORATE GROUNDS: - 6. THE LOWER AUTHORITIES HAVE ERRED IN: A. DISALLOWIN G A SUM OF RS. 15,35,172/ - U/S 40(A)(IA) BEING SOFTWARE EXPENSES AND AMC CHARGES DESPITE THE FACT THAT THERE IS NO REQUIREMENT TO DEDUCT TDS ON PURCHASE OF SOFTWARE; AND B. NOT APPRECIATING THAT SOFTWARE EXPENSES ARE REVENUE IN NATURE AND ALLOWABLE AS DEDUCTI ON. COMPUTATION OF BOOK PROFITS 7. THE LOWER AUTHORITIES HAVE ERRED IN ADDING PROVISION FOR LOYALTY BONUS OF RS.45,13,498/ - WHILE COMPUTING BOOK PROFITS U/S 115JB. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DE VELOPMENT AN D EXPORT OF SOFTWARE SERVICES AND IS 100% EOU R EGISTERED WITH STPI , BANGALORE, AND RENDERS SOFTWARE DEVELOPMENT AND RELATED SERVICES , AND ALSO CUSTO MER SUPPORT SERVICES TO KODIAK, USA .T HE ASSESSEE COMPANY FILED THE RETURN OF I NCOME FOR THE ASS T. YEAR 2012 - 13 ON 21.11.2012 WITH TOTAL INCOME OF RS.5,15,80,080 / - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE ISSUED UNDER SECTION 143(2) OF THE ACT. IN COMPLIANCE, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND SUBMITTED THE DET AILS. THE ASSESSING OFFICER FI ND THAT THE ASSESSEE HAS INTERNATIONAL TRANSACTIONS OF RS.36,06,98,576 / - AND THE CASE WAS REFERRED TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF ARMS LENGTH PRI CE (ALP) WITH THE PRIOR APP ROVAL OF CIT. WHEREAS THE ASSESSEE HAS SUBMITTED FINANCIALS DETAILS FOR THE SOFT WARE SEGMENT AND 4 IT (TP) A NO. 284/BANG/2017 ITES SEGMENT WITH PLI(OP/OC) REFERRED AT PAGE 2 PARA 3 OF THE TPO ORDER AS UNDER : 4. THE TPO ISSUED LETTER TO SUBMIT DOCUMENTS UNDER SECTION 92D OF TH E ACT ALONG WITH FINANCIAL ANNUAL REPORT A ND COPIES OF AGREEMENT. THE ASSESSEE HAS COMPLIED WITH THE DIRECTIONS .THE TPO OBSERVED THAT AS PER TP STUDY REPORT, THE ASSESSEE HAS SELECTED 25 COMPARABLES IN RESPECT OF SOFTWARE DEVELOPMENT ACTIVITY SEGMENT (SDS) AND 1 1 COMPARABLES IN ITES SEGMENT APPLYING CERTAIN FILTERS AND ADOPTED TNMM METHOD AS MOST APPROPRIATE METHOD (MAM) AND THE ASSESSEE HAS SELECTED COMPARABLES IN THE SAME INDUSTRY VERTICALS. WHEREAS, THE T PO HAS REJ ECTED THE TP STUDY AND PROVIDED TO THE A SSESSEE, THE COMPUTATION OF OPERATING MARGIN IN RESPECT OF FINAL PROPOSAL OF COMPARABLES. THE ASSESSEE COMPANY ALSO FILED OBJECTIONS ON PROPOSED FINAL COMPARABLES. THE TPO HAS APPLIED VARIOUS FILTERS IN 5 IT (TP) A NO. 284/BANG/2017 SOFTWARE DEVELOPMENT SERVICES SEGMENT AND ITES SERVIC ES SEGMENT. AND F INALLY HAS SELECTED 10 COMPARABLES IN THE SOFTWARE DEV ELOPMENT SERVICES SEGMENT REFERRED AT PAGE 13 PARA 8.4 OF THE ORDER AS UNDER : SIMILARLY, THE TPO HAS REJECTED THE COMPARABLES SELECTED BY THE ASSESSEE IN ITES SEGMENT, AND THE ASS ESSEE COMPANY FILED OBJECTIONS ON PROPOSED FINAL COMPARABLES. THE TPO HAS CONSIDERED THE ASSESSEES OBJECTIONS AND HAS SELECTED THE FINAL SET OF CO MPARABLES IN THE ITES SEGMENT REFEREED AT PAGE 21 PARA 9.5 OF THE ORDER AS UNDER : 6 IT (TP) A NO. 284/BANG/2017 FINALLY TPO HAS MADE NEG ATIVE WORKING CAPITAL A DJUSTMENT AND NIL RISK ADJUSTMENT AND DETERMINED ALP REFERRED AT PAGE 25 PARA 13.4 OF THE ORDER AS UNDER : 7 IT (TP) A NO. 284/BANG/2017 T HE TPO HAS PASSED THE ORDER UNDER SECTION 92CA DT.20.01.2016 DETERMINING THE ALP IN SOFTWARE DEVELOPMENT SERVICES AN D ITES AGGREGATING TO RS.5,31,01,901 / - . THE TPO /AO FOUND THAT THE ASSESSEE HA S DEBITED SOFTWARE EXP ENSES AND AMC CHARGES IN RESPECT OF SOFTWARE PURCHASES BUT DETAILS WERE NOT SUBMITTED. FURTHER MADE ADDITION OF LOYALTY BONUS FOR CALCULATION OF BOOK PROFIT IN COMPUTATION OF TAX LIABILITY UNDER SEC TION 115JB OF THE ACT AND PASSED THE ORDER UNDER SECTION 143(3) R.W.S. 144C ( 1) OF THE ACT DT.28.03.2016. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED OBJECTIONS IN FORM NO 35A WITH THE DRP , WHEREAS THE DRP HAS PASSED THE 8 IT (TP) A NO. 284/BANG/2017 ORDER GRANTING PARTIAL RELIEF WITH SPECIFIC DIRECTIONS UNDER SECTION 144 C(5) OF THE ACT DT.13.12.2016. THE A O AFTER THE RECEIPT OF THE DRP ORD ER, HAS MADE ADDITION OF S OFTWARE EXPENSES OF RS.15 , 35,172 / - AS THE ASSESSEE HAS FAILED TO DEDUCT T DS ON PAYMENTS AND ALSO PROVISION OF LOYALTY BONUS OF RS.45 , 13,498 / - FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND PASSED FINAL ASSESSMENT ORDER UNDER SECTION143 ( 3) R.W.S. 144C(1) DT.26.12 .2016. AGG RIEVED BY THE FINAL ASSESSMENT ORDE R, THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 5. AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS RESTRICTED HIS ARGUMENTS TO THE EXTENT OF GROUNDS OF APPEAL PRESSED AND EXCLUSION OF COMPARABLES IN THE SOFTWARE DEVELOPMENT S ERVICES SEGMENT, ITES SEGMENT, NEGATIVE WORKING CAPITAL ADJUSTMENT AND C ORPORAT E TAX ISSUES. THE LDAR SUBMITTED THAT IN THE SOFTWARE DEVELOP MENT SERVICES SEGMENT, FOUR COMPARABLES ARE TO BE EXCLUDED I.E. (I) GENESYS INTERNATIONAL CORPORATION LIMITED (II ) INFOSYS LIMITED ( III) L & T INFOTECH LIMITED AND (IV) PERSISTENT SYSTEMS LIMITED WHICH CANNOT BE CONSIDERED FOR ALP DUE TO FUNCTIONAL DISSIMILARITY AND THE TURNOVER CRITERIA. CONTRA, THE LEARNED DEPARTMENTAL R EPRESENTATIVE SUPPORTED THE ORDERS OF THE L OWER AUTHORITIES. (I) M/S. GENESYS INTERNATIONAL CORPORATION LIMITED - WHERE THE TURNOVER OF THE COMPANY IS RS.96.09 CRORES AND THE COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN PROVIDING GE OGRAPHICAL INFORMATION SERVICES. THE ASSESSEE HAS FILED 9 IT (TP) A NO. 284/BANG/2017 O BJECTIONS BEFORE DRP REFERRED AT PAGE 859 OF THE PAPER BOOK, ON PERUSAL OF THE DRP ORDER; WE FOUND THERE ARE NO OBSERVATION S OF THE DRP AT PAGE 21 PARA38 TO 41 OF THE ORDER ON THESE OBJECTIONS RAISED . WE ARE OF THE OP INION THAT DRP ORDER IS CRYPTIC ON THIS SELECTION OF COMPARABLE. A CCORDINGLY , WE REMIT THIS DISPUTED ISSUE TO THE FILE OF DRP TO PASS SPEAKING ORDER ON THIS COMPARABLE. (II) INFOSYS LIMITED - THE COMPARABLE COMPANY HAS A TURNOVER O F RS.31,255 CRORES AND HAS GLOBAL BRAND WITH INTANGIBLE ASSETS AND FUNCTIONALLY DIFFERENT, CONSIDERING THE RISK PROFILE, NUMBER OF EMPLOYEES, ASSET BASE, DEVELOPMENT CENTRE , AND RESEARCH & DEVE LOPMENT EXPENDITURE WITH VERY HIGH BRAND VALUE. THE COMPANY WAS EXCLUDED ON THE TURNOVER FI LTER FOR THE ASSESSMENT YEAR 2012 - 2013 IN THE CASE OF UEI E LECTRONICS PVT. LTD. VS. DCIT . IT ( TP)A NO.2005/BANG/2016 DT.10.0 3.2017. (III) IN THE CASE OF L & T INFOTECH LIMITED - THE TURNOVER IS RS2,959 CRORES AND HAS SUBSTANTIAL ONSITE OPERATIONS AND FUNCTIONALLY DIFFERENT WITH HIGH BRA ND VALUE. FURTHER, BASED ON THE TURNOV ER FILTER, THE COMPANY WAS EXC LUDED IN THE CASE OF UEI ELECTRONICS PVT. LTD. VS. DCIT (SUPRA) FOR THE ASST. YEAR 2012 - 13. (IV) PERSISTENT SYSTEMS LIMITED - THE TURN OVER OF THE COMPANY IS RS.810 CRORES WHICH IS MORE TH AN THE TURNOVER CRITERIA OF RS.200 CRORES WITH RPT OF 14.42% AND INCURRED HIGH R &D EXPENSES. FURTHER THERE IS AMALGAMATION AND EXTRAORDINARY EVENT IN THE YEAR AND FUNCTIONALLY DIFFERENT. THE SAID COMPANY WAS EXCLUDED BASED ON THE TURNOVER FILTER CRITE RIA IN UEI ELECTRONICS PVT. LTD. VS. DCIT (SUPRA). 10 IT (TP) A NO. 284/BANG/2017 6. WE FIND T HE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF UEI ELECTRONICS PVT. LTD. VS . DCIT . IT (TP) A NO.2005/BANG/2016 DT10.03.2017 HAS DEALT ON THE ISSUE OF EXCLUSION OF 3 COMPARABLES AT PAGE 2, PARA 3 & 4 OF THE ORDER WHICH IS READ AS UNDER : 11 IT (TP) A NO. 284/BANG/2017 12 IT (TP) A NO. 284/BANG/2017 ACCORDINGLY, WE FALLOW THE JUDICIAL PRECEDENCE, AND DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE THE COMPARABLES ON TURNOVER FILTER CRITERIA ( I) INFOSYS LIMITED (II) L & T INFOTECH LIMITED AND (I II) PERSISTENT SYSTEMS LIMITED , FROM FINAL LIST OF COMPARABLES IN DETERMINATION OF ALP IN SOFTWARE DEVELOPMENT SERVICES SEGMENT. 7. THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED THAT THE ACTION OF TPO ON NEGATIVE WORKING CAPITAL ADJUSTMENT , WHICH IS NOT PROPERLY COMPUTED FOR DETERMINATION OF ALP . THE ASSESSEE BE FORE THE TPO AND DRP COULD NOT DEMONSTRATE THAT THE WORKINGS OF TPO FOR WORKING CAPITAL ADJUSTMENT , WHICH ARE BASED ON OECD GUIDELINES/ FORMULA APPLIED, IS DIFFERENT AND NOT APPLICABLE TO T HE PRESENT FINANCIAL FACTS OF THE ASSESSEE . WE FIND THAT TPO IN SDS SEGMENT 13 IT (TP) A NO. 284/BANG/2017 COMPUTED ARITHMETIC MEAN MARGIN ON COST AT 22.63% AND NEGATIVE WORKING CAPITAL ADJUSTMENT OF - 1.31% AND WORKED OUT ADJUSTED MARGIN FOR DETERMINATION OF ALP AT23.84%. THE LDAR EVE N BEFORE THE TRIBUNAL COULD NOT DEMONSTRATE ON NON APPLICABILITY. WE SUPPORT OUR VIEW RELYING ON THE DECISION OF CO - ORDINATE B ENCH OF THE TRIBUNAL IN IT(TP)A NO.1616/BANG/2017 D T.27.06.2018 IN THE CASE OF TECNOTREE CONVERGENCE PVT. LTD. VS. DCIT HELD IN PARA 14 TO 16 AS UNDER : 14. FROM THE ABOVE PARAS REPRODUCED FROM THIS TRIBUNAL ORDER, IT IS SEEN THAT IN THIS CASE ALSO, THE DECISION IS ON THE BASIS OF TRIBUNAL ORDER RENDERED IN THE CASE OF ADAPTEC (INDIA) PVT. LTD. VS. ACIT (SUPRA). AS WE HAVE ALRE ADY SEEN THAT THE TRIBUNAL ORDER RENDERED IN THE CASE OF ADAPTEC (INDIA) PVT. LTD. VS. ACIT (SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE IT WAS FOUND THAT IN THAT CASE, THE TRIBUNAL DECISION IS NOT ON THIS ASPECT THAT WORKING CAPITAL POSITION AFFE CTS THE PRICING OF ANY SERVICES OR GOODS IN OPEN MARKET AS THE CASE MADE OUT BY THE TPO IN THE PRESENT CASE. HENCE WE HOLD THAT THIS TRIBUNAL ORDER IS ALSO NOT RELEVANT IN THE PRESENT CASE. 15. THE LAST TRIBUNAL ORDER ON WHICH RELIANCE IS PLACED IS THE TR IBUNAL ORDER RENDERED IN THE CASE OF TNS INDIA PVT. LTD. VS. ACIT (SUPRA), COPY AVAILABLE ON PAGES 296 TO 310 OF CASE LAW COMPILATION AND BEFORE US, IT WAS POINTED OUT THAT PARA 8.1 ON PAGE NOS. 298 & 299 IS RELEVANT AND HENCE, WE REPRODUCE PARA 8.1 FROM PAGES 298 & 299 OF THE COMPILATION OF CASE LAWS. THE SAME IS AS UNDER. 8.1. THIS GROUND PERTAINS TO INCORRECT COMPUTATION OF WORKING CAPITAL ADJUSTMENT. IT WAS SUBMITTED THAT WORKING CAPITAL ADJUSTMENT WAS WRONGLY CONSIDERED BY CONSIDERING THE TOTAL RECE IVABLES AND ARRIVALS INCLUDING THIRD PARTY TRANSACTIONS AND MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT. AO/TPO IS DIRECTED TO EXAMINE THIS ISSUE AND WORK OUT THE WORKING CAPITAL ADJUSTMENT AFRESH, AS CERTAIN COMPARABLE COMPANIES ARE BEING CONSIDERED SEPA RATELY. IN CASE THE WORKING CAPITAL ADJUSTMENT COMES NEGATIVE, AO/TPO IS DIRECTED NOT TO MAKE ANY NEGATIVE WORKING CAPITAL ADJUSTMENT AS THE SAME IS NOT APPROVED IN VARIOUS CO - ORDINATE BENCH DECISIONS. THE CO - ORDINATE BENCH OF ITAT IN THE CASE OF ADAPTEC ( INDIA) P. LTD., VS. ACIT IN ITA. NO. 206/HYD/2014 (AY 2009 - 10) DT. 25 - 03 - 2015, HAS DECIDED THE ISSUE OF NEGATIVE WORKING CAPITAL AS UNDER: '10. GROUND NO.8 PERTAINS TO THE ISSUE OF NEGATIVE WORKING CAPITAL. AS BRIEFLY STATED ABOVE, AFTER ARRIVING AT THE A RITHMETIC MEAN OF ALL COMPARABLES AT 22.03%, THE A.O. WORKED OUT NEGATIVE WORKING CAPITAL ADJUSTMENT OF 3.22% THEREBY, MAKING ARMS LENGTH PRICE AT 25.25%. EVEN THOUGH, DRP REFUSED TO INTERFERE WITH THE OBJECTIONS OF THE ASSESSEE IN ITS ORDER, WE WERE INFOR MED THAT DRP HAS DIRECTED THE TPO/A.O. NOT TO MAKE ANY NEGATIVE WORKING CAPITAL ADJUSTMENT IN SOME OF THE CASES IN THE NEXT ASSESSMENT YEAR, IN THE CASES OF MARKET TOOLS RESEARCH P. LTD., AND MEGA SYSTEMS WORLDWIDE INDIA P. LTD., ASSESSEE PLACED ON RECORD COPIES OF ORDERS OF DRP. IN THAT DRP CONSIDERED THE ISSUE AND DIRECTED THE TPO AS UNDER : ' 14. GROUND NO.11 : NEGATIVE WORKING CAPITAL ADJUSTMENT - MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT WITHOUT APPRECIATING THE FACT THAT THE COMPANY DOES NOT BEAR A NY WORKING CAPITAL RISKS. ON THIS