Assistant Commissioner of Income tax Circle-2(1)(2), Bangalore V. M/s e4e Business Solutions India Pvt Ltd , Bangalore

ITA 2900/BANG/2018

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9169 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-11-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 23-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA BENGALURU
• Assessee Lawyers: T RAVINDRAN
• Keywords: Business income; Transfer pricing; International transaction; Working capital adjustments
• Section: 13; 92CA; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO. 2900/BANG/2018 ASSESSMENT YEAR : 2011-12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(2), BANGALORE. VS. M/S. E4E BUSINESS SOLUTIONS INDIA PVT. LTD., NO.389/1, 7 TH MAIN, 42 ND CROSS, 5 TH BLOCK, JAYANAGAR, BANGALORE 560 041. PAN : AAACI 6324A APPELLANT RESPONDENT APPELLANT BY : MS. NEERA MALHOTRA, CIT(DR)(ITAT), BENGALURU. RESPONDENT BY : SHRI T. RAVINDRAN, CA DATE OF HEARING : 25. 11. 2020 DATE OF PRONOUNCEMENT : 08 . 1 2 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 31.07.2018 OF THE CIT(APPEALS)-2, BENGALURU RELATIN G TO ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ S AS FOLLOWS:- 1. EXCLUSION FOR ICRA ONLINE LTD.(SEG) FROM THE LI ST OF FINAL COMPARABLE SELECTED BY THE TPO IN ITES SEGMENT:- I) WHETHER THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT IN THAT IN THE ITES INDUSTRY THERE CAN BE DIFFERENT HO RIZONTALS AND ACCOMPANY CAN BE HELD AS COMPARABLE IF THE VERI DICAL REMAINS THE SAME I.E. ITES. ITA NO. 2900/BANG/2018 PAGE 2 OF 16 II) WHETHER THE LD. CIT(A) WAS RIGHT IN SEEKING EXA CT COMPARABILITY WHILE SEARCHING FOR COMPARABLE COMPAN IES OF THE ASSESSEE UNDER TNMM METHOD WHEREAS REQUIREMENT OF LAW AND INTERNATIONAL JURISPRUDENCE SEEKING COMP ARABLE COMPANIES. III) WHETHER THE LD CIT(A) WAS RIGHT IN REJECTING T HE COMPARABLE WHEN SELECTION OF COMPARABLE IN A CASE DEPENDS IN TRANSFER PRICING ON ASSESSEE SPECIFIC FA R ANALYSIS. IV) THE LD.CIT(A) OUGHT TO HAVE DECIDED THE COMPARA BILITY OF THE COMPANY ON THE BASIS OF SPECIFIC FACTS BROUGHT ON RECORD BY THE TPO IN THE CASE OF THE ASSESSEE. 2. EXCLUSION OF IGATE GLOBALE SOLUTIONS LTD. FROM T HE LIST OF FINAL COMPARABLE SELECTED BY THE TPO IN ITES SEGMEN T:- I) WHETHER THE LD CIT(A)) WAS RIGHT IN EXCLUDE THE COMPARABLE WHILE THE COMPANY HAS QUALIFIED ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. II) WHETHER THE LD. CIT(A) WAS RIGHT IN SEEKING EXA CT COMPARABILITY WHILE SEARCHING FOR COMPARABLE COMPAN IES OF THE ASSESSEE UNDER TNMM METHOD WHEREAS REQUIREMENT OF LAW AND INTERNATIONAL JURISPRUDENCE SEEKING COMP ARABLE COMPANIES. III) WHETHER THE LD CIT(A) WAS RIGHT IN REJECTING T HE COMPARABLE WHEN SELECTION OF COMPARABLE IN A CASE DEPENDS IN TRANSFER PRICING ON ASSESSEE SPECIFIC FA R ANALYSIS. IV) THE LD.CIT(A) OUGHT TO HAVE DECIDED THE COMPAR ABILITY OF THE COMPANY ON THE BASIS OF SPECIFIC FACTS BROUGHT ON RECORD BY THE TPO IN THE CASE OF THE ASSESSEE. 3. NEGATIVE WORKING CAPITAL ADJUSTMENT WAS IMPE RMISSIBLE:- I) THE LD. CIT(A) ERRED BY HOLDING THAT NEGATIVE WO RKING CAPITAL ADJUSTMENT CANNOT BE GRANTED IN. THE CASE O F THE ASSESSEE. II) THE LD. CIT(A) OUGHT TO HAVE CONSIDERED HAT ALL OWING WORKING CAPITAL ADJUSTMENT WOULD RESULT INTO BETTER COMPARISON. ITA NO. 2900/BANG/2018 PAGE 3 OF 16 III) THE LD.CIT(A) OUGHT TO HAVE CONSIDERED THE FAC T THAT WORKING CAPITAL ADJUSTMENT IS COMPUTED SCIENTIFICAL LY AND NEGATIVE OR POSITIVE WORKING CAPITAL ADJUSTMENT IS ONLY CONSEQUENTIAL. 