ISSUE, THE ASSESSEE SUBMITTED AS UNDER : 14 IT (TP) A NO. 284/BANG/2017 'THE LEARNED TPO DETERMINED THE ALP FOR THE INTERNATIONAL TRANSACTIONS WITH A.ES BY MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT FOR THE DIFFERENCES IN WORKING CAPITAL BETWEEN THE ASSESSEE AND THE COMPANIES CONSIDERED AS COMPARABLES. THE ASSESSEE DOES NOT AGREE WITH THE LEARNED TPO AS : THE COMPANY DOES NOT BEAR ANY WORKING CAPITAL RISK SINCE IT IS BEEN FULLY FUNDED BY IT'S A.E. FROM ITS INCEPTION AND HAS NO WORKING CAPITAL CONTI NGENCIES. THE COMPANY HAS NEVER TAKEN ANY LOANS TILL DATE FROM THE DATE OF INCORPORATION NOR HAS INCURRED ANY EXPENSE FOR MEETING THE WORKING CAPITAL REQUIREMENT.' WE HAVE GONE THROUGH THE SUBMISSIONS AND THE ORDER OF THE TPO. THE ASSESSEE PLEADED THAT THE DRP HAS ACCEDED SUCH A PLEA IN SOME OTHER CASE. ON EXAMINATION, WE FIND THAT THE DRP, HYDERABAD IN THE CASE OF CORDYS SOFTWARE INDIA P. LTD., FOR A.Y. 2008 - 09 IN ITS DIRECTIONS DATED 03.08.2012 HAS GIVEN A FINDING AS UNDER : '7.7. 4 THUS, WORKING CAP ITAL ADJUSTMENT IS MADE FOR THE TIME VALUE OF MONEY LOST WHEN CREDIT TIME IS PROVIDED TO THE CUSTOMERS. THE APPLICANT IS NOT AN ENTREPRENEUR BUT A CAPTIVE SERVICE PROVIDER. ITS ENTIRE FUNDING NEEDS ARE PROVIDED BY THE A.E. THIS BEING SO, THE APPLICANT DOES NOT STAND TO LOSE ANYTHING AS IT IS COMPENSATED ON A TOTAL COST PLUS BASIS. THE TPO PROBABLY WAS CARRIED AWAY BY THE LARGE AMOUNT OF RECEIVABLES APPEARING IN THE BOOKS OF THE APPLICANT. BUT THE APPLICANT IS RUNNING ITS BUSINESS WITHOUT ANY WORKING CAPITAL RISK WHILE COMPARABLE COMPANIES HAVE SUCH A RISK FOR THEM. IF AT ALL ANY WORKING CAPITAL ADJUSTMENT IS TO BE MADE TO T HIS SITUATION, ONLY A POSITIVE ADJUSTMENT HAS TO BE MADE TO THE COMPARABLES SO THAT THEY ARE BROUGHT ON PAR WITH THE APPLICANT. IN VIEW OF THE SAME, THE PANEL DIRECTS THAT NEGATIVE WORKING CAPITAL ADJUSTMENT TO THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES SHALL NOT BE MADE.' IN VIEW OF THE ABOVE, THE PANEL DIRECTS THAT NEGATIVE WORKING CAPITAL ADJUSTMENT TO THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES SHALL NOT BE MADE.' 11. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT ASSESSEE'S CASE BEING SIMILAR, THERE IS NO NEED FOR MAKING ANY NEGATIVE WORKING CAPITAL ADJUSTMENT WHEN ASSESSEE DOES NOT CARRY ANY WORKING CAPITAL RISK. IN FACT, TPO SHOULD HAVE DONE NECESSARY WORKING CAPITAL ADJUSTMENT TO THE PROFITS OF THE SELECTED COMPARABLES SO AS TO MAKE THEM COMPARABLE TO THE ASSESSEE. IN VIEW OF THIS, WE DIRECT THE TPO NOT TO MAKE NEGATIVE WORKING CAPITAL ADJUSTMENT'. 16. FROM THE ABOVE PARAS , WE FIND THAT IN THIS CASE ALSO, THE ISSUE IS DECIDED BY TRIBUNAL BY FOLLOWING TRIBUNAL ORDER RENDERED IN THE CASE OF ADAPTEC (INDIA) PVT. LTD. VS. ACIT (SUPRA) AND WE HAVE ALREADY SEEN THAT THIS TRIBUNAL ORDER IS NOT RELEVANT IN THE PRESENT FOR THE REASO NS MENTIONED ABOVE AND THEREFORE, WE HOLD THAT THIS TRIBUNAL ORDER IS ALSO NOT APPLICABLE IN THE PRESENT CASE. WE ALSO FIND THAT IN PARA 5 OF THE SYNOPSIS OF ARGUMENTS REPRODUCED ABOVE, THIS IS THE SUBMISSION OF THE ASSESSEE THAT THE BASIS OF THE WORKING C APITAL ADJUSTMENT IS THE EXISTENCE OF A DIFFERENCE IN THE COST OF WORKING CAPITAL AND IT IS ALSO STATED THAT THIS IS RELEVANT BECAUSE THE COST IS STATED TO AFFECT THE MARGIN AND IN THE ASSESSEES CASE, THE ASSESSEE HAS DEMONSTRATED THAT IT HOLDS ITS WORKIN G CAPITAL AT NO COST, COMPLETELY OUT OF ITS OWN FUNDS WITHOUT ANY BORROWINGS AT ALL. IN OUR CONSIDERED OPINION, THESE FACTORS ARE NOT RELEVANT FOR WORKING CAPITAL ADJUSTMENT BECAUSE IN TP ANALYSIS, OPERATING PROFIT IS CONSIDERED WHICH IS PROFIT BEFORE INT EREST AND THEREFORE, THE INTEREST COST HAS NO RELEVANCE FOR TP ANALYSIS AND THE WORKING CAPITAL ADJUSTMENT IS FOR THIS REASON THAT WORKING CAPITAL POSITION AFFECTS THE PRICING OF ANY SERVICES OR GOODS IN THE OPEN MARKET AND NOT BECAUSE THE WORKING CAPITAL COST INCREASES OR DECREASES THE PROFIT MARGIN. HENCE WE FIND NO MERIT IN THIS CLAIM OF THE ASSESSEE AND ACCORDINGLY THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 15 IT (TP) A NO. 284/BANG/2017 CONSIDERING THE RATIO OF JUDICIAL DECISION AND THE FACTS OF THE ASSESSEE DISCUSSED , WE FOUND T HERE IS NO NECESSITY FOR GRANTING THE RELIEF IN RESPECT OF NEGATIVE WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 8. WE SHALL TAKE UP THE EXCLUSION OF COMPARABLES IN ITES SEGMENT. THE LEARNED AUTHORIZED RE PRESENTATIVE SUBMITTED THAT THE 5 COMPARABLES ARE TO BE EX CLUDED. (I) INFOSYS BPO LIMITED - WHERE THE TURNOVER IS RS.1,312 CRORES AND HAS A GLOBAL BRAND VALUE WITH A DIFFE RENT FUNCTIONAL PROFILE AND FAILS THE RPT FILTER. THE COMPANY WAS EXCLUDE D ON THE TURNOVER FILTER BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ZYME SOLUTIONS PVT. LTD. VS. ACIT (IT(TP)A NO.1661/BANG/2016 DT. 28.06.2019) AT PAGES 3 & 4 PARA 5 & 6 OF THE ORDER AS UNDER : 5. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE COMPARAB ILITY OF INFOSYS BPO AS A COMPARABLE COMPANY. THE DELHI ITAT IN THE CASE OF BAXTER INDIA PVT. LTD. VS. ACIT ITA NO.6158/DEL/2016 FOR AY 2012 - 13 IN THE CASE OF A COMPANY RENDERING ITES SUCH AS THE ASSESSEE, VIDE ORDER DATED 24.8.2017 PARAGRAPH 23 HELD THAT INFOSYS BPO IS NOT COMPARABLE WITH A COMPANY RENDERING ITES FOR THE FOLLOWING REASONS: - 23. IN SO FAR AS EXCLUSION OF INFOSYS BPO LTD. IS CONCERNED, WE FIND FROM THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE ASSESSING OFFICER/TPO/DRP IS THAT INFOSYS BP O LTD. IS PREDOMINANTLY INTO AREAS LIKE INSURANCE, BANKING, FINANCIAL SERVICES, MANUFACTURING AND TELECOM WHICH ARE IN THE NICHE AREAS, UNLIKE THE ASSESSEE. FURTHER IT WAS ALSO SUBMITTED THAT THE INFOSYS BPQ LTD. COMPRISES BRAND VALUE WHICH WILL TEND TO IN FLUENCE ITS BUSINESS OPERATION AND THE PRICING POLICY THEREBY DIRECTLY IMPACTING THE MARGINS EARNED BY THE INFOSYS BPO LTD.. WE FIND THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE BEFORE TPO/DRP THAT IN ORDER TO MAINTAIN THE BRAND IMAGE OF INFOSYS BPQ LTD. IN THE MARKET, THE COMPANY INCURS SUBSTANTIAL SELLING AND MARKETING EXPENDITURE WHEREAS THE ASSESSEE BEING A CONTRACT SERVICE PROVIDER DOES NOT INCUR SUCH EXPENSES TO MAINTAIN ITS BRAND HAS NOT BEEN CONTROVERTED BY THEM. FURTHER, INFOSYS BPO LTD. BE ING A SUBSIDIARY OF INFOSYS HAS AN ELEMENT OF BRAND VALUE ASSOCIATED WITH IT. THIS CAN BE FURTHER CONFIRMED BY THE PRESENCE OF BRAND RELATED EXPENSES INCURRED BY INFOSYS BPO LTD. 16 IT (TP) A NO. 284/BANG/2017 FURTHER, INFOSYS BPO LTD. HAS ACQUIRED AUSTRALIAN BASED COMPANY M/S PORTLAND GROUP PTY LTD. DURING FINANCIAL YEAR 2011 - 12. THEY PROVIDE SOURCING AND CATEGORY MANAGEMENT SERVICES IN SYDNEY, AUSTRALIA. THEREFORE, THIS COMPANY ALSO FAILED THE TPO'S OWN FILTER OF REJECTING COMPANIES WITH PECULIAR CIRCUMSTANCES. IN VIEW OF THE ABOVE I.E . FUNCTIONALLY NOT COMPARABLE, PRESENCE OF BRAND AND EXTRAORDINARY EVENT THAT HAS TAKEN PLACE DURING THE YEAR ON ACCOUNT OF ACQUISITION OF AUSTRALIAN BASED COMPANY, WE ARE OF THE CONSIDERED OPINION THAT INFOSYS BPO LTD. SHOULD NOT BE INCLUDED IN THE LIST O F COMPARABLES. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE INFOSYS BPO LTD. FROM THE LIST OF COMPARABLES FOR THE PURPOSE OF COMPUTING THE AVERAGE MARGIN. 6. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE HONBLE DELHI HIGH COURT IN ITA NO.260/ 2018 IN THE APPEAL FILED BY THE REVENUE AGAINST THE AFORESAID ORDER DISMISSED THE APPEAL AT THE ADMISSION STAGE OBSERVING THAT RATIONALE GIVEN BY THE ITAT FOR EXCLUSION WAS CORRECT. IN VIEW OF THE AFORESAID DECISION, WE DIRECT EXCLUSION OF INFOSYS BPO FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. (II) TCS E - SERVE LTD. - THE COMPANYS TURNOVER IS RS.1578 CRORES AND IS ENGAGED IN BPO SERVICES . S EGMENTAL PROFIT AND LOSS ACCOUNT IS NOT AVAILABLE AND HAS HIGH BRAND VALUE AND ALSO FUNCTIONALLY DIFF ERENT. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ZYME SOLUTIONS PVT. LTD. VS. ACIT (IT(TP)A NO.1661/BANG/2016 DT.16.11.2018) HAS DEALT AT PAGE 12 PARA 12 TO 12.4 WHICH IS READ AS UNDER : 17 IT (TP) A NO. 284/BANG/2017 18 IT (TP) A NO. 284/BANG/2017 19 IT (TP) A NO. 284/BANG/2017 (III) UN IVERSAL PRINT SYSTEMS LTD. THE COMPA NYS TURNOVER I S RS.6.17 CRORES AND IS FUNCTIONALLY DIFFERENT , AND IS ENGAGED IN PROVIDING SERVICES RELATED TO PRINTING INDUSTRY AND FAILS THE EMPLOYEE S COST FILTER AND HAS DIFFERENT PROFILE. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ZYME SOL UTIONS PVT. LTD. VS. ACIT (IT(TP)A NO.1661/BANG/2016 DT.16.11.2018) HAS DEALT AT PAGE 7 TO 12 PARA 11.1 TO 11.4 AND RESTORED TO TPO WHICH IS READ AS UNDER : 20 IT (TP) A NO. 284/BANG/2017 21 IT (TP) A NO. 284/BANG/2017 22 IT (TP) A NO. 284/BANG/2017 23 IT (TP) A NO. 284/BANG/2017 24 IT (TP) A NO. 284/BANG/2017 (IV) M/S. BNR UDYOG LTD. - THE TURNOVER OF THE COMPANY IS RS.1.47 CRORES AN D F AILS THE RPT FIL TER AND FUNCTIONALLY DIFFERENT. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ZYME SOLUTIONS PVT. LTD. VS. ACIT (IT(TP)A NO.1661/BANG/2016 DT.28.06.2019) DEALT AT PAGE 4 TO 6 AT PARA 7 & 8 WHICH IS READ AS UNDER : 7. THE NEXT CO MPANY THAT IS SOUGHT TO BE EXCLUDED BY THE ASSESSEE FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO IS BNR UDYOG LTD. IN ORIGINAL ORDER PASSED BY THE TRIBUNAL THIS COMPANY WAS RETAINED AS A COMPARABLE COMPANY. IN THE M.P. FILED BY THE ASSESSEE IT W AS POINTED OUT THAT THE CHART FILED AT THE TIME OF HEARING BEFORE THE TRIBUNAL, THE ASSESSEE COMPANY SOUGHT TO EXCLUDE THIS COMPANY ON THE GROUND THAT THE TURNOVER OF THIS COMPANY WAS ONLY 1.7 CORES AND IT CANNOT BE COMPARED WITH TURNOVER OF ASSESSEE WHICH WAS 30.6 CRORES. IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT THIS COMPANY HAS RELATED PARTY TRANSACTION (RPT) OVER AND ABOVE THE THRESHOLD LIMIT OF 15% AND IS ALSO FUNCTIONALLY DIFFERENT. THE ASSESSEE IN THIS REGARD AT THE TIME OF HEARING PLACED RELIANCE ON THE DECISION OF ITAT BANGALORE BENCH IN THE CASE OF INDEGNE PVT. LTD., VS. ACDIT IN IT(TP)A NO.591/BANG2017 FOR ASST. YEAR 2012 - 13 ORDER DATED 2/8/2017 WHEREIN AT PAGE 10 OF THIS ORDER IN PARA 10.3.2 THE TRIBUNAL REMANDED THE MATTER OF COMPARAB ILITY OF THIS COMPANY WITH ITES COMPANY. DECISION IN THE CASE OF M/S E4E BUSINESS SOLUTION INDIA PVT. LTD., VS. ITO IN IT(TP)TP NO.451/BANG/2017 WAS ALSO FILED IN SUPPORT OF ASSESSEES CLAIM FOR REMAND ON FUNCTIONAL COMPARABILITY. THE TRIBUNAL IN THE IMPUG NED ORDER HOWEVER IN PARAGARAPH 13 TO 13.2 FOLLOWED THE DECISION RENDERED IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATION LTD., VS. ACIT - TS - 320 ITAT - 2018(BANG) WHEREIN THIS COMPANY WAS CONSIDERED AS COMPARABLE WITH ITES COMPANY. THE TRIB UNAL HOWEVER DID NOT RENDER ANY DECISION ON FUNCTIONAL COMPARABILITY OF THIS COMPANY. ON THE ABOVE OBJECTIONS IN THE MP, THE TRIBUNAL 25 IT (TP) A NO. 284/BANG/2017 RECALLED THE ORIGINAL ORDER FOR ANALYSIS THE COMPARABILITY OF THIS COMPANY AFRESH, WITH THE FOLLOWING OBSERVATIONS: 7. W E HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW THAT THE CONTENTION IN THE MA THAT THIS COMPANY WAS SOUGHT TO BE EXCLUDED BY THE ASSESSEE ON FUNCTIONAL COMPARABILITY AND THAT THE TRIBUNALS ORDER IN THE CASE OF CGI INFORMATION SYSTEMS (SUPRA) DID NOT CONSIDER FUNCTIONAL COMPARABILITY OR APPLICATION OF RPT FILTER OF THIS COMPANY IS CORRECT. THEREFORE THERE IS ERROR IN THE ORDER OF THE TRIBUNAL IN AS MUCH AS FUNCTIONAL COMPARABILITY OF THIS COMPANY WITH ITES COMPANY H AS NOT BEEN CONSIDERED BY THE TRIBUNAL. WE, THEREFORE RECALL THE ORDER OF THE TRIBUNAL FOR THE LIMITED PURPOSE OF EXAMINING THE FUNCTIONAL COMPARABILITY OF THIS COMPANY WITH THE ASSESSEE COMPANY. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE COMPARABILIT Y OF THE AFORESAID COMPANY. THE DELHI ITAT IN THE CASE OF BT E - SERVICE (INDIA) LTD. VS. ITO ITA NO.6690/DEL/2016 FOR AY 2012 - 13 ORDER DATED 19.6.2018 CONSIDERED THE COMPARABILITY OF THIS COMPANY AND CAME TO THE CONCLUSION THAT THIS COMPANY WAS CARRYING OU T MEDICAL TRANSCRIPTION, MEDICAL BILLING AND CODING WHEREAS THE ASSESSEE WAS A CAPTIVE SERVICE PROVIDER. THE TRIBUNAL FOLLOWED ITS OWN RULING IN THE SAME ASSESSEES CASE IN AY 2011 - 12 IN ITA NO.99/DEL/2016 REPORTED IN (2017) 87 TAXMANN.COM 251 (DEL) IN BT E - SERVE (INDIA) PVT.LTD. VS. ITO GIVING IDENTICAL REASONS FOR EXCLUDING BNR UDYOG LIMITED FROM THE LIST OF COMPARABLE COMPANIES IN THE FIELD OF COMPANIES RENDERING ITES SUCH AS THE ASSESSEE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT EXCLUSI ON OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. (V) EXCEL INFO WAYS LTD. - THE COMPANYS TURNOVER IS RS.7.91 CRORES AND THE COMPANY FAILS THE EMPLOYEE COST FILTER AND HAS DIMINISHING FACTOR S IN REVENUE INCLUDING PECU LIAR ECONO MIC CIRCUMSTANCES. WE FOUND THE COMPANY WAS EXCLUDED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ZYME SOLUTIONS PVT. LTD. VS. ACIT (IT(TP)A NO.1661/BANG/2016 DT.28.06.2019) DEALT AT PAGE 6 & 7 PARA 9 TO 11 WHICH IS READ AS UNDER : 9. THE THIRD AND LAST COMPANY THAT IS SOUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES IS EXCLUSION OF EXCEL INFO LTD. THE TRIBUNAL HAD RETAINED THIS COMPANY AS A COMPARABLE COMPANY IN ITS ORIGINAL ORDER. THE ASSESSEE SOUGHT EXCLUSION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AND THE EMPLOYEE COST TO THE REVENUE WAS LESS THAN THE THRESHOLD LIMIT OF 25% AND THAT THERE WERE PECULIAR ECONOMIC CIRCUMSTANCES WHICH IMPACTED THE PROFIT MARGIN OF THIS COMPANY THEREBY RENDERING THIS COMPANY AS NOT COMPARABLE COMPANY. THE TRIBUNAL WHILE ADJUDICATING OF EXCLUSION OF THIS COMPANY IN PARAGRAPH 14.3 OF ITS ORDER HELD THAT ON APPLICATION OF EMPLOYEE COST FILTER THAT THE ASSESSEE HAS FAILED TO SHOW AS TO HOW THE FINDINGS OF THE TPO AND DRP ARE NOT CORRECT. 10. THE ASSESSEE HAS POINTED OUT CERTAIN FACTS WITH REGARD TO EMPLOYEE COST AND DIMINISHING REVENUE OF THIS COMPANY WHICH TAKES IT OUT OF THE COMPARABILITY AND THESE ASPECTS HAVE NOT BEEN CONSIDERED BY THE TRIBUNAL IN ITS ORDER. ON THE ABOVE OBJECTIONS IN THE MA, THE TRIBUNAL HELD AS FOLLOWS: - 26 IT (TP) A NO. 284/BANG/2017 8. WE HAVE EXAMINED THE CONTENTS IN THE MISC. PETITION AND WE FIND THAT THERE HAS BEEN OMISSION TO CONSIDER THE APPLICATION OF EMPLOYEE COST FILTER BY THE TRIB UNAL THOUGH ATTENTION OF THE BENCH WAS INVITED TO RELEVANT PAGES POINTED OUT IN THE MISC. PETITION. WE DO NOT HOWEVER AGREE WITH THE ASSESSEE THAT FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS NOT BEEN EXAMINED BY THE TRIBUNAL IN PARAGRAPH 14.4. THE TRIBUNA L HAS COME TO THE CONCLUSION THAT THIS COMPANY IS A ITES COMPANY AND THAT CANNOT BE REVIEWED IN THE MISC. APPLICATION. HOWEVER THERE HAS BEEN OMISSION TO ADJUDICATED EXCLUSION OF THIS COMPANY ON ACCOUNT OF EXTRAORDINARY EVENTS. WE THEREFORE RECALL THE ORDE R OF THE TRIBUNAL TO THE LIMITED EXTENT OF EXAMINING OF THE EMPLOYEE COST FILTER AND THE PRESENCE OF EXTRAORDINARY EVENTS ON WARRANTY EXCLUSION OF THIS COMPANY. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THE EXCLUSION OF THIS COMPANY ON THE BASIS OF EXTR AORDINARY EVENTS THAT OCCURRED DURING THE RELEVANT PREVIOUS YEAR WHICH HAD IMPACT ON THE PROFIT MARGIN OF THIS COMPANY AND THEREFORE RENDERING THIS COMPANY FROM BEING CHOSEN AS A COMPARABLE COMPANY. THE DELHI ITAT IN THE CASE OF BT E - SERVE (INDIA) LTD. VS. ITO ITA NO.6690/DEL/2016 FOR AY 2012 - 13 ORDER DATED 19.6.2018 CONSIDERED THE COMPARABILITY OF THIS COMPANY AND CAME TO THE CONCLUSION IN PARAGRAPH 5.4 OF ITS ORDER THAT THERE WAS ABNORMAL VOLATILITY OF REVENUE OF THIS COMPANY FROM 2009 - 10 TO 2014 - 15 AND T HEREFORE THIS COMPANY SHOULD NOT BE REGARDED AS COMPARABLE COMPANY. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. FOLLOWING THE JUDICIAL PRECEDENCE OF THE CO - ORDINATE BENCH DECISIONS, WE DIRECT THE TPO TO EXCLUDE ( I) INFOSYS BPO L IMITED (II) TCS E - SERVE LTD. (III) BNR UDYOG LTD. (IV) EXCEL INFO WAYS LTD, FROM THE LIST OF COMPARABLES FOR DETERMINATION OF ALP IN ITES SEGMENT. AND IN THE CASE OF (V) UNIVER SAL PRINT SYSTEMS LTD, THE COMPARABLE IS RESTORED TO THE FILE OF TPO FOR FRESH ADJUDICATION. 9. THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED ON THE ACTION OF TPO ON NEGATIVE WORKIN G CAPITAL ADJUSTMENT AND IS NOT PROPERLY COMPUTED IN ITES SEGMENT FOR DETERMINATION OF ALP . WE FIND THE TPO IN ITES SEGMENT HAS COMPUTED ARITHMETIC MEAN MARGIN ON COST AT 28.11% AND NEGATIVE WORKING CAPITAL ADJUSTMENT OF - 8.70% AND WORKED OUT ADJUSTED MARGIN FOR DETERMINATION OF ALP AT36..81%. THE LDAR EVEN BEFORE THE TRIBU NAL COULD NOT DEMONSTR ATE THAT THE WORKING CAPITAL ADJUSTMENTS BASED ON OECD GUIDELINES ARE NOT APPLICABLE TO 27 IT (TP) A NO. 284/BANG/2017 FINANCIALS OF THE ASSESSEE. WE HAVE DEALT ON DISPUTED ISSUE IN SOFTWARE DEVELOPMENT SEGMENT (SDS) IN PARA 7 , ABOVE RELYING ON THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN IT(TP)A NO.1616/BANG/2017 DT.27.06.2018 IN THE CASE OF TECNOTREE CONVERGENCE PVT. LTD. VS. DCIT AND D ISMISSED THE GROUND OF APPEAL AND THE SAME DECISION SHALL EQUALLY APPLY. ACCORDINGLY, WE DISMISS THIS GROUND OF APPEAL IN ITES SEGMENT. 9. THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED THAT, THE A O HAS DISALLOWED SOFTWARE EXPENSES RS.15,35,172/ - F OR NON - DEDUCTION OF TDS UNDER SEC TION 40(A)(IA) OF THE ACT , FURTHER THE ASSESSEE HAS PURCHASED THE SOFTWARE , WH ICH IS REVENUE IN NATURE AND HENCE THERE IS NO REQUIREMENT OF TDS ON SUCH PAYMENTS . WHEREAS THE LD. DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. PRIMA FACIE, THE ASSESSEE IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND ITES AND INCURRED EXPENSES FOR PURCHAS E OF SOFTWARE AND AMC CHARGES. THE LDAR EMPHASIZED ON REVENUE EXPENDITURE BUT COULD NOT SUPPORT WITH EVIDENCES. FURTHER THERE IS NO CLARITY IN RESPECT OF DEDUCTION OF TAX AT SOURCE. HENCE, CONSIDERING THE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT T HE ASSESSEE HAS TO ESTABLISH THAT RECIPIENT/PAYEE HAS PAID THE TAX ON INCOME AND DISCHARGED TAX OBLIGATION. ACCORDINGLY , WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OF FICER FOR EXAMINATION AND VERIFICATION OF FACTS AND ALLOW THE GROUND OF APPEAL FOR STATISTICAL PURPOSE. 28 IT (TP) A NO. 284/BANG/2017 11. THE LDAR ARGUED THE LAST GROUND OF APPEAL THAT THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK P ROFITS UNDER SECTION 115JB OF THE ACT HAS MADE ADDIT ION OF PRO VISION FOR LOYALTY BONUS. THE LDAR SUBMITTED THAT THE LOYA LTY BONUS SHOULD NOT BE CONSIDERED FOR CALCULATION OF THE B OOK PROFIT U/SEC115JB OF THE ACT AND RELIED ON THE CO - ORDINATE BENCH DECISION IN ASSESSEE OWN CASE FOR THE ASST. YEAR 2008 - 09 I N IT(TP)A NO.1540/BANG/2 012 DT. 5.6.2015 AT PAGE 11 PARA 16 WHICH IS READ AS UNDER : WE, CONSIDERING THE DECISION OF CO - ORDINATE BENCH AND TO COMPARE THE FACTS OF PRESENT CASE, RESTORE THIS DISPUTED ISSUE FOR LIMITED PURPOSE TO THE FILE OF A O FOR VERI FICATION AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSES. 29 IT (TP) A NO. 284/BANG/2017 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/ - SD/ - ( A.K. GARODIA ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30.06 . 20 20 . *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGAL ORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TA X APPELLATE TRIBUNAL BANGALORE