3. THE ASSESSEE IS A COMPANY ENGAGED IN PROVIDING I NFORMATION TECHNOLOGY ENABLED SERVICES [ITES]. THE ASSESSEE R ENDERED ITES TO ITS ASSOCIATE ENTERPRISE [AE] AND RECEIVED A SUM OF RS. 45,77,476 FOR PROVIDING SUCH SERVICES. IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 92 OF THE ACT, THE ARMS LENGTH PRICE [ALP] IN RESPECT OF INTERNATIONAL TRANSACTION AND THE INCOME ARISING THEREFROM HAD TO BE DETERMIN ED BY THE AO. THE AO REFERRED THE QUESTION OF DETERMINATION OF ALP TO TH E TRANSFER PRICING OFFICER(TPO) U/S. 92CA OF THE ACT. THE TPO AFTER R EJECTING THE TRANSFER PRICING ANALYSIS CONDUCTED BY THE ASSESSEE ARRIVED AT A FINAL SET OF 10 COMPARABLE COMPANIES AND THE AVERAGE ARITHMETIC PRO FIT MARGIN OF THOSE 10 COMPANIES WAS 24.77%. IT IS NOT IN DISPUTE THAT THE TRANSACTION NET MARGIN METHOD (TNMM) WAS THE MOST APPROPRIATE METHO D (MAM) FOR DETERMINATION OF ALP. THE PLI CHOSEN FOR THE PURPOS E OF COMPARING THE PROFIT MARGIN OF THE ASSESSEE WITH THAT OF COMPARAB LE COMPANIES WAS OPERATING PROFIT TO OPERATING COST [OP/OC]. SINCE THE OP/OC OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO WAS MORE THA N THE OP/OC OF THE ASSESSEE, THE TPO SUGGESTED AN ADDITION AND ADJ USTMENT TO THE TOTAL INCOME OF ASSESSEE ON ACCOUNT OF DETERMINATION OF A LP AND COMPUTED THE SAME AS FOLLOWS:- 12.4. COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. PLEASE SEE ANNEXURE B FOR DETAI LS OF COMPUTATION OF PLI OF THE COMPARABLES. BASED ON THI S, THE ARMS LENGTH PRICE OF THE SERVICES RENDERED BY THE TAXPAY ER TO ITS AE(S) IS COMPUTED AS UNDER: ITA NO. 2900/BANG/2018 PAGE 4 OF 16 IT ENABLED SERVICES ARM'S LENGTH MEAN MARGIN ON COST 24.77% LESS: WORKING CAPITAL ADJUSTMENT - 6.25% (AS PER ANNEX. C) ADJUSTED MARGIN 31.02% OPERATING COST 458876668 ARMS LENGTH PRICE(ALP) 601,220,210 131.02% OF OPERATING COST) PRICE RECEIVED 464577470 136,642,7401 SHORTFALL BEING ADJUSTMENT U/S 92CA: THE ABOVE SHORTFALL OF RS. 13,66,42,740/- (RUPEES T HIRTEEN CRORES, SIXTY SIX LATHS, FORTY TWO THOUSAND, SEVEN HUNDRED AND FORTY ONLY) IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA IN RESPECT OF ITES SEGMENT OF THE TAXPAYER'S INTERNATIONAL TRANSA CTIONS. 4. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) EXCL UDED SOME OF THE COMPARABLES AND ALSO HELD THAT THE NEGATIVE WORKING CAPITAL ADJUSTMENT SHOULD NOT BE MADE. IT CAN BE SEEN FROM THE EARLIE R PARAGRAPH OF THIS ORDER THAT BY IMPUTING NEGATIVE WORKING CAPITAL, THE AVER AGE ARITHMETIC MEAN OF THE PROFIT MARGIN OF THE COMPARABLE COMPANIES HAS G ONE UP BY 6.52%. THE FOLLOWING WERE THE OBSERVATIONS OF THE CIT(APPE ALS) WITH REGARD TO NEGATIVE WORKING CAPITAL ADJUSTMENT:- HAVING CONSIDERED THE SUBMISSIONS, I HAVE CONSIDER ED THE FACTS AND CIRCUMSTANCES OF THE APPELLANT DURING THIS YEAR TO FIND THAT THE SAME IS SIMILAR TO THAT OF THE APPELLANT IN THE IMMEDIAT E SUCCEEDING YEAR I.E. ASSESSMENT YEAR 2012-13, IN RESPECT OF WHICH T HE HON'BLE ITAT HAS DIRECTED THE AO/TPO TO COMPUTE ,.WORKING CAPITA L ADJUSTMENT BY FOLLOWING THE DECISION OF THE HON'BLE HYD BENCH OF THE ITAT IN THE CASE OF ADAPTEC INDIA PVT LTD IN ITA 206/HYD/2014, WHEREIN IT WAS HELD THAT THERE IS NO NEED FOR MAKING ANY NEGATIVE WORKING CAPITAL ADJUSTMENT WHEN ASSESSEE DOES NOT CARRY ANY WORKING CAPITAL RISK. RESPECTFULLY FOLLOWING THE BINDING DECISION OF THE HON'BLE ITAT IN THE CASE OF THE APPELLANT FOR THE ASSESSMENT YEAR 2012- 13, I ALLOW THIS GROUND OF THE APPELLANT, BY DIRECTING THE TPO TO MA KE ONLY POSITIVE WORKING CAPITAL ADJUSTMENT IF ANY. ITA NO. 2900/BANG/2018 PAGE 5 OF 16 5. AGGRIEVED BY THE EXCLUSION OF 2 OUT OF 10 COMPAR ABLE COMPANIES CHOSEN BY THE TPO AND AGGRIEVED BY THE ACTION OF TH E CIT(A) IN HOLDING THAT NEGATIVE WORKING CAPITAL ADJUSTMENT SHOULD NOT BE MADE, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNA L. 6. AS FAR AS GROUNDS 1 & 2 ARE CONCERNED, THE LD. C OUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE COORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF TRX TECHNOLOGIES INDIA PVT. LTD. V. DCIT IN IT(TP)A NO.487/BANG/2016 FOR AY 2011-12, ORDER DATED 25.09. 2020 . THE ASSESSEE IN THAT CASE WAS ALSO AN ITES COMPANY SUCH AS THE P RESENT ASSESSEE AND THE VERY SAME 10 COMPARABLE COMPANIES WERE CHOSEN A S COMPARABLE COMPANIES IN THAT CASE AS IN THE PRESENT CASE. ON THE COMPARABILITY OF ICRA ONLINE LTD. AND IGATE GLOBAL SOLUTIONS LTD., W HICH ARE IN CHALLENGE BY THE REVENUE IN GROUNDS 1 & 2, THE TRIBUNAL HELD AS FOLLOWS:- 12. THE ASSESSEE IS CONTENDING TO EXCLUDE FROM THE LIST OF COMPARABLES M/S. ACROPETAL TECHNOLOGIES LIMITED (SE G.), M/S. ACCENTIA TECHNOLOGIES LIMITED, ICRA ONLINE LTD. AND JEEVAN SCIENTIFIC TECHNOLOGY LIMITED. IN SIMILAR CIRCUMSTA NCES AND FOR THE SAME ASSESSMENT YEAR, THE JURISDICTIONAL TRIBUNAL I N THE CASE OF ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ITO (SUPRA) HAS HELD THAT THE ABOVE COMPANIES ARE FUNCTIONALLY DISSIMILA R AND CANNOT BE TAKEN AS A COMPARABLE. THE RELEVANT FINDING OF THE TRIBUNAL IN THE CASE OF ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ;ITO (SUPRA) READS AS FOLLOWS: 41. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PA RTIES. AS FAR AS GR.NO.14 OF THE REVENUES APPEAL IS CONCERNED, T HE REVENUE IS SEEKING THE INCLUSION OF ACROPETAL TECHNOLOGIES LTD., JEEVAN SCIENTIFIC TECHNOLOGY LTD., ACCENTIA TECHNOLOGIES L TD., IGATE GLOBAL SOLUTIONS LTD. AND ICRA ONLINE LTD. WE FIND THAT THE ABOVE COMPANIES WERE RIGHTLY REJECTED BY THE DRP AN D THE SAME REQUIRES NO INTERFERENCE FROM THIS HONBLE TRI BUNAL. WE FIND THAT ACROPETAL TECHNOLOGIES LTD., IS ENGAGED I N THE BUSINESS OF SOFTWARE DEVELOPMENT AND SERVICES, CONTRACT CENT RE SERVICE AND IT ENABLED SERVICES AND THE SAME ARE REPORTED T OGETHER AS ONE SEGMENT. IN THE ABSENCE OF SEGMENTAL DETAILS MA DE AVAILABLE, THE COMPANY COULD NOT BE TREATED AS A CO MPARABLE. ITA NO. 2900/BANG/2018 PAGE 6 OF 16 THE TPO, WHILE CHOOSING THE COMPANY AS A COMPARABLE , HAS SELECTED ITS ENGINEERING DESIGN SEGMENT (EDS FOR SHORT) WHICH IS IN THE NATURE OF HIGH END IT ENABLED SERVICES WH ICH ARE IN THE NATURE OF KNOWLEDGE PROCESS OUTSOURCING (KPO). TH E HIGH END SERVICES PROVIDED BY THE COMPANY CANNOT BE COMPARED WITH THE ROUTINE SERVICES PROVIDED BY THE ASSESSEE. THIS IS A SETTLED POSITION AND RELIANCE CAN BE PLACED ON THE DECISION OF THIS HONBLE TRIBUNALS IN THE CASE OF SYMPHONY MARKETIN G SOLUTIONS INDIA PVT. LTD.(ITA NO. 1316/BANG/2012) WHERE IT WA S HELD THAT ACROPETAL CANNOT BE CONSIDERED AS A COMPARABLE TO A SSESSEES PERFORMING ROUTINE LOW END IT ENABLED SERVICES FUNC TION. AS FAR AS EXCLUSION OF COMPANY JEEVAN SCIENTIFIC TECHNOLOG Y LTD., WE FIND THAT THIS COMPANY WAS REJECTED BY THE DRP FOR THE REASON THAT IT WAS ENGAGED IN DIVERSE FUNCTIONS AND THE SA ME WERE REPORTED UNDER ONE SEGMENT WITHOUT SEGMENTAL DETAIL S REGARDING THE SAME BEING MADE AVAILABLE. THE DRP IS RIGHT IN EXCLUDING THE COMPANY AS WITHOUT SEGMENTAL DETAILS, THE COMPA RABILITY OF THE COMPANY CANNOT BE DETERMINED. IN ANY EVENT, THE ERP SEGMENT OF THE COMPANY IS NOT COMPARABLE TO THE ASS ESSEE, THE BPO SEGMENT OF THE COMPANY FAILS THE FILTER OF SERV ICE INCOME BEING GREATER THAN 75% OF TOTAL REVENUE, AND THE CO MPANY SUFFERS FROM HUGE FLUCTUATIONS WHICH INDICATE THAT CERTAIN PECULIAR CIRCUMSTANCES INFLUENCING THE PROFIT MARGIN OF THE COMPANY EXIST, FOR WHICH APPROPRIATE ADJUSTMENTS CANNOT BE MADE TO BALANCE THE EFFECT. IT IS SUBMITTED THAT THE ERP IMPLEMENTA TION SERVICES ARE NOT IN THE NATURE OF IT ENABLED SERVICES WHICH WERE NOTIFIED BY CBDT VIDE NOTIFICATION NO. SO 890(E) DATED 26.09 .2000. IF THE BPO SEGMENT IS CONSIDERED, THE COMPANY FAILS TO SATISFY THE TPOS OWN FILTER OF SERVICE REVENUE FROM THE RELEVA NT SEGMENT HAVING TO BE IN EXCESS OF RS. 1 CRORE AS THE REVENU E FROM THE BPO SEGMENT OF THE SAID COMPANY IS RS. 79 LAKHS ONL Y. THE COMPANY IS THEREFORE NOT COMPARABLE TO THE ASSESSEE . THIS TRIBUNAL IN THE CASE OF SWISS RE SHARED SERVICES (I NDIA) PVT. LTD. V. ACIT (ORDER DATED 08.07.2016 IN IT(TP)A NO. 380/BANG/2016) DIRECTED THE TPO TO VERIFY AS TO WHE THER THE TPOS FILTER OF SALES > 1 CRORE IS SATISFIED BY THI S COMPANY. IN THE PRESENT CASE, AS CAN BE SEEN FROM THE ANNUAL RE PORT OF THE COMPANY THE SALE OF THE COMPANY IN RESPECT OF THE B PO SEGMENT AMOUNTS TO ONLY 79 LAKHS, AND THEREFORE IT FAILS THE TPOS FILTER. AS FAR AS EXCLUSION OF ACCENTIA TECHN OLOGIES LTD., IS CONCERNED, WE FIND THAT THIS COMPANY WAS EXCLUDED B Y THE DRP FOR THE REASON THAT THE DETAILS REGARDING ITS DIVER SE FUNCTIONS WERE REPORTED UNDER ONE SEGMENT, WITHOUT SEGMENTAL DETAILS REGARDING THE SAME BEING MADE AVAILABLE. IN THE ABS ENCE OF ITA NO. 2900/BANG/2018 PAGE 7 OF 16 SEGMENTAL DETAILS BEING MADE AVAILABLE, THE COMPARA BILITY OF THE COMPANY WITH THAT OF THE ASSESSEE CANNOT BE DETERMI NED. IN ANY EVENT, ACCENTIA IS ENGAGED IN PROVIDING HIGH END SE RVICES IN THE NATURE OF KNOWLEDGE PROCESS OUTSOURCING (KPO) WHI CH IS EVIDENT FROM ITS ANNUAL REPORT, WHEREAS, THE ASSESS EE IS ENGAGED IN RENDERING ROUTINE LOW END INFORMATION TE CHNOLOGY ENABLED SERVICES. FURTHER, THE SAID COMPANY NOT ONL Y DOES MEDICAL TRANSCRIPTIONS, BUT HAS ALSO VENTURED INTO HEALTHCARE RECEIVABLES CYCLE MANAGEMENT AND HIGH END CONSULTAN CY TO START-UPS REQUIRING FIELD EXPERTS. AS CAN BE SEEN F ROM THE ANNUAL REPORT, CODING INCOME IS CONTRIBUTING 15% OF THE TO TAL INCOME WHICH ACTIVITIES ARE AKIN TO SOFTWARE DEVELOPMENT A CTIVITY WHILE THE ASSESSEE IS A MERE PROVIDER OF IT ENABLED SERVI CES. THE COMPANY HAS INVESTED HUGE SUMS IN THE DEVELOPMENT O F EMR SOFTWARE. SEGMENTAL DETAILS OF ITS VARIOUS ACTIVITI ES ARE UNAVAILABLE. THE COMPANY FURTHER OWNS SIGNIFICANT I NTANGIBLES. THIS TRIBUNAL IN THE CASE OF SWISS RE SHARED INDIA PVT. LTD. V. ACIT [TS-598-ITAT-2016(BANG)-TP AT PARAS 9-20 ON PA GES 7- 21] WHERE, IN SIMILAR CIRCUMSTANCES AND FOR THE SAM E ASSESSMENT YEAR, THIS HONBLE TRIBUNAL DIRECTED THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ACCENTIA TECHNOLOGIES LTD. IS, THEREFORE, NOT COMPARABLE TO THE ASSESSEE AND WAS RIGHTLY REJECTED AS A COMPARABLE. AS FAR AS IGATE GLOBAL SOLUTIONS LTD., IS CONCERNED, DRP REJECTED T HIS COMPANY AS COMPARABLE COMPANY FOR THE REASON THAT T HE DETAILS REGARDING ITS DIVERSE FUNCTIONS ARE REPORTE D UNDER ONE SEGMENT WITHOUT SEGMENTAL DETAILS REGARDING THE SAME BEING MADE AVAILABLE. THEREFORE, THE COMPARABILITY OF THE COMPANY CANNOT BE DETERMINED. IT IS SEEN THAT IGATE IS ENGAGED IN PROVISION OF VARIED SERVICES AND NO SEGM ENTAL BREAKUP OF THE SAME IS AVAILABLE IN ITS ANNUAL REPO RT. FURTHER, THE COMPANYS SOFTWARE SERVICES SEGMENT I S CLUBBED WITH ITS ITES SEGMENT AND THERE IS NO BREAK UP BETWEEN THE REVENUES GENERATED FROM THE TWO SEGMENT S. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HA S ACQUIRED MAJORITY EQUITY INTEREST IN PATNI COMPUTER SYSTEMS LTD. RENDERING IT INCOMPARABLE DUE TO IT FA ILING THE TPOS OWN FILTER OF HAVING PECULIAR ECONOMIC CIRCUMSTANCES. IN ADDITION, THE COMPANY OWNS SIGNIF ICANT INTANGIBLES IN ITS NAME, WHICH IS EVIDENT FROM THE BALANCE SHEET OF THE COMPANY FOR THE FINANCIAL YEAR 2010-11 . FOR THE REASONS ABOVE, THE COMPANY IS NOT COMPARABLE TO THE ASSESSEE AND THE DRPS FINDINGS ON EXCLUSION OF IGA TE IS RIGHT IN LAW. AS FAR AS THE COMPANY ICRA ONLINE LTD ., IS ITA NO. 2900/BANG/2018 PAGE 8 OF 16 CONCERNED, THE DRP EXCLUDED THIS COMPANY FOR THE RE ASON THAT THE DETAILS REGARDING ITS DIVERSE FUNCTIONS AR E REPORTED UNDER ONE SEGMENT WITHOUT SEGMENTAL DETAILS REGARDI NG THE SAME BEING MADE AVAILABLE. THEREFORE, THE COMPARABI LITY OF THE COMPANY CANNOT BE DETERMINED. IN ANY EVENT, THI S COMPANY IS FUNCTIONALLY DISSIMILAR FOR THE REASON T HAT THE OUTSOURCED SERVICES SEGMENT OF THE COMPANY IS ENGAG ED IN THE PROVISION OF HIGH END CONSULTANCY SERVICES WHIC H CANNOT BE COMPARED TO THE ASSESSEE WHO IS INTO PROV ISION OF LOW END IT ENABLED SERVICES WHICH ARE ROUTINE IN NATURE. FURTHER, THE COMPANY FAILS THE TPOS OWN FILTER OF EXPORT TURNOVER IN EXCESS OF 75% OF TOTAL SALES AS THE EXP ORT TURNOVER OF THE COMPANY AMOUNT TO ONLY 61.88% OF IT S SALES. THEREFORE, THE COMPANY CANNOT BE HELD AS A COMPARAB LE TO THE ASSESSEE. 13. SINCE THE PROFILE OF THE ASSESSEE AND THAT OF T HE ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ITO (SUPRA) BEING SIMILAR AND THE ASSESSMENT YEAR BEING THE SAME (I.E. A.Y. 2011- 12), WE FOLLOW THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F ASPECT TECHNOLOGY CENTRE (INDIA) PVT. LTD. VS. ITO (SUPRA) AND DIRECT THE AO / TPO TO EXCLUDE M/S. ACROPETAL TECHNOLOGIES LIMITED (SEG.), M/S. ACCENTIA TECHNOLOGIES LIMITED, ICRA ONLINE LTD. AND JEEVAN SCIENTIFIC TECHNOLOGY LIMITED FROM THE LIST OF COMPARABLES . 14. THE DRP IN ITS DIRECTION DT.28.12.2015 HAS HELD THAT THE COMPANIES WITH TURNOVER OF LOWER THAN RS.1 CRORE AN D HIGHER THAN RS.200 CRORES SHOULD BE EXCLUDED FROM THE COMP ARABILITY ANALYSIS (REFER PAGE 4 OF DRP DIRECTION). HOWEVER, THE DIRE CTIONS OF THE DRP WAS NOT FOLLOWED BY THE AO / TPO AND ALP AD JUSTMENT PROPOSED BY THE TPO WAS INCLUDED IN THE FINAL ASSES SMENT ORDER. IN THE ABSENCE OF THE APPEAL BY THE REVENUE, THE DIREC TIONS OF THE DRP HAS BECOME FINAL. THE ASSESSEE'S TURNOVER IS RS.23. 76 CRORES. THEREFORE, THE AO / TPO IS DIRECTED TO EXAMINE WHET HER INFOSYS BPO LTD., MINDTREE LIMITED AND I-GATE GLOBAL SOLUTI ONS LTD. ARE TO BE EXCLUDED ON ACCOUNT OF DRP DIRECTION ON TURNO VER FILTER. IN THE LIGHT OF ABOVE, THE GROUND NO.7 IS ALLOWED AND GROUND NO.12 IS RESTORED TO AO / TPO. (EMPHASIS SUPPLIED) ITA NO. 2900/BANG/2018 PAGE 9 OF 16 7. AS FAR AS GROUND NO.3 WITH REGARD TO NEGATIVE WO RKING CAPITAL ADJUSTMENT IS CONCERNED, THE LD. COUNSEL FOR THE AS SESSEE HAS PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF DCIT V. M/S. SOFTWARE AG BANGALORE TECHNOLOGIES P. LTD., IT(TP)A NO.1628/BANG/2014, ORDER DATED 31.03.2016, WHEREIN THE TRIBUNAL HELD AS FOLLOWS:- 12. IN THE CROSS OBJECTION, THE ASSESSEE HAS RA ISED VARIOUS GROUNDS, HOWEVER, AT THE TIME OF HEARING, THE ID. A R OF ASSESSEE HAS SUBMITTED THAT THE ONLY EFFECTIVE GROUNDS WHICH ARE PRAYED BY THE ASSESSEE ARE GROUND NOS.5 & 6 IN RESPECT OF THE DIR ECTIONS GIVEN BY THE CIT(APPEALS) FOR RECONSIDERATION OF WORKING CAP ITAL ADJUSTMENT, EVEN IF IT FOUND NEGATIVE. 13. WE HAVE HEARD THE ID. AR AND THE ID. DR AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ID. AR OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS NOT CLAIMED AN Y WORKING CAPITAL ADJUSTMENT, THEN THE TPO CANNOT MAKE A NEGA TIVE ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL. HE HAS FURTHER CONTE NDED THAT WHEN THE ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR WO RKING CAPITAL PURPOSE, THEN THE TPO IS NOT JUSTIFIED IN MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT. IN SUPPORT OF THIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL DATED 25.3.2015 IN THE CASE OF ADAPTEC (INDIA) P. LTD. V. ACIT, ITA NO.206/HYD/2014 AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT WHEN THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER RUNNING ITS BUSINESS WITHO UT ANY WORKING CAPITAL RISK, THEN THERE IS NO NEED FOR MAKING ANY NEGATIVE WORKING CAPITAL ADJUSTMENT. 14. ON THE OTHER HAND, THE ID. DR HAS RELIED UPON T HE ORDER OF THE TPO. 15. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF THE RECORD, WE FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ADAPTEC (INDIA) P. LTD. (SUPRA) HAS CONSIDE RED IDENTICAL ISSUE IN PARAS 10 & 11 AS UNDER:- '10. GROUND NO.8 PERTAINS TO THE ISSUE OF NEGATIVE WORKING CAPITAL. AS BRIEFLY STATED ABOVE, AFTER ARRIVING AT THE ARITHMETIC MEAN OF ALL COMPARABLES AT 22.03%, THE A.O. WORKED OUT NEGATIVE WORKING CAPITAL ADJUSTMENT OF 3.22% THEREB Y, MAKING ARMS LENGTH PRICE AT 25.25%. EVEN THOUGH, DRP REFUS ED TO INTERFERE WITH THE OBJECTIONS OF THE ASSESSEE IN IT S ORDER, WE WERE INFORMED THAT DRP HAS DIRECTED THE TPOIA.O. NOT TO MAKE ANY ITA NO. 2900/BANG/2018 PAGE 10 OF 16 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., ASS ESSEE PLACED ON RECORD COPIES OF ORDERS OF DRP. IN THAT D RP CONSIDERED THE ISSUE AND DIRECTED THE TPO AS UNDER: '14. GROUND NO.11 : NEGATIVE WORKING CAPITAL ADJUST MENT - MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT WITH OUT APPRECIATING THE FACT THAT THE COMPANY DOES NOT BEA R ANY WORKING CAPITAL RISKS. ON THIS ISSUE, THE ASSESSEE SUBMITTED AS UNDER: '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 CONTINGENCIES. 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 308.2012 HAS GIVEN A FINDING AS UNDER: '7.7.4 THUS, WORKING CAPITAL 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 ITA NO. 2900/BANG/2018 PAGE 11 OF 16 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 THIS 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. THERE IS NO ALLEGATION IN THE CASE OF THE ASSES SEE THAT THE ASSESSEE HAS USED ANY BORROWED FUND FOR WORKING CAP ITAL OR THERE IS ANY RISK OF MONEY LOST IN CREDIT TIME PROVIDED TO T HE CUSTOMERS. ACCORDINGLY, FOLLOWING THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL CITED ABOVE, WE HOLD THAT NEGATIVE WORKING CAPITAL ADJUSTMENT IS NOT JUSTIFIED IN THE CASE OF THE ASSE SSEE. 8. THE LD. DR, ON THE OTHER HAND, SUBMITTED BEFORE US THAT REGARDING GROUNDS 1 & 2, THE COORDINATE BENCH IN THE CASE OF M/S INDECOMM GLOBAL SERVICES INDIA PVT LTD. V. DCIT IN ITA NO.2130/BANG /2017 FOR AY 2011-12, ORDER DATED 27.11.2019 AND M/S. CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS P. LTD. IN IT(TP)A NO.503/BANG/2016 FOR AY 2011-12, ORDER ITA NO. 2900/BANG/2018 PAGE 12 OF 16 DATED 30.01.2020, REMANDED THE COMPARABILITY OF THE COMPANIES MENTIONED IN GROUND NO.1 & 2 OF REVENUES APPEAL VI Z., ICRA ONLINE LTD., AND IGATE GLOBAL SOLUTIONS LTD. 9. WITH REGARD TO GROUND 3 REGARDING GRANT OF NEGATIVE WORKING CAPITAL, THE LD. DR RELIED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF TECHNOTREE CONVERGENCE P. LTD. V. DCIT IN IT(TP)A N O.1616/BANG/2017, ORDER DATED 27.06.2018 WHEREIN IT WAS HELD THAT NEGATIVE WORKING CAPITAL SHOULD BE ALLOWED. 10. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. AS FAR AS THE PRAYER OF THE REVENUE FOR INCLUSION OF I CRA ONLINE LTD., IS CONCERNED, IT IS SEEN THAT IN THE DECISION CITED BY THE LEARNED DR IN SUPPORT OF REMANDING THE COMPARABILITY OF THIS COMPANY HAS BEEN REMANDED TO THE TPO FOR FRESH CONSIDERATION. THIS COMPANY WAS CHOSE N AS COMPARABLE COMPANY BY THE TPO AND THE TPO HAS CONSIDERED THE F INANCIALS OF THE ITES SEGMENT ALONE FOR THE PURPOSE OF COMPARABILITY (PARAGARAPH 7.1 OF TPOS ORDER). IN THE DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE TRIBUNAL HELD THAT SEGMENTAL DETAILS WERE NOT AVAILABLE BEFORE THE REVENUE AUTHORITIES. HOWEVER IN THE PRE SENT CASE, THE CIT(A) HAS ANALYZED THE FUNCTIONAL DETAILS AND COME TO THE CONCLUSION THAT ICRA ONLINE LTD. IS A KNOWLEDGE PROCESS OUTSOURCE (KPO) COMPANY WHICH IS DIFFERENT FROM BUSINESS OUTSOURCE COMPANY (BPO) WHI CH IS THE LINE OF BUSINESS OF THE ASSESSEE IN THE PRESENT CASE. HENC E, WE UPHOLD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LE COMPANIES. 11. AS FAR AS THE PRAYER FOR INCLUSION OF IGATE GLOBAL SOLUTIONS LTD. IS CONCERNED, THE STAND OF THE ASSESSEE BEFORE TPO WAS THAT THIS COMPANY RENDERS ON SITE SERVES, IS A PRODUCT COMPANY AND TH ERE ARE PECULIAR ECONOMIC CIRCUMSTANCES AND HENCE SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE TPO HOWEVER HELD THAT TH E ASSESSEE HAS ITA NO. 2900/BANG/2018 PAGE 13 OF 16 ACCEPTED THAT THIS COMPANY HAS ONLY ONE SEGMENT I.E ., ITES AND HENCE HE INCLUDED THIS COMPANY AS A COMPARABLE COMPANY. THE CIT(A) HELD THAT THIS COMPANY HAS THREE SEGMENTS VIZ., SOFTWARE DEVE LOPMENT AND SERVICES, CONTRACT CENTRE SERVICE AND ITES AND THER E WERE NO SEGMENTAL DETAILS AVAILABLE AND HENCE SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. IN THE DECISION CITED BY THE LEARNED CO UNSEL FOR THE ASSESSEE RENDERED IN THE CASE OF M/S.TRX TECHNOLOGIES INDIA PVT.LTD. (SUPRA) , THIS COMPANY WAS EXCLUDED ON THE GROUND THAT IT HAD TURN OVER OF MORE THAN RS.1000 CRORES. THOUGH IN THE CASE CITED BY THE LE ARNED DR IN THE CASE OF M/S. INDECOMM GLOBAL SERVICES PVT.LTD. (SUPRA) , THIS TRIBUNAL REMANDED THE COMPARABILITY OF THIS COMPANY TO THE TPO FOR FR ESH CONSIDERATION WITH A DIRECTION TO GET REQUIRED INFORMATION ON SEGMENTAL DETAILS BY ISSUE OF NOTICE U/S.133(6) OF THE ACT TO THIS COMPANY, THE APPLICAB ILITY OF TURNOVER FILTER WAS NEVER CONSIDERED. FOLLOWING THE DECISION IN THE CA SE OF M/S.TRX TECHNOLOGIES INDIA PVT.LTD ., WE UPHOLD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES BY APPLYING THE TU RNOVER FILTER. 12. THE THIRD ISSUE IS WITH REGARD TO GRANT OF NEGA TIVE WORKING CAPITAL ADJUSTMENT. WORKING CAPITAL ADJUSTMENT IS MADE FOR THE TIME VALUE OF MONEY LOST WHEN CREDIT PERIOD IS GIVEN TO CUSTOMERS . IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE IN THIS CASE THAT THE ASSESSEE IS A CAPTIVE UNIT WHICH IS ENTIRELY FUNDED BY THE AE. THE ASSESS EE HAS NO BORROWINGS AND IS FULLY COMPENSATED BY THE PARENT ON A TOTAL C OST PLUS. THE ASSESSEE HAS NO WORKING CAPITAL RISK - IN OTHER WORDS, IT IS A RISK-INSULATED SERVICE PROVIDER TO THE PARENT. THE ONLY CUSTOMER OF THE CO MPANY IS ITS PARENT COMPANY. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIE D ON A HOST OF ITAT DECISIONS, THE MAIN DECISION BEING THAT OF M/S. SOFTWARE AG BANGALORE TECHNOLOGIES PVT. LTD.(SUPRA) WHICH IN TURN HAS RELIED ON THE DECISION OF ITAT HYDERABAD IN THE CASE OF ADAPTEC (INDIA) PRIVATE LIMITED AND CONTENDED THAT NO NEGATIVE WORKING CAPITAL ADJUSTME NT IS CALLED FOR. THE ITA NO. 2900/BANG/2018 PAGE 14 OF 16 LD.DRS RELIANCE IS ON THE DECISION IN THE CASE OF TECHNOTREE CONVERGENCE P. LTD. (SUPRA) WHEREIN IT WAS HELD THAT NEGATIVE WORKING CAPITAL ADJUSTMENT HAS TO BE ALLOWED. 13. COMPARABLES CHOSEN OPERATE UNDER VARIED ECONOMI C CONDITIONS. THEREFORE, WHILE COMPARING A COMPANY TO THAT OF SIM ILAR COMPANIES, IT IS NECESSARY TO UNDERTAKE COMPARABILITY ADJUSTMENTS. BALANCE SHEET ADJUSTMENTS ARE INTENDED TO ACCOUNT FOR DIFFERENT L EVELS OF INVENTORIES, RECEIVABLES, PAYABLES, INTEREST RATES ETC. THE MOST COMMON BALANCE SHEET ADJUSTMENTS MADE TO REFLECT DI FFERENT LEVELS OF ACCOUNTS RECEIVABLE, ACCOUNT PAYABLE AND INVENTORY ARE KNOWN AS WORKING CAPITAL ADJUSTMENTS . AS MENTIONED BY THE OECD, COMPARABILITY ADJUSTMENTS SHOULD NOT BE PERFORMED ON A ROUTINE OR MANDATORY BASIS BUT RATHER ON A CASE BY CASE BASIS DEPENDING ON THE FAC TS AND CIRCUMSTANCES. ECONOMIC RATIONALE OF WORKING CAPITAL OF A BUSINESS IS THE CAPITAL USED IN ITS DAY-TO-DAY TRADING OPERATIONS. WORKING CAPITAL IS AFFECTED BY NUMEROUS BUSINESS INCIDENCES. IT IS VERY COMMON FOR TESTED PARTY AND EACH OF THE POTENTIAL COMPARABLES TO DIFFER MAT ERIALLY IN THE AMOUNT OF WORKING CAPITAL (INVENTORY, ACCOUNTS RECE IVABLES AND PAYABLE). SUCH DIFFERENCES ARE MAINLY CAUSED DUE TO DIFFERENCES IN THE TERMS OF PURCHASE AND SALE, LEVELS OF INVENTORY ETC. FOR EXAMPLE: IF THE BUSINESS ADVANCES A TRADE CREDIT OF (SAY) 60 DAYS, ITS CASH GETS LOCKED UP FOR 60 DAYS AND REDUCES THE WORKING CAPIT AL. IT WILL HAVE TO BORROW FROM OPEN MARKET TO MEET ITS WORKING CAPITAL REQUIREMENT, AND HENCE INCUR EXPENSES. SIMILARLY, IF IT AVAILS OF TR ADE CREDIT OF 60 DAYS, IT HAS SURPLUS CASH AT ITS DISPOSAL. IT WILL NEED T O BORROW LESS MONEY TO FUND OPERATIONAL REQUIREMENTS. HENCE, WORKING CA PITAL POSITION AFFECTS THE ADDITIONAL COST INCURRED BY A BUSINESS BY WAY OF INTEREST ON BORROWING FROM THE OPEN MARKET. WORKING CAPITAL ADJUSTMENTS SEEKS TO ADJUST FOR THE DIFFERENCES IN TIME VALUE O F MONEY BETWEEN ITA NO. 2900/BANG/2018 PAGE 15 OF 16 TESTED PARTIES AND POTENTIAL COMPARABLES WITH AN AS SUMPTION THAT DIFFERENCES SHOULD BE REFLECTED IN PROFITS WORKING CAPITAL ADJUSTMENT HAS A STRONG RATIONALE IN ECONOMIC THEORY. IT FACILITATES TO INCREASE THE COMPARABILITY BETWEEN THE TESTED PARTY AND COMPARAB LES WORKING IN AN INDUSTRY WHICH IS COMPETITIVE. WORKING CAPITAL ADJU STMENT CAN WORK OUT TO BE POSITIVE OR NEGATIVE. A POSITIVE WORKING CAPITAL ADJUSTMENT (WCA) WILL TEND TO REDUCE THE ARMS LENGTH PLI WHILE A NEGATIV E WCA WILL TEND TO INCREASE THE ARMS LENGTH PLI. 14. WE FIND THAT THE FACTS OF THE ASSESSEES CASE A RE SIMILAR TO THAT OF THE CASE OF THE BANGALORE ITAT IN THE CASE OF M/S.SOFTWARE AG BANGALORE TECHNOLOGIES PVT.LTD. AND THEREFORE WE ARE INCLINED TO DELETE THE NEGATI VE WORKING CAPITAL ADJUSTMENT. IN DETERMINING ALP UNDE R TNMM, THE CORRECT APPROACH WOULD BE TO LOOK AT THE COSTS INCURRED BY THE ASSESSEE ONLY AND SHOULD NOT IMPUTE ANY ADDITIONAL COST AS DONE BY TP O, WHICH INDIRECTLY ENHANCES THE ALP ARTIFICIALLY. THE CONTRARY VIEW E XPRESSED IN DECISION CITED BY THE LEARNED DR TAKES THE VIEW THAT WORKING CAPITAL ADJUSTMENT IS REQUIRED IN ALL CASES AS ANY CREDIT EXTENDED TO CUS TOMERS WILL RESULT IN CASH LOCKED UP AND WILL RESULT IN THE ASSESSEE BORROWING MONEY FROM THE BANKS AND INCUR ADDITIONAL COST TOWARDS INTEREST ON THESE BORROWINGS WHICH COST WILL HAVE EFFECT ON THE PRICE CHARGED. IT IS THE RE ASONING IN THESE DECISIONS THAT UNDER TNM METHOD THAT EVERY INGREDIENT OF PROF IT MARGINS OF COMPARABLE COMPANIES ARE ANALYSED, WHETHER IT IS PO SITIVE OR NEGATIVE. THE DECISION PROCEEDS ON THE BASIS OF EFFECT ON PRI CE OWING TO WORKING CAPITAL REQUIREMENT. WE ARE OF THE VIEW THAT WORKI NG CAPITAL ADJUSTMENT ITSELF IS COMPUTED ON THE BASIS OF OUTSTANDING CURR ENT ASSETS AND LIABILITIES AT THE YEAR END. IT MEANS THAT OTHER THINGS BEING EQUAL, AN ENTITY HAVING HIGHER WORKING CAPITAL WILL INCUR MORE INTEREST COS T WHICH WILL REDUCE PROFITABILITY. HENCE NO IMPORTANCE SHALL BE GIVEN TO PRICING ASPECT. SINCE ITA NO. 2900/BANG/2018 PAGE 16 OF 16 THE ASSESSEE DOES NOT HAVE ANY WORKING CAPITAL RISK , THE QUESTION OF NEGATIVE WORKING CAPITAL DOES NOT ARISE. 15. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF DECEMBER, 2020. SD/- SD/- ( CHANDRA POOJARI ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRE SIDENT BANGALORE, DATED, THE 8 TH DECEMBